World leaders have been acting strangely in the run-up to the G20 summit in London this Wednesday and Thursday. (There's also the big Afghanistan meeting in The Hague on Tuesday, featuring Iran, and Obama's first Nato summit, also in Europe, on the Friday and Saturday.) Late last week Lula of Brazil, accompanying Gordon Brown, started going on about how "white people with blue eyes" had caused this economic crisis, and issued a call for more dark-skinned and indigenous bankers (though not for female bankers). Meanwhile the Czech republic's tottery prime minister, Mirek Topolanek, having lost the confidence of the Czechs, let himself loose, saying the American stimulus plan was the "road to hell." Zhou Xiaochuan, head of the People's Bank of China, also went all wacky, saying, in an essay published (in English) on the bank's website that the time had come to rethink the dollar's status as a reserve currency; perhaps the IMF's "special drawing rights" (SDRs) should take its place? No one ever said integrating the emerging markets into global governance was going to be easy. But these people are really thinking outside the box. London may, just possibly, be one seriously kooky summit.
I'm glad Barack Obama plays basketball. Because the other side is getting giddy. They're sensing something - not victory, but a change in the game, a shift in momentum. It's tricky to play in those circumstances. The West will have morale issues going into the summit; the Europeans have been playing some very messy ball these past few weeks; and the U.S. is not used to coming from behind. But Obama is. He's been coming from behind all his life.
In the past few days, the administration has been lowering expectations. They're holding out, I suppose, for a real improvement in IMF financing and a broadening of its structure to give more power to emerging markets. The financing can be sold as a type of "stimulus," even if not the kind of stimulus Geithner has been urging and the Europeans have been rejecting. I would guess also that, at the other meetings, the U.S. will get some real commitments from the Europeans regarding Nato and Nato-in-Afghanistan. Not troops, perhaps, but more than is currently expected.
But the main thing is integration of the emerging powers into global decision-making, and that should be advanced by the G20 almost regardless of what concrete deliverables make the final list. I wish I were going to be there. It would be fascinating to watch Obama work this very diverse cast of heads of state.
He doesn't seem to lack advisors, but, just in case, the best single guide I know of to how to restructure global governance responsibly is a book called "Power and Responsibility: Building International Order in an Era of Transnational Threats," by Bruce Jones, Carlos Pascual and Stephen Stedman. It came out in March. I know Stedman a little from when he was working as research director for the United Nations High-Level Panel on Threats, Challenges and Change (what a name!), and had the chance to meet Pascual last year when he presented the book's conclusions at the Salzburg Global Seminar. (Rumor is that he will be the next U.S. ambassador to Mexico, which could be among the half-dozen most difficult, and important, ambassadorial postings in this administration.) The three of them are very steady, very serious and very experienced. Their book artfully splits all the many differences between the privilege of sovereignty and the necessity of global coordination, not just for the U.S. but for all countries. They advocate a G16 approach to getting the G8 out of its rut, integrating the emerging economies into an enlarged group that is nonetheless small enough to be effective; and they do so with an eye toward the moral valences of global governance that does not slip into the bloodless (and all too colonial, in effect if not intention) moralism of the G8's usual noblesse oblige. In short, they are ideally suited to mapping the future that the G20 is, in rather desperate circumstances, attempting to navigate.
The authors' freedom from dogma is remarkable. "It cannot be stated too often," they write, that "any proposed international order must promote the interests of those states capable of creating the order." By "capable" I take them to mean "powerful and motivated enough." Their even-tempered realism allows them to acknowledge the virtues in emerging institutional arrangements (such as regional groups), including ones they openly oppose (democracy leagues). Relatedly, they let their reporting take them where it may, so they find interesting things: I had not known that the Organization of the Islamic Conference had been such a strong backer of Nato's military intervention in Kosovo.
They conclude: "Institutionalized cooperation between the major and rising powers will depend in substantial part on a new emphasis and style in American foreign policy, but also on Europe and Japan accepting that their seats at the table will be adjusted" - they mean, their positions will be weakened - "to accommodate the rising powers. And it will depend very heavily on the willingness of the leadership of the rising powers to place long-term interests above short-term tactical advantage, to act with restraint rather than their own sense of hubris."
Remarks about "white people with blue eyes" would, I suspect, come within their definition of "hubris."
I wonder whether there is any principle behind the rising powers' understanding of their long-term interests - I mean, other than revenge, pure power-lust, ever expanding pride, and a fear born of distrust of the West. The rising powers are not often reported on and analyzed as a group; when they are, it often leads to a re-warming of anti-colonial themes that, to my mind, lack the explanatory power they once had. (I should say: it is increasingly a strain to fit our present into that past.) The rising powers' ambitions to "fit in" to the existing order jostle their heartfelt rejection of Western superiority or right-to-rule. It's hard to have both, but both is what we have.
The International Monetary Fund's recent travails capture the moment: the heavy weight of the past, the new global-governance momentum, the limits of government in solving economic problems On one hand, IMF rejiggering seems to have been settled on as a deliverable for the G20 (maybe the only one, apart from an attack on tax havens). Some quibbles aside - look to Germany, again - no one is opposing IMF reform. The Special Drawing Rights discussion is likewise, of course, IMF-centric, since it is the IMF that issues SDRs, and the debate has brought in a variety of advocates apart from Zhou Xiaochuan: George Soros, for example, who has a long-standing interest in the subject, and the UN General Assembly's Commission of Experts on Reform of International Finance and Economic Structures, headed by Joseph Stiglitz. The Commission came out last week in favor of raising up the SDR and reducing the dollar's reserve-currency role.
On the other hand, the IMF itself - the real one, not the potential one -- has been noticeably struggling to find borrowers. Responding last year to the crisis, and to venerable criticisms of its strict loan conditions and repayment structures, the fund came up with a "short-term credit facility" colloquially known as "E-Z loans." No one wanted it; the program has been shut down. (It makes for an interesting comparison to recent American programs that, to remain market-neutral, simply forced banks to take "help" they didn't always want. The fund doesn't have such means of compulsion to make countries take its money, and the fashion until recently had been to pay off all IMF loans and loudly declare financial "independence.") So the fund has developed a replacement loan, with even easier conditions: a "flexible credit line." The new product was greeted last week by South Korea and Singapore saying they had no intention of taking such a loan. "South Koreans tremble and financial markets turn sensitive whenever they hear the word 'IMF,' so it's not easy for us to participate in the program," was how a South Korean finance official put it.
Yes, no one said integrating the emerging markets would be easy. And meetings like the G20 summit almost always disappoint. Government institutions, national and international, do have power, but not often the kind they want. They can, for instance, make markets "turn sensitive" in a heartbeat. They find positive change, like creating a market for toxic asset-backed securities, much harder.
But as I said earlier, I think/hope Obama has realistic expectations, and is looking to advance this global power transformation, as symbolized by the integration of emerging-market economies into a newly vital G20, one step at a time. He can play a bold game, he can play a deliberate game. His style is not unlike that of the authors of "Power and Responsibility," which almost makes me think Carlos Pascual should be at NSC rather than in Mexico.
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Tuesday update: I have sometimes felt apologetic for my obsession with China's ambitions for the renminbi. But check it out: per today's FT, China has nearly completed its sixth currency swap deal since December, this time with Argentina. Total value of the deals will reach north of $100bn, not immense but definitely not minor. (It is not that much less than the value of the four swap deals the Fed announced in late 2008, with South Korea, Singapore, Brazil and Mexico.) The setting for the negotiation -- the meeting of the Inter-American Development Bank in Medellin, Colombia -- must have increased the sensation of a gathering rebellion against dollar dominance in trade.
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