Jump to ContentJump to Main Navigation
The Consequences of the Global Financial CrisisThe Rhetoric of Reform and Regulation$

Wyn Grant and Graham K. Wilson

Print publication date: 2012

Print ISBN-13: 9780199641987

Published to Oxford Scholarship Online: September 2012

DOI: 10.1093/acprof:oso/9780199641987.001.0001

Show Summary Details
Page of

PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 18 January 2021

The Theory and Practice of Global Economic Governance in the Early Twenty-First Century: The Limits of Multilateralism

The Theory and Practice of Global Economic Governance in the Early Twenty-First Century: The Limits of Multilateralism

(p.15) 2 The Theory and Practice of Global Economic Governance in the Early Twenty-First Century: The Limits of Multilateralism
The Consequences of the Global Financial Crisis

Richard Higgott

Oxford University Press

Abstract and Keywords

The Global Financial Crisis (GFC) and its aftermath have caused some observers to question whether the international economic institutions developed in the Bretton Woods era are any longer suitable for the challenges they face in the contemporary age: if they are unable to prevent (increasingly recurring) crises or facilitate a more general process of long-term economic collective action problem solving what are they for? This kind of analysis misses the point. For all their apparent failings the need for such institutions is unlikely to disappear in an era characterized by higher levels of economic interdependence. Global economic governance may still be imperfect and, in contrast to the global economy, underdeveloped. But if global governance is to evolve, multilateral economic institutions of one kind or another must be at least one of the key elements of the process. The emergence of the G20 is discussed and its limitations reviewed. The generic challenge is to adapt multilateralism to the dynamics of a world battling to come to terms with changing power balances and emerging policy agendas that do not lend themselves easily to the approaches to collective action problem solving that prevailed in the second half of the twentieth century.

Keywords:   Bretton Woods, G7, G20, International Monetary Fund, World Bank


In the aftermath of World War II, a number of powerful institutions were created which have influenced the course and nature of global economic policy over the past sixty or so years. The so-called Bretton Woods institutions—the World Bank and the International Monetary Fund (IMF)—and the General Agreement on Tariffs and Trade (GATT) (which eventually became the World Trade Organization (WTO)) have become central parts of an international order that purports to be multilateral in form and global in scope.1 Indeed, it is difficult to imagine quite what “globalization” might look like without the existence of international organizations generally or of the international economic (financial and trade) institutions (IFTIs or IFIs) in particular. And yet recent events, especially the Global Financial Crisis (GFC) and its aftermath, have caused some observers to question whether the international economic institutions are any longer suitable for the challenges they face in the contemporary age: if they are unable to prevent (increasingly recurring) crises or facilitate a more general process of long-term economic collective action problem solving, what are they for? This kind of analysis misses the point. For all their apparent failings the need for such institutions is unlikely to disappear in an era characterized by higher levels of economic interdependence. Global economic governance may still be imperfect and, in contrast to the global economy, underdeveloped. But if global governance is to evolve, (p.16) multilateral economic institutions of one kind or another must be at least one of the key elements of the process.

In order to develop this argument, this chapter firstly provides some initial clarification of terms and concepts. Secondly, it outlines the role of the original Bretton Woods institutions and the GATT and explains how their missions have changed overtime. Thirdly, it describes some newer multilateral activity such as the evolution of the G20 (note the word “activity” not institution) and suggests why issues of authority and accountability have become increasingly important but contested as—often unelected—policymakers (public and private) and economic actors accrue greater decision-making authority through the evolution of transnational, if often state-sponsored, policy networks. Finally, the chapter assesses the ability of multilateral institutions to participate in the management of the complexity and uncertainty that seems an endemic part of the current world order.

Globalization, Global Governance, and the State of Multilateralism

The Demand for Global Economic Governance

Let me start by saying something about what I think the literature tells us about the global governance as an analytical concept. For some it is a conceptual oxymoron, a contradiction in terms or at best the fantasy of scholars. Realists, or more precisely neorealists if we are thinking of scholars like Ken Waltz (1979), accepted no understanding of governance beyond the level of the state; the principal characteristic of the international system has been, and remains, “anarchy.” Liberal interdependence scholars of both the North American variety (pace Keohane and Nye, 1977) and the Anglo-Australian variety of Bull and the pretentiously entitled “English School” argue that we can do better (Bull, 1977). We may, they argue, live in an anarchical society, but one with recognized norms and rules of behavior. Current-day cosmopolitan democratic theorists, pace David Held, more optimistically, argue that the seeds of a global society are emerging. I accept that such crude distinctions can hide more than they reveal. All understandings are prefigured from wider competing political, epistemological, and ontological assumptions about international theory, not just global governance. But what they exhibit is an understanding of global governance as an increasingly salient, albeit contested, political concept.

Moreover, the debate is now no longer just the play thing of scholars, especially since the global financial crises of the last few years. The whole debate over the governance or, as more frequently described, “regulation” of the global economy of the last few years is really rather a recognition that the (p.17) overdevelopment of the global economy has been accompanied by the underdevelopment of the global polity. The integration of the global economy through the liberalization of the trade regime, the deregulation of financial markets, and the privatization of state assets have led to what we now commonly call “globalization.” But this has not been accompanied by a comparable development of the global polity and it is increasingly recognized in policy circles that without the development of appropriate norms, institutions, and processes to manage globalization, it could be undone by a failure to mitigate its excesses and negative consequences (especially for large sections of the world’s poor) that emanate from it.

This is no longer the position of just the “alter” or antiglobalization movement but also the credentialed defenders of globalization in the economics profession from the likes of Jagdish Bhagwati (2004), Jo Stiglitz (2002), and Paul Krugman through to powerful pundits such as Martin Wolf of the Financial Times and former Head of the FSA Adair Turner. Writing even before the GFC of 2008, Wolf identified the growing impact of “…[t]he dilemma of global governance” (January 14, 2007: 7). Salient prior to the GFC, a need to understand the dynamics of how we govern the global economy casts even longer policy shadows now. The GFC has merely reinforced these views. All recognize that without proper processes of regulation, globalization has within it the seeds of its own downfall.

This is now, somewhat belatedly we might add, a well-understood conundrum for advocates of globalization. The case has never been clearer since the end of the Cold War that some degree of institutional control is a necessary prerequisite for rational global economic management. Doubts about our abilities to provide an appropriate multilateral regulatory framework for the management of the economy at the global level abound in the wake of the great recession of 2007–9. It is not clear, however, whether the crisis at the end of the first decade of the twenty-first century will lead to major changes in the existent system of regulation. Does it represent a crisis of multilateralism or, through the evolution of the G20 process, the evolution of a new stage of multilateralism? Precisely the same arguments were heard after the Asian crisis when there were widespread calls for institutional reform and tighter control of the activities of banks and financial markets (Kenen, 2001; Armijo, 2002). In reality, little of substance changed between the two crises. Indeed, many of the restrictions that had formerly been put in place to control the activities of banks at a national level were repealed, as policymakers in the Anglo-American economies became locked in a competition to provide “light touch,” business-friendly regulation (Glass Steagall, let us not forget, was only repealed in 1999).

This trend probably represented the high-water mark for the ascendancy of the market in the dialectical interaction, broadly conceived, between states (p.18) and markets in the evolution of the international economy, and the institutions that have sought to manage it, for the last sixty years. Since the GFC of 2008, the institutions which manage the global economy have sought, fitfully at least, to show greater coherence and sense of purpose and develop a greater sense of legitimacy in the eyes of both ordinary people and national governments.

Continuity and Change in Multilateral Economic Governance

We must ask what we might understand by the idea of global governance in an era of increasingly “contested globalization.” Most global governance for much of the second half of the twentieth century, especially in the economic domain on which I focus, is still predominantly seen as effective and efficient collective action problem solving undertaken by or within international organizations. Proponents claimed that “effective” and “efficient” governance was not a normative but an empirical matter and international organizations, with states acting as the agents, were the principal vehicles within which it occurred when necessary. This view is increasingly deficient on two grounds I would argue.

  1. 1. First, it presents an excessively one-dimensional view of global governance institutions. Most scholars and practitioners today increasingly recognize that the privileging of effective and efficient decision-making has important normative implications and consequences, and the international economic institutions must address questions of accountability and democratic legitimacy as much as effectiveness and efficiency and certainly much more than they have done in the past. This disconnect has led to the debate about “legitimacy deficits” in major international organizations.

  2. 2. Second, it overestimates the role of international organizations in global public policymaking at the expense of both emerging state actors and non-state actors operating in other ways and in other regulatory contexts that, in their modus operandi, depart from a traditional understanding of international economic diplomacy. It is an empirically outdated view of how the world works—or more importantly does not work—when it comes to collective action problem solving in the economic domain.

Vertically, state power is increasingly constrained by the presence of numerous non-state or extra-state actors—MNCs, banks, markets, civil (and uncivil) society, the media, international organizations regions, and regulatory networks. Horizontally, power, without overstating the case, is undergoing a process of diffusion from the west and the north to the south and the east. New (and new–old) great powers compete with the United States and Europe. (p.19) The reemergence of Russia and the rise of China and India especially are dramatically changing our understandings of global power. This is not to assume, however, that the flattening out of global relationships, especially between China and the United States, axiomatically leads to a new era of bipolarity in global politics, captured in discussions of the emergence of a G2. G2 activities are only ever likely to be de facto arrangements within wider contexts in which both the United States and China opt for them to be embedded in a wider grouping, such as the G20, as the G20 moves, if indeed that is to be its trajectory, from being concerned with crisis exit strategies to more substantive questions of structural and institutional reform in, and of, the global economy (Garrett, 2010).

In many respects, the balance of power today in the major global institutions still largely represents the (modified) balance of power from 1944 to 1945. The permanent (veto holding) members of the UN Security Council are still the five “victors” of World War II (even if China that holds the seat today is not the same pro-Western China that the West assumed would rule after 1945, and Russia has slipped into the seat created for the Soviet Union). The IMF and the World Bank, despite some changes in their mission and some realignment of the voting patterns of the IMF, still carry the imprint of Harry Dexter White and reflect the power secured by the United States in return for underwriting post-World War II economic recovery in Europe and underpinning the financial security of postwar international order (Ikenberry, 2001). Of course, global economic decision-making has undergone change since the end of the Cold War. This is happening at both a specific institutional level and in a broader systemic sense.

International Economic Institutional Change 1945–2007

From its initial origins, the IMF has undergone a substantial mission change. Originally established to manage and oversee a system of more or less fixed exchange rates, the IMF’s mandate was fundamentally undermined by the wider, evolving geopolitical context in which it was embedded after World War II and which led to the closing of the gold window and an era of floating exchange rates (Gowa, 1983). The 1970s saw its mission transformed from one of arbiter of global monetary stability to that of arbiter of developing countries’ macroeconomic rectitude (Elliott and Hufbauer, 2002). This mission evolved throughout the 1980s and 1990s as the IMF became primarily associated with the promotion of a “neoliberal” agenda of economic liberalization—and especially policies to enhance asset privatization, government rollback, and capital account liberalization that overtime put the IMF at the center of controversial interventions in the domestic affairs of some of its members.

(p.20) The East Asian crises of the late 1990s marked the apogee of IMF interventionism (Wade and Veneroso, 1998). From that time, criticism of its role in crisis management saw the IMF’s influence come under increasing criticism. In effect, the IMF’s desired role as the arbiter of global macroeconomic rectitude, especially in the developing world, had largely disappeared in the wake of its suboptimal performance in the financial crises of the late twentieth century. By the time of the 2006 Singapore Ministerial Meetings, the question of its longer term viability was being widely raised only for it to be saved by its identification as a vehicle for supporting global financial policy in the wake of the 2007–9 crises and the London 2009 G20 summit.

Like the IMF, the World Bank over its lifetime has undergone a process of mission change that has seen a transformation from its initial role as a vehicle for European reconstruction in the post-World War II era into a vehicle for supporting neoliberal reform in developing countries. This transformation had a natural logic to it in the era of decolonization. Indeed, one of the reasons the Bank attracted so much critical attention in the 1970s to 1990s was because its “structural adjustment” policies complemented IMF policy. Since that time the Bank has undergone a process of self-evaluation and reform reshaped by a changing international environment in which strategic factors and ideas about development changed over time. The postcolonial era preoccupation with “modernization” and the pursuit of massive, often inappropriate, development projects gave way in the late 1990s to a more technocratic approach that stressed its role as a “knowledge bank” with an emphasis on institutional reform, the provision of “good governance,” and a rhetorical commitment to greater inclusiveness and engagement (Stone, 2001; Stone and Wright, 2006).

The Bank’s intellectual and practical transition, although more widely accepted and less controversial than that of the IMF, has not been without its internal governance failures and critics (see, e.g., Woods, 2006; Weaver, 2008). Concerns about both the Bank and the Fund’s often unaccountable forms of internal organization, especially with regards to voting rights, continue to reflect the limits of democratization and the entrenched nature of the political influence of the major powers, as indeed is the case in many international organizations more generally (see Keohane et al., 2009). Consequently, despite the Bank’s efforts to differentiate itself from the IMF and respond more effectively to criticisms from “global civil society” and client states over the decade 1998–2007, there remained, as we entered the latest round of economic crisis in 2008, much dissatisfaction with both the ideational and practical roles of the two principal IFIs.

The original mandate of the third leg of the post-World War II international multilateral economic architectural triangle, the GATT, was to reduce the barriers to trade (principally then tariffs) seen to have played a destructive role in causing and prolonging the Great Depression. The GATT, through a (p.21) series of seven post-World War II multilateral trade negotiation rounds, successfully and substantially reduced the role of the tariff as an instrument of protection and instilled a series of norms and principles into the multilateral trade regime (see inter alia: Hoekmann and Kostecki, 2001; WTO, 2007: 179–201). It also fulfilled some of the generally implicit Cold War, geopolitical goals that underpinned its rationale, along with that of the IMF and the World Bank. As the post-World War II era progressed, the GATT developed major capacity constraints which, with considerable US prompting, eventually provoked a willingness to contemplate a new trade round which ended in the creation of the WTO, a new organization including not only GATT but agreements on services (GATS), and intellectual property (TRIPS) that reflected the interests of the most economically developed countries, especially the United States (see Croome, 1995; Narliker, 2005).

As with the IMF and the World Bank, the life of the WTO has not been without difficulties in the contemporary era. Criticized by analysts across the political spectrum, from “right-nationalists” in the United States and parts of Europe to the left-developmentalists and the antiglobalization movements of the South, both groups, albeit from their different perspectives, see the WTO as an excessively intrusive, sovereignty challenging, back door to global governance and would have it abolished. The right nationalists resent what they see as the challenge to sovereignty. The left-developmentalists and antiglobalizers see it crowding developmental “policy space” (see Chang, 2002). Support ranges across a spectrum from market privileging neoclassicists to interventionist Keynesians. But they too recognize that the WTO faces serious problems in maintaining its global economic institutional salience in the early twenty-first century.

System-Level Structural Change from GFC to G20

Discontent over the roles of the IFIs, in both the analytical and policy communities, has been a continuing theme in the post-World War II period. The East Asian crisis of the late 1990s brought dissatisfaction with the so-called “international financial architecture” to something of a head. Observers felt that if the IFIs were not in some way responsible for the crisis by encouraging premature economic liberalization, they were certainly culpable in failing to manage the impact of and recovery from the crisis. Indeed, one of the big lessons that East Asian economic and political elites drew from the crisis was that the region rapidly needed to develop its own economic institutions if it wanted to be able to respond more effectively to future crises (Higgott, 1998; Grimes, 2009). As a consequence, there have been accelerated efforts to develop new, regionally based economic mechanisms (Deiter and Higgott, 2003). One of the great paradoxes of globalization has been a noteworthy (p.22) proliferation of institutions to either encourage regional integration or to generate regional responses to specific problems of a global nature. Indeed, the growth of regional multilateral economic institutions must be seen as the other side of the coin of global multilateralism.

Continuing doubts about our abilities to provide an appropriate multilateral regulatory framework for the management of the economy at the global level exacerbated in the wake of the great recession of 2007–9. At the time of the GFC, the international economic and trade institutions, especially the IMF and the WTO, were languishing. The IMF was in search of a new role; the WTO was proving incapable of completing the Doha MTN. At the systemic level, even if “the West” in general (to use our old categories) and the United States in particular remain the dominant loci of power in the global order, they will need to find new ways of accommodating to the interests and values of others. A (relative) loss of both moral authority and material power now constrains the US’s abilities to set and implement the global economic policy agenda for the rest of the world. Neither the west collectively nor the United States individually can exclusively hold the moral high ground occupied, for example, during the first Gulf War on the one hand and during the Asian financial crises of 1998 on the other. Practices in the security domain, and perhaps even more so practices in the recent global financial context, have eroded key elements of the West’s moral authority. The development of the G20 can be read as much as an attempt to address this problem as much as a response to the GFC toute courte.

Although an idea developed from an earlier Canadian initiative (see Higgott, 2005), the G20 failed to gain momentum until the crises of 2007–9. In institutional form the G20 certainly addresses some of the problems inherent in the other international economic bodies. It is not as exclusive as the G7/8; it has a balance of developed and developing countries including key actors such as Brazil, China, and India. It accounts for 90 percent of total global market capitalization, 80 percent of global trade, and two-thirds of the world’s population. Hence, the prominence achieved by the G20 in the wake of the recent crisis should be seen as part of a genuine push to develop a more representative multilateralism. As Ramesh Thakur notes (2011), it is the obvious institutional meeting point, between the extremes of the G8 on the one hand and the UN on the other, for a form of global governance capable of being seen as legitimate (judged by inclusiveness and representation) while at the same time offering the best chance of effective and efficient decision-making.

And yet, it remains far from clear how effective such a group might be in the long term. The frenzied short-run analysis that emerges around each summit (see the activities of CIGI) offers little to our longer term substantive thinking on the global governance issue. Notwithstanding all the hype, there clearly remains a reluctance on the part of the major powers, especially the United (p.23) States and declining major powers in Europe, to develop the G20 institutionally or share power in any meaningful manner with the new actors from the South (see Beeson and Bell, 2009). The key question is whether the G20 can retain the positive attributes it developed as a crisis buster at the height of the GFC to become the hub, or what Cooper and Bradford (2010) call the “steering committee” of an increasingly networked system of global governance. Can the G20 fill a role not currently played by a selective but increasingly unrepresentative group like the G8 on the one hand and a UN struggling to remain relevant as a negotiating forum in the wake of unedifying exercises such as Copenhagen 2009 on the other?

To turn the G20 into the preeminent multilateral forum for global economic decision-making would require a process of demolition and building the major developed countries are not willing to contemplate. The G8 would need to be demolished and a permanent secretariat (as opposed to management by troika) created with a mandate wider than just financial and economic matters. But the commitment to multilateralism is more rhetorical than real. For example, regardless of its stated desires to underwrite and reinforce multilateralism as the principal modus operandi of what its foreign policy elites sees as the multipolar era (Higgott, 2010), the EU has yet to show that it is willing to assist the institutional enhancement of an initiative like the G20 by pooling its multiple voices to allow greater representation of the emerging powers in what many of them still perceive as essentially Western state-led activities. In the absence of this major kind of substantive change, the G20 is likely to be seen less as an attempt to modify multilateralism to twenty-first century conditions, especially in the face of economic crisis, rather than as an extended consultation group for the old G7 with the emerging actors—perhaps “the last gasp of an old fashioned concert of great powers” (Woods, 2010: 51), albeit one with some degree of global authority.

Indeed, on one reading, the empirical evidence from the financial crises of 2007–9 would suggest that it is the traditional powers that still set the agenda of global governance reform in the economic domain. At the global, as opposed to national, level, the creation of the G20, and especially the Financial Stability Board (FSB) as its first major institutional innovation, supports this view. While the rhetoric of G20ism prevails, such moves and initiatives such as Basel III should be seen less as a genuine desire for reform and more as a reactive, crisis driven, policy response forced on decision-makers in part by a political imperative to signal action to a range of national and international political constituencies. Contrary to the claim of US Secretary of the Treasury Tim Geithner, the FSB has certainly not achieved the status as the “fourth pillar” of the architecture of global economic governance.

(p.24) States, Non-State Actors, and Contingent Multilateralism in the Twenty-First Century

One effect of the crises of the early twenty-first century is that the state has made a major comeback as the principal stakeholder and actor in the unfolding process of economic reform. The G20 is a very statist initiative. Although it is too soon to know what the long-term impacts of the current crisis will be, it has challenged the credibility of the hands-off, light-touch style of neoliberal-inspired economic regulation that characterized the last two decades of the twentieth century and the early years of the twenty-first and which justified and actively encouraged the growing role of self-regulation by the private sector in the Anglo-American economies (see Gamble, 2009).

Even before the GFC had done so much to undermine confidence in neoliberal forms of governance and regulation, political legitimacy was an issue for the IFI’s and some of the new institutional actors in the global domain. Notwithstanding the argument that some forms of regulation are so specialized that only a handful of experts, practitioners, or other insiders can claim to understand their intricacies, the fundamental problems that flow from a legitimacy deficit are not overcome (Hurd, 1999). For all their shortcomings, the saving grace of democratically elected polities is that they can claim a popular mandate for their actions. This has never been the case with the multilateral institutions as agents of global governance. They still draw their legitimacy only indirectly from the legitimacy of their member states.

Theoretical endeavors to enhance legitimacy at the global level have invariably assumed an extension of the “domestic analogy” to the extraterritorial, or global, context. That is, the extension of the model of democratic accountability that we have come to accept in the advanced countries of the developed world to the wider global context. The weakness of the domestic analogy is that only the most minimal of democratic constraints present within a domestic polity are present at the global level (Dahl, 1999.) There is no serious institutionalized system of checks and balances at the global level. Institutional constraints that do exist have little purchase on the behavior of a major power, should it choose to ignore them. To speak of a global public sphere or global polity, in a legal or a sociological sense, has little meaning (see Ougaard and Higgott, 2002).

There are of course sophisticated cosmopolitan democratic theories which have qualified and reformed the domestic analogy in the attempt to elaborate which elements of “traditional” democratic theory—that presuppose a national demos (people) and a nation-state context—are feasible and desirable on the global level of politics (Archibugi, 2000; Archibugi et al., 2000; Held, 2002, 2005). But in these theories, which are principally normative, feasibility tends to give way to desirability. Liberal cosmopolitan theorists start from the (p.25) individual as a member of humanity as a whole, rather than the state, and the idea that we as members deserve equal political treatment. They emphasize the importance of individual rights claims and wish to replace the state-based system of international relations with a new set of cosmopolitan principles, laying out a moral standard that sets limits to what people and political authorities are allowed to do through international institutions (Held, 2002: 23–4). According to David Held, these principles, accompanied by a subsidiarity principle, constitute an overarching cosmopolitan law for a multilayered system, specifying the organizational basis of a legitimate public power. Sovereignty, the idea of rightful authority, is thus divorced from the idea of fixed territorial boundaries (Held, 2002: 32).

Such a sophisticated normative theoretical argument notwithstanding, contemporary multilateral institutions, and multilateralism as practice, do not operate with these assumptions. Functioning multilateralism, as both principle and practice, is embedded in shared norms (usually of elites, rather than wider national publics) and is underwritten by judicial instruments (such as the ICC or the Dispute Settlement Mechanism of the WTO). Contrary to many assumptions in both the scholarly and some quarters of the policy world—that excessively privilege an increasingly dynamic role for civil society and non-state actors (see the Ford Foundation Building Global Democracy project http://www.buildingglobaldemocracy.org/)—effective, quasi legitimate, multilateral governance at the global level remains with states as the principal (although not exclusive) actors. Events in the first decade of the twenty-first century, in both the politico-security and the economic domain, have done little to advance the cause of this essentially cosmopolitanism view of legitimacy. Ascribing to states the major role does not dismiss the normative importance of cosmopolitan theory through whose lenses we can identify and articulate the hard questions about the legitimate status of intermediate institutional actors, such as the WTO, for example, in the provision of global public goods in the twenty-first century especially with regards to the value of multilateralism and institutions as venues and vehicles for global policymaking. This is important coming at a time when the utility/principles of institutions as vehicles for information sharing, transparency, and building trust and compliance seem to be coming “unlearned” in early twenty-first century global economic cooperation by some of the major players.

But in the increasingly crowded global policy space of the twenty-first century, characterized by the growing activity of private sector actors (MNCs, NGOs, and issue-specific transgovernmental regulatory networks), international organizations as Robert Keohane and Joseph Nye note “…must be political not technocratic.” By “political” they do not mean politicized or ideological, but rather that international organizations must institutionalize links to constituencies within the wider emerging global polity. Only through (p.26) the development of links between international organizations and domestic publics will the legitimacy of the international organizations be enhanced.

Multilateral institutions…will only thrive when substantial space is preserved for domestic political processes…. In this regard, the practices of the WTO in allowing domestic politics to sometimes depart from international agreements without unravelling the whole system of norms provides a helpful model. Putting too much weight on international institutions, before they are sufficiently legitimate to bear that responsibility, is a recipe for deadlock, disruption and failure. (Keohane and Nye, 2001)

What Keohane (2006) calls the increasingly “contingent” nature of multilateralism has meant that the multilateral aspirations of the second half of the twentieth century are muted in the twenty-first. What can be done multilaterally (in an inclusive sense of the word) is being recast in more restrictive terms. This is clearly a factor behind the emergence of alternative approaches to, and exercises in, collective action, especially (a) the growing dynamic toward regional economic cooperation, the rise of preferential trading arrangements, and minilateralism around the world; and (b) the growth of global networked-based activity.

  1. 1. The growth of regionalism in recent years has clearly been suboptimal in systemic and political terms in a number of ways. Specifically, regionalism has diverted attention from multilateral negotiations. Governments may believe, or be lulled politically into the conviction, that they can acquire all they need by way of trade policy through regional arrangements. This has led to, and is likely to continue to lead to, neglect of the relative costs and benefits, especially over time, of regional versus multilateral approaches to trade relations. As a consequence, some recent theorizing in the trade domain, for example, has also led scholars to identify the need, in the words of Richard Baldwin and his colleagues, to “multilateralize regionalism” (see Baldwin, 2006; Baldwin et al., 2007). These calls reflect the reality that while regional preferentialism in trade might be suboptimal to acting multilaterally through the WTO, it will not be going away; hence the exhortation to multilateralize it.

Another manifestation of diversification of collective action decision-making away from multilateralism is to be found in what Moise Naim (2009) calls a growing interest in “minilateralism.” Like regional preferentialism, minilateralism is a response to a growing recognition that large-scale multilateral agreements—whether they are, for example, in pursuit of trade liberalization, the attainment of Millennium development goals, or the reduction of greenhouse gas emissions (GHGs)—have all seen deadlines missed and policy execution stalled. The recognized limits of multilateralism are leading to the advocacy and practice of more targeted approaches at collective action (p.27) problem solving. In minilateralism, the correct number in any given problem area is “the smallest possible number of countries needed to ensure the largest possible impact.” This number will, of course, vary from issue area to issue area.

  1. 2. The last striking aspect of what passes for global economic governance at present is the growth of increasingly decentralized and network-based activity. From the closing decades of the twentieth century, we have seen a proliferation in the number of non-state, specialist agencies and organizations playing an increasingly prominent role in international standard setting. Inherently elitist, the principal claim for inclusion in these new informal and often uncoordinated networks of governance is technocratic competence or specialist expertise. The development of the BIS prior to the crises of 2007–9 is a classic example of what we might call a transnational executive network (TEN) and reflects a more generalized ideological preference for light-touch regulation on the parts of many OECD governments—in this case, as they delegated responsibility for monetary policy to (unelected) central bankers (Tsingou, 2004, 2010). Similar processes of regulatory diffusion are occurring in the private sector as different actors develop a responsibility for setting regulatory standards for codes of conduct, production standards, and the like (Braithwaite and Drahos, 2000).

The interesting normative question posed by these developments is the degree to which these actors are contributing to the delivery of global public goods (as public goods theory would have it) or whether they are in fact engaged in the provision of club goods for their respective clientele. Certainly, the empirical evidence from the financial crises of 2007–9 would suggest that private interest has prevailed over public good. For some observers the growth of TENs is predictable and appropriate, and marks a functional response to demands for regulation and governance that can no longer be met by states in an era of globalization (Slaughter, 2004.) For others, this is part of a long-running debate between those who see states as taking part in a process in which they have voluntarily ceded power to other actors, and those who view state authority as being inexorably undermined by technological developments and intensifying transnational economic and political processes. What is novel and potentially important now, however, is the possibility that the very nature of the “knowledge economy” is generating new patterns of governance in which informal ties and expertise are in turn generating new networks that help explain the way in which policy is made at the global level.

Scholars identify this emerging global policy space in different ways. For Dryzak (1999), it is the “global public sphere”; for Drache (2001), the “global public domain”; for Nanz and Steffek (2004), the “trans-national public space.” Developing some of these conceptual tropes, Diane Stone talks of the emergence of a “global agora” defined as:

(p.28) …a growing public space of fluid, dynamic, and intermeshed relations of politics, markets, culture and society…shaped by the interaction of its actors—that is multiple publics and plural institutions…. The global agora is also a domain of relative disorder and uncertainty where institutions are underdeveloped and political authority unclear, and dispersed through multiplying institutions and networks. (Stone, 2008: 21)

The advantage of Stone’s definition is that it carries none of the normative or communicative assumptions of the other definitions, especially those of a cosmopolitan or Habermasian persuasion intent on extending the domestic democratic analogy to the global context. The global agora may have characteristics of publicness but, as she notes, as in its Athenian original, it is elite rule and limited participation that is invariably the order of the day (Stone, 2008: 22). The many state and non-state actors (regulators, networks, NGOs, and other elements of civil society) that make up the burgeoning community of quasi public, quasi private global public policy networks still face significant barriers in the translation of “voice” into policy.

Of course, some groups have more influence over the global policy process than others however. Joining states and international organizations as increasingly influential actors are the growing numbers of internationalized public sector officials (legislators and regulators) who (pace Slaughter, 2004) operate inter-governmentally through a variety of TENs, rather than as international public servants acting multilaterally through the international organizations. The former group is engaged in deliberation and rule making by virtue of the authority vested in them by their official positions within their home state. The latter are not state delegates, but international civil servants who deliberate and make policy by virtue of their expertise and routinized position within the international organizations (see Xu and Weller, 2004). It is this group, for obvious vested material and political reasons one could cynically add, that remain the principal champions of multilaleralism.


The dramatic rise of globalization in general over the last three decades, and the economic crises of the early twenty-first century in particular, has challenged the efficacy and legitimacy of multilateralism as both a set of principles and institutional practice as they emerged in the second half of the twentieth century. It has also raised more general meta-theoretical questions too. Moreover, one of the most important long-term successes of the twentieth century had been to make market principles an accepted and authoritative part of everyday existence (Hall, 2007). A consequence of the most recent crisis has been to damage the authority of both the actors and (p.29) agencies that had assumed responsibility for managing economic processes, and—more fundamentally—the stability of and, if only temporarily, the normative support for markets themselves. The rapid transformation of the terms of the debate over economic management in the wake of the crises of 2007–9 must remind us that the processes and practices of governance remain both temporally and politically contingent. The economic crises of the early twenty-first century have once again highlighted Harold Lasswell’s perennial questions (1935) of modern politics: who gets what and how; governance for whom; and in whose interest. As political philosophers know, but as economists all too frequently forget, these remain essentially contested, never permanently settled, concepts and questions.

The struggle between power- and rules-based behavior continues to be one of the hallmarks of the present system of global economic governance. The challenge of marrying the two in a meaningful and legitimate manner remains the perennial research question of international political economy. Radical transformation of the system is unlikely. A reformist approach to the current system remains difficult but it may not be out of the question, as attempts to marshal a G20 approach toward global economic cooperation, the growth of minilateralism, multilateral regionalism, and emerging transnational regulatory network activities identified in this chapter attest. But we are not yet at a stage where the major players will easily share power with emerging actors or indeed with various and increasingly active strata of an emerging global civil society. The generic challenge is to adapt multilateralism to the dynamics of a world battling to come to terms with changing power balances and emerging policy agendas that do not lend themselves easily to the approaches to collective action problem solving that prevailed in the second half of the twentieth century.


Bibliography references:

Archibugi, D. (2000) “Cosmopolitan Democracy,” New Left Review 4: 137–50.

—— Baldini, S., and Donati, M. (2000) “The United Nations as an Agency of Global Democracy,” in B. Holden (ed.) Global Democracy. London: Routledge.

Armijo, L. E. (ed.) (2002) Debating the Global Financial Architecture. New York: New York State University.

Armstrong, D., Lloyd, L., and Redmond, J. B. (2004) International Organisation in World Politics. Basingstoke: Palgrave.

(p.30) Baldwin, R. (2006) “Multilateralising Regionalism: Spaghetti Bowls as Building Blocs on the Path to Global Free Trade,” The World Economy 29(11): 1451–518.

—— Evenett, S. and Low, P. (2007) “Beyond Tariffs: Multilaterising Deeper RTA Commitments,” Multilateralizing Regionalism Conference, Geneva, September 10–12, 2007, at www.wto.org/english/tratope/regione/consep07e/Baldwin_evenett_low_e.pdf

Beeson, M. and Bell, S. (2009) “The G-20 and International Economic Governance: Hegemony, Collectivism, or Both?” Global Governance 15(1): 67–86.

—— Higgott, R. (2005) “Hegemony, Institutionalism and US Foreign Policy: Theory and Practice in Comparative Historical Perspective,” Third World Quarterly 26(7): 1173–88.

Bello, W. (1998) “East Asia: On the Eve of the Great transformation?” Review of International Political Economy 5(3): 424–44.

Bhagwati, J. (2004) In Defense of Globalization. New York: Oxford University Press.

—— and Patrick, H. T. (1990) Aggressive Unilateralism: America’s 301 Trade Policy and the World Trading System. Ann Arbor, MI: Michigan University Press.

Braithwaite, J. and Drahos, P. (2000) Global Business Regulation. Cambridge: Cambridge University Press.

Buchanan A. and Keohane, R. O. (2006) “The Legitimacy of Global Governance Institutions,” Ethics & International Affairs 20(4): 405–38.

Bull, H. (1977) The Anarchical Society: A Study of Order in World Politics. London: Macmillan.

Chang, H-J. (2002) Kicking Away the Ladder: Developmental Strategy in Historical Perspective. London: Anthem Press.

Chwieroth, J. M. (2007) “Testing and Measuring the Role of Ideas: The Case of Neo-liberalism in the International Monetary Fund,” International Studies Quarterly 51(1): 5–30.

Cooper, A. F. and Bradford, C. (2010) “The G20 and The Post Crisis Economic Order,” CIGI G20 Paper No. 3

Cooper, S., Hawkins, D., Jacoby, W., and Nielson, D. (2008) “Yielding Sovereignty to International Institutions: Bringing System Structure Back in,” International Studies Review 10(3): 501–24.

Croome, J. (1995) Reshaping the World Trading System: A History of the Uruguay Round. Geneva: World Trade Organisation.

Dahl, R. (1999) “Can International Organisations be Democratic?” in I. Shapiro and C. Hacker Gordon (eds.) Democracy’s Edge. Cambridge: Cambridge University Press.

Deiter, H. and Higgott, R. (2003) “Exploring Alternative Theories of Economic Regionalism: From Trade to Finance in Asian Co-operation,” Review of International Political Economy 10(3): 430–54.

Drache, D. (ed.) (2001) The Market or the Public Domain. London: Routledge.

Dryzak, J. (1999) “Transnational Democracy,” Journal of Political Philosophy 7(1): 30–51.

Elliott, K. and Hufbauer, G. (2002) “Ambivalent Multilateralism and the Emerging Backlash: The IMF and the WTO,” in S. Patrick and F. Shephard (eds.) Multilateralism and US Foreign Policy: Ambivalent Engagement. Boulder, CO: Lynn Reinner.

Erlanger, S. and Castle, S. (2009) “Growing Economic Crisis Threatens the Idea of One Europe,” New York Times, March 2.

Frankel, J. (1997) Regional Trading Blocs and the World Economic System. Washington, DC: Institute for International Economics.

Gallagher, P. and Stoler, A. (2009) “Critical Mass as an Alternative Framework for Multilateral Trade Negotiations,” Global Governance 15(3): 375–402.

(p.31) Gamble, A. (2009) The Spectre at the Feast: Capitalist Crisis and the Politics of Recession. Basingstoke: Palgrave.

Garrett, G. (2010) “G2 in G20: China, the United States and the World after the Global Financial Crisis,” Global Policy, 1(1): 29–39.

Giles, C. (2009) “BIS Calls for Global Financial Reforms.” Financial Times, June 29.

Gowa, J. (1983) Closing the Gold Window: Domestic Politics and the End of Bretton Woods. Ithaca, NY: Cornell University Press.

Grimes, W. W. (2009) Currency and Contest in East Asia: The Great Power Politics of Financial Regionalism. Ithaca: Cornell University Press.

Haas, E. B. (1990) When Knowledge is Power: Three Models of International Organizations. Berkley, CA: University of California.

Hall, R. B. (2007) “Explaining ‘Market Authority’ and Liberal Stability: Toward a Sociological-Constructivist Synthesis,” Global Society 21(3): 319–42.

Harvey, D. (2003) The New Imperialism. Oxford: Oxford University Press.

Held, D. (2002) “Law of States, Law of Peoples: Three Models of Sovereignty,” Legal Theory 8(1): 1–44.

—— (2005) Democracy and the Global Order: From the Modern State to Cosmopolitan Democracy. Cambridge: Polity.

Herrmann, R. K., Tetlock, P. E., and Diascro, M. N. (2001) “How Americans Think about Trade: Reconciling Conflicts among Money, Power, and Principles,” International Studies Quarterly 45(2): 191–218.

Higgott, R. A. (1998) “The International Politics of Resentment: Some Longer Term Implications of the Economic Crisis in East Asia,” New Political Economy 3(3): 333–56.

—— (2000) “Contested Globalization: The Changing Context and Normative Challenges,” Review of International Studies 26(5): 131–53.

—— (2005) “Old and New Economic Multilateralism: The WTO, IMF and the G20,” in J. English, R. Thakur, and A. Fenton Cooper (eds.) A Leaders 20 Summit: Why, How, Who and When? Tokyo: United Nations University Press.

—— (2005) Global Public Goods and Global Governance: A Political Analysis of Economic Theory and Practice. Prepared for the United Nations Industrial Development Organisation Project on Global Public Goods and Development: 1–59.

—— (2006) “International Political Institutions,” in R. Rhodes, S. Binder, and B. Rockman (eds.) The Oxford Handbook of Political Institutions. Oxford: Oxford University Press.

Higgott, R. (2010) “Multi-Polarity and Trans-Atlantic Relations : Normative Aspirations and Practical Limits of EU Foreign Policy,” GARNET Working Paper No. 76/10, University of Warwick, Coventry.

Hirst, P. and Thompson, G. (1999) Globalization in Question, 2nd edn. Oxford: Polity Press.

Hoekmann, B. and Kostecki, M. (2001) The Political Economy of the World Trading System. Oxford: Oxford University Press.

Hurd, I. (1999) “Legitimacy and Authority in International Politics,” International Organization 53(2): 379–408.

Ikenberry, G. J. (2001) After Victory: Institutions, Strategic Restraint, and the Rebuilding of Order after Major Wars. Princeton, NJ: Princeton University Press.

Kaul, I., Grunberg, I., and Stern, M. (eds.) (1999) Global Public Goods: International Cooperation in the 21st Century. New York: Oxford University Press.

(p.32) Kenen, P. B. (2001) The International Financial Architecture: What’s New? What’s Missing. Washington: Institute for International Economics.

Keohane, R. O. (1990) “Multilateralism: An Agenda for Research,” International Journal X44(4): 731–64.

—— (2005) “The Contingent Legitimacy of Multilateralism,” Working Paper, No. 9. Warwick University: EU FP6 Network of Excellence on Global Governance, Regionalisation and Regulation: The Role of the EU.

—— (2006) “Accountability in World Politics,” Scandinavian Political Studies, 29(2): 73–87.

—— Nye, J. S. (1977) Power and Interdependence: World Politics in Transition. Boston: Little, Brown & Co.

—— Nye, J. S. (2001) “The Club Model of Multilateral cooperation and the World Trade Organization,” John F. Kennedy school of Government Visions of Governance in the 21st Century, Working Paper No.4.

—— Macedo, S., and Moravcsik, A. (2009) “Democracy-Enhancing Multilateralism,” International Organization 63(1): 1–31.

Kolko, G. (1988) Confronting the Third World: United States Foreign Policy. New York: Pantheon Book.

Lasswell, H. (1935) Politics: Who Gets What, When, How. Chicago: Chicago University Press.

Martin, L. (2006) “International Economic Institutions,” in R. Rhodes, S. Binder, and B. Rockman (eds.) The Oxford Handbook of Political Institutions. Oxford: Oxford University Press, pp. 613–34.

Meyer, J. W., Boli, J., Thomas, G. M., and Ramirez, F. O. (1997) “World Society and the Nation-State,” American Journal of Sociology 103(1): 144–81.

Mousseau, M. (2009) “The Social Market Roots of Democratic Peace,” International Security 33(4): 52–86.

Naim, M. (2009) “Minilateralism: The Magic Number to Get Real International Action,” Foreign Policy 173(July/August): 136–5.

Nanz, P. and Steffek, J. (2004) “Global Governance, Participation and the Public Sphere,” Government and Opposition 39(2): 314–35.

Narliker, A. (2005) The World Trade Organisation: A Very Short Introduction. Oxford: Oxford University Press.

O’Brien, R., Goetz, A. M., Scholte, J. A., and Williams, M. (2000) Contesting Global Governance: Multilateral Economic Institutions and Global Social Movement. Cambridge: Cambridge University Press.

Ougaard, M. and Higgott, R. (eds.) (2002) Towards a Global Polity? London: Routledge.

Rodrik, D. (2006) “Goodbye Washington Consensus? Hello Washington Confusion? A Review of the World Bank’s Economic Growth in the 1990s: Learning from a Decade of Reform,” Journal of Economic Literature 44(4): 973–87.

Rosenau, J. N. (1992) “Governance, Order, and Change in World Politics,” in J. N. Rosenau and E.-O. Czempiel (eds.) Governance Without Government: Order and Change in World Politics. Cambridge: Cambridge University Press, pp. 1–29.

Ruggie, J. G. (1993) “Multilateralism: The Anatomy of an Institution,” in J. G. Ruggie (ed.) Multilateralism Matters: The Theory and Praxis of an Institutional Form. New York: Columbia University Press, pp. 3–47.

Scott, W. R. (1995) Institutions and Organizations. London: Sage.

(p.33) Schiavone, G. (2001) International Organizations: A Dictionary and a Directory, 5th edn. Basingstoke: Palgrave.

Slaughter, A.-M. (2004) A New World Order. Princeton, NJ: Princeton University Press.

Stiglitz, J. E. (2002) Globalization and Its Discontents. New York: Norton.

Stone, D. (ed.) (2001) Banking on Knowledge: The Genesis of the Global Development Network. London: Routledge.

—— (2008) “Global Public Policy, Transnational Policy Communities and their Networks,” Policy Studies Journal 36(1): 19–38.

—— Wright, C. (eds.) (2006) The World Bank and Governance. London: Routledge.

Strange, S. (1998) Mad Money: When Markets Outgrow Governments. Ann Arbor, MI: University of Michigan Press.

Telo, M. (2009) International Relations: A European Perspective. London: Ashgate.

Thakur, R. (2012) “The United Nations in Global Governance: Rebalancing Organized Multilateralism for Current and Future Challenges”,http://www.un.org/en/ga/presidet/65/institutions/GlobalGovernance accessed 3 January 2012.

Tsingou, E. (2004) “Policy Preferences in Financial Governance: Public-Private Dynamics and the Prevalence of Market-based Arrangements in the Banking Industry,” Working Paper 131/04. University of Warwick: Centre for the Study of Globalisation and Regionalisation.

—— (2010) “Transnational Governance Networks in the Regulation of Finance—The Making of Global Regulation and Supervision Standards in the Banking Industry,” in M. Ougaard (ed.) Theoretical Perspectives on Business and Global Governance: Bridging Theoretical Divides. London: Routledge.

Turner, A. (2009) The Turner Review: A Regulatory Response to the Global Banking Crisis. London: FSA. Available at http://www.fsa.gov.uk/pages/Library/Corporate/turner/index.shtml

Wade, R. (2000) “Wheels within Wheels: Rethinking the Asian Crisis and the Asian Model,” Annual Review of Political Science 3: 85–115.

—— Veneroso, F. (1998) “The Asian Crisis: The High Debt Model versus the Wall Street-Treasury Complex,” New Left Review 1(228) (March–April).

Waltz, K. (1979) Theory of International Politics. Reading, MA: Addison-Wesley.

Weaver, K. (2008) The Hypocrisy Trap: The World Bank and the Poverty of Reform. Princeton, NJ: Princeton University Press.

Woods, N. (2000) “The Challenge of Good Governance for the IMF and the World Bank Themselves,” World Development 28(5): 823–41.

—— (2006) The Globalizers: The IMF, the World Bank and their Borrowers. Ithaca, NY: Cornell University Press.

—— (2010) “Global Governance after the Financial Crisis: A New Multilateralism or the Last Gasp of the Great Powers?” Global Policy, 11:51–63.

Wolf, M. (2009) “The Cautious Approach to Fixing Banks will not Work,” Financial Times, June 30.

WTO (2007) World Trade Report: Six Decades of Multilateral Trade Cooperation—What Have we Learned? Geneva: World Trade Organisation.

Xu, Y-C. and Weller, P. (2004) The Governance of World Trade: International Civil Servants and the GATT/WTO. Cheltenham: Edward Elgar.


(1.) We should note that the GATT, in contrast to the IMF and the World Bank, was initially a set of bargained agreements rather than an organization. It was its metamorphosis into the WTO that finally established organizational structure.