Phillip Y Lipscy

Major international crises often produce tectonic shifts in international relations. Under pressure from key European counterparts, President Bush has agreed to a “new Bretton Woods” summit on Nov. 15. It would be hard to overstate the potential significance of this meeting. The first Bretton Woods, in 1944, set the rules for monetary relations among nations, and it created the International Monetary Fund (IMF) and the World Bank. While European leaders are pushing for greater regulation and a major overhaul of the international

financial order, US policymakers have been lukewarm, emphasising the preservation of free-market capitalism. This transatlantic drama has obscured the more fundamental problem — how to accommodate the historic shift of economic power away from the West toward Asia.Including India, broader East Asia encompasses more than half of the world’s population.

The region already accounts for about one-third of global economic output, oil consumption, and CO2 emissions, and this is only likely to grow in the future.

Over the course of the 21st century, Asia’s economic and geopolitical weight in the world will, in all likelihood, come to rival that of Europe in the 19th century. Asian problems will become increasingly indistinguishable from global problems. In the face of such dramatic change, the IMF and World Bank are becoming relics of a bygone era. The days of the US as creditor state are long gone. The IMF and World Bank should be reformed to better reflect the interests and concerns of rising economic powers. Voting shares need to be further redistributed to reflect underlying economic realities. Decision making rules should be modified to give greater weight or agenda-setting authority to regional actors — the US may have a strong interest in loans to Mexico, but Japan may have a greater stake in Indonesia. Assignment of the top positions should be made truly competitive. Core functions should be decentralised — both institutions are headquartered in Washington, impeding employment of top talent from Asia and limiting intellectual exchange.

An international financial architecture that fragments or remains centered on the West as Asia rises will probably prove grossly ineffective. Europe attempted much the same during the turbulent period between the two World Wars, resurrecting a system based on British hegemony even as Britain was in relative decline. Those were scary times, with free riding and beggar-thy-neighbor policies feeding mutual distrust and economic catastrophe.

This will not be the last financial crisis we face. Next time, ad hoc cooperation by the US and Europe may prove insufficient. Franklin Roosevelt had the foresight to include China on the United Nations Security Council long beforethat nation became a geopolitical heavyweight. Similar foresight should be brought to bear as world leaders debate the future of the international financial architecture.