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, with big gar­dens and great fences which is the best for pri­va­cy in the club. 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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