Book review: The System Worked. How the World Stopped another Great Depression. Oxford University Press, 2014. 280 pages. R$ 28,32 (ebook, www.amazon.com.br)
http://www.tandfonline.com/doi/full/10.1080/14781158.2015.1041485
Global Change, Peace & Security: formerly Pacifica Review: Peace, Security & Global Change
DOI: 10.1080/14781158.2015.1041485
Published online: 20 May 2015
The global financial crisis of 2008, I argue in my book The BRICS and the Future of Global Order (to be published next month), created a unique window of opportunities for emerging powers. Faced with international institutions’ incapacity to adequately cope with the situation, the BRICS countries began to join forces in their efforts to reform global governance. The need to fix international structures and adapt them to an increasingly multipolar world became the rallying cry of diplomats from Brazil, India, China and elsewhere.
Daniel Drezner disagrees. In The System Worked, the author insists that global structures were up to speed and succeeded in avoiding another global depression:
Despite an initial shock worse than that of the Great Depression, the global economy managed to bounce back after the 2008 crisis. This was in no small part because global economic governance functioned properly to maintain economic openness and build resiliency into the international system.
Indeed, the most affected countries’ Finance Ministers, the author points out, responded with fiscal stimulus, protectionism was averted, and global leaders co-ordinated macroeconomic policy to restore growth. Drezner’s analysis of the world economy shows that things not only got back to normal far quicker than during the Great Depression that began in 1929. Many positive trends, such as poverty reduction, continued throughout the crisis. All that was partly due to existing international institutions, Drezner contends. The WTO, for example, helped put a brake on increases in tariffs and non-tariff barriers.
In order to support his claims, Drezner builds a multi-pronged argument. First of all, according to the author, most experts’ perception of events during the crisis was biased towards excessive criticism. Even policy makers could safely put the blame on international institutions: difficult to understand for the public and unable to defend themselves, they are an easy target.
Also, given the slow and convoluted way global governance works, it was easy to find fault. Indeed, Drezner contends that it would have been impossible to objectively assess, in the midst of the crisis, whether the multitude of meetings and summits was having an impact or not. Only now, seven years later, is it possible to say whether international economic institutions helped keep the global economy from complete disaster. He also reminds the reader that global governance is no panacea: “The best global governance structures in the world cannot compensate for dysfunctional national governments.” Finally, he contends that most observers merely point to global governance’s most obvious failures – the Doha Round, the climate change summits and the deadlock at the G20 – without bothering to study the underlying trends, many of which are far more promising. Thus, for Drezner, global economic governance – the WTO, the IMF, the World Bank and the G20 - clearly passed the stress test.
Contrary to what most observers think, Drezner also argues that institutions have proven to be good at adapting to a more multipolar economic order:
While the appointments of Lagarde and Kim (to head the IMF and World Bank, respectively) might appear to be politically retrograde, they represent bargaining that reflected the greater influence of the advanced developing countries. I both cases, the nominee had to woo developing countries to secure political support in advance of voting.
That argument may have some truth to it: The appointment of Chinese national Min Zhu to be deputy managing director of the IMF was enough to co-opt China. Yet, the decisions hardly increased the institutions’ legitimacy in the eyes of policy makers in Brasília and Delhi, who continue to argue that the status quo is unacceptable.
Drezner’s overall argument is based on a comparison between the 2008 crisis and the Great Depression of 1929-1939. That may be correct in terms of severity, but it still sets the bar incredibly low for today’s institutions. After all, in 1929, the world economy largely lacked any institutions that could help contain the crisis. As a consequence, the reaction of leading governments back then was disastrous. Pointing out that the world did better in 2008 does not say all that much.
Drezner also argues that many compare today’s muddling-through to a romanticized past during which global institutions supposedly worked flawlessly. Yet just like today, governance mechanisms were painfully slow and often inefficient. The Marshall Plan, for example, weakened the World Bank, leading to worries about the future of the institution.
Global economic order today, Drezner writes, is a “G3-structure”: “When the United States, the European Union and China act in concert, global governance rests on a strong foundation.” The other BRICS countries and Japan are mere middle powers. This assessment does not consider, however, that the EU can hardly be compared to traditional states like China or the United States – particularly in the realm of security, which the author briefly brings up. Broad assertions like “China is still demonstrably weaker than the European Union” are contestable. Still, Drezner’s thorough analysis serves as a useful cautionary tale for those who believe that the West’s economic power is a thing of the past. He is also right to point out that the dollar continues to dominate, and that China will have a long way to go before the yuan can seriously challenge the dollar’s hegemony.
Drezner’s chapter about how the Washington Consensus prevailed over the Beijing Consensus includes some interesting ideas, but suffers from its oversimplification. The author writes that “Even if the global financial crisis battered and bruised the Washington Consensus, it did not break it.” Yet the Washington Consensus is a highly controversial and misleading idea to begin with, and the US government’s strategy during the crisis (e.g. bailing out General Motors) can hardly be captured by any model.
The Beijing Consensus is an idea developed by Western scholars and never been taken up by the Chinese government. Yet Drezner uses China’s decision not to embrace this rhetorical idea to influence others as evidence that China is a nation incapable or disinterested in providing global public goods, be it in the material or ideational sense. However, there are many examples of Chinese leadership on the global scale, as Drezner himself acknowledges when he describes how China changed the IMF from within. The same is true in the realm of security. For example, China provides more UN peacekeepers than all the other P5 combined, and it is increasingly engaged in the Middle East other conflict zones across the world. The search for an alternative “model” may be an overly universalist, Western-centric way of looking at China, a country that has historically spent far less time and energy on convincing others of its own ideas and standards.
Drezner repeatedly writes that China acted, during the crisis, like a supporter, rather than a spoiler, of current order. Yet that fails to adequately describe the way China changes global order. Beijing has no incentives whatsoever to openly question any of the principles of US-led global order, as doing so would immediately put it into the unenviable spot of the hegemon’s lone challenger. Rather, China will seek to slowly adapt existing structures according to its own interests, in addition to establishing a low-key parallel order it may fall back on should existing institutions prove to be incapable of reform.
The System Worked is is an interesting book, above all because it has a strong, counterintuitive thesis that forces readers to question their convictions. Drezner’s analysis deserves to be read, par- ticularly by foreign policy makers in the Global South, for whom reforming the global order is a key theme. Drezner is right to point out that most analyses of global economic governance are superficial: International relations specialists often lack the knowledge or interest in gaining a deeper understanding of the nitty-gritty details, and economists have little grasp of the politics involved.
Still, many readers will argue that Drezner depicts the global response to the crisis as more coherent than it really was. Also, he does not mention that the BRIC countries agreed to provide extra support to the IMF in the belief that important reforms would be agreed upon in return. Yet until today, the US Congress has failed to ratify them. This move risks further reducing the legitimacy of the institution. The rise of alternative or parallel structures such as the BRICS Contingency Reserve Agreement (CRA), the New Development Bank (sometimes called ‘BRICS Bank’) and the China-led Asian Infrastructure Investment Bank (AIIB) are signs that some emer- ging powers do not fully agree with Drezner’s analysis that all is well with today’s global econ- omic governance.
Read also:
Book review: “Theories of International Politics and Zombies” by Daniel W. Drezner
How long can the United States hold back IMF reform?
Why do most big ideas in international affairs come from the United States?
