The International Monetary Fund (IMF) and World Bank recently held their annual meetings in Washington, DC. More than five thousand miles away at almost the same time, Russia hosted a summit of the BRICS grouping, attended by original members Brazil, Russia, India, and China, as well as representatives from dozens of other countries. The two nearly overlapping events revealed a concerning reality of the world today: The global economic governance architecture is fragmenting.
The last instance where the international community came together decisively was in response to the 2008 global financial crisis. Then, heads of state gathered in Washington, DC, for a Group of Twenty (G20) summit to agree on a coordinated response to the crisis and lay the foundations for a reform of the financial system. That summit was followed in 2009 by summits in London and Pittsburgh. Since then, international economic cooperation has steadily eroded, with the possible exception of the 2021 agreement of the Organisation for Economic Co-operation and Development–led initiative to impose a global minimum corporate tax of 15 percent. While several dozen countries have adopted the second pillar of the global minimum corporate tax—a tax income inclusion rule related to foreign income of parent companies—none of these countries have adopted the first pillar, which would have ensured uniformity in implementation and overriding of domestic tax treaties. This situation raises doubts about the ultimate implementation of the global minimum corporate tax.
A series of shocks, most notably the COVID-19 pandemic and the war in Ukraine, have rocked international economic cooperation. At the height of the pandemic, the hoarding of vaccines by richer countries seriously damaged their compact with poor countries, spilling over into the economic arena. The ongoing wars in Sudan and Gaza have also demonstrated the inability of the international community work together to stop conflicts, leading to mounting economic uncertainty worldwide.
International economic coordination is eroding at the same time that geopolitics are reordering.
At the same time, leaders in developing countries have increasingly called out advanced economies’ double standards, including on the application of sanctions. They have also become more assertive about their own domestic priorities, pushing back on what they perceive as a Western-dominated international agenda.
The failure of coordination of the international community is also blatant in the arena of climate change. The United Nations’ Conference of the Parties (COP) that took place in Paris in 2015, and which led to the signing of the Paris Agreement in 2016, was arguably a breakthrough. But it rested on the previously made pledge, first agreed to in 2009’s COP in Copenhagen, that rich countries would provide $100 billion a year to poor countries. That promise was not met until 2022, two years later than the initial target date of 2020.
The distribution of clean energy investment is mostly in rich countries and giant emerging markets, such as China and India, leaving behind many developing countries, which cannot afford borrowing for these new investments. Many developing countries have resorted to doubling down on hydrocarbon energy, arguing that granting their citizens access to electricity and reducing poverty takes precedence over fighting climate change.
The issue of international coordination on the energy transition is intertwined with the issue of debt. After an important breakthrough in the context of the G20 during the pandemic with the debt service suspension initiative, the common framework appears to have stalled. The shift in the composition of developing countries’ debt toward more private and nontraditional creditors arguably makes it more difficult to coordinate on debt restructuring.
In a bold move, the IMF announced in April that it would revise its policy of lending into arrears to financially support countries whose debt restructuring processes are being held up by major official creditors, including China. That said, it would help if the voices of emerging and developing countries would better represent their shares in the world economy and population in the existing global financial architecture, including in the Bretton Woods system—a system based on the structure of the world economy at the end of World War II.
International economic coordination is eroding at the same time that geopolitics are reordering, with the United States and Europe on one hand and China on the other engaging in a strategic rivalry. The changing power balance between the so-called Global North and Global South could lead the superpowers to use trade, investment, sanctions, and development aid to sway other countries into their camps.
For instance, in the race to dominate the green industry, superpowers could be tempted to offer privileged trade and investment partnerships or aid to gain access to critical mineral resources. That would risk further fragmenting global value chains. With growing vulnerabilities and a further erosion of governance in developing countries, leaders could attempt to grab these new geopolitical rents at the expense of their citizens. Deviating from globalized markets will no doubt decrease efficiency and leave hundreds of millions of individuals worse off.
A new era of ‘coopetition’
Another way is possible. Western countries should accept a change in the balance of power and the competition that comes with it, but agree to coordinate on the ultimate direction of travel. There is too much at stake with the energy transition, wars, and debt distress, with developing countries paying the heaviest price. The resulting destabilization of developing countries could backfire on superpowers in the form of globally intensifying migration, terrorism, and climate shocks.
In their famous 1996 business strategy book, Adam Brandenburger and Barry Nalebuff coined the phrase “coopetition”—a portmanteau of competition and cooperation. The authors make the case that neither war nor peace mindsets are appropriate characterizations of what business is and should be about. They argue that cooperation is needed to create the pie, and competition is warranted when dividing it. That is a good analogy for today’s geopolitical landscape. Whether it is to confront existential threats linked to climate change, proxy wars, debt, and global health challenges, global superpowers should turn their ongoing rivalries into a race to the top rather than a race to the bottom in which everyone loses.
For instance, in the arena of climate change, Chinese, US, and European leaders must make renewed commitments to climate goals to make cooperation complementary to the ongoing competition to dominate the green industry. The same rationale applies for much stronger global cooperation on combating pandemics while competing in the development of the vaccine industry.
Coopetition is not just for major powers. Greater cooperation among poorer countries is also necessary to resolve the global debt crisis, accelerate technology transfers, and increase poorer countries’ access to capital markets, including green infrastructure investments. Poorer countries should thus also compete by forming coalitions and coordinating with other blocs to accomplish shared goals.
In the aftermath of World War II, the Bretton Woods institutions were created with the mission to help the world rebuild physically. In the twenty-first century, the challenge is to rebuild economic governance in a way that accounts for the interdependence of climate, peace, economic stability, and global health in a world increasingly organized around geopolitical blocs. To ensure that the developing world does not get left behind, coopetition between the major blocs is the way forward.
Rabah Arezki is a former chief economist and vice president at the African Development Bank and former chief economist of the World Bank’s Middle East and North Africa region. He is also the former chief of commodities in the International Monetary Fund’s research department. He is a professor and research director at the CNRS, a member of the FERDI’s chair working group on the international architecture of financing for development, and a senior fellow at Harvard Kennedy School.
Further reading
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Image: Signage for the International Monetary Fund (IMF) and World Bank Group (WBG) 2024 Annual Meetings is seen at the IMF secondary headquarters, in Washington, D.C., on Monday, October 21, 2024. (Graeme Sloan/Sipa USA)