A Seminar on Money

Today in Nanjing – March 31st – the G20 have brought together the G20 Finance Ministers and Central Bankers for what is billed as a Seminar on the International Monetary System.  The seminar has been organized by the French President as host of the G20 Leaders Summit scheduled for November in Cannes – and says the press invitation – with close cooperation with the Chinese authorities.

Only one problem – the Chinese do not want to discuss the Chinese policy with respect to the renminbi.  As is evident from commentary and analyses from many finance ministers in the G20, they see China’s renminbi policy as a major element of the global imbalances.  The criticism of the undervaluing of the renminbi is strongly expressed by US officials but it is not limited the traditional advanced countries.  It is also an object of criticism by rising powers including most notably Brazil – see this week’s Feature of the Week by Roberto Luis Troster  at the Munk School Portal entitled, “Brazil’s Currency Strategy Problem“.

The described issue is of two sorts.  The Chinese – and the French Presidency – have pressed for reform of the global monetary system.  Read that as finding a way to end the reserve currency status of the United States dollar.  At best this policy is a long term policy change.

Additionally, the French support the effort to structure a global economic system to reduce volatility in the current global economy – to deal with global imbalances – in other words.  In this discussion most agree that there is a need to move the renminbi from a fixed rate to a market rate currency.  The US has pressed this strongly and to varying degrees many other G20 countries see the undervaluation of the renminbi and the collateral enormous reserves of China as a continuing aspect of that volatility.

So the French continue to push both issues – one favored by China; one favored by the United States.  Such is the complexity of global governance.

Failing to Step Up

One thing I know my Brazilian colleagues are waiting for is a public commitment by President Obama – while in Brazil – to support Brazilian membership to the United Nations Security Council (UNSC).  Obama while in India gave strong vocal support to India’s bid for membership.  But it appears that he has yet to do so while on this current trip to Brazil.

Such a failure would not go unnoticed by Brazilian IR experts and policy makers.  And such a failure would not go unnoticed by IR experts more generally.  Why?  Simple.  The support for India would be support for a UNSC membership that would remain uniformly NWS – Nuclear Weapons States – while public support for Brazil would extend US support to a non-nuclear weapons state – NNWS.

It is therefore a public declaration that should come sooner rather than later.

The Birth and Consequences of a New Galaxy

“When we last saw our hero…”,  sorry I couldn’t resist writing that.  In any event, this is the second part (the first part is the previous blog post, ” The Origins and Consequences of the Two Global Governance Galaxies“) of remarks I was supposed to have delivered at the ISA’s Friday Panel (13:45 at Viger C) , “the G8/G20 and International Organisations” chaired by Dries Lesage, Ghent University and John Kirton Munk School of Global Affairs at the University of Toronto.  My sorrow at being unable to attend has turned to opportunity.

Now what is the meaning of “new galaxy” above.  Well as I pointed out in the earlier blog post, John Kirton and his colleagues in their edited volume Making Global Economic Governance Effective: Hard and Soft Law Institutions in a Crowded World spoke of two galaxies but the reference to the Gx was principally about the G8.  And in fact my reference to new galaxy is really about the G20 Leaders Summit.

Now why do I say this?  For those who tend to follow these sometimes esoteric matters, there remain significant questions over the new G20 Leaders Summit.  Created in the 2008 global financial crisis, questions linger over whether the abatement of this crisis – assuming that is what we are seeing – will forestall the transition of the G20 – structured for a crisis – to a permanent steering committe for at least global economic and financial issues.

Then there is the ambivalence of some key actors with respect to the G20.  The United States  – with the concurrence of the other G20 leaders – inaugurated at the Pittsburgh Summit  the G20 as a permanent organization for global economic matters.  But it would appear that US ardor has waned since then.  From public though anonymous statements  from US officials at Pittsburgh  that the G8 was finished – I am paraphrasing – and that the future was the G20, the US has suggested that there will be an unspecified period of transition between leaders clubs to quiet hints that the US would be perfectly willing to proceed in global governance with ad hoc bodies that worked.  For the US there is some inevitable friction in the flattening of the global governance hierarchy – meaning the US has insisted that others take greater responsibility – but it would seem that it is harder to accept that the US may no longer get its way in the course of global governance decision-making.

And then there are those from the G7/8 that always remained skeptical – for a variety of reasons – over enlargement – read that at least as Canada, Italy and Japan.

But there is support for the newly rising powers and an acceptance of the new enlarged leadership – if not the responsibilities necessarily.  We have come to understand – if we needed the evidence – that China is a supporter of the new leaders club.  Indeed in a cable – released by WikiLeaks – this a cable to Jim Steinberg from US officials at the US Embassy in Beijing, dated September 29, 200 – reflecting a meeting with Chinese officials where the Chinese official,

“… thanked President Obama for his leadership in institutionalizing the G-20, which has created a “comfortable” platform for countries like China and India to play a larger role.” This official also expressed the hope, “that the United States would coordinate closely with China as we established new rules for the organization, and that it would not become an organization that duplicated the United Nations or the G-8.”

Now the reality is  that it is unclear whether there is any appetite among the key rising powers to take on greater responsibility.  In an earlier time I’ve called China “a part-time global leader”.  But as pointed out by colleagues in China, and mirroring in part the sentiment expressed by the Chinese official in the US cable, China supports the G20 and views it as a legitimate institution, at least with respect to tackling the challenges presented in the global economy.  But still China’s leaders, though accepting the role of the G20 and acknowledging its legitimacy, still are determined to retain full sovereignty over domestic economic matters.  And you can see that in the G20 struggle to fashion a sensible global imbalances framework.

The bottom line is that the G8 and G20 continue to exist in the same Gx space.  And that this, in my opinion, has the unhappy prospect of inhibiting the emergence fully of a permanent G20 steering committee.  Yet notwithstanding this – and in part as a result of the G20 creation in the midst of an all too apparent global financial crisis – what appeared to all of a crisis of biblical proportions – the G20 has grabbed authority and seized the reins of global governance decision-making.

As a result of this leadership, the G20 has moved ahead forthrightly.  It has created or reformed institutions – most notably the reform of the Financial Stability Forum into the Financial Stability Board (FSB).  As early as Washington, it began tasking the International Monetary Fund (IMF) – notably with what has become the MAP (Mutual Assessment Process).  It has called on the original G20 – the G20 Finance Ministers – established some 10 years earlier – to take on the technical work – see the efforts to advance the global imbalances framework and the Leaders pressed ahead to revise the quotas and shares in the World Bank and the IMF.  The efforts would appear to be Gx governance with the support of multilateral institutions – that is the G20, both Leaders and Finance Minister, acting as an inner cabinet and the IFIs and other bodies acting as a kind of civil service being tasked to implement commitments made by Leaders and Ministers at their summits.  There has been grumbling from the IFIs – certainly some of the executive elements – but for most the tasking is coming from their own leaders.

There certainly are “outs” in these commitment compliance and implementation G20 settings.  An obvious loser is the WTO.  While tasked to monitor protectionism with the OECD and UNCTAD, the WTO plays no role in the assessment of trade and current accounts in the global imbalances effort.

But it looks at this moment as though a structured hierarchy has been created with the G20 acting as the executive and the IFIs as civil servants and experts in seeking global economic and financial reforms.  Now these linkages may not continue.  The G20 Leaders may not be able to make the transition to a permanent steering committee.  We may see a widening of the scope of the G20.  Many critics of the structure of the G8 reflected the multiplication of institutions – IFIs, other UN institutions,  ministerial bodies, expert bodies.  With this multiplication of bodies there was a growing complexity without a corresponding increase in implementation: less expertise, compliance and monitoring; more deliberation, conversation and failure to implement.  So while  the relationship of the Bretton Woods-UN with the Gx systems are apparently more productive – the eye will have to ‘remain on the ball’ to insure effective commitment and compliance in the new global governance system.

The Origins and Consequences of Two Global Governance Galaxies

I know it’s a bit of cheat but I’ve decided that a blog post is the right place to be.  What am I talking about?

Well, this week the International Studies Association (ISA) gathers  for its annual meeting in Montreal Canada.  Dries Lesage from Ghent University with the assistance of John Kirton of G8/G20 research fame – Munk School of Global Affairs at the University of Toronto, organized a fine panel entitled “The G8/G20 and International Organisations”.  Chaired by these two and adding Greg Chin from York University and CIGI as the official discussant, the two chairs recruited a number of experts to tackle the global governance architecture question.  The panelists include:

  • Peter Debaere, “The European Union and the G20: A Central Role for the European Commission”;
  • Thijs Van de Graff, “The International Energy Agency and the G8/G20:  Causes and Consequences of the Close Interaction Process”;
  • John Kirton and Jenilee Guebert, “G8, G20 and the the IMF: From Rivalry to Mutual Reinforcement’;
  • David Shorr, “G8, G20 and the UN Relationship in Global Security and Development”; and
  • Yours truly preparing  remarks on: “Two Great Galaxies of Global Governance”.

This Panel goes off this Friday (March 18th) at 13:45.  One slight problem.  I won’t be able to be there.  And so I thought that the solution – certainly not a perfect one , but I think a rather good one – if I do say so myself – is to blog my remarks.  So here goes.

So what are these two great galaxies that are referenced in the title of my presentation.  Well John Kirton applied the label (See most recently, John Kirton, Marina Larionova and Paolo Savona, eds., Making Global Economic Governance Effective:  Hard ad Soft Law Institutions in a Crowded World, especially John Kirton, “Multilateral Organizations and G8 Governance: A Framework for Analysis”, pp. 23-42 (Aldershot, UK: Ashgate Publishing Limited, 2010)  As John inquired:

How do international institutions, led by the formal, hard law bodies of the Bretton Woods-United Nations (UN) system, and informal plurilateral bodies, led by the Group of Eight (G8) [John unfortunately fails to examine – limiting the evaluation of the institutions], help  each other govern the world?  More specifically, how have and can the world’s many multilateral organizations (MOs) assist the G8 in enhancing its members’ ability to consider, reach consensus on, commit to and comply with ambitious, appropriate agreements  to address key global needs? … Yet little is known about how well, how, where, when and why MOs help or harm G8 governance, and which MOs can be counted on in particular situations to help the most.

John and most experts focus on the formal-informal distinction between the Bretton-Woods-UN system and the Gx system – principally G8 and G20 Leaders’ Summits.  Experts focus on the hard law, broadly multilateral and heavily organized bodies of the Bretton Woods-UN system and contrast it with the far more informal lighter legal, less bureaucratic and heavily reliant on voluntary, open and flexible approaches of the Gx system.  The contrast is real but as any  observer will tell you hard law in international law and in the international system is a rather relative term.  How many Article VII (binding) resolutions of the UN Security Council (UNSC) does it take to underline the limited prospect of hard law commitment and compliance.

From my perspective, it is not the characterization of formal/informal institutions that best describes the differences but the fact is that the principal organizations of the Gx system – the G8 and now the G20 Leaders Summit are leaders clubs as opposed to the international organizations including international bureaucrats and officials.  In fact the most similar organizational form  to the Gx system is the UNSC – but even here national participants are permanent officials, occasionally home country officials, e.g.  foreign ministers, but rarely heads of government. Now this is not the time to make further comparisons on decision-making between the Gx Leaders summits and the UNSC – but it is evident how impaired the UNSC decision-making system is with the differential attribution of the veto is.  The incentives change dramatically  in permitting some countries the right to veto and other not.

Let’s return to the interaction and consequences in having these two galaxies of global governance.  Frequently proponents and critics have emphasized the possible zero sum nature of the two systems [again remember that much of this discussion and critique has taken place between the UN-Bretton Woods system and the G8]  – one formal and one informal.

John Kirton, and perhaps some of his colleagues in this volume suggest that a  central aspect this two-system global governance environment arises from the fact that the new institution building of the Gx process did not follow on from the destruction of the prior system.  Rather, following the demise of the Cold War system in 1989, “The institutions and ideals of a new and old order thus had to compete, converge and cooperate with each other as they sought to govern this ever more demanding and globalizing system.  This of course contrasts dramatically from the architectural building efforts after say World War II (We are reminded of this course by G. John Ikenberry’s seminal volume After Victory: Strategic Restraint, and the Rebuilding of Order after Major Wars i(Princeton, NJ,: Princeton University Press, 2001). Furthermore, and critically in my estimation, is the fact that the creation of the Gx system –  first in the 1970s and then in 2008 – came about as a result of what was perceived to be the inadequacy of the global governance institutions.  I think its fair to say that these institutions were called forth because of identifiable major economic crises where some officials and leaders determined – rightly or wrongly – that the current institutions were not capable of dealing with the challenges facing the states in the global economy.   And as a result they created these informal institutional leaders clubs.

As with so much of the analysis on the Gx process – whether G8 or now G20 –  there is no consensus here of the relationship between the two galaxies of global governance.  Views range from the two isolated from each other, through the two systems acting as rivals towards each other, to a perspective where the G7/8 and now the G20 act as a kind of ‘inner cabinet’ and the international organizations provide a civil service that can be tasked to implement commitments made at the Gx summit or at the ministerial level.  Certainly in the global financial crisis the G20 leaders summit, especially in the Washington communiqué, tasked the IMF to carry out a number of leaders’ commitments identified at the summit.

It is likely, of course,  that the truth lies somewhere in-between.  The relationship of these two systems is one is one where there is a “pulling together” with, “support flowing both ways,” as suggested by Kirton.  Indeed there is collaboration and support through many of the Gx phases from preparation, commitment and finally implementation.  In that continuum the international organizations can provide, among other things, expertise, officialdom, and compliance monitoring.  In addition the heads of some of the key institutions such as the UN, the IMF, and the World Bank do attend the G20 summits.  Two great galaxies and the effort to support each other, if only grudgingly at times, is probably the best description of this complex relationship.

Let’s look somewhat more closely at the relationship of the G20 to the Bretton Woods-UN system.  I shall do that in the followup blog post.  Kinda of a little bit like a thriller.

Stability and Instability Once Again – Could it Be …?

As I noted in the earlier blog post of about the same name as the above, I advised that I would use this blog post entry to review Alaister Iain Johnston’s article examining Yan Xuetong’s article,  “The Instability of Superficial Friendship”‘ in The Chinese Journal of International Politics, Vol.3 (2010), pp. 263-292. Johnston’s article is:  “Stability and Instability in Sino-US Relations a Response to Yan Xuetong’s Superficial Friendship Theory.” Vol. 4 (2011), pp. 5-29 and again it like the earlier piece is in the Chinese Journal of International Politics. (Just a slight digression – I did receive an e-mail from Iain noting that in fact the editors asked him if he might respond to the Yan Xuetong article.)

In any case Johnston tackles the “superficial friendship” hypothesis proposed by Yan Xuetong – that is an hypothesis that both US and Chinese leaders have excessive and failed expectations of the behavior of the other with leaders on both sides mistakenly believing that the relationship is more collaborative than their actions prove to be.  Disappointment engendered by the other’s less than expected collaborative behavior creates instability in the relationship.

In assessing the superficial friendship hypothesis, Johnston begins by trying to situate this “superficial relationship” characterization within a known literature – in this case within the psychological literature.  Doing so, as pointed out bu Johnston creates a ‘levels of analysis’ problem since Yan Xuetong’s examination is at the national leadership level and not at the more micro small group or individual leadership level.  At best, according to Johnston, the pattern of US-China relations – based on exuberance and disappointment – ill-fits the pattern of bilateral behavior.

Johnston additionally turns to what he calls the”impressive quantitative data-project that he [Yan Xuetong] and his colleagues have developed…” to evaluate the hypothesis.  As Johnston notes the events data reveals, according to Yan Xuetong, that the US-China relationship has become more unstable than before following the end of the Cold War  due to the cycle of exuberance and disappointment between the two powers.

Now Johnston in a rather persuasive and extended analysis of the events data – as they are currently constructed and characterized –  suggest that there are two problems:  first that some of the issues identified in the data set might well be coded differently; and secondly there are, in Johnston’s opinion, important issues between China and the US that do not find there way into the data set as currently constituted.  Not to get too social ‘sciencey’, Johnston concludes:  “In essence, the operationalization and measurement of the dependent variable becomes problematic.”  And for good measure Johnston notes the fitted trend – taking the data from 1989 to 2008 – increases over time and the annual absolute deviation declines – in other words, the US-China relations improve and volatility declines, which fails to correspond with the superficial friendship hypothesis.

Well if the superficial friendship hypothesis fails “to make the grade” – at least in its current form and with the current data set – where does Johnston turn to in the alternative.  In fact he offers the security dilemma theory – which as he later points out in a footnote – he had offered up some 10 years ago.  As Johnston points out security dilemmas are “endogenous social processes” and as the security dilemma gyre intensifies cooperative behaviors are discounted by the other side and at the same time each side amplifies the negative consequences of moves undertaken by the other.  As Johnston suggests such a dilemma leads to “each side [to take] politico-military steps to enhance its security in the face of this uncertainty. … The result is a spiral of insecurity and mutual construction of an adversary.”

As he nears the end of his analysis Johnston points to several pieces of evidence that he’d look for to confirm the presence of the security dilemma in the China-US relationship.  First, does an actor discount the cooperative behavior of the other side and amplify the conflictual behavior of the other?  Then Johnston suggests one needs to look to see that the two  increasingly ignore or deny interactivity in their relationship.  Evidence that Johnston suggests needs to be found is that each blames the other for changes in the relationship; while each believes that they are responsible for efforts to preserve the relationship.  And finally Johnston suggests that one would look for evidence that each has growing doubt that the other is content with the status quo and believes that the other is prepared to alter the power relationship.

Johnston does point to some evidence of these views from each but I don’t think – and I’m not sure Johnston – believes that the evidence to date is compelling.  And Johnston satisfies himself that it is difficult to determine when a full security dilemma has been initiated and in fact in this relationship such a point has yet to be determined.  And so while Johnston believes, apparently, that a security dilemma is emerging – though he acknowledges that the evidence is at best anecdotal.  Moreover he identifies four stabilizing elements in the current relationship that may have held back a full security dilemma between China and the United States.

And it seems to me that these four elements are most interesting and help to explain in fact why a full security dilemma framing of the relationship is not compelling.  First leaders on both sides appear to have a better understanding of each other’s interests than appears evident in the public discourse and there appears to be a capacity for self correction on both sides.  Secondly, Johnston suggests that deterrence, including nuclear deterrence, is suppressing what otherwise might be a full blown security dilemma.  Next, the ideological dimension of conflict between China and the US is rather muted – especially in contrast to the US-Soviet rivalry.  Finally, according to Johnston, the degree of economic integration and the mutual benefits for a variety of interests in both states has gone some significant way to impeding a full blown security dilemma.

While I suspect that these elements are not equally responsible for the recognized constraint, nonetheless they do contextualize significant difference between this great power relationship and others where a security dilemma might be the appropriate framing.  Indeed I’ll speculate this far – that globalization and the integration of China into the global system has really situated this possible great power rivalry far apart from other historical cases.  This is not the US-Soviet Union, nor is it Germany-Great Britain – and even US-Great Britain.  Now this not to suggest that globalization makes rivalry or indeed conflict impossible, but it raises the costs and dampens the urges to follow a conflictual ‘power transition’ course of behavior.

While still insubstantial a phrase I remain comfortable with the characterization of the bilateral relationship as yi di, yi you’ (亦敌 亦友)- both friend and foe (See my earlier confidence in this characterization in the blog post “China Cannot Rise Peacefully” on John  Mearsheimer.

This post has gone on a bit – but the analyses of both Yan Xuetong and Alaister Iain Johnston are both compelling – and it is incumbent of me – to detail in the future what the behavior and motivation a “both friend and foe” characterization generates.  For the moment, however,  I remain comfortable that the relationship is not a classic rivalrous relationship as identified by both realist schools of thought – The “China Threat” school in Washington and the  “China Can Just Say No” school in Beijing.

“Friendship” or “Enmity” – Stability or Instability in the US-China Relationship

I was searching vain today for a blog post I’d supposedly done on Yan Xuetong’s analysis of the US-China relationship.  While I had reviewed the piece: “The Instability of Superficial Friendship”‘ in The Chinese Journal of International Politics, Vol.3 (2010), pp. 263-292, I had not written a blog post on it.

Yan Xuetong, for those of you who don’t know him, is a very well known and prolific IR relations specialist in China.  Yan Xuetong is currently the Director of the Institute of International Studies at Tsinghua University and the chief editor of the above journal.  He is part of a generation of Chinese scholars that have undertaken some of their research abroad.  In Yan Xuetong’s case, he did his PhD at UC Berkeley receiving it in 1992.  Yan Xuetong is very clearly on the nationalist side and has expressed strong views on China’s core interests.

In my review of Yan Xuetong’s article I cast him as supporting the characterization of the US-China relationship as  – fei di fei you (非敌 非友) neither friend nor foe.  Now Yan Xuetong is in good company here and this characterization includes both US and other China experts.   Here I know I have blogged on this well known characterization – several times in fact – starting as early as “Jumping to Conclusions” and subsequently.  Now my own view is that a more appropriate characterization of  the US-China relationship is  – yi di, yi you’ (亦敌 亦友)- both friend and foe.

But I digress.  So Yan Xuetong focused on a relationship that he described as unstable and a result of superficial friendship between these two great powers – one the declining hegemon and the other a – or “the” – rising power in the contemporary global system.  As I said at the time:

But Yan Xuetong extended the analysis [of neither friend nor foe] by concluding that there are four kinds of interests in this critical bilateral relationship: common interests, complementary ones, confrontational interests and conflicting ones.  For Yan Xuetong the difficulty in the current relationship between these two critical powers arises because policy makers insist on characterizing the US-China relationship as being more cooperative that in fact is the case. China and the US fail in their efforts to build a more collaborative and stable relationship because they fail to see that in fact they have more mutually unfavorable interests than mutually favorable ones.  Officials in both countries find it difficult to create stable relations because of the unrealistic expectations of mutual support each presumes of the other.  In fact, according to this scholar, this instability is of sort greater than one might find in a conflictual relationship.  For Yan Xuetong ‘superficial enmity’ is more stable and it “… also provides more chances for improvements in bilateral because the nations have more mutually favorable interests than they realize.” (Yan, 284).

So in this analysis, “enmity” is better than “friendship” – at least for now – a rather strange conclusion but perhaps a logical outcome of a difficult relationship and differing national interests.  Yan Xuetong urges both to lower expectations and to reduce unexpected conflict by accepting that the two great powers regard the other as a political competitor.  Further he suggests that that the two should enlarge their mutually favorable interests before they even consider developing durable cooperation.

There is no doubt that there are many experts who are willing – even eager – to accept the competitive perhaps rivalrous nature of the relationship.

The conclusion that superficial “enmity” is better and more stable than “friendship” – according to Yan Xuetong – has drawn the attention and raised serious questions by  another well known China IR scholar.  As a result, in the most recent volume of The Chinese Journal of International Politics,” Alastair Iain Johnston from Harvard has written, “Stability and Instability in Sino-US Relations a Response to Yan Xuetong’s Superficial Friendship Theory.” Vol 4 (2011), pp. 5-29  Johnston both takes Yan Xuetong’s analysis very seriously and – in my opinion – does an effective job in raising questions over the approach and the conclusions identified in Yan Xuetong’s article.

In the next blog I will turn to the Johnston analysis  and see where we are now in understanding this key great power relationship.