This essay is part of a series of articles, edited by Stewart Patrick, emerging from the Carnegie Working Group on Reimagining Global Economic Governance.
Despite a concatenation of shocks—a China shock in trade, the global (or North Atlantic) financial crisis, surges in migration, a global pandemic—the current architecture of global economic governance has persisted and demonstrated remarkable resilience and adaptability. Trade has not collapsed; financial integration recovered from the global financial crisis; the cross-border movement of people has resumed post-pandemic. The interwar decades of disintegration, nationalist isolation, and great power war have yet to be replicated. Rather than “deglobalization” or the collapse of the existing global order, institutions and integration appear to have reached a stable plateau. Nevertheless, this plateau risks further descent into disorder, albeit less from a concerted attack on that order than out of discontent with its failure to confront such urgent challenges as climate change effectively. Conflict over the current distribution of costs and benefits poses another threat to the status quo.
Inequality in influence and outcomes, within societies and between societies, has spurred calls for reform of global economic institutions. A Bretton Woods 2.0 is promoted to both reflect the new realities of global economic power and produce more just and sustainable outcomes, what IMF (International Monetary Fund) Managing Director Kristalina Georgieva has called a “21st-century multilateralism.” Initiation or reform of formal intergovernmental institutions, even if feasible, may be inadequate to meet demands for change, however. Although the COVID-19 shock might have been expected to ease the path to a first pandemic treaty, nine rounds of negotiation have revealed obstacles to reaching an accord. Even if agreement is reached, “the finished pandemic treaty would be a framework of ethical obligations rather than legal compulsion. Its specific funding demands are limited, and it will not contain a mechanism to hold countries accountable for breaching it.”
Obstacles to reaching agreement among a large number of governments does not mean that such efforts are pointless, or that successful global economic governance is impossible. The Bretton Woods moment is over; the world that witnessed the birth of many formal international institutions—one of overwhelming U.S. influence, closed economies, and limited participation by developing countries—has disappeared. Instead, the world has become reminiscent of a century ago (though far more integrated), in which informal institutions, often with fewer members and populated by a variety of actors, are the engines of cooperation. If that is the case, what role remains for legacy international institutions that have been central to global economic governance? What does this transformation of global governance predict for the reform of global economic governance? A review of three major global economic institutions—the World Trade Organization (WTO), the IMF, and the World Bank—reveals that they have become embedded in a larger set of institutions and actors that can complement, collaborate, or compete with them, in a new environment that both promotes and complicates reform. This is the new-old model of global governance.
The WTO: Paralysis and Substitution
Of the three global economic multilaterals, the WTO appears the most endangered. Even though its director-general, Ngozi Okonjo-Iweala, is ambitious and experienced, the organization’s institutional weaknesses have produced a disappointing record of new trade agreements since its founding in 1995. One of the WTO’s remaining successful institutions, the dispute settlement system, has been paralyzed by U.S. refusal to approve the appointment of new members to the Appellate Body. The limited progress made in WTO trade negotiations has been plurilateral, in the form of agreements among those members who wish to move forward with sectoral agreements, such as the Agreement on Investment Facilitation for Development.
The WTO’s thirteenth ministerial conference in February-March 2024 highlighted the organization’s fragile accomplishments. Perhaps its greatest contribution is the prevention of wholesale backsliding into protectionism. The ministerial conference extended the moratorium on the imposition of customs duties on e-commerce, a modest contribution to this end. The WTO continues to attract new members, despite an often-arduous accession process. (East Timor and Comoros became the newest members in February, and twenty-two countries continue to pursue accession negotiations.) The conference also highlighted divides among developing country members, complicating consensus building, but also providing an opening for coalitions that could bridge the North-South divide. Also important for the future of the WTO, intense political opposition by nongovernmental organizations (NGOs)—which reached its peak in the so-called Battle of Seattle in 1999—has subsided, as the WTO’s agenda has widened to include environmental sustainability and action to mitigate climate change.
Despite these signs of WTO resilience, the focus of trade liberalization has moved to plurilateral and regional agreements. Even after the U.S. withdrawal from the Trans-Pacific Partnership (TPP), other countries have continued to forge trade agreements that often allow “WTO+” agreement on such issues as labor and environmental standards, investment, and competition policy. The rebuilt TPP (renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership), the China-led RCEP (Regional Comprehensive Economic Partnership), and the ambitious AfCFTA (African Continental Free Trade Area) demonstrate continuing interest in an open trading system from industrialized and developing countries alike. These agreements may be less demanding in some cases and more ambitious in others, but in all instances they were made outside the WTO’s global forum.
The International Monetary Fund and Globalized Finance
Few global institutions have demonstrated a greater ability to reinvent themselves than the IMF. Neither the demise of the fixed-exchange rate system in the 1970s nor the rise of private financial flows in subsequent decades has signaled its obsolescence. Its role as a lender of last resort during financial crises has been overshadowed by the Federal Reserve and its network of central bank partners. In contrast to the WTO, however, regional financial arrangements, with the exception of the European Stability Mechanism, lack the resources and crisis management record to rival the IMF.
Nevertheless, the IMF’s continuing role in financial crisis management has become more difficult as new actors—private and public—have become lenders to developing country governments. The emergence of China as a major creditor and the ability of relatively poor countries to access private financial markets have made sovereign debt negotiations lengthy and complex. After the failure to create a sovereign debt restructuring mechanism two decades ago, sovereign debt restructuring has relied on case-by-case negotiations, now governed by the G20 Common Framework. Unfortunately, that framework has not prevented poor countries from facing long, costly delays. Zambia, for example, defaulted on its sovereign debt in November 2020, but an agreement with its creditors was only in sight after nearly four years of negotiation. Despite the acknowledged flaws of the Common Framework, there has been little movement away from its case-by-case approach.
The World Bank and Development Finance
The World Bank has faced more institutional competition and more questioning of its mandate than the IMF. For creditworthy countries under benign global economic conditions, private finance provides one alternative to World Bank lending. New multilateral development banks—the New Development Bank and the Asian Infrastructure Investment Bank (AIIB) among them—provide additional outside options. Yet these institutions have been overshadowed by the scale of China’s bilateral development lending under the auspices of the Belt and Road Initiative. The World Bank’s potential competitors have been driven by discontent with both the limited influence of emerging economies in the bank’s governance and demand for infrastructure lending that the World Bank has not satisfied. Nonetheless, despite fears that China’s dominant position in the AIIB would lead to a softening of environmental and governance standards in lending, the AIIB has acted largely as a conventional development bank. It has collaborated with the World Bank and other multilateral development banks and is committed to sustainable development in its lending. The competition that these new entrants have posed in the world of development finance has led neither to disengagement from the World Bank nor to substantial erosion in the norms and processes of development lending.
Global Governance and a New International Agenda
Each of the global multilaterals has adapted to a new institutional environment of cooperation and competition. That same environment has produced evolving coalitions of national governments, NGOs, and private sector actors that have placed new economic issues on the international agenda. The issue of taxation of multinational corporations has long been dominated by the Organisation for Economic Co-operation and Development, but in November 2023, a large bloc of developing countries called for a convention on international taxation that would bring the issue back to the United Nations. Global efforts to combat illicit financial flows have demonstrated a widening agenda over time: from a narrow focus on cross-border transfers of funds by criminal groups to the corrupt transactions of kleptocrats and their enablers in financial centers. A widening agenda has meant a larger coalition of institutions and actors engaged with this issue. Investment has been governed primarily by a network of bilateral investment treaties rather than a multilateral regime. That web of bilateralism has been targeted for revision by the UN Conference on Trade and Development and developing country governments, amid criticism by NGOs of the effects of investor-state dispute settlement mechanisms on national policy autonomy. Even cross-border migration, an issue long reserved by national governments, has received global attention, with calls for adoption of the nonbinding Global Compact for Safe, Orderly, and Regular Migration and consolidation of global governance of migration in the International Organization for Migration. In other domains linked to global economic governance, the importance of nonstate actors and informal institutions is equally significant, as the Paris Agreement on Climate Change and the governance complex in global health demonstrate.
Action in the New Landscape of Global Governance
Given the realities of global governance in this century, calls for a new Bretton Woods in the style of 1944 constitution-making will fail. The institutions and politics of global governance have changed radically in a world that is more open and confronts different challenges than the world that emerged from the Second World War. Yet this new reality does not mean that binding international agreements and formal intergovernmental institutions, such as the WTO, IMF, and World Bank, have become irrelevant. These core institutions—and others, such as the United Nations—continue to play important roles. The legitimation awarded to collective action taken in these near-universal organizations remains critical, not only for international purposes but also as a lever deployed by domestic actors pressing for change. The ability of these organizations to coordinate sectors of global governance that are populated by new actors and new demands is also an indispensable addition to their original mandates. They can ensure that the passengers in an often unwieldy flotilla of cooperation are traveling in the same direction.
To carry out these broad functions as well as their institutional mandates, however, these institutions must develop the capacity to collaborate with multiple partners, whether regional organizations, NGOs, or private corporations and foundations. They must perform a delicate balancing act by doing so without endangering their relations with and accountability to their member government principals. The effectiveness of international organizations has been linked to their autonomy—their ability to carry out their mandates without interference from member governments, particularly the most powerful ones. Autonomy, in turn, is enhanced by building relations with an ecosystem of nonstate actors that support a specific international organization and its goals. The opening of international institutions both improves performance and heightens visibility and support among influential constituencies in member states.
For those intent on reforming global governance to produce a more equitable and sustainable global economy, these new features of global politics also require a reset. Just as the Bretton Woods moment has passed, the North-South world of the 1970s is also gone, even though global inequality persists. On some issues, greater coherence among developing country governments will continue to be required. Regional institution-building, currently advancing unevenly, will be a necessary strategy. Wielding existing influence within institutions more effectively is also essential. For example, the leadership of the IMF and World Bank need not remain in the keep of Europe and the United States if members from the developing world can unite behind future candidates.
Casting every issue in terms of a North-South divide, however, obscures the shifting and cross-cutting coalitions that will be required to move forward with reform. Small, open economies, whether rich or poor, share a powerful interest in opposing protectionism in their larger trading partners. Despite its championing of leadership in the South, China has proven to be a recalcitrant creditor of the old variety in debt restructuring negotiations. Debt sustainability and a reform of debt restructuring are more likely to be advanced by the affected borrowing states working in tandem with activists in the North, a coalition that proved effective in achieving debt relief in the 1990s. Developing country governments, often intent on intergovernmental forums and their reform, risk missing the opportunities of collaborating with NGOs—which they frequently regard as opponents, rather than partners—as well the chance to build cooperation with the corporate sector without slipping into crony capitalism.
A reformed framework for global economic governance can open paths to national policy experimentation and support national policies of equity and sustainability, but global institutions cannot solve all economic ills. Any successful Bretton Woods 2.0 will necessarily be incremental and partial, built by the efforts of many actors from the bottom up rather than by a select group of governments from the top down. Making sense of complexity and creating sustained movement toward reform will require analytic openness, political skill, and persistence.
