Why we need international institutions…

The big problems facing most countries today are not ones they can solve by themselves. Climate change needs collective action as climate is a global common. The oceans and space are also global commons, but failure to have agreed regulation means that first-movers can exploit their advantage without being required to mitigate the risks posed by their activities. Pandemics cannot be completely avoided by closing borders – most are too porous, and humans are not the only vectors for disease. And digital technologies are making us all more connected in ways that bring benefits but also ever-rising risks ranging from cyberattacks on essential services to imported political grievances. Managing global commons, contagion and cyber risks, while ensuring fair access to the benefits, requires global cooperation.

Markets also need rules and institutions that enforce the rules to function. Markets are a mechanism for price discovery, but exchange requires institutions that can enforce contracts. Formal institutions – from money to contract law enforcement to financial regulation – developed to support arm’s-length transactions. As transactions become more complex, so too do the tasks required of our governing economic institutions. And as transactions – the exchange of goods, services, capital, knowledge and people – cross borders, we look to international institutions to govern these transactions in ways that are predictable and inspire confidence in the good faith of the parties to the transaction.

International institutions are essential to manage these growing risks and to make international trade and investment markets work. Yet the Bretton Woods institutions established after the Second World War – the World Bank Group, the International Monetary Fund (IMF), and later the World Trade Organisation (WTO), and standard-setting institutions such as the World Intellectual Property Organisation and International Telecommunication Union – are increasingly under threat from an “America First” agenda.

Despite the clear benefits to the United States from supporting the international rules-based system, the Trump administration has withdrawn or threatened to withdraw funding from UN bodies, including the World Health Organisation, UNESCO, UNHCR and the WTO. The Trump administration has also violated a wide array of bilateral and plurilateral agreements, most notably the US-Mexico-Canada Agreement. Even the 10 per cent tariff on Australian exports to the United States violates the Australia-US Free Trade Agreement. These trade agreements and the international institutions that seek to uphold agreements are, like migrants, a useful scapegoat for politicians. Populism and nationalism are attractive narratives in societies experiencing widening inequality and social instability.

This undermining of trust in international institutions mirrors doubts about the benefits of globalisation. This is most problematic where governments have not managed the consequences of structural change (whether trade or technology induced) or shared productivity gains more fairly across groups in society. It is easier to blame globalisation, and by extension the institutions that represent collective efforts to promote and manage global markets and global risks, than to address the problems at home.

The blame is disproportionate to the power as international institutions have a very limited set of tools. They depend on the member country’s governments to make and enforce laws to abide by the agreements they sign up to. What the institutions offer is the means for cooperation in designing the rules, and in some cases mediating power to resolve disputes. The WTO, for example, offers trade dispute resolution where one country believes another has violated the agreed trade rules. Ultimately, international institutions only work where their member countries agree to abide by the institution’s authority.

In the recent Hadi Soesastro Memorial Lecture at the Centre for Strategic and International Studies (CSIS) in Jakarta, I set out six elements towards reform of international institutions. These are:

• Focusing on the “must have” for all countries – this will require governments to make concessions on things that matter to their people, particularly in the West. Focusing the international institutions’ mandates on a clear set of common interests would provide a sound starting point.
• Packaging – bringing together reforms so that all countries to an agreement get some wins that they can sell to their people. Not every change is win-win for all countries, particularly in the short run. The problem with considering each regulation and other impost individually is that countries will push back on reforms affecting their specific interests. Designing packages where there is at least one win for every impost would facilitate cooperation.
• Funding – in an era of declining official development assistance and rising indebtedness, many developing countries will need financial support to participate in international institutions. They may also need technical and other support to comply with the agreed rules.
• Communication – transparency matters for restoring trust in both international and domestic institutions. Governments need to have conversations with their public about why they are members of an international institution, what compromises they had to make, and what their country gains from membership.
• Research and evaluation – international institutions, like all governing institutions, should be subject to scrutiny. This scrutiny is most effective when based on sound, tested research rather than opinion polls and media beat-ups. Governments should be willing to invest in the international institutions’ research activities through supplying researchers and cooperation on data collection and analysis.
• A collective approach to leadership – the G20 need to take the lead to reform the existing international institutions. While the Trump administration is in power, this must be done without US leadership.

Success in finding a way forward depends on countries being willing to put common interests in global prosperity ahead of political interests and short-term gains.

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Photo: Gary Todd, CC0, via Wikimedia Commons