Multilateral misalignment

Over at the Lowy Institute, Michael Wesley has opened a debate on the multilateralism with a brief dyspeptic review, characterising multilateralism as the “copper wire” technology of international relations. Professor Nick Bisley from La Trobe joins the chorus and no doubt others will follow.

I’ve been puzzling about the shortcomings of multilateralism for some time. The recent failures of multilateral institutions are attributable to many factors—identifiedby Wesley and others—that are specific to the domains in which they act (climate, the financial system, the trading system, regional security). But there is also a common factor that reflects profound differences of outlook in the global economy and society. I argue that these differences have led to a significant—but, I think temporary—mis-alignment in incentives among leading economies that will not be affected by the enthusiastic urgings of the Australian government or by the scare-mongering of the Doha boosters.

The biggest multilateral institutions are in the doldrums; some may be foundering. The UN Security Council seems little more than bad theatre with pompous scripts and stylized gestures. Several UN specialized agencies—such as ECOSOC, its functional commissions and some of its regional organizations—are a blatant waste of money. Some agencies have been captured by irresponsible, single-issue politicians, often with jobs in the Secretariat (UNEP’s IPCC is an instance). The 2010 Kyoto Climate Convention, to which Kevin Rudd took an army of civil servants and hangers-on, was a circus of embarrassments; lack of consensus being only the last and the most predictable. Worse, two out of the “Bretton-Woods” trio (IMF and World Bank) are struggling with governance, relevance and poor performance records while the third, WTO, is in addition choking on its own mandate (and may soon turn purple).

Like Michael Wesley, I’m irritated by the uncritical embrace of multilateralism and its institutions that marks Australian foreign policy. The funds and diplomatic effort we put into them seems disproportionate and even wasteful, if not self-serving (recall Kevin Rudd’s expensive and futile bid for a Security Council seat). I’m frustrated, too, by the dogged encouragement our government gives to efforts to confect a trade deal (Doha) that has been moribund for almost six years and effectively dead for the past three (since late 2008).

Although I’ve been out of government for nearly two decades, I’m still close enough to the negotiations to be embarrassed (but not inclined to object) to hear senior officials of our closest trading partners privately describe our (former)Trade Ministers’ multilateral enthusiasm as “madness”. In fact, our actual trade agreements have always been a mix of bilateral, multilateral and plurilateral/regional efforts. But Ministerial statements habitually portray multilateralism as the “high road” and the rest as some sort of unfortunate kludge.

But I think I’m more inclined than MW to see virtue in the idea of multilateralism. Poor returns from multilateral diplomacy are not characteristic of our experience. Australia’s net gains from multilateral cooperation over the past century have been very large; maybe unequalled. We’ve had much more benefit than we’ve paid for (or could pay for) in trade access guarantees thanks to the GATT/WTO MFN treaty rules. I’m not sure that the same calculus holds in security (possibly bilateral relations with the USA and UK have delivered more than any multilateral arrangement). But I suspect that there is a danger of underestimating the overall gains from multilateral collaboration because, in many domains, it is hard or impossible to evaluate the counterfactual.

So, for example, how much does Australia—as an obvious country of refuge on the margins of Asia—profit from the UNCHR facilities and procedures that moderate our exposure to floods of displaced persons in that huge continent? Who knows how to estimate what our “boat people” problem would be in the absence of that multilateral effort? Limitless horror (as an un-contained stream of people brutalized by war and persecution invade our shores)? A little worse (but distance turns out to moderate the rate of arrival more than UNHCR)? Less risk (because without on-the-spot UNHCR services most potential refugees would not survive long enough to discover or enter the illegal transit routes)? Take your pick of these scenarios; there’s not much data..

It is important to distinguish the multiple management failures that are typical of multilateral institutions (e.g. lack of top-level accountability leading to waste if not corruption; padding of staff lists; cronyism; immobile senior management; ‘silo’-like information and personnel strucutures born of jealously-guarded program ‘ownership’) and the failures of governance for which the member governments must take responsibility such as over-blown and overlapping mandates; un-challenging, lowest-common-denominator programs; failure to identify and effectively service a needful client community; lack of appropriate “democratic” sanction for their actions. The governance failures/shortcomings are easily the more significant of the two and are—you should not be surprised to learn—well known to analysts, secretariat officials and to the community of government officials that labor on multilateral diplomacy around the world. So why haven’t they been fixed?

I’ve often asked myself this question. I know many clever, hard-working, even idealistic officials in governments of developed and developing countries that would like to see changes. Why haven’t they happened? Why has WTO, for example, spun its wheels for the past decade, unable to achieve simple, effective agreement on subjects that—a decade ago—its Member governments said they were ready to deal with? I don’t have an answer to the question, but I do have a speculation that might be a little more plausible if I put it in historical context.

On 14 November 2001, when they approved the Doha Round negotiating mandate in the capital of Qatar, WTO Member governments and their industry advisors were focussed on the trade challenges of the 1990s (this retrospective approach is typical of trade policy). It seems they were unaware that the accession of China to WTO membership (at Doha, a few days earlier) had already made their objectives and processes moot. I was there (on behalf the Australian dairy industry). Like many others, I realized that China’s membership would be “game-changing” in some ways and that the China of the tortuous accession negotiations was not necessarily the China that we would see in the WTO Council. But I did not know how things would change, nor how rapidly. Should those at Doha have better foreseen the course and extent of China’s growth over the following decade? Should we have predicted the policies of the Indian government (that almost didn’t sign the final act at Doha)? Should we have factored-into the mandate the reaction of the rest of the world to the increasing competitiveness of China’s exports and the huge growth in its external reserves? Even supposing we had recognized these challenges, would we have re-negotiated the Doha Declaration to ensure that we could reach agreement in the proposed four-year time-frame? My guess is probably not. After the spectacular failure of the Seattle meeting of WTO, any agreement in Doha was considered a face-saver: let the future take care of itself.

So it did. There were plenty of crabs in the Doha mandate (the vapid ‘development agenda’; the impossible single-undertaking; the idiotic stipulations that killed negotiations on competition policy and investment) but none of them mattered as much as the China+India factor.

My speculative assessment is that the negotiations have bogged down for many specific (“proximate” in Trevor-Roperese) reasons but generically because of a “phase mismatch” in the economic and social objectives of key members (say, the West and the BRICs). It has been clear since at least 2008 that agreement on international trade rules is possible only on terms that require either wealthy economies such as the United States (still an “indispensable” partner in the regime) or the giant poor economies that account for the dynamism in global goods markets (China, India, to a lesser extent Indonesia and Brazil) to accept a strategic policy reversal. China’s priorities (to grow rich before it grows old; to maintain the real rate of aggregate growth while rapidly reducing reliance on export demand and lifting domestic demand with improved income equity) do not align well with the United States’ urgent need to improve its export competitiveness as part of a strategy to recover fiscal balance; the European and Japanese need to improve productivity growth despite an ageing population or Europe’s emergent problems with sovereign debt and the strains it places on the monetary union.

Crucially, each of these divergent national imperatives engages the interests of a significant national political economy (I have have details for the agriculture sector that Andrew Stoler and I collected as part of a recent research project; but I am confident that the same would be true of the manufacturing and service sectors). So demands that governments “bite the bullet” and do a deal in the Doha negotiations for the sake of “saving” the multilateral regime despite the social and economic compromises involved strike me as somewhat naïve. Does reaching an international trade agreement rank with meeting the health, education or retirement expectations of a billion members of the middle class (in China and India, by 2030)? Not even nearly. Are two objectives really incompatible? Well, it is plain that, for the moment, decision makers including the in the political economies of both China and India think so.

The domain for constructive compromise in WTO-Doha and some other multilateral regimes, has (at least temporarily) shrunk because of this mismatch. This is not likely to be a permanent problem, but governments should accept it and move on, rather than clinging—as the Australian government has done—to some technocrat’s fantasy of a legal ‘fix’ that bridges the gaps with tailor-made rules, “compensation” and ambiguous undertakings. We should be looking for short-term alternatives (as both Michael Wesley and Nick Bisely advocate and as Andrew Stoler and I did in our “critical mass” project), and we should be keeping the ground prepared for the “re-alignment” of national objectives and an eventual return to new, more effective multilateral collaboration on economic and strategic issues. Of course, I’m aware that such re-alignments have, historically, been born in crises; wars, famine, pestilence etc. But I’m an optimist on this score (and others): my guess is that current demographic trends in Asia (especially) will bring about a peaceful re-alignment before the middle of the century.

I agree with Michael Wesley that multilateral institutions have become so big—or, more precisely, that the interests of a membership of up to almost two hundred states is so diverse—that its practically impossible to get any other than “lowest common denominator” decisions from them. In a low-ambition environment small defections from the rules grow; free-riders become bolder; the “commons” deteriorates. This is a familiar problem of collaboration and governance; a “market failure” that is not limited to multilateral institutions. Probably every successful gardening club, civic association and book-reading group in the world has faced a similar challenge as its membership grew. In those cases the solution may be to “fork” the club articles of association (to borrow a term from software collaborations) so that different groups of members may redefine their interests and head off in different directions. That solution is not desirable in a global governance regime, however, that depends for its legitimacy on global coverage. But there is another solution that harks back to the earliest days of the UN and Bretton-Woods institutions when a “hegemon” (the USA) could set high horizons and could offer incentives that dissuaded smaller states from (overt) defection.

Its difficult to imagine a return to an era of hegemonic control of multilateral regimes. But in a future “re-alignment”, the low-ambition/free-rider/defection problems created by the diversity of interest among 200 states could be overcome if the “leading” states share a vision for the global regime (economic, security etc) and have the coincidence of interest to pursue it. Is this conditional too optimistic? I hope not because in some domains including trade governance, there is no obvious alternative to multilateral cooperation; at least, not while the “nation state” remains the foundation of economic and social government.

I also agree with MW that the entrenchment problem (of secretariat staff, of special interest groups, of some lazy and dependent governments and, above all, of diplomats that staff the “permanent missions”) has kept some institutions alive far too long. I had the doubtful distinction of being Australia’s (and NZ’s) first Director of the UN Common Fund for Commodities based in The Hague. The Common Fund was a largely dopey idea from the 1970s that should have been still-born but unexpectedly survived when the Soviet Union (a similarly dopey idea from the 1920s) decided to ratify the treaty and deposit its modest contribution to the fund (in rouble-denominated bonds, I believe). After trying vainly for almost a year to discover something useful it could do —other than screw around with commodity stocks or prices—I had the happy task of ensuring, on instructions from the governments I represented, that I was the last ANZ Director of the Fund. But it survives in nice tax-free premises donated by Netherlands, dispatching memoranda with sonorous titles on the subject of “commodity dependence” and “market volatility” that could just as easily, and with a similar lack of consequence, be composed by two or three other UN organizations.

Finally, one point on which I don’t agree with MW is his claim that multilateral institutions “have become more conducive to conflict than co-operation.” I don’t know where you’d get the data to support the claim, but neither do I see the problem. The point of multilateral cooperation in most domains is precisely to reduce the potential for armed or retaliatory economic clashes over the externalities of domestic policy in the name of smoother exchange (commercial, cultural, migratory) and peaceful relations. The GATT/WTO treaty establishes a set of regulatory and procedural norms that minimise the opportunity for conflict. But in most multilateral institutions (and sometimes in GATT/WTO) an emergent conflict is referred to the treaty domain where it is hammered out in a diplomatic struggle. In Churchills’ words, “jaw, jaw is better than war, war”. The jaw-ing is full of conflict and always has been; but that’s what the institution is for.

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