Only by reshaping the postwar settlement can it be preserved

Only by reshaping the postwar settlement can it be preserved
By Philip Stephens
Published: February 24 2006 02:00 | Last updated: February 24 2006 02:00. Copyright by the Financial Times

We have been well served by the panoply of international institutions created since the end of the second world war. The multilateral system has been decisive in limiting conflicts and in spreading prosperity. For all the tyranny, poverty and casual brutality still around us, the advance on to a global stage of the rule of law has been history's most powerful civilising force.

Casting a glance at today's politicians, it is impossible not to admire the vision of the generation of postwar leaders who saw well beyond the boundaries of narrow national interest. "The Creation" eloquently described by Dean Acheson, the former US secretary of state, was not quite as neat and orderly as it seems in retrospect. But these were political giants alongside today's pygmies.

Nations are more interdependent than ever. Even the US, the most powerful the world has seen, has discovered, albeit belatedly, that hegemony does not bestow omnipotence. I heard Donald Rumsfeld remark the other day: "There is nothing important in the world that we [the US] can do alone." How different things might have been if the US defence secretary had shown such laudable realism a little earlier.

For all that, yesterday's global architecture does not always fit today's world. In some instances, institutions created over the past six decades have outlived their usefulness. Others have struggled to adjust to the end of the cold war. Elsewhere, as we saw last year in the failed attempt to secure radical reform of the United Nations, the interests of incumbents seem to clash with those of aspirants as the world's rising powers challenge the old order.

For all its manifest flaws - more often the fault of governments than its bureaucracy - the UN remains the essential source of international legitimacy. There is much to be done to streamline its myriad agencies and, vitally, to widen permanent membership of the Security Council. It will take too long. But if the UN did not exist we would have to invent it.

The same cannot be said of all the postwar institutions. Earlier this week, Mervyn King, the governor of the Bank of England, called for a radical overhaul of the International Monetary Fund, one of the twin pillars of the Bretton Woods system. The IMF was long seen as guardian of the global economic system. Overall, though not invariably, its influence has been relatively benign. Now it has been overtaken by events.

Its oversight of a fixed rate exchange rate system passed into history with the advent of floating currencies. In an era of free capital flows, the markets force miscreant governments back into line. Nor is there a place any longer for the big lending programmes once used to advance IMF orthodoxies in the developing world. Yet the Fund, with its expensive bureaucracy and a power structure decades out of date, plods along as if nothing much has changed. Mr King wants it redesigned (and, by implication, greatly slimmed down). Global markets, he says, still need rules and the huge imbalances in the world economy demand governments pay closer heed to the wider impact of national policies.

A more ruthless approach would close it down. The Fund's remaining functions could be largely transferred to forums such as the World Bank and the Organisation for Economic Co-operation and Development. If sentimentality demands the IMF nameplate be preserved, it should be as the badge for a small secretariat serving a new club to replace the present Group of Eight nations.

The G8 was originally conceived as a forum for fireside chats between leaders of big western democracies. It has been left behind by political and economic change. This year its summit will be chaired by Vladimir Putin. Needless to say, democracy and the rule of law are not overly high on the Russian president's agenda.

True, Russia is still excluded when finance ministers of the other seven nations meet to discuss the world economy and exchange rates. But so too are China, India and the other rising economic powers whose decisions are central to the overall stability of the economic system. If a serious effort is to be made to tackle economic imbalances these countries must have a seat at the table.

Suggest this to policymakers and they will shake their heads. It is all too difficult. The old powers will always refuse to give way to the new - witness the deadlock over expansion of the Security Council. Better, the policymakers sigh, to make ad hoc adjustments to existing organisations and to build new, informal groupings alongside them.

Things anyway, they will add, are not that bad. Negotiations with Iran about its nuclear programme have seen India and Germany join the five permanent Security Council members in an informal group. Nato has extended its reach beyond Europe. And, for all its present crisis of confidence, the European Union has expanded eastwards.

All true. But the process of twisting and manipulating existing institutions to changed circumstance has limits. Someone said to me the other day that the US administration wants Nato to abandon entirely its geographical remit and throw open its doors to Japan, Australia and the like. As it happens, I can see a case for a new, security-orientated organisation. But it would not be called Nato.

Globalisation should be a friend to multilateralism. Interdependence increases the value of the public goods that flow from international institutions. But it does not always seem so. Governments who see their authority under threat from the erosion of national borders become more reluctant to cede even notional sovereignty to global organisations. Too often, multilateralism is viewed, wrongly, as a zero-sum game in which a gain for one player must imply losses for others.

Nor should we blithely assume that economic interdependence has inoculated the world against national rivalries. History teaches us that economic self-interest is a feeble shield against nationalist passions - witness the current state of relations between, say, China and Japan.

All these tensions are magnified by the growing sense among the world's rising powers that the founders of the clubs - above all, of course, the US - are intent on excluding them. Yet the system will survive only if the outsiders, most obviously China and India, but others too such as Brazil and South Africa, are given an appropriate stake. Power, if you like, in return for allegiance. The way to safeguard the postwar settlement is to reshape it fundamentally.