GLOBAL GOVERNANCE

Spring 2010

by C. Fred Bergsten

The current global economic system was constructed in the middle of the 20th century, and could not be expected to fit the realities of the 21st century. The most fundamental change is in the composition of economic capability, and thus systemic responsibility, among the major countries.

Emerging and developing countries now account for 50% of the world economy when national output levels are converted at purchasing power parity (PPP) exchange rates. They are growing two to three times as rapidly as the rich countries, so every year their share of the global market rises by one or two percentage points. Soon they will constitute a substantial majority of global output, even with their GDPs converted at market exchange rather than PPP rates.

The global governance structure can only achieve political legitimacy, and thus substantive effectiveness, if it accurately reflects these realities. An historic step forward is the replacement of the G7/8 as the steering committee for the world economy by the G20, half of whose members are emerging markets.

More informal but functionally equivalent reforms have taken place in the governance of the World Trade Organisation. Its de facto coordinating committee now includes Brazil, India and sometimes China as well as the traditional “trade G2” of the European Union and United States along with Japan.

Similar changes now need to be made at the International Monetary Fund. At least 10% of the quotas and voting rights, and at least five of the 20-24 seats on the Executive Board need to shift primarily from over-represented Europe primarily to under-represented Asia. Even more important, both substantively and symbolically, is that the next Managing Director should be selected from an emerging market economy.

The global crisis has accelerated governance reform in all these institutions. That momentum must now be sustained and completed if the new economic order is to both prevent future crises and provide ongoing prosperity and stability for all.

 

Further articles in this GLOBAL GOVERNANCE section
Pascal Lamy	Global Governance is a challenge for democracy (but an EU opportunity)
Iain Begg	Global governance could take a leaf from the EU's book
Leszek Balcerowicz	Worldwide reform means engaging public opinion first
Robert Hutchings	Why U.S.-EU economic co-operation holds the key to global governance
Paul Tucker	Ending boom and bust: The case for macroprudential instruments
The Europe's World panel on global governance
Daniel Daianu	G20 could turn into a global economic security body
Kemal Dervis	G20 should increase the legitimacy of the international institutions
Jirí Dienstbier	Nation states cannot meet the challenges of deregulated globalisation
William Drozdiak	An alternative is regional institutions to act in the service of global governance
Monica Frassoni	The only global governance model that would work is federal
Angel Gurría	G20 could give the momentum needed to usher in unprecedented international co-operation
Danuta Hübner	The dynamics of crisis have fundamentally altered the global financial system
Wolfgang Ischinger	We need fundamental reform of the international institutions
Sandra Kalniete	Global governance requires predictable and fair funding
Sergei A. Karaganov	Despite its decline, Europe will be a shining example of how the world should be governed
Kishore Mahbubani	Europe provides both the problem and the solution to reforming global governance
Reza Moghadam	We at the IMF have already begun the process of reconciling effectiveness and legitimacy
Jean Pisani-Ferry	After a brilliant start, global co-operation and governance may disappoint in the years ahead
Hans-Gert Pöttering	The European Parliament must play a central role if we want a democratic model of global governance
Jiang Shixue	China would never accept the idea of a G2
Danilo Türk	We need global institutions capable of making international co-operation inclusive
Guy Verhofstadt	Integration that transcends borders is the logical response to 21st century realities
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