G20, explained.
The undermining of trust in international institutions mirrors doubts about the benefits of globalisation (Getty Images)
Why we need international institutions…
…and how to rebuild them in an era of great power competition.
G20, explained.
The undermining of trust in international institutions mirrors doubts about the benefits of globalisation (Getty Images)
…and how to rebuild them in an era of great power competition.
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Why we need international institutions…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.
International institutions are essential to manage these growing risks and to make international trade and investment markets work.
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 multiple UN bodies (Molly Riley/The White House/Flickr)
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.
Ultimately, international institutions only work where their member countries agree to abide by the institution’s authority.
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:
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.
About the author
Jenny Gordon
Dr Jenny Gordon is a Nonresident Fellow at the Lowy Institute and also a Honorary Professor at the Centre for Social Research and Methods at the Australian National University.
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