Need for enlightened global leadership
Volume 2, 2 March 2023
Global leadership is under fire. Hostilities are intensifying between great powers over the Russia-Ukraine war, the future of nuclear weapons, and competition over artificial intelligence-powered technologies. These tensions are straining the multilateral system, rendering international cooperation on important issues difficult.
There is growing distrust among large economies in the world, with geopolitics taking centre stage in place of global system stability. Yet there are many challenges that global leaders must confront collectively. Some stem from the Covid pandemic era; others concern the urgent need to renew the institutional makeup of the global economic system, respond to climate change, and formulate joint approaches to debt distress and developmental challenges confronting the African continent.
The deepening fractures between major economies do not bode well for global stability. It is no wonder that the G20 Finance Ministers’ meeting in Bengaluru, India, ended on a fractious note after China and Russia refused to sign a statement that condemned Russia’s invasion of Ukraine. What strains global cooperation today is multiple channels of conflicts: the US is on a collision course with two militarily significant powers in the world, Russia and China, with the former over Ukraine and with the latter as a continuation of trade and tech wars that began under the Donald Trump administration. The wider these tensions become, the more strained global economic cooperation could become.
The role of leadership in global stability
Historically, leadership has always acted as a glue for global cooperation. The post-World War Two era was far from perfect. Yet, that period helped to create institutional buffers to prevent another outbreak of an all-out war. International commerce grew markedly during this period of stability in the aftermath of the war. In turn, the density of international commerce became another restraining force against a major war.
Multilateral institutions that played a buffering role and promoted international cooperation post-World War Two included: the United Nations for peace and security; the International Bank for Reconstruction and Development (or the World Bank) to promote development; the International Monetary Fund (IMF) to strengthen the international monetary system and help countries address the balance of payments crises; and the General Agreement on Trade and Tariffs (GATT), which created multilateral rules governing trade. These were by no means perfect, but they disciplined any proclivities to international conflict. American leadership anchored many of these institutions, especially those responsible for global economic governance.
Their significant deficiency, however, was their denial of voice and representation of developing countries, especially Africa. Despite such weaknesses, much of the twentieth century was characterised by peace and stability, which, in the last decade of the twentieth century, accelerated the growth of dense networks of commercial activities through trade and investments, spanning the entire globe.
History as a teacher
Institutional innovations to strengthen international cooperation and maximise interdependence continued through various economic crises from the 1960s to the 2008 global financial crisis. Some leaders who were pivotal in responding to multiple economic risks that emerged over time were technocratic, mainly finance ministers and central bank governors. In the early 1960s, for example, the informal Group of Ten, comprising influential advanced industrial economies, emerged within the IMF to bolster the international monetary system. Other preoccupations of this group entailed fixing the disproportionate composition between currencies and gold reserves and addressing issues related to the balance of payments.
In its infancy, the group would meet regularly at the French Finance Ministry. It would later morph into the Board of Governors of the IMF. The creation of the special drawing rights in 1969 was one of the group’s notable achievements. The special drawing rights would act as an instrument to supplement member countries’ foreign exchange reserves so that governments did not have to rely on domestic or external debt for building their reserves. This instrument helped inject global liquidity and shored up foreign exchange reserves during the global financial crisis and the Covid pandemic.
In moments of crisis, international cooperation was made possible when leaders that demonstrated enlightened self-interest overcame their differences in the interest of system stability. These leaders knew that any fractures in the global system would multiply the risks for everyone.
The crises of the 1970s led to the creation of other institutional innovations. In August 1971, President Richard Nixon temporarily suspended the dollar's convertibility, ostensibly to fight international speculators, narrow America’s current account deficit vis-à-vis its competitors in Europe and Asia, and overcome high inflation at home. This development triggered new tensions in the global economic system. It brought about the urgency for a different type of leadership – technocratic leadership, with finance ministers playing a pivotal role in managing the new international monetary system unmoored from the gold price.
Compounded by the oil crisis triggered by the Yom-Kippur War of 1973 and the Iranian Revolution of 1979, these new risks threatened to undermine the stability of the international financial order. Finance ministers from five influential countries (Great Britain, France, West Germany, Japan, and the US) met in 1973 to create an informal “Library Group”.
This platform enabled them to share strategies to minimise global economic risks, at times through interventions in the foreign exchange markets to ease current account imbalances. Canada and Italy would later join to complete the G7. Since then, the G7 has been preoccupied with strengthening the international financial system, albeit primarily in the interests of Western countries.
The Asian financial crisis in the 1990s would yield its own institutional arrangements in the form of the G20 of finance ministers, created to respond to global economic and financial risks. In the wake of the 2008 global financial crisis, the G20 would be elevated to the Leaders Summit. Most notably, the G20 went some way in overcoming the representational deficit. It included emerging economies and developing countries such as Argentina, Brazil, China, India, Indonesia, Mexico, Saudi Arabia, South Africa, and Turkey.
Looking into the future
Today international cooperation is under severe pressure. The multilateral institutions that have underpinned global economic stability are shaky. The Russia-Ukraine have strained the relationships among great powers, especially the US, Europe, China, and Russia.
New types of threats could have a disruptive effect on global security and international trade flows. Cooperation over reducing the stockpile of nuclear armaments between Russia and the US may disappear. In his February 2023 address to the Federal Assembly, Russia’s president Vladimir Putin announced a halt to participation in the new strategic arms reduction treaty (START) signed in Prague in 2010, which placed a ceiling on the stock of nuclear weapons held by the two countries.
Such treaties become challenging to implement in the climate of growing mistrust between major powers, and geopolitics is prominent in international relations. These tensions could roll back the world to the era of nuclear proliferation, posing a grave threat to global security.
There is also a growing threat of cyber-security attacks as a domain of warfare, with no restraining buffers in the form of rules of engagement and multilateral norms. The advent of AI-powered weaponry will make relations between countries even tenser without a robust framework of international cooperation, especially against the backdrop of geopolitical frictions.
A new form of leadership committed to international cooperation and global system stability is sorely needed. Such leadership will need to engage in small trust building activities. Notably, such leadership must overcome the weaknesses of the previous multilateral mechanism that failed to advance the interests of developing countries.
They must imagine new institutions that are inclusive, transcend ideological differences, and can promote system stability based on shared interests and the common good. In today’s reality, the pivot of such global leadership will remain the US and China, but there must be a solid commitment among great powers to promote inclusive multilateralism and global equity.
