Opinion
A crisis of multilateralism and Asia’s rising stake in it
Summary
Asian countries caught between the US and China should push for a new paradigm of multilateralismMultilateralism, or a rule-based international order, was a late entrant to the toolkit of ways in which countries interacted with one another. Its roots lie in the pragmatic Treaty of Munster-Westphalia signed in 1648 to avoid wars of attrition between militarily-matched states that arose after the Roman Empire’s breakup. Global peace and prosperity have been the major spin-offs, though both weakened during interludes of heightened nationalism. These dynamics are at work to this day.
Starting with the principle that states were free to choose their official religions without external interference, over time it morphed into acceptance of ‘Westphalian sovereignty’: the inviolability of international borders and non-interference in the internal affairs of others. There have been two major phases of multilateral cooperation. The first was dominated by Westphalia, followed by the Concert of Europe. Economic cooperation dominated the second phase with the reconstruction of war-ravaged economies in Europe and Japan, repair of the international monetary system and revival of world trade. Centred on the Bretton Woods system, multilateralism expanded to incorporate newly-decolonized developing countries.
The G-7, an informal steering group of seven major global powers (bit.ly/3kOe3cO), masterminded both political and economic cooperation. Global peace held despite the United Nations’s impotence and the Cold War. Economic cooperation paid rich dividends through global prosperity. Global growth that averaged 2% per annum between 1870 and 1950 doubled to 4% between 1950 and 2000, helped by a boom in trade, whose share of global output doubled to exceed 60%.
Growth acceleration was heavily skewed in favour of emerging and developing economies (EMDEs; bit.ly/2XY66Jt), altering the relative economic weights of advanced economies (AEs) and EMDEs, with emerging Asia at the heart of it. This asymmetry sowed the seeds of the post-war crisis of multilateralism that threatens both global growth and peace. On one hand AEs grew disenchanted with globalization, having once been its strongest advocate. On the other, the failure of the Bretton Woods system to adjust to shifting weights made it lose its legitimacy. History seemed to have turned full circle. Former colonies, initially wary of globalization on account of their imperial experience, defended it even as the West’s commitment weakened. Spanning this divide are non-governmental organizations and transnational companies (TNCs), whose resources, global reach and influence are increasing (fam.ag/3zPo65v) relative to nation states. Their interests appear more aligned with those of EMDEs on globalization.
The legitimacy loss led to the emergence of alternative EMDE institutions that tried to mimic the G7 (BRICS), IMF (CMIM) and the World Bank (NDB, AIIB, BRI), and culminated in an initiative to revive multilateralism through a new governance structure of multilateral economic cooperation. The G-20 (g20.utoronto.ca/), elevated to summit level after the Global Financial Crisis of 2008, accommodated emerging powers, especially China, and effectively superseded the G7.
The G-20 met with success in coordinating policies to avert a second Great Depression, but it has had less success in resolving long-standing issues as old North-South fault lines resurfaced after the crisis. More than willing to engage in the G-20 on issues dealt with by institutions such as the IMF and World Bank, where they were in a subordinate position, EMDEs were reluctant to engage on issues dealt with by the WTO and others where they had equal voting power. The parent forum remained their negotiating platform of choice on matters like trade and climate change, as their numerical strength allowed special carve-outs.
The G-20 was reduced to issuing platitudinous statements, with the focus shifting to bilateral meetings on the sidelines and to a resurgent G-7. Trade-and-geopolitical rivalry between the US and China has now taken centre stage. Brexit has weakened multilateralism in Europe and Trumpism in the US. Plurilateralism has beaten it through arrangements such as the CPA-TPP, TTIP and RCEP. None of these includes both the US and China, raising dystopic visions of a new cold war and the Thucydides Trap (on.ft.com/3ulR8IL). Average annual economic growth has declined after 2010 to 3.5% in tandem with a trade decline. The growth differential between AEs and EMDEs has also shrunk.
Asia, closely tied to China through supply chains but wary of its imperial ambitions, and dependent on the West for export markets and security, finds itself between a rock and a hard place. An expeditious revival of multilateralism is in its interest. This revival is likely to be shaped by the resolution of four major frictions. First, reinvention of the G-20 through harmonization of pressure groups so that globalization is seen to work for all major stakeholders. Second, the accommodation of China in global governance, via either the G-20 or a similar body. Third, by bridging basic ideological divides, as several rising powers like China, India, Russia and Brazil have taken illiberal and nationalistic turns, despite their open markets. And lastly, by reworking the Westphalian notion of sovereignty to address dangerous externalities such as climate change, migration from failing states and pandemics on one hand, and including non-state players (including TNCs) on the other hand in a new multi-stakeholder paradigm of multilateralism. Neither can be swept under the carpet any longer.
Alok Sheel is RBI chair professor of macroeconomics, Indian Council for Research on International Economic Relations
