Why, amid unmatched prosperity, is anxiety about future economic prospects so great? The framework that has guided international economic relations for the past 50 years has delivered results. What is behind the growing dissatisfaction with the international economic order, and what is to be done?

The problem is, in a word, political: There is a lack of democracy. The governing institutions and guiding principles of the global order were created nearly 50 years ago by a small number of states, remarkably homogeneous in makeup and outlook. The world has been transformed since. There are more countries, and hence, more governments, demanding input into the rule-making process; nongovernment organizations assert their right to speak. More money is sloshing with unprecedented rapidity through the system, and in forms never before seen.

Each of these changes has exposed inadequacies in the existing financial architecture. Taken together, they have shifted the balance of power. Ironically, just as more governments protest their exclusion from international economic decision-making, the structure of the economy is changing in ways that render all governments powerless. The seamless web of global communications permits financiers to move funds at the push of a button, lowering every global standard to the lowest common denominator.

There are extreme solutions — sovereignty can always be guaranteed at the price of international isolation — but they are not worth the price to be paid. Prosperity has been created on the back of a liberal trade order. Even the economic success stories that have seemingly flouted the received wisdom — the mercantilist economies of Japan and South Korea, to name two popular examples — needed trade and investment to grow.

Still, disillusionment is mounting. That is understandable, given the vicious swings of the last two years and the unease generated by the realization that there is no check to the vicissitudes of the market. Purists may think that is as it should be, but politicians must answer to the many who have lost their jobs and face the future with anxiety.

Reform is inevitable. The decision to split the term of the World Trade Organization secretary general is proof of that. Another promising sign is the formation of the new Group of 20, which held its inaugural meeting last month in Berlin. This group is composed of the G7 economies and 13 developing nations, as well as officials from the European Union, the International Monetary Fund and the World Bank. The new group speaks for 80 percent of the global economy. Even more important, it represents 66 percent of the world’s population; the G7 nations have only 12 percent.

The G20 addresses the democracy deficit. The group’s ability to reach agreement on new rules for the global economy is another matter. Consensus on anything more than generalities will be difficult; even the G7 nations have been frustrated in their attempts to reform the existing economic architecture.

Fortunately for the reformers, there are voices of dissent among the orthodox. Japan has long counseled that the workings of the free market should be cushioned. While there is some truth to the claim that Japan’s position is the product of political as well as economic concerns, Tokyo’s stand does help the cause. But today, heretics within the IMF and the World Bank, the high church of the “Washington consensus,” acknowledge that the old solutions are no longer the best ones.

The key is constructing workable solutions. Radical reform is a nonstarter. Governments are increasingly chary about setting up yet another international institution. Reworking the old organizations will be challenge enough.

It can be done, however. Under President James Wolfensohn, the World Bank has drafted new guidelines for loans, invited NGOs to provide input and tried to stake out a new course. It has had some success, but more needs to be done. The IMF is in the midst of a similar process, reassessing its assumptions and its standard operating procedures.

The formation of the ASEAN-plus-three dialogue, which includes the 10 members of the Association of Southeast Asian Nations, Japan, China and South Korea, is an encouraging development. There must be safeguards to ensure that regionalism does not prevail over global solutions, but the history of the European Union and the North American Free Trade Agreement proves that fragmentation of the world economy is not an inevitable result of increased regional coordination. And if that fear spurs the search for common ground, so much the better.

In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.