Flash back to 1995. After an eight-decades-long split, the world economy was in the process of being reunified. To manage an ever-growing degree of interdependence, the global community had initiated a process aimed at strengthening the existing international institutions and creating new ones. The World Trade Organisation (WTO) had just been brought to life, equipped with a binding dispute-resolution mechanism that would, among other things, provide an effective channel for managing China’s transition from a closed, planned economy to an open economy that plays by the rules of global markets. A new round of multilateral trade negotiations was in preparation. The Multilateral Agreement on Investment (MAI) was being negotiated under the aegis of the Organisation for Economic Co-operation and Development (OECD). The creation of a global competition system was contemplated. The International Monetary Fund (IMF) would soon be given a broader mandate to oversee cross-border capital flows. A legally binding international agreement, the Kyoto Protocol on climate change, was being negotiated, and plans were drawn for an international environment organisation that would provide a fifth pillar to the global order, alongside the WTO, the Bretton Woods institutions, and the (less effective) International Labour Organisation (ILO). There were strong hopes that the institutional architecture of globalisation was being built.

The intended message to the people was clear: globalisation—a new concept at the time—was not just about liberalising flows of goods, services and capital. It was also about establishing the rules and public institutions required to steer markets, foster cooperative behaviour on the part of governments, and manage a single global economy. Global public goods—another new concept that was loosely applied to a series of issues from biodiversity to climate and from public health to financial stability—would be taken care of through jointly agreed rules of the game. The successful Montreal Protocol on eliminating ozone-depleting gases, agreed in 1987, provided an encouraging template.

These claims were not exempt from hype. Liberalisation was real, but the strengthening of the legal and institutional architecture was only in the making. Also, there were problems with the governance of global institutions:

  • To start with, Europe, the United States and Japan were not only running the show by participating in the Group of Seven (G7); they were also overrepresented on the boards of the IMF and the World Bank, and they enjoyed disproportionate influence in the other major institutions. There was a clear need to redistribute power and influence in favour of emerging and developing countries, whose weight in the world population and GDP was growing fast;
  • Second, governance through sectoral institutions was potentially problematic: each one dealt with one particular field, but none was in charge of cross-sectoral issues such as trade and exchange rates, trade and labour, or trade and the environment (to name just a few). True, the United Nations was meant to provide an overall framework. But in the economic field at least, the UN system was deprived of effectiveness ;
  • Third, these institutions were increasingly criticised for being undemocratic because they were accountable only to governments and not to any parliamentary body. Civil society organisations and environmental NGOs were insistently calling for a remedy to these deficiencies. The international institutions were slowly learning to give them a voice.

The way forward looked clear: liberalisation would be pursued further and globalisation would be managed by strengthening and developing a network of global institutions, each of which would take responsibility for one of the main channels of interdependence. The governance of these institutions would be reformed, so that emerging and developing countries would gradually gain power at the expense of the advanced countries. These institutions would cooperate to address cross-sectoral issues and, as a substitute for proper accountability to a non-existing global parliament, they would develop a dialogue with civil society. Some, like Rodrik (1997), doubted this could be a workable solution and highlighted a trilemma between deep integration, national autonomy and democratic governance. But there was hardly another template on offer.

Fast forward now to 2018. Despite more than a decade of discussions, the global trade negotiations launched in 2001 in Doha (known as the Doha round) have not led anywhere. The WTO is still there but on the verge of becoming wholly ineffective. After obstructing the WTO’s dispute settlement system by preventing the appointment of new members to its Appellate Body, President Trump declared on 30 August 2018 that the US would pull out of the WTO unless the organisation “shapes up”1. Negotiations over the MAI collapsed in 1998. The Kyoto Protocol was signed, but was not lastingly implemented, largely because the US decided not to ratify it. The 2009 Copenhagen conference on climate change failed to reach agreement on mandatory limits on greenhouse gas emissions and ended in dispute. Less than two years after a general, though non-quantitative and non-binding agreement was reached on the occasion of the 2015 COP21 in Paris, the US announced in June 2017 its withdrawal from it. And nobody talks of a global competition system or a global environmental organisation anymore.

Economic nationalism is on the rise. Its offensive guise, state capitalism, is a much more powerful force than anybody expected a quarter of a century ago. It is especially, but far from exclusively, strong in China where corporate champions that were expected to transform into standard public companies remain under the direct or indirect control of the government. Nearly a decade after China joined the WTO, the balance between state-led coordination and market-led coordination is not at all what it was supposed to be. Contrary to expectations, there is growing fear that the Chinese model of development is diverging from the standard market economy template (Wu, 2016). Policy instruments that China regards as development levers are seen by the US administration as instruments of economic control that distort competition and hurt US interests2.

Economic nationalism’s defensive guise, protectionism, is especially, but far from exclusively strong in the US where the Trump administration has embarked on a series of ruthless (and fairly incoherent) initiatives against its main trade partners. In trade at least, it has taken the bilateral route and disregards multilateral rules and procedures entirely. Particularly worrying is the fact that the US has used a national security clause in the General Agreement on Tariffs and Trade (GATT) to impose tariffs on imports from its allies and partners. Countries regarded as running excessive bilateral surpluses are being commanded to reduce them without delay. China has been brutally ordered to import more, export less, cut subsidies, refrain from purchasing US technology companies, curtail investment in sensitive sectors and respect intellectual property (US Government, 2018). The very principles of multilateralism, that pillar of global governance, seem to have become a relic from a distant past. The US seems to have reverted to its interwar defiance vis-à-vis the international system.

The retreat of multilateralism is not limited to the trade realm. It is also visible—though much less pronounced—in international finance where three broad trends are noticeable (De Gregorio et al, 2018). First, the IMF’s attempt to gain a formal extension of its mandate failed already in 1997 and there has been a move away from across-the-board financial account liberalisation. According to the index built by Fernández et al (2016), average restrictions on financial flows bottomed out in the mid-2000s. Since then, capital controls and other regulatory impediments to free movement of capital have regularly increased. Second, since the Asian crisis of 1998, there has been an increasing reliance on unilateral, bilateral or regional solutions rather than on the multilateral safety nets provided by the IMF. National reserves have increased more than tenfold since 2000, against a factor of 3.7 for IMF resources (Truman, 2018). In 2007-08, US dollar swap lines were extended on a strictly bilateral basis by the Federal Reserve to selected central banks; they proved instrumental in avoiding financial disruption but the initial choice of partner central banks and the later decision to grant to some of them permanent access to dollar liquidity have been purely discretionary. Third, regional financing arrangements have developed as a complement but also a potential substitute to the multilateral safety net. Whereas Europe is admittedly a special case because of the introduction of a common currency, the instruments in place could conceivably be used in a broader regional context. Reliance on regional cooperation has also developed in Asia and Latin America.

The trend is similar in relation to the environment. Although the Paris Agreement of December 2015 was hailed as a success of international cooperation, it is far less constraining than the Montreal and Kyoto protocols. Signatories did not commit to internationally determined emission ceilings nor did they subscribe to a multilateral system of rules; rather, each state individually announced what it intended to contribute to the common endeavour, frequently conditional on efforts made by others or on the availability of financial support (Tagliapietra, 2018). There is no enforcement mechanism either. Beyond climate, the failure to address the rapid deterioration of biodiversity illustrates the limits of commitments to collective action to protect the environment.

Cross-sectoral initiatives also cast doubts over the global governance model of the late twentieth century. A puzzling case is the Chinese Belt and Road Initiative (BRI). At one level it can be analysed as a regional infrastructure development endeavour. But it is also presented by Chinese sponsors as a potentially more encompassing project and a “new globalisation mechanism” (Jin, 2018). US critics regard it instead as “debt diplomacy to expand influence” (Pence, 2018). An early test will be provided by the treatment of the bilateral debt overhangs of partner countries. So far, China has been reluctant to contemplate settling overindebtedness cases within the framework of the Paris Club, the usual multilateral venue.

It is hard not to conclude that recent developments in a wide range of fields have dashed the expectations of the 1990s. These developments challenge the system of universal, multilateral, public, treaty-based, institution-supported and legally enforceable rules that provided the basis for global governance since the second world war. The legal and institutional order that underpinned international economic relations for seven decades is undergoing a slow, but major overhaul.

The exception to this trend – admittedly quite a significant one, at first sight at least – has been the creation of the Group of Twenty (G20). At the end of 2008, in response to the Global Financial Crisis, the dramatic decision to establish it (or, more precisely, to elevate an existing finance ministers’ body to government leaders’ level) suddenly gave emerging countries the voice at the high table they had for many years been asking for. Furthermore, it involved them in the design of a financial and macroeconomic response to the worst crisis in six decades. In Washington in November 2008, the G20 initiated a comprehensive financial reform agenda, the implementation of which would be monitored by a new institution, the Financial Stability Board (FSB)3. In London in April 2009, the G20 engineered a concerted budgetary stimulus of an unprecedented magnitude – in which, for the first time ever, the emerging and developing countries participated alongside the advanced countries. In London also, it was decided to increase significantly the resources of the IMF and to proceed with a special one-time allocation of Special Drawing Rights (SDRs), in order to beef up liquidity at the global level. And in Pittsburgh in September 2009, the G20 initiated a Mutual Assessment Process through which the contribution of national policies to the reduction of global imbalances would be regularly monitored by the IMF and discussed among national policymakers4. Since then, the G20 has continued to serve as platform for political dialogue and as a steering body for collective initiatives in a variety of fields (Bery, 2018).

The creation of the G20 was initially hailed as a major step forward for global governance. The leaders claimed that “a global crisis requires global solutions” (London Declaration, April 2009), and announced that the G20 would become “the premier forum for international economic cooperation” (Pittsburgh declaration, September 2009). The G20’s establishment and first steps marked indeed a major departure from the ‘Own House in Order’ doctrine that dominated international economic relations in the early 2000s. Because the Global Financial Crisis illustrated that financial stability is a global public good, the provision of which cannot be left to national authorities acting in isolation, it resulted in a major revision of the prevailing international policy doctrine.

But there should be no mistake. The G20 is no international organisation. It is a political institution that works by consensus and steers the work of technical bodies by issuing political guidelines. The technical bodies themselves are not organisations equipped with effective powers, but are mere coordinating forums. To produce results, the G20 therefore relies on its agenda-setting power and a chain of institutions of uneven effectiveness. Its creation was not meant to imply that participating countries intended to strengthen international law and abide by it. And actually they did not: in the financial field, arguably the domain where most efforts were concentrated in the aftermath of the global crisis, the FSB was neither created as a universal institution nor equipped with decision-making or enforcement powers. Its membership comprises 68 institutions, including ministries of finance, central banks and supervisory and regulatory authorities from 25 jurisdictions, as along with 10 international organisations and standard-setting bodies. It is structured as a coordinating platform that promotes, monitors and advises – in other words “orchestrates” the action of independent national and supranational bodies (Abbott et al, 2015). So even in the most active of all fields, a significant departure from the standard model is noticeable.

The G20 furthermore quickly disappointed hopes (or fears) that it would effectively coordinate national economic policies. The Global Financial Crisis was more a high-noon moment than the start of a continuous coordination process. Writing only a few years after the first G20 summit, Angeloni and Pisani-Ferry (2012) already concluded that they were fearful of “diminishing returns”. Developments since have not resulted in a revision of this judgement.

1 Interview with Bloomberg, 30 August 2018.

2 According to the US Trade Representative (2018: 17), “a key part of China’s technology drive involves the acquisition of foreign technologies through acts, policies, and practices by the Chinese government that are unreasonable or discriminatory and burden or restrict U.S. commerce. These acts, policies, and practices work collectively as part of a multi-faceted strategy to advance China’s industrial policy objectives. They are applied across a broad range of sectors, overlap in their use of policy tools (eg the issuance of planning documents and guidance catalogues), and are implemented through a diverse set of state and state-backed actors, including state-owned enterprises.”

3 The FSB, an assembly of regulatory and financial authorities from G20 and several other countries, was not created ex nihilo but succeeded the previously existing Financial Stability Forum, whose mandate was significantly enhanced.

4 Angeloni and Pisani-Ferry (2012) provide a critical account of the G20’s early initiatives.