Give China its due in global economy

The history of international economic cooperation teaches us one important lesson: every form of cooperation will die, essentially if not formally, if it does not adapt to new conditions. Now that China has risen to global power status, have the global institutions adapted to the new situation or are they on the verge of losing their relevance, perhaps even dying, because their incumbent powers are reluctant to change?

The past 20 years have witnessed huge shifts not only in what issues international economic cooperation should address, but also in the conditions for effective cooperation.

Importantly, the Cold War, with its ideological conflict between two different ideas of economic and societal order, provided the glue that kept many of these organizations together after their initial post-war purpose had been achieved. The United States had strategic reasons to provide leadership for the global economy, and Europe conformed, sometimes reluctantly, to that leadership. They aimed to spread the principles of the market economy and the role of free trade to generate peace and prosperity.

But that era is now over. Now it is a case of finding mechanisms for old, new and future global powers to collaborate. So what does the progress report say on how that endeavor is going?

Not very well; catastrophes have been avoided but on the current trend, the world's economic institutions are slipping into obscurity.

The good news is that key global powers managed to come together in 2008 and 2009 to prevent the global economy from slipping into a new Great Depression. Even if the crisis response was far from optimal, countries did what was necessary and they halted the crisis from spreading from the West to the East.

The not-so-good news is that there is no new formula for leadership in global institutions such as the World Bank, the World Trade Organization or the International Monetary Fund. All global powers share a responsibility for making these institutions effective, but in the past years most countries have chosen to neglect that responsibility.

European governments have had great trouble accepting that shared responsibility for global economic institutions inevitably means diminishing power and influence for Europe. In fact, European countries, not the United States, are the main losers of power in global institutions, if they are to reflect the real economic power balance in the world. Their role in the World Bank and the IMF will only decline farther as "shares and chairs" in these institutions better reflect the shares that European countries have in the global economy.

The United States is crippled by ever increasing political conflicts domestically, and the country has had great difficulties accepting the fact that the end of the Cold War did not bring it the desired "dividend" of greater economic and financial support from other countries in underwriting these institutions. Now with China at the table of global economic leaders, the strategic imperative to provide financial support through global economic institutions has diminished as the US governments is hesitant about China's future role in the global system.

Emerging markets and powers such as China have not responded ideally either. They take part in global economic governance but they shun the role of a responsible leader. In recent years, the largest emerging powers have also fashioned new institutions alongside global economic institutions.

None of these new cooperative efforts are created to be alternatives to multilateral institutions. Most of them, such as the Asian Infrastructure Investment Bank, can help push economic development. There is a need for improved conditions for real investment in many developing and emerging countries. Likewise, institutions such as the World Bank need competition. As in other parts of the world, regional cooperation in Asia is a necessary component to make national policies in Asia more effective. Whether we like it or not, regional cooperation is still the best form of cooperation the world has on offer to fix global problems.

China has a great role to play in global economic governance. It should be invited by other countries to assume a leadership position. As a global economic power, China is increasingly facing the same problems as other countries in its position have done before. With vast interests abroad, and with an ever growing number of companies and citizens operating abroad, it does not have the luxury to look the other way when its interests are challenged. To manage its own interests and policies, it will need cooperative institutions that extend beyond its own neighborhood and that offer simple and transparent rules that countries should follow. Smaller collaborative efforts can do good, but their real effectiveness only comes if they are aligned with a larger policy strategy for the world.

The author is director of the European Centre for International Political Economy, a world-economy think tank based in Brussels.