September and October are shaping up to be hard months in a precarious year. A meltdown in financial, credit, and housing markets. The continuing stress of high food and fuel prices and the dangers for poverty and malnutrition. Anxieties about the global economy.
The events of September and October could be a tipping point for many developing countries. As always, the poor are the most defenseless. Voices around the world are blaming free markets. Others are asking about the failures of government institutions. We cannot turn back the clock on globalisation. So we must learn the lessons from the past, as we build for the future. We must modernise multilateralism and markets for a changing world economy.
Today's globalisation and markets reflect huge changes in information and communications technology, financial and trade flows, mobility of labour, world-wide interconnectivity and vast new competitive forces. New economic powers are on the rise, making them stakeholders in the global system. These rising powers want to be heard.
Private financial markets and businesses will continue to be the strongest drivers of global growth and development. But the developed world's financial systems, especially in the United States, have revealed glaring weaknesses after suffering titanic losses. The international architecture designed to deal with such circumstances is creaking.
The New Multilateralism, suiting our times, will need to be a flexible network, not fixed. It needs to maximise the strengths of interconnecting and institutions, public and private. It should be oriented around pragmatic problem solving that fosters a culture of co-operation.
Our New Multilateralism must build a sense of shared responsibility for the health of the global political economy and must involve those with a major stake in that economy. We must redefine economic multilateralism more broadly, beyond the traditional focus on finance and trade. Today, energy, climate change, and stabilising fragile and post-conflict states are economic issues. They are already part of the international security and environmental dialogue. They must be the concern of economic multilateralism as well.
The new multilateralism will rely on national leadership and co-operation. But the G-7 is not sufficient. We need a better group for a different time. We need a core group of Finance Ministers who will assume responsibility for anticipating issues, sharing information and insights, exploring mutual interests, mobilising efforts to solve problems, and at least managing differences.
We should consider a new steering group including Brazil, China, India, Mexico, Russia, Saudi Arabia, South Africa, and the current G-7, that meets regularly, with active formal and informal dialogues. The new Steering Group should not just replace the G7 with a fixed-number G14. We must not use old world methods to remake the new. The Steering Group should evolve to fit changing circumstances. We need this new network so that global problems are not just mopped up after the fact, but anticipated. The Steering Group will still need to work through established international institutions, but the core group will increase the likelihood that countries draw together to address problems larger than any one state.
Just as the financial crisis has been international because of interconnectedness, the reforms will need to be multilateral. Whether through an expanded Financial Stability Forum with the IMF or the Steering Group, these financial supervisory issues will need to be addressed in a broader multilateral context.
The New Multilateral Network must also interconnect energy and climate change. World energy markets are a mess. We need a "global bargain" among major producers and consumers of energy. There could be a common interest in managing a price range that reconciles interests while transitioning toward lower carbon growth strategies, a broader portfolio of supplies, and greater international security.
A climate change accord also will have to be supported by new tools. We need new mechanisms to support forestation and avoid deforestation, develop new technologies and encourage their rapid diffusion, provide financial support to poorer countries, assist with adaptation, and strengthen carbon markets. The Steering Group should help push action on energy, the environment, and financing to assist the UN negotiations and the practical implementation of a climate change treaty.
Dealing with the economic aftermath will be one of the foremost responsibilities of the next US President. But this work is not about America alone. Multilateralism, at its best, is a means for solving problems among countries, with the group at the table willing and able to take constructive action together. Fate presents an opportunity wrapped in a necessity: To modernise multilateralism and markets.
(The writer is President, The World Bank Group.)