Transcript of a Book Forum -- Global Governance Reform: Breaking the Stalemate
March 29, 2007Washington, D.C. Tuesday, March 6, 2007
Moderated by James M. Boughton, IMF
Colin I. Bradford, Jr, Brookings Institution
Johannes F. Linn, Brookings Institution
Rachel Gasami, IMF
• Introduction by James M. Boughton
• Presentation by Johannes F. Linn
• Presentation by Colin I. Bradford, Jr
• Rachel Gasami's remarks
• James M. Boughton's remarks
• Questions and Answer session
• Closing remarks by James M. Boughton
Introduction by James M. Boughton (View presentation)
MR. BOUGHTON: Good afternoon, everyone. Welcome to the IMF and to this launch of a very fine new book, which I hope everybody will buy on their way out this afternoon. If we can inspire you enough, then we will have succeeded in our presentation this afternoon.
I'm James Boughton. I'm the historian of the IMF. And as I hope everybody knows, the real purpose of history is to help one prepare for the future. And that's certainly the way I try to look at the job.
And so, when we think about the future around this building right now, one of the key issues is how should we be thinking about reforming the institution in a way that will sort of prepare us for dealing with whatever might hit us, whatever surprises might befall us in the coming years.
And one of the big issues that has arisen in all these discussions about reforming the Fund and reforming international institutions more generally is the whole questions of global economic governance. Because if the institutions are going to function well, they have to be governed in a way that gives a measure of legitimacy and that enables people to have a proper feeling that the institutions are in fact serving the global welfare in an effective way.
In the past year or even several years now, there has been quite a bit work about reforming the IMF. And before I introduce our speakers and turn the floor over to them, I'd just like to say a few words about this big picture that we've been trying to paint here.
In a way, the talk about reforming the Fund started with people who were quite upset and angry about the way the Fund had been operating. And there were quite a few calls for a time about shutting down the Fund. There was the 50 years is enough coalition that was quite active around the time of the 50th anniversary of the 1944 Bretton Woods Conference. It's an interesting tribute I guess to - I'm not sure to whom, but an interesting tribute that the 50 years is enough coalition resurfaced a decade later as the 60 years is enough coalition.
But, I think after a dozen or so years now of discussion, that people who would like to shut down the Fund have mostly been shown not to be in the mainstream. Also, there were some calls that have also largely quieted down about merging the IMF and the World Bank, since there's a fair bit of overlap in the work of the two institutions. And so it was one natural point to consider that perhaps the two should be merged.
And the problem that emerged when people started thinking about that in a more serious way was that since the Bank is much larger than the IMF, if you merged the two, then you're effectively folding the IMF into the World Bank.
And some of the unique advantages of having a monetary institution that is focused on stability get lost. And it would be like trying to fold the Federal Reserve System into the US Treasury, which would have certain efficiencies, but you'd lose a lot if you tried to do that. So, I think both of those ideas, shutting down the Fund or merging it into the World Bank have largely gone by the wayside.
There have also been - there's been quite a bit of talk about sort of narrowing the focus of the Fund or changing the focus of the Fund in a major way. That really started with the Meltzer Commission, which was a commission headed up by Allan Meltzer, a study he did commissioned by the US Congress in which he argued that the Fund should narrow its focus to look only at financial crises in emerging markets and that all the other activities of the Fund were largely secondary and could be dropped.
And again, I think once people thought about that for very long, they decided it wasn't as good an idea as it sounded at first. And the other thing is, one of our former chief economists at the Fund Kenneth Rogoff has been saying quite a bit in the last few years about getting the Fund out of the lending business, that we should be a policy advisor and not a lender. And that's been an interesting point to note because of Kenneth 's experience working in a senior position in the IMF.
But I think those are - that is not where the reform effort is really going right now. And I just wanted to mention a few things that are going on, which will allow me to finish up by talking about the work that we're going to be hearing more about this afternoon.
Within the Fund, the Managing Director initiated a project that we were calling the Medium Term Strategy. And there is a report on the Fund's website that you can read if you haven't read it yet. And there's an ongoing work now about how we apply this Medium Term Strategy to reform the Fund in a number of ways.
And so that's an ongoing work that we'll be seeing more and more of its fruition over the next year or so. Just quite recently, a report was put out by a group headed up by Andrew Crockett, the former head of the BIS. This focused on strengthening the Fund's income position. You've probably all seen stories about that in the press in the last month or so.
And then, even more recently, just in the last week, another blue ribbon commission issued report. This one was headed up by Pedro Malan, former finance minister of Brazil, that focused on relations between the IMF and the World Bank. And so now, the institutions are just beginning to figure out how to take some of those recommendations on board.
We're also hearing a lot of work from this fairly new group -- although it's not so new anymore; it's been around for 10 years -- the Group of 20 or the G20. You'll be hearing more about that from Johannes and Colin in a few minutes. But they've been - they're a very active participant now in these discussions about how to reform the Fund.
The Council of Foreign Relations based in New York has a report coming out that's been prepared by Peter Kennan, a professor at Princeton University. That will be coming out in a few weeks that will be - again, be focused quite firmly on some necessary reforms at the Fund.
The Peterson Institute for International Economics, formerly just the Institute for International Economics, Ted Truman, who is here somewhere in the room, yes, down here in the front, has published two books now on this subject and has a recent policy brief prepared together with Richard Cooper of Harvard on reform of the Fund.
So, there's lots of work going on, and part of the point of my reciting all this is just to emphasize the fact that this is a very hot topic and a very important one. And now, in the last year and a half or so, these other groups that have been working on reform of the Fund have been joined by a very distinguished group of scholars at the Brookings Institution, where they've - where the Brookings Institution has established the Wolfensohn Center for Development with I guess a generous grant, I'm sure, from the former World Bank president, Jim Wolfensohn.
And so that's really the context in which this book has come about. Before I finish and introduce them, I'd just like to point out that when we talk about reforming it, if we're going to have a rational solution to what the IMF should look like over the next 10 years or so, this has to be discussed within the broader context of global reforms because the IMF is merely one of many global institutions.
Those of us who work here like to think it's by far the most important, but in fact, it's one of several. Separately from this discussion, there are a lot of discussions going on about reforming the United Nations, of which we are a small largely independent part here.
These are all well-known issues, but the Security Council still has basically the same structure it was given in 1945. But the UN itself has changed in many ways. International peacekeeping has become a major focus. And you have all these very large numbers, more than 100, sort of small developing countries that are members of the UN that have a voice through the General Assembly. Most of them do not have a direct voice through the Security Council, but they do have an important voice.
And so you have these clashes between the interests of the small countries, the large number of small countries and the small number of large countries in the UN. And how you reconcile all those and still make the UN into an effecting and efficient institution is a major topic.
The World Trade Organization, the WTO, the most recent of the major institutions - official institutions has been the focus of probably the most virulent protests over the years because trade is so much a part of what people don't' like about - what some people don't like about globalization. And so, the discussions - as the WTO becomes more of a global institution, these - the whole question about how it can be most effective.
And these are just the main economic institutions and political institutions.
We also have health institutions and education agencies and so on. And so, there's this large context within which we're trying to discuss these narrower issues.
So, throwing themselves into this pool of debates, we have Colin Bradford and Johannes Linn, who have just recently edited the book that's being discussed today. So, let me just turn the floor over to them.
Our first speaker this afternoon is going to be Johannes Linn, who is the director of the Wolfensohn Center the co-director of this whole development - sorry, governance project at Brookings.
Johannes has spent most of his career at the World Bank, where he I guess his final job at the Bank was as vice president for Europe and Central Asia. He has a PhD from Cornell and he also taught at Cornell at a time, so he has both outstanding academic credentials and of course, the credentials to discuss international institutions.
His coauthor or co-editor, I guess, Colin Bradford, has an equally distinguished background. He has a PhD from Columbia. He has taught at several local institutions including American University and Georgetown. He also taught at Yale for a number of years. He's held senior positions at the OECD and at the World Bank, and he was chief economist at the US Aid Agency.
So, those are our presenters this afternoon. We're going to have two discussants, one of whom will be me. I will sort of come in at the end to pick up whatever loose ends there might be. But the main discussant this afternoon is going to be Rachel Gasami, substituting for Peter Gakunu, her boss, who - Peter had to drop out at the very last minute for other commitments. But Rachel is senior advisor in the constituency that Peter represents, which is a constituency - it's the second largest constituency in the executive board with 21 English speaking countries from Africa.
Rachel has a PhD from the University of Nairobi and she also has a Master's degree from Leeds University in the United Kingdom. She's worked for the Ministry of Finance, where she was - got into the Health Ministry for a while, dealing with health management and research.
She also worked in Nairobi for the African Economic Research Consortium, where she dealt with the interface between empirical research in economics and policymaking. She's been in the IMF since 2003, so again, she has the - an excellent perspective to discuss these issues.
So, those are our panelists. And what I'd like to do next is to turn the microphone over to Johannes Linn.
Presentation by Johannes F. Linn (View presentation)
MR. LINN: Thanks very much, Jim. And thanks very much to all of you to come here. Colin and I are absolutely delighted to have this as our first sort of coming out opportunity on this particular, not topic, but at least for the book that's just come out.
Time is short, so I'll give you only a very brief background. Basically, what we did starting April 2004 already, it's amazing how time flies, we started organizing seminars at Brookings, lunchtime seminars for representatives from the G20 official community, G20 being the G20 finance forum, minister's forum that you're probably all familiar with. And that involved both high level officials from the embassies as well as from the executive directors of the Bank and the Fund basically to explore with them where is the energy. Where are the key issues? Where are the obstacles to global governance reform?
We had come to this by focusing initially on G8, summit reform, but we soon realized that you really couldn't discuss summit reform without actually going a bit down into the trenches of the individual institutions of global governance to determine whether, in fact, the issues that -- needed to be addressed at the summit. The bottom line of our view is that of course, you do need a summit. You do need a more efficient summit than we currently have, a more effective summit.
So, we ended up concluding, and this is sort of the bottom line of the book also, that will be put out, that yes, at the apex, you need a significant reform and we'll come back to the content of what this might mean. However, in the process, we actually had some very interesting presentations by colleagues from around town and some of them from out of town.
And we decided to put these presentations together in the form of a book. Fortunately, we had colleagues like Jim. We had colleagues like Jack Boorman from the Fund, but also a few others, which you'll see, of course, in the book, who were willing to take their presentations and write them up as chapters.
So, as a result, you now have in front of you a fairly, I would say, simple, non-technical presentation of key issues, key obstacles, key opportunities of global governance reform in a number of areas, not just in terms of - I should point out - IMF reform, although we have two chapters on the IMF.
We have one chapter on the World Bank. We have a chapter on the committees, the development committee in the IMFC, also a committee on the Fund side. We have a chapter on UN reform. We have a chapter, of course, on summit reform, G8 summit reform, since that was, in a sense, our starting point, and two chapters on sectoral architectural issues, in particular on health and on environment, where we felt they were also important issues to be considered.
What we can do today is obviously not go through all of this. We cannot also claim to speak for the various authors whose work we pulled together. So, what we've decided is to give you a quick run-through through some of the issues that we feel are perhaps important to bear in mind as you approach this topic.
First of all, I will say a few words about the changes of the global context. Then Colin will talk about the need, the key challenges and opportunities of global governance reform.
We'll also say a few words, a bit dangerous on this turf, about IMF reform, where we actually have some practical, we hope, suggestions, not deep down into details, but sort of fairly high level policy proposals. Then turn to what in some sense is our core argument, namely G8 summit reform and then pull together some conclusions. So, this is what we're trying to do in what, by now, probably should be about 15-20 minutes.
Let me just come quickly to the first important point and that's sort of fundamental to the whole argument that we're facing, I believe - we believe in the context of the topic we're addressing, and that is the changes in the global context.
Let's start with changing demographic and economic balances and let's pass the focus mostly in economic balances. And for that purpose, I'll give you three graphs, actually a fourth one, but the three in a sense most important. And keep your eyes here, especially on the bars, which may be difficult to see from where you are.
But you have basically the key -- this is 1973 - the key global economic powers in that particular year. This is, by the way, roughly the year the G7 and its it's origins started, with on the left, top left of course, the US and the bottom left, the EU, by far the most important economic powers. The size of the bars represents the GDP purchasing power equivalent in, I believe, 2000 units prices.
You have - in the middle on the top, you have the USSR. You then have, to the right, Japan, and down to the right, China and the bottom center, India. And as I said, keep your eyes on the bars, because as you then switch fast forward to `05, the balance again in PPP, in purchasing power equivalent, dramatically shifts. You still have the US and Western Europe as clearly very large, but you have, in fact, particularly China and to some extent, India, rapidly catching up.
And if you then look at 2050 based on projections by Goldman Sachs, which one can argue about and obviously one should up to a point. But just to give you a snapshot of what the balances would look like with basically everything shifting from left to right, although the US will retain obviously a key weight and Europe is also a player.
Now, the - you know, 40 years into the future seems like an awful long time, but as Colin and I were sort of joking, you know, 40 years ago, we were already 20 years or some odd years old. So, it's actually, if you look back 40 years, an awfully short time. And I make this point because, you know, we tend to neglect that 40 years is not a long time in a life's history or whatever.
So, this intermediate stages of shifts in the balance are very much upon us. And so, the question is, and Colin will turn to that in a minute, are in fact the global institutions currently adapted to this change.
Now, it isn't just changing balances we believe. There is also, of course, as we all know, growing global interdependency, trade capital, energy environment health, migration, drugs, security, you name it. Not just that, interdependencies across the globe, there is also increasing links among issues, trade capital energy, the perhaps most obvious one, but most recently you have energy in environment.
You have, of course, environment health migration, drugs, security, all linked together in an unholy mix, that looking at just one issue and trying to fix one issue probably won't do it. This is one of the things we're addressing.
So, you have also on top of that growing risks, at least some would argue and I certainly believe there's argument to be made from the growing financial imbalances, energy security issues, global warming, epidemics, and so on. With that, basically, we believe, we need an effective set of global institutions.
And the next point, which is what Colin will talk about, we do need global governance reform efforts.
Presentation by Colin I. Bradford, Jr (View presentation)
MR. BRADFORD: Well, thank you very much all of you for coming. Some old friends in the audience as well, especially glad to see you.
What we discovered in this project was that there's an intimate interconnection between the individual institutional reform and global summits. And the way it seemed to work is that the challenges seem to face -- each individual institution seems to face a set of new challenges in the 21st century, which are quite a bit different than the ones that they faced in the 20th century.
And as a kind of sweeping conceptual way to talk about it is that the challenges, instead of being within the sectors which - over which these institutions provide, they tend to be more and more between sectors, that the interdependence in the world is not only an interdependence of economies, societies, and nations, but also an interdependence and an interflow between different issues.
It's very difficult when you stop to think of it to separate health from environment, finance from trade, finance from growth, growth, trade, and finance from social issues. Increasingly, the problems are interconnected and the challenges need addressing in a holistic manner.
So, each of the institutions in this new era seems to be confronting challenges which are beyond its reach in some way and causing some dissonance in the performance of the institutions. And then you have stalemates on issues, which are clear, where the Doha round doesn't seem to be able to reach completion, the financial imbalances continue despite exhortations from every international economist's worth his soul to correct them.
And global warming, seemingly -- climate change is the current term for it, seemingly undergoing a sea change both in the United States and elsewhere but still in a state of flux without clear direction of how to resolve it. And in some of these areas, it's clear that the 20th century institutions, especially the World Bank, the IMF, and the WTO have clear mandates and clear purviews. And in the case of energy, environment, and health, you don't even have a clear leading institution that can take charge of this sector, much less move beyond it and relate to the others.
And as reform efforts seem to proceed to - excuse me, one of the dangers of doing this - is as the reforms tend to go forward, it's quite clear if you look at what's happening in New York, but it's also I think clear to all of you who are working here in the IMF that each of these institutions really is a microcosm.
And once you're inside the microcosm and you're aware of the subtleties and sophisticated way in which issues interact, it's harder and harder to see how to make bold stroke reforms within those microcosms. And that, I think, is one of the reasons why you have stalemate and/or a slow pace in the reform of institutions.
So the key challenges are really how to include major actors and diversify that set of major actors beyond the Western industrial countries and at the same time, how to give voice to small countries and create effective institutions that are not only able to carry out their core mandates but also able to carry out their secondary mandates, which is to interact effectively with the other institutions in the business and in that way, to be responsive to global needs, which don't present themselves in neat, tidy packages but rather at the interface between these problems, and at the same time, to be able to achieve results and in that way, demonstrate that they're carrying out the mission to which they've been given and are accountable and transparent in doing so.
So there's a need for leadership, but what I would also - the way I would put it is there's - the conclusion that we came to in looking at each of the individual institutions is that there's a need for systemic guidance. And that's where the - if the problems are interrelated, then there's a need for a guidance mechanism or steering group to provide strategic direction for how the different institutions interrelate and interact in addressing the problems, which themselves are interrelated.
So, there's some opportunities that are in front of us in terms of new directions. One is that there's a new secretary general at the UN. There have been a number of study groups, as Jim as pointed out. IMF reform was actually off, I think, to a good start in 2006 with the Managing Director's Medium Term Strategic review and the support of many countries to actually pursue this.
I said at the time, last spring, at a conference we held in May of last year that I thought it was a surprising development that really one of the most conservative institution in the galaxy of international institutions, namely the IMF, seem to be proceeding first and foremost and at a faster pace in terms of its own internal reform. I just hope that continues to be the case.
There are elections coming up in various countries, or at least transitions in leadership. Gordon Brown, a finance minister, well acquainted with this institution and the World Bank and cares deeply about both, chairman of the IMFC, is likely to become prime minister in the UK.
We have an interesting election between what the French call Sago(?) and Sarco(?) in France, not clear how that comes out, not quite clear what the implications are for international institutions, but at least it's moving beyond the purview of Jacques Chirac, who seems to be in favor of multi-polarism but unwilling to yield a summit, which would include the very multipolar countries that he thinks are so important.
Italy, I mean, it is conceivable that Prodi comes through in the end with a stronger prime ministership than he has gotten. And fortunately, from my parochial point of view, we are having elections soon in the United States, which may in fact end up with greater leadership on these issues than we've had in the last few years.
So, focusing specifically on the IMF, let me just run through - many of you are from the IMF itself, so I just want to run through what many of you are well aware of but with a slightly different tilt on it, if we can, towards the end. Clearly, there's a need for the IMF to increase its strength in its core missions of surveillance, crisis management, and I would add from Jim's chapter in the book, its expertise in financial market analysis, which is also important for the Fund.
There has indeed been some movement in, as you know, in increasing the shares of the under represented countries, namely China, Korea, Mexico, and Turkey. And that's been an important thing. And the G20 itself, the finance minister's group, has played a very important role, I think, in pushing - and the Australians in particular have played a very important role in pushing forward on the pace of IMF reform.
And those reforms include re-balancing the shares still further by attacking the very tricky issue of the quota formula. And the idea there, as some of you will know, is to move away from GDP and nominal terms to PPP, GDP as a weight, financial flows, and most importantly, our colleague, Ralph Bryant has made a presentation to the Group of 20 officials, the seminar that we've been holding regularly to include population, which of course, would change the formula quite a bit in terms of the representation of the larger emerging market economies that we think are so important.
So, the main issue here, I think, is to strengthen surveillance while this is going on and to think of some additional areas which might help to facilitate this kind of reform by improving the representativeness legitimacy of the Fund. One is to increase quotas substantially, which would provide the grease by which it would be easier to reconfigure some of the voting shares.
An idea that is not new but would be - would need strong support to carry out is to consolidate the chairs by reducing the number of chairs that the European countries have from the current 8 out of 24 to 2 or even 1 chair, either a Euro zone and European Union chair or just a European Union chair and at the same time, reduce the total number of chairs from 24 to 20.
The other idea, of course, is to have the selection of the Managing Director of the IMF be based on merit rather than on - to be based on merit rather than on the fact that the Europeans essentially can by and large name the person who is to be the leader of the Fund.
But, part of the stalemate, we think, may come from the fact that precisely these recommendations, which seem necessary to increase the efficiency and the representativeness of the Fund, actually discriminated against the Europeans. The Europeans lose influence under several of these formulation.
So, we, Johannes Linn and I, during the summer of last year, came up with this twin formula, where we - I, as an American had proposed to him that we should argue that the United States should voluntarily give up its veto in the Fund. That is to reduce the minimum vote that's necessary to achieve a decision on - a consensus on major issues from 85 percent to something quite a bit less, which would - and ask that the United States essentially voluntarily give up its veto.
And, it seems as if this would be an incentive and at the same time, one could argue that the World Bank presidency should be based on merit as well, which would of course, be a concession by the United States.
But it really seems to us that in the name of multilateralism, if one really thinks that - believes that these are multilateral institutions, two things are necessary. One is that the leadership should not necessarily be beholden to Europe and the United States respectively as between the two institutions. If it happens that Pedro Malan, just to pick one person or Trevor Manuel happens to be better than the candidates that are put up either by Europe or the United States, it seems to me, there's no reason particularly why one couldn't be president of the World Bank and the other managing director of the Fund.
And so, the thought was, that we had was that this kind of reform would - a step by the United States would be reciprocated by a step by the Europeans, and both steps together would meet the concern that I know Rodrigo de Rato has foremost in his mind when he came to Brookings in early September. He said his greatest fear was that the Fund would be seen as a North Atlantic organization.
And it seems to me these steps are really the kinds of things that are really necessary to convince world public opinion, politicians in other countries, peoples in other countries, that the institutions are serious about breaking the control that western industrial countries have had over them for the last 50 years.
I'm going to turn this back to Johannes. Thank you.
MR. LINN: Sorry for this choreography here. We were hoping to sit at the table, but it turned out to be more difficult to organize last minute.
Anyway, maybe just the last point on this slide - is it worth a brief second? Colin, I don't think you mentioned it. In a sense, as part of the grand bargain, we also believe it's actually important to de-link IMF and World Bank shares and shares reform, because we're afraid that if you try to do both in parallel in the same way as we propose to do for the IMF, you might actually find the Europeans walking way, particularly the small large donor Europeans walking away from the Bank in particular and from either. And you may have seen actually yesterday's Financial Times article on this, today's Financial Times editorial, there is a real risk, I believe. And indeed, one might want to think about, in this case, the borrowing, receiving countries giving up something, so to speak, as part of the grand bargain to actually de-link Bank and Fund government structures and open the possibility for the donor countries to perhaps have a greater voice in the Bank than in the Fund for, I think very good reasons.
Anyway, with this as sort of an IMF snapshot, very high level, very perhaps too general for most of you in the institution itself, let's move on to the, even in a sense higher top, namely G8 reform. And I have to tell you for each area, and perhaps for least in the case of the IMF, for each area of institutional reform that we reviewed, whether it was UN, whether it was the - in environment or health areas or for - you could pick almost any other area.
We came to the conclusion around the table - not Colin and I, but everybody basically in the group that we talked with - that there needed to be something at the apex, at the summit level to actually move the agenda of reform in the individual areas, in the individual institutions forward. The fact that the IMF was able to move, we attribute to a significant extent to the really momentous shift that the G7 created in 1999, the G20. And it is really out of the G20 that the momentum forward in the IMF reform came about.
So, what we envisage is that you would have to have a similar shift actually at the summit level for the G8 in order for a shift also to occur elsewhere. Now, what does this in practical terms mean? Just by way of background to talk for a minute a bit about the G8, it was of course formed and founded in 1978 as a summit forum for Western industrial economies to deal with economic imbalances among them with Russia joining in 1997.
Now, interesting enough, the G8 focused increasingly became dedicated to global economic - global economic and political issues and less on internal coordination issues. And in a sense, the G8 has become maybe not be design but de facto as a global steering group. At the same time, it has increasingly become formalized and lacking impact, whether it's on the Doha trade round, energy security, climate change, MDGs, or the reform of international institutions. In recent years, the G8 really has not actually had significant impact in any of these areas.
It's also, and it goes back to the earlier graphs that I put up, increasingly unrepresentative of global population economic weights. There may be some movement forward under the German presidency. You may have heard that the G8 is now beginning to call itself the G8 plus O5, where O5 stands for outreach 5. These are the - basically the same countries with Mexico thrown in and five additional large emerging economies that are invited in, still as second class citizens but with Sherpa setups and consultation process, but not, for example, invited to participate in some of the key meetings or in formulating the communiqué.
And it's clearly from our perspectives, clearly insufficient a step to push for global reform. So from our perspective, we need summit reform in order to get an effective apex. Now, there is an alternative summit model that we believe is actually readily available building on the G20, the finance minister's G20, which was formed in 1999 after the Asia and Russia's financial crisis and has basically focused on financial issues, increasingly also on some economic issues and has developed into and is in fact, quite a representative and effective forum with basically 10 industrial countries or country groups, including the EU and 10 major developing emerging market economies.
And you - if you look at the distribution of population, it's 66 2/3 percent of the world population, 90 percent of the world's economy today. So, it's broadly reflective in that sense of representative. It's also geographically balanced because it has representation from Africa. It has representation from the Middle East, from major Islamic countries, and of course, from Asia and Latin America. The emerging market economies have become fully engaged in the G20 with China as the very effective chair in `05 and South Africa this year. But of course, it remains limited in terms of operational focus or functional focus and scope. And so, we make the argument and this you'll find in one of the chapters of the book, that actually moving from the G8 to G20 summit would be a pragmatic and an effective step.
Now, as we've gone around and consulted about this option, we found of course people have various objectives, including well, it's not enough representative, particularly of the small countries or it's too big a group and maybe the wrong group. You've got Saudi Arabia and you don't have Egypt. You've got South Africa but you don't have Nigeria.
So, there are a number of questions one can address. From our perspective, however, the key is not whether or not the G20 is the best. In our view, there is really no optimal forum of this kind. The key issue from our perspective is that we need to move forward from the G8 to a more inclusive forum of summit discussion of key global issues.
Now there is incremental steps that could be taken. One might be to add China, but China apparently is not interested for various reasons to be actually brought into the fold of the G8 to form a G9. You could go building in a sense on the G8 plus O5 principle. You could just make the five additional countries the largest emerging economies to form a G13.
The problem with that from our perspective is that you still don't have any representation from the Middle East, any representation from major Islamic countries, to mention just some examples of major important players and perspectives being kept out of the picture, which brings us back, in a sense, to the G20.
There are other options you could pursue. You could actually go the route of what is sometimes called the variable geometry by having summits that deal with specific sectoral thematic issues, environment, global warming, health issues, et cetera. By starting with a core set, say the G13 and adding relevant countries that are particularly important. Say in the energy, if you deal with energy, you bring in some African energy producers, Nigeria and Angola, or if you deal with health issues, you might bring in Thailand with it's Avian flu to deal effectively with key challenges of this kind.
The problem with that solution from my perspective is that it may be difficult to manage and keep track of, and you get continuously changing players. You also still get of course a distinction between those who are in and who are outside the circle as you go along.
Finally, just as a footnote, let me mention that as part of the high level panel at the UN, which reported in November last year, there was also a proposal of an ecosfork(?) 27, G27 leaders for and that would be based on representative countries that would be coming together from the UN system and meet to discuss global issues.
The point that I would like to end up with here on the issue of summit reform, it isn't exactly where you end up, and I don't think it's really a great point arguing whether the G20 at the summit level would be better than a G13. I think the real point is that you need to move beyond the G8 or in the next few years, without doubt in my view, the G8 will be condemned to irrelevancy and what you'll probably get is much stronger - formation of much stronger regional institutions and regional summits that then may be ending up in competition with each other, rather than in the kind of common solutions that we need for common global issues.
And with that, I will hand over for the last section to Colin.
MR. BRADFORD: Okay. We want to be brief because we want to have some discussion, but let me just point out that in a way, we're proposing a solution that's somewhere in between the universalism of the United Nations and what I would call the parochialism of the G8. We're proposing a pluralism somewhere in between, an entity that would not be a perfect reflection of the whole world but would be a better reflection of the whole world than the G8 structure but which would be more effective in decision making and strategic guidance than a universalistic organization.
I think the concern - I'd just like to end with a couple of points and then a systemic point - is that the effectiveness of the international system really depends on the relationships among the institutions in this global age in which problems seem to be intersectoral, interministerial, and interinstitutional.
And the interrelationships and among the international institutions are ultimately political relationships. And they're political because determining the relative priorities between finance trade and development on the one hand and health, energy, security, environment, education, gender equality, the millennium agenda on the other are essentially societal, reflecting differences in societal values, which are normally handled by politicians who represent those societies.
So, it's national leaders really who are the ones who are able to be the optimal representatives of the world in terms of adjudicating these cross sectoral values and intersectoral issues. And it's national leaders who are uniquely endowed to determine intersectoral and interministerial priorities within countries and interinstitutional priorities in the international realm.
So it seems appropriate to us that you lodge the authority and the strategic perspective for guiding the international system with national government authority, rather than with international civil servants or international leaders.
And so summits, which bring together selected national leaders, are meant to both drive the global agenda and the global issues, as well as global reform and the global institutions. So breaking the stalemate, it seems to us, needs to be - depend - breaking the stalemate on global governance reform and institutional reform together seems to us to depend on summit reform most of all.
Underneath all of this, it seems to conclude - for us to conclude is that there's something quite profound going on that's affecting this whole system. If you look on the left hand side of the page, you will recognize a 20th century world order based on sovereignty, the nation's state, nonintervention, national interest, assertiveness, power politics, alliances of like minded countries, which ends up in relatively fixed coalitions, an effort to predominate in global discussions, and a use of hard power. And one would have to say since the 1980's or maybe especially in the 1980's, there was a perhaps excessive belief in a single model of Anglo-Saxon capitalism.
What I think is really way underneath this whole movement towards changing the international system is that the world order has - is changing to an emergent one which is more likely to be based on reciprocity than sovereignty, where there's a concern about how to guide global society, not just national societies, where globalization really does mean the inner penetration of domains which previous were considered to be quite separate and segmented, where there's a concern for the common interest - think about space, the atmosphere, and oceans just to take the obvious ones, where really a multilateral approach would be based more on respect for the views of others than trying to predominate with the views of one's own single nation or entity, where negotiations, shifting coalitions, bargaining, and soft power really become the means by which global decisions are reached.
I really think the most important thing is that the western industrial countries have based their - not only their economies on competition but their politics on competition, which means if you have an idea, you want that idea to prevail. It seems to me a new way to come to the table on the global discussions is to think about how your idea can be a catalyst for incorporating the views of others so that you end up with a truly global direction based on global diversity rather than on predominating.
And in that sense, I think one of the best things that people who work within the IMF can do is to make this house a hospitable house for a pluralistic set of ideas. There are a number of books that have been written over the years, two of them by Frenchmen as it happens, Michele Albert, who wrote a book called Capitialisma Contra Capitialisma in which - which articulated three different versions of capitalism.
And there's a more recent book by Bruno Amable, which was purchased first in English, by the way, called the Diversity of Modern Capitalism by Oxford University Press in 2003.
And I think it's quite obvious as you look at the Chinese economy that the best way to think about it is it's not a variant of communism but as a variant of capitalism and that the more welcoming we are of diverse ways of achieving competitive economies and diverse formulations, I think the more likely it is that countries around the world buy into and feel a sense of belonging to and loyalty to the international institution which adjudicates global finance.
I think the concern that both Johannes and I share that he ended up with as well is that instead of this global age moving to a global order, we may be moving in an age - in a global age towards a fragmented order in which countries and peoples decide to stay close in their neighborhoods, rather than strengthening the global institutions which preside over the global financial system, the global economy, and global society.
MR. BOUGHTON: Thank you, Colin. Thank you, Johannes. And now, in the spirit of opening up to diverse ideas, Rachel and I will each offer a few words. We're going to be brief, so that we can make sure we leave enough time for your questions from the floor.
So, let me turn it over now to Rachel Gasami.
Presentation by Rachel Gasami
MS. GASAMI: Good afternoon. I would like to thank you, Mr. Boughton and the organizers for hosting this event and for his very kind introduction.
The issue of global governance reform is complex, but as you have listened, you have seen that it is very critically examined by the authors and the editors of this book that we are discussing today.
I believe it is a very exciting time for the reform of global governance, since it is apparent that the institutions that form the international system are inadequate to the tasks of today, clearly, tasks that have greatly changed with the advent of globalization and given that today's global institutions were created 60 years ago, the global balance of power (off mike), given that countries like China, India, and the other emerging market countries gained relative strength in the market, so to speak.
It is therefore clear that the structures of holding power and representation are becoming extremely skewed in favor of a small group of membership. So, that's an issue that we find still disturbing.
We welcome the book and think it contributes to the growing literature on global governance. We also find the book very useful, given that it does expose the issues of governance on these institutions and clearly places them in the public domain, presenting good opportunity for (off mike) on programs for reform and indeed the others have articulated the potential for going forward.
Institutional effectiveness is clearly linked to transparency and accountability, and therefore, institutional legitimacy. The principles put forward by the authors -- such as university legitimacies, subsidiary efficiency, and accountability -- all too important we find that they are too broad and (off mike) systematic approach of reform for implementation in order to be applicable to different values of different institutions. Issues of better representation in these institutions need to be resolved in order to demonstrate commitment to shared purpose. I think that is all agreed on. That is what the authors are saying. When you look at the global economic governance matters, especially we would emphasize that a better representation of developing countries and global institutions to make those institutions more relevant and legitimate and effective, you know, is a critical aspect that we wanted to raise.
The issues of the IMF reform have been discussed. It's an issue that has been going on since Singapore and all that. The Medium Term Strategy is quite clear on these issues, and we would not want to go into detail with it -- into detail on those issues, because they are still ongoing and the board is clearly trying to address a number of issues ranging from the issue of (off mike), the issue of (off mike), and so many other issues. It would be capacity building enough to (off mike) that, so those are issues that will wait and see how it evolves.
In the book, however, the authors appreciate that it will enhance the role of (off mike) decisions in the current global governance arrangement. It is (off mike) important to strengthen the position of developing countries, as I said, where they are under represented. This goal is particularly relevant for the IMF and the World Bank group, where the developing countries are important but they do not adequately (off mike) decision making. As the authors are (off mike) again in the book, the governance problem is at the height of the IMF clearly (off mike) when you look at the outdated, complex quota system and they have yet to be properly addressed as it were. Even if it is fully addressed in the medium-term strategy, it still needs to be discussed, as it does been discussed broadly in the book. It was so broad that we didn't know how to pinpoint to specific points, so we decided we would (off mike) to the Medium Term Strategy and make the point that form is very critical.
Also we find that the issue -- we want to leave -- put on the table is a definition which the author has put on the book. I mean, it's the (off mike). They call it the (off mike). The authors have raised this issue in the book in a way that leaves it open. We didn't know exactly how to deal with it. Their view is that the (off mike) Africa needs to be further reduced. This will definitely lend to mind the legitimacy of the IMF in Africa, so we would be following up that issue with the authors to find out exactly how -- what it means.
The issue of restoration of the role of (off mike) and their use of (off mike) of (off mike) would help correct the under representation of developing countries, which is in line with the authors' interpretation of fair distribution of power across the world and across what they call in the book the (off mike).
The authors note in chapter 5 that there is a need for new approaches to global governance and that that more includes fund representative, thus more effective. Two main considerations are important here and we thought that will play important role. (off mike) the expected increase in aid flows, including (off mike) spirit of the international community (off mike) progress to what's the (off mike) development (off mike) the author was just referring to right now. So, tasking (off mike) which institutions would need (off mike) be involved within areas of competence. The commitments of the group of aid, of doubling aid flow by 2010, could provide many countries with real opportunities, you know, hopefully.
So, just to conclude, we didn't want to get into the details of the form agenda that (off mike) decisions. We find that -- we wanted to specify that encouraging good governance is central to economic development, financial digression, and poverty reduction especially for those countries that I see struggling with poverty issues. Equally, the realistic role of these institutions that we are discussing today is critical in (off mike) raising finances for the MDGs, and we would want to close there. Thank you.
MR. BOUGHTON: Thank you, Rachel.
Just to finish up the formal part of this program, I just wanted to make really one point and raise one question. Why do we need a G20? For that matter, why do we need a G7? Why do we need a G anything? And I think there is an answer to that question, and it's important to understand what it is if we're going to make sense of this.
If we look at the formal part of the architecture for the international economy, we have a whole set of institutions. We have the United Nations founded in 1945, now has 192 member states; we have the IMF a year later, almost as many members; the World Bank Group the same; and we have the World Trade Organization founded in 1995 as the successor to the GATT, which now has 150 members, but that's a growing number and pretty soon it will be -- before long at least -- it will be as universal as these. So, that's the formal architecture that we've inherited, and while there are some people who would like us to scrap all that and start over, I think most people would agree that each of these institutions has an important role to play and that this architecture basically works reasonably well.
But I think there's also a very strong sense around the role of people who think about these issues that it's not quite enough, and so the real question is why is it not quite enough and what else are we looking for to fill in these gaps? And to begin to see the answer to that, if you look at the way the IMF itself is governed from within, at the very top of the pyramid, if you will, you have the Board of Governors, which includes virtually all of the finance ministers or central bank governors in the world who come together once a year to discuss issues and occasionally make important decisions.
Below that and on a more ongoing basis you have the IMFC, which consists of 24 of these governors, but those 24 governors represent all 185 of the members of the Board of Governors. They then have a Deputies group that meets before each IMFC meeting. And then on a really ongoing basis, meeting every week two or three times, you have the Executive Board, which has 24 directors; 24 alternates; senior advisors, like Rachel; and staff.
So, you have this very formal structure, and then of course you have the managing director, the deputies, and then underlings like me and some of the others in the room. Now, it's a very formal structure, and the problem is any time you have a formal structure it becomes formal, and the more formal it is the less useful it becomes as a way of debating the issues, of really thinking outside the box, and so on. Somebody once described the Executive Board as an example of multilateral monolog in which everybody's talking from all over the world but is anybody really listening, you know, because you have a lot of fixed statements. So, there's been a huge effort -- I don't mean to denigrate it, because there's been a huge effort to try to make these institutions work better over the years and to try to create a real dialog within the meetings of the Executive Board. But you're always struggling to make it less formal and to create a forum in which people can really speak their minds, and it's that desire to have something that's less formal, less institutionalized -- at least to the formation of all these groups.
The point I'd like to make about these groups, though, is that they're not static. They come and they go, and it really started with the G10 in 1961, which was formed for some very specific purposes. It still exists today but as kind of a less useful group. Then you have the -- those were industrial countries. And you have the developing countries. Essentially we needed a group of our own so they formed the G77, which, as you can see just from the name, is way too big to achieve very much. So, then a group from within the G77, which incidentally now has over a hundred members, formed the G24, but still there's not many more over 24, so that's kind of useful. They've been around since the early '70s. And then the other, G5, because the G10 said, you know, said the bigger members -- the G10 said gee, that's too big, you know, we want a smaller group, and so they formed the G5. That was in existence for about 12 years, and then it got expanded because the Italians were screaming that they weren't included and so it went to the G7 picking up Italy and Canada. And then of course the G7 added Russia, became the G8, as Johannes mentioned earlier, and then we have this very strange new group that started off as a G22, very briefly expanded to become the G33 and then decided that that was too big and so it became the G20, and Lord knows what they might be next year.
Now, the advantage of the G20 -- I mean, it -- the advantage that Johannes and Colin stressed is a very important one, that if the alternative to the G20 is the G7 or the G8, this is a big improvement, and I think almost everybody except maybe a few people within the G8 would agree that this is an important move in the right direction. But is it enough is the real question.
Two things will happen over time inevitably. One is that the G20 will become formalized like all these other groups became formalized. The G7 would have so much in which there would be literally hundreds of people either in the room or gathered around the margins. When the IMFC meets, this is 24 people, right? But you can have as many 3 or 400 people in the room, because everybody has to be there and be a part of it because it's important, and the G20 is new enough that it's not important enough yet to get that kind of a formalization, but that will inevitably happen.
And the other thing that will inevitably happen is that the countries that are not in G20 will want in, and that's why it will creep back up toward the G33 before very long, and then what you'll have is more multilateral monologue with people sitting in a room with lots and lots of deputies sitting behind them and not much new being put on the table in the course of these meetings.
The real problem with the G20 I think is evident from this map, but it's what I think Rachel was hinting at in some of her remarks a few minutes ago. I don't actually speak for the accuracy of this, because the one thing that struck me right away when I looked at this map was that whoever made it up only put half of Russia in there. The Asian half of Russia is dark up there but everything west of the Urals somehow got left out, and I'm sure Mr. Putin would be upset at St. Petersburg not being in the G20, but it basically shows you this picture, and you can see most of the Americas are represented but the whole western part of South America gets left off the table. We won't worry about Greenland too much. Not very many people live up there, but all of Central and Eastern Europe and the Nordic countries are in white rather than green here. But the most -- and most of the Middle East is left out -- the most important gap, though, this huge glaring gap is that almost all of Africa is off the table. Now, when South Africa speaks at the IMF, whether it's at the Executive Board or the Development Committee or the IMFC, they're speaking for a constituency of countries, so 20-odd countries, and there's a consultation mechanism that leads to that. When it comes to the G20, those countries -- if you're not at the table, then you're not in the picture, and so I think it's fine to have these groups get together as little discussion groups for common interests, but if they morph from being a discussion group to being a group that is developing a position that then becomes the position of those countries to be taken to international -- the more formal international institutions, then it becomes a different kettle of fish, and that's what I think we need to guard against as we go forward in this. So, I think those are some of the issues that we wanted to put to you this afternoon.
We have 15 minutes before people's stomachs start rumbling and there will be refreshments that will be served, so in those 15 minutes I think what we'd mainly like to do is to hear what concerns you would like to raise with us and then we'll try to get Colin and Johannes to give you some brief responses at the very end.
So, who would like to start? If you could turn -- every seat has a microphone next to it. If you push the button, then we'll be able to pick you up in the transcript, and if you wouldn't mind identifying yourself that would also be very helpful. So, who would like to break the ice and start this discussion? There's always a 10-second gap here, but we now have Tony Ellison I see had his hand up first.
MR. ELLISON: Thank you. Tony Ellison, Johns Hopkins University, and a question for either of the authors. In your book, if I understood it, you endorsed Michele Convasue's proposal to convert the IMFC into an IMF counsel, and my question is -- and then you suggest that it should be the same for both the IMF and the World Bank. My question is what would be the relationship between that new oversight counsel and, say, the G20 finance ministers of that became the new global oversight committee?
MR. BOUGHTON: You want to respond to that one now and then we'll take another question?
MR. BRADFORD: Okay, Tony, nice to see you. Thanks very much for the question, and I should point out that Alex Shakow, the co-author of the chapter on the IMFC and Development Committee sitting in the back row, along -- Jack Boorman is not here, who is the other co-author. I mean, I think that you and Jim pose an interesting problem implicitly, and that is, is one concerned about a ship that is lacking guidance and direction and steerage or is one concerned about over steerage, over coherence? And -- I mean, I'm not -- I mean, if one is -- spends three or four years trying to promote this idea, one is not in favor of leaving people out. You're trying to actually draw people in but you can't draw everyone in.
So, the truth of it is that -- at least in my conception of why this IMFC Development Committee reform along the lines that Michele Convasue proposed is a good idea is because it creates what Jack Boorman called congruence. If you achieve summit reform, which gives big emerging markets a big role in summits, and if you change the advisory bodies of the IMFC and the development committee into decision bodies and narrow the countries down and create a congruence between the summits and the IMFC and the development committee and between the IMFC and the development committee itself, then you've actually got a capacity -- when you turn the wheel of the boat or you pull the tiller on the boat, the boat actually turns, and, you know, I think the problem that I've experienced over 40 years of being involved in all of this, as you have, Tony, is, you know, often the system seems to be lacking steerage, and so we are erring, I admit, I think, in the direction of trying to envision reforms that create a possibility for coherence and real decisive steerage even at the expense of possible lack of perfection on the front of incorporating everybody's views.
MR. LINN: If I -- just specifically coming back to the question what about the G20. If our proposal of an upgraded and, I would argue -- in fact, the more I've thought about this and we don't spell it out in the chapter, but actually unified development committee, IMFC committee, where they implement it, I think you might find the G20 actually withering away, and you might end up with a governance structure that might actually be more reflective of the universality principle that I think is driving not only Jim but among others Jim also is driving Jack Boorman in his paper as you will see, and would address, at least in the financial area, some of the concerns that we face whenever we talk about the G20 either at the finance minister level or at the leaders' level. Now, whether that would be an opening ultimately for maybe a similar system of global governance emanating perhaps on the basis of the ECOSOC sort of G27 that was proposed by the most recent panel is possible.
My concern just is at the summit level if we wait for the big solution, the big bang, the big perfect system, it's never going to happen. In the meantime, from our perspective -- I think I can speak for Colin -- the G8 is so misaligned with the task at hand that trying to -- exactly as Colin said, getting better steerage in key issues where we lack it at the moment outweighs, in my view, the lack of universality in that particular forum that obviously is a concern and one shouldn't downplay.
MR. BOUGHTON: Thank you.
Question over here on -
MR. SYED(?): Thank you. Murtaza Syed(?). I'm at the IMF. Your interesting suggestion about the grand bargain that could be played out between the U.S. and Europe in terms of the U.S. giving up its right to presidency of the World Bank in return for Europeans doing the same at the Fund. But I wanted to ask you to what extent is that the wrong bargain -- I mean, in the sense that both the U.S. and Europe would have something to lose presumably from the new order? Shouldn't we be thinking about a bargain in terms of U.S. and Europe on one side versus some of the emerging market countries on the other and trying to convince them -- both these parties -- that there is something to be gained from moving to a new order? So, you know, basically my question is U.S. and Europe are potentially in the same bag when it comes to the new order. They both stand to lose representation. Should we be looking at a bargain between them, or should we be looking at a bargain between them on the one side and the emerging market countries on the other?
MR. BOUGHTON: Let's see if we can't collect one or two more questions and then get answers to that. Yes.
MR. SLOCUM: I actually have two questions. My name is a Bryan Slocum -- I'm a student at George Washington at the Elliott School -- and the first one is sort of along the similar lines to the previous question, which is how would you accommodate within a reform structure for the discrepancy between the relative donations among the donors and realigning representation along population and economy lines? And the second question is within GM8 reform, I'm wondering to what extent is there momentum among -- within the GM -- the G8 itself towards reforms along the lines that you suggest and how do you sort of propel that -- any existing internal momentum forward?
MR. BOUGHTON: Okay, anyone else before -- yes.
MALE SPEAKER: (off mike) World Bank staff. When I listen to your discussion I'm reminded of what -- to other discussion during the financial crisis in '97, and at that time everybody was speaking of a new architecture and a new world order, etc., just for finance, and the current situation is you have more decentralized structure, and I understand your book to be much more ambitious because you look at not only finance, health, environment, and other matters, and Johannes is a great expert in that area. One of his early books was about the fact that decentralized systems are less management intensive -- local finance -- and therefore the question is you have not resolved in my mind the question of guidance and international discussions and the actual need for immediate operations. I got the impression when I listened here today that I hear another item of debate. The book is much bigger than this in terms of scope, and I would also probe the linking the World Bank and IMF because IMF is moving one way, the World Bank should move another way, but that's a different issue.
I want to raise the question of whether in your own mind, after two years of hard thinking, you are convinced that you have hit upon something that is valuable in terms of a new structure that would be both integrative and still decentralized, because you cannot have a round the table so many countries, so many issues and hope to solve anything.
MR. BOUGHTON: Okay, thank you.
Anyone else want to jump in at this stage? Yes.
MR. GOLAM (?): Just one point. I mean, I think beside making -- transforming global institutions is quite a complex process, but there are two key issues one needs to consider. One is change at the top, and there I think I'd use around the G20 or more representative ways of choosing the leadership in a way that the rest of the world will accept the legitimacies. I think legitimacy is quite a key concern. The second would be to transform the range of practices -- for example, both the World Bank and the IMF eventually relate to specific countries and we need to examine those practices also to see to what extent those practices need to be changed in kind of progressive ways.
Juan Golam (?). Just joined the IMF at the beginning of this month.
MR. BOUGHTON: All right. Okay, let me turn the microphone back over to whichever of you would like to begin.
MR. BRADFORD: Okay. Well, thank you for those questions.
The first question had to do with didn't we have the bargain wrong? Shouldn't the bargain be more between the U.S. and Europe on one hand and the MEs(?) on the other. I mean, I guess my reaction to that is that I think there's -- one of the things on which there does seem to be consensus right at the moment is that the big emerging markets need a bigger share -- voting share in the Fund and the Bank, and so I don't think we have to worry, really, too much about -- well, I think we have to worry about the engagement of those countries in the Bank and the Fund, but I don't think it's because of -- I think we're taking care of it on the voting share side. I think the real problem is, is the United States and is Europe -- are these two powerful entities which have dominant in the post-Second World War period -- are they really willing to buy the ideal, which they themselves gave birth to, of a real multilateralism, which means that you don't get your way all the time? You don't have veto power over the big decisions. It seems me if the United States and Europe are really serious about these being multilateral institutions, the idea of a veto is an anathema to the concept of that. I don't care, you know, whether -- and we think that this idea of giving up the veto could even be sold in the Congress of the United States. So, it seems to me it's just a step that has to be taken.
So, the question really is who's willing to give in order to get the kind of institutional basis we want?
I mean, I worry a lot about, you know, countries like Belgium, for example -- not because I have an infinity to Belgium, which I don't but there's a small -- any personal affinity, but because I know that small countries -- small countries with big share -- bigger shares -- are going to be concerned about giving things up. I just submit to you -- and all of you who have worked here know that this is true is since when is it -- it's simply not the case in the policy world that a good idea needs always and everywhere to be backed up by the strongest and largest power. It seems to me that it's incumbent upon people to realize that if you have a good idea and you're able to back it up intellectually, analytically, and substantively and maybe even politically, that is to say, work coalitions with people, that your idea can come into play and maybe even prevail and that it doesn't get down to the fact of whether you have a -- what your voting share actually is, and I think a realization of that on the part of the smaller industrial countries, and even the larger industrial countries, is going to create an atmosphere of intellectual and policy exchange which needs to be part and respect for the views of others who maybe have a different perspective. And the idea of incorporation -- that is to say take a set of ideas, some of which are divergent, and package them, combine them in innovative ways so that everybody feels a certain amount of buy-in and ownership and engagement in the ultimate outcome. I think that's the spirit of what multilateralism means, and I think there's a point at which -- as important as I think the voting share shift is, there's a point at which you have to give up on the idea that whether you get a splinter more or less of voting shares is really not where the game has to be played; it's the spirit of the enterprise that ultimately matters. That takes leadership on the part of countries at the highest level to create that sense of cooperation and coordination and that it needs to be transmitted downward. I mean, clearly that's what's lacking in the world and that's what needs to change.
MR. LINN: Okay, let me pick up also some of the other points, but just to add to that first comment, I think the bargain is necessary not just sort of because it's the right thing to do and ultimately will make the institutions more effective, but it's also because in fact the U.S. I think is ready to move in a very significant way provided the Europeans are willing to move. The U.S. is willing to move because -- and it's already reflected in the fact that it doesn't ask for an increase in its share, which in the most (off mike) in fact, it will be entitled to, because it is actually worried about regionalization. I think the U.S. -- the reason why the U.S. is at the table and willing to push forward with IMF reform is because in fact it's worried about a regional IMF for Asia and that would be, from the U.S. perspective, not a desirable outcome.
So, then what about the Europeans? How do you get the Europeans to move? Well, the Europeans might move if they see the U.S. not just giving up its larger entitlement but actually is willing to give up something in the sense of its current entitlement, which is -- the biggest one is the veto. In fact, that's the most visible one. So, it is that part of the bargain why we think it's in fact useful to focus on Europe and the U.S. and sort of that intragroup bargain within those -- among those two.
The other point we made is that the de-linking of this actually goes to the next point between the IMF and the World Bank governance reforms. We believe it could actually be, again, part of the bargain because it would then require not only the U.S. also of course to give up, we think quite appropriately, the selection of the presidents of the World Bank, but also it would actually -- because of some suitable arrangement and what that arrangement would be would need to be seen in the current -- more or less the current situation or perhaps the double majority vote that gives both donors and recipients an effective voice. But at least open the door to a different situation in the governance outcome in the World Bank that actually gives donors, in particular the large donors among the small donor countries, an effective role.
So, I think there is possibility for bargains of this kind that ought to be exploited. In the end I think the point that Colin made that really everybody should be interested in more effective global institutions -- IMF, World Bank, and so on -- should be and hopefully will be the overarching driver.
There's a question on G8 -- what's the momentum within the G8? I think realistically speaking, the momentum is -- best one can say -- glacial at the moment, although there is some as seen, as I mentioned, in the G8 plus 05. There's no -- at the moment, particularly since Paul Martin, the former prime minister of Canada, retired from his position, there is no longer a leader who is stepping out front. Paul Martin did. So, in a sense we've moved backward. But my perspective from this is that sooner or later -- and I think sooner is definitely within the next five years -- the momentum that is underneath -- namely, the economic momentum, the power shifts, the related -- the need for a more inclusive summit forum from my perspective will be so overwhelming that I believe some of those new leaders that are going to be elected, especially in the U.S. in 2008, will actually no longer feel it's in their interest to hold back. I may be overly optimistic, but that's my view.
Finally, maybe just the last two points were actually also interrelated, but Tony, your point is very well taken. But you mentioned the point about guidance. We're not -- you see, the summits are not formal organizations. They're actually -- and the whole point is to keep them and make them more informal than they currently are. Actually, one of the great advantages of the G20 over the G8 is -- ironically, it's a larger forum. But we just heard yesterday from an official who's intimately involved in this -- Australian officially -- that actually the G20s are a very informal forum, so it's a forum in which guidance can be given, discussion can take place, consensus may be formed, more trust and respect of the kind that we talked about can be built, but then of course the implementation -- that in a sense gets to the last point -- the implementation has to be happening in the institutions. The guidance -- not outright instructions but the guidance where there is consensus -- can come from the fora, but where there is no consensus at least one has had hopefully a greater respect for each other's views and a better understanding and over a time a movement towards more of consensus on key global issues than we currently have, and certainly that I think we would have if the world were to break into regional blocks that are not brought together under one roof in terms of also then the kind of shifting coalitions of matching interests. That is them not us versus them -- always the same -- us versus them, but it's actually us versus them on things that matter, where we actually have real serious interests and contributions to make.
MR. BOUGHTON: Thank you very much Johannes and Colin and Rachel for what's been a very stimulating discussion this afternoon.
I'd just in closing like to stress that I think much of what we have heard this afternoon has had a very optimistic tone, and I think the reason for that is that we are seeing a lot of forward momentum on some key reform issues. The Economist magazine this week described the IMF as being dragged down by what it called an aimless malaise, and I think that what we've heard this afternoon puts the lie to that. It's -- this is anything but an institution with a spirit of malaise, and I think that's been reflected in the discussion this afternoon.
So, just to thank our speakers once more. Thank you come for coming. There will be refreshments outside.