TFR 11 – The Reform of International Institutions

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The report proposes an extensive program of international institutional reform (Chapter IV), with a focus on international economic institutions. The reform proposals are grounded in an analysis of lessons from the past (Chapter II) and of key problems in the current wave of institution-building, the third wave of the postwar era (Chapter III).

A major lesson from the past is that international institutions can make the world safe for interdependence and indeed are necessary to avoid efforts by individual nations to export their internal problems to each other. Hence all issues of international interdependence should be brought under the governance of effective international rules and institutional arrangements. Several new institutions need to be created to deal with topics newly critical to international interdependence. A new institution is particularly needed to govern foreign direct investment and multinational enterprises. One set of problems here derives from the global scope of operations of multinational firms, exceeding the jurisdiction of any individual government. The second concerns the need for rules to check the efforts of national governments to seize for their own countries a disproportionate share of the benefits generated by foreign direct investment. New arrangements are required on several fronts in the area of commodity trade. Commodity agreements, with buffer stocks to defend floor and ceiling prices alike, will be the best answer for some products. The proposed International Resources Bank could help smooth the flow of investment capital into producing countries and help assure adequate output over the longer run.

Several existing international institutions need reform. New arrangements are needed in the General Agreement on Tariffs and Trade (GATT) to govern export controls, like the rules which have for a generation governed import controls. The GATT needs reform in a number of other areas as well. The International Monetary Fund (IMF) needs new arrangements to effect multilateral surveillance over the system of flexible exchange rates and control over the growth of international liquidity. For the first of these two purposes, a permanent committee should be created within the Fund to monitor exchange markets constantly and develop norms against which to assess national interventions. For more control over liquidity, a Reserve Substitution Account should be created through which national monetary authorities could convert their current reserve assets into Special Drawing Rights. SDRs were developed in the late 1960s to permit effective control in this area, but have fallen into disuse.

The OECD should strengthen its process of consultation on the policy plans of the major industrialized countries and the likely interactions among them. The economic officials of at least the largest countries must begin to think in terms of managing a single world economy in addition to managing international economic relations among countries. In the area of development assistance, a consolidated "world development budget" should be constructed each year and discussed actively by donor and recipient countries, perhaps in the World Bank, as they formulate their plans. This budget might then be coordinated with other developmental policies in the United Nations.

History has shown that the greatest dangers to international stability often arise from those nations whose real power is inadequately reflected in the relevant sets of international arrangements and symbols of status therein. Such nations can challenge the legitimacy of the system with actions as well as rhetoric. Much of the current call for a new international economic order flows directly from such concerns, and a major need in the current phase of institution-building is to bring developing countries into effective participation in the international system. First, serious and sustained attention must be paid to their substantive concerns. In terms of broad objectives, this requires the international economic system to attach priority to issues of income and wealth distribution as well as the more traditional goals of efficiency and growth. A second essential step is to provide major developing countries with a role in the international decision-making process which corresponds to their sharply increased importance to the system. A third step is to go still further and bring selected "newcomers" into the inner circles of international decision-making.

The report envisages a series of concentric circles of international decision-making to provide the collective management which has become necessary for at! effective international system: a small informal core group (which might differ in its precise composition from issue to issue), a broader group of all major countries, and formal implementation of agreed initiatives through existing or new universal institutions. Such a system can be both effective and legitimate, if implemented through continuous consultations among countries in the different circles and if individual countries are willing to be represented by others at some levels of discussion. A system of representation is in fact evolving through the medium of the new Conference on International Economic Cooperation (CIEC), which could provide policy direction for a wide-ranging set of agreements to be carried out in other forums.
 

Authors

C. Fred Bergsten, Senior Fellow, The Brookings Institution, Washington
Georges Berthoin, former Chief Representative of the Commission of the European Communities in the United Kingdom
Kinhide Mushakoji, Vice-Rector for Programs, United Nations University
John Pinder, Director, Political and Economic Planning, London (Special Consultant)

Table of Contents

Summary of Report
I. Introduction
II. The Lessons of the Past
III. Current Problems
IV. Specific Proposals

A. New Institutions
B. Reform of Existing Institutions
C. Mobilization of International Institutions
D. Integration of Newcomers and Dropouts
E. Leadership
F. Coordination Across and Within Issue-Areas
V. Epilogue

  • Topics: Economics, Trade, Multilateral Cooperation
  • Region:  North America, Europe, Middle East, Africa, Pacific Asia
  • Publisher:  The Trilateral Commission
  • Publication Date:  © 1976
  • ISBN:  0-930503-52-X
  • Pages:  31
  • Complete Text: Click here to download
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