World Economy Working Group

IEA Working Group on Reconstructing the World Economic Order

Conveners:

Lili Yan Ing (ERIA), Dani Rodrik (Harvard) and Yang Yao (Peking Univ.)

Members:

Gordon Hanson (Harvard), Keyu Jin (LSE), David Daokui Li (Tsinghua), Eric Maskin (Harvard), Danny Quah (NUS, Singapore), Andres Velasco (LSE), Yongding Yu (Chinese Academy of Social Sciences)

The post-1990 model of hyper-globalization is under serious challenges. While a few emerging economies, noticeably China and India, have raised their respective average citizen’s living standards, inequality has increased in almost every country. Economic polarization has led to political polarization in advanced countries, and inter-continental migration from the global south has only increased the tension. The rise of China has posed a particular challenge to the United States and its allies. China is not a liberal democracy and its economy has adopted a mix model of markets and state intervention, if not one that is wholly controlled by the state. The country’s approach to combat COVID-19 has also added the west’s worry that its authoritarian model would gain ground worldwide. China and the US are entering a new stage of rivalry. On the economic front, the two countries have been engaged in a tit-for-tat trade war, and both countries have imposed export bans toward the other country.

Those developments have inspired a wide-range wave of commentaries on the new global order. While some of them insist on the America-led liberal order, others propose new forms of order. Those efforts notwithstanding, the order(s) that will shape international relations in the remainder of this century are hard to predict. Instead of searching for new orders, it is probably more productive to find a rational framework that allows countries to forge future orders, or to preserve old orders.

The IEA has convened this working group of scholars to discuss a framework for countries with conflicting interests to negotiate with each other. The premise of this roundtable is two folds. First, different norms or principles might prevail in different issue areas or regions, and relations among states and other actors are more likely to be regulated by a complex, partial, sometimes inconsistent, and ever-changing set of rules, norms, and procedures.

Second, except basic human rights, a world order that preserves peaceful coexistence does not need countries to subscribe to a wide-range and comprehensive set of political values and economic practices. Different countries have different history which in turn determines their political values. Countries are also at different stages of economic development and commensurate economic practices may be needed. Better changes are always carried out by people within a country, not imposed by outsiders. The framework we aim to develop would provide the procedures and standards for countries to negotiate their bilateral or multilateral relationship.

For a first step along these lines, see the report on which the two conveners have previously collaborated, in a group comprising legal scholars along with economists. This paper, by Rodrik and Steve Walt, develops the approach further and generalizes it to broader global issues.

In short, our objective is to examine the features of a new global economic order that can serve multiple purposes: accommodate countries like China, with economic systems that differ greatly from those in the West; allow advanced and other nations to pursue their domestic economic and social objectives; and maintain a global trade and financial regime that does not foreclose economic opportunities to developing nations.

ERIA-IEA High-Level Panel Meeting

New Global Economic Order

March 25, 2024

ERIA and the International Economic Association (IEA) convened a high-level panel virtual meeting on the New Global Economic Order. Notable attendees included esteemed economists Dr Lili Yan Ing, Professor Dani Rodrik, Dr Kevin O’Rourke, Prof Joseph Stiglitz, Prof Danny Quah, Dr Alessio Terzi, Prof Jose Ocampo, Prof Jayati Ghosh, and Dr Vera Songwe.

Dr O’Rourke offered a thorough overview of the global economic order’s development over the last two centuries, analysing international economic relations from the mercantilist era to the present day and highlighting key historical shifts. His analysis provided valuable insights into the cyclical nature of economic changes, enhancing our understanding of today’s global economy.

Prof Stiglitz and Prof Rodrik critiqued current global governance for favouring powerful nations and corporations, proposing a minimalist approach recognising constraints. They suggested competition among country blocs and justice movements for a fairer system. In A New World Order of Multipolarity and Multilateralism, Prof Quah proposed principles fostering inadvertent cooperation, categorising challenges, and allowing third-party intervention to manage fragmentation.

Dr Ing presented her work with Prof Justin Lin, which examined the transition in global economic governance from major developed nations to the G20, offering insights into the evolving landscape and ongoing transformations. They advocated for optimising comparative advantage, effective infrastructure, and digital transformation to address global economic challenges.

Prof Stiglitz and Prof Rodrik then emphasised the importance of explicit government policies in driving structural transformation in developing countries, proposing a strategy centred on green transition and productivity enhancement in labour-intensive services, stressing collaborative industrial policy and the impact of all government actions on economic growth.

Dr Terzi then presented a nuanced view of climate action, acknowledging the severity of climate change while advocating for structural change and political will. He stressed potential prosperity in climate mitigation and green technologies, guided by a pragmatic belief in human-driven progress.

Exploring recent global discussions on enhancing international financial and tax systems, Prof Ocampo emphasised the role of multilateral development banks (MDBs), addressed over-indebtedness, and bolstered international tax cooperation. He suggested four main reform areas: development financing, international monetary reform, addressing over-indebtedness, and international tax cooperation, with a focus on institutional dimensions.

Prof Ghosh advocated for a new global economic order on a different issue, proposing reforms for international financial institutions (IFIs), regular issuance of International Monetary Fund special drawing rights (SDRs), and sovereign debt resolution. She highlighted the importance of capital controls, financial regulation, reduced external debt reliance, and restructuring the international taxation system for equitable revenue generation. Prof Ghosh also called for issue-based coalitions to address global power imbalances through coordinated actions such as debt sustainability assessments, tax reforms, and financial regulation, potentially driving broader multilateral changes.

Dr Songwe then urged a re-evaluation of development finance, focusing on three key aspects: the growing role of the private sector, the decline in donor funding, and the importance of domestic resource mobilisation. She also highlighted regulatory controls such as Basel III and proposed allocating SDRs for climate initiatives to address environmental challenges. In summary, she advocated for a holistic approach to financing that adapts to changing dynamics and fosters sustainability.

The participants in this High-Level Panel among others also include Prof Elhanan Helpman, Prof Gene Grossman, Prof Eric Maskin, Prof Mari Pangestu, Dr Chatib Basri, and Dr Keyu Jin.