The Growing Calls for Change
Byline: Jeffrey E. Garten (Garten is dean of the Yale School of Management.)
The pillars of the world economy are undergoing a fundamental re-examination, and change is in the air. The only question is whether we are in for a big bang or just an acceleration of step-by-step progress. Investors, traders and bankers are tensely awaiting the London summit next week, where leaders of the G7 industrial nations are expected to address the currency gyrations stemming from massive imbalances between U.S. deficits and equally large Asian surpluses. Those gyrations have inspired calls for a new international effort to negotiate currency stability.
For several months now, in fact, new ideas about rearranging global economic power have been proliferating. Among them are U.K. Chancellor of the Exchequer Gordon Brown's design for a Marshall Plan for Africa, and Canadian Prime Minister Paul Martin's proposal for an enlargement of the G7 to a G20, with much broader representation of developing nations. Others have advocated merging the World Bank with the International Monetary Fund and establishing a formal agreement between oil producers and consumers to control high price volatility, as well as negotiating new ways to promote currency stability.
Last Monday, Supachai Panitchpakdi, director-general of the World Trade Organization, issued an analysis of challenges facing the WTO, many of which would require a significant expansion of the institution's role, skills and financial resources. The same day, U.N. Secretary-General Kofi Annan presented a call for a 50 percent cut in global poverty by 2015 that would require massive new funding and new international capabilities to deliver aid where it is needed.
It is ironic that so many proposals are emerging now, when global growth has been so strong and projections for 2005 are rosy. But many officials sense that dangerous pressures are building in the international economy, and that the institutional capability to handle them is badly stretched--or nonexistent. Dealing with poverty and disease remains a herculean challenge. In the past 15 years, some 2.5 billion new workers from emerging markets and former communist nations have entered the mainstream of the global economy, raising the prospect of massive dislocations in trade and production patterns. Money is now moving around the world with such volume and speed that investors fear they could easily be blindsided by a crisis.
If all the proposals that have been made were implemented, we would be creating a new world order as dramatic as that which emerged from the 1944 conference in Bretton Woods, New Hampshire, where the IMF, World Bank and the predecessor of the WTO were conceived, establishing the postwar economic order. …