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Ancient wisdom guides India's future

July 07, 2009 15:29 IST

As we near the end of the first decade of the 21st century, the challenges of global governance in an increasingly inter-connected and multi-polar world are truly formidable. Our institutions of global governance, centred on what may be called the UN system, were designed for the most part at the end of the Second World War and reflected the politico-economic realities of that age. The world was then dominantly bipolar, in the political and military sense, international trade and international capital flows were low, the developing countries were not economically important, indeed most of them were not even independent.

There has been a sea-change since then. Bipolarity has given way to multi-polarity, the developing countries are not only sovereign states but some group of developing countries have gained in relative economic importance and this trend will only gain momentum. The world has also become much more interconnected through the expansion of trade in goods and services and expansion of financial flows generated by capital account liberalisation. Interconnection has in turn greatly increased problems of contagion and vulnerability especially through financial linkages.

Our established institutions of global governance have evolved to some extent in response to these changes, but much less than they should have and the pace of evolution is likely to remain well behind the rate at which the world is changing. The centre piece of the post-war global architecture is the United Nations, conceived originally as the Parliament of the nations with the Security Council at its apex. The size of the international parliament has of course expanded and while there is occasional cynicism about how effectively the General Assembly can reflect global opinion, and especially evolve workable solutions on key issues, there is no doubt that it serves a valuable purpose in giving voice to every country.

However, this is not the same thing as saying that we have a structure which is functionally efficient and capable of dealing with the complex challenges the world faces today. The Security Council has not changed at all and its present structure poses serious problems of legitimacy. The system of two-tiered membership, which gives a veto to the five permanent members, ie, the nations that emerged victorious after the Second World War, is clearly anachronistic. Germany and Japan, which have significantly larger economies than Britain and France, both permanent members, are excluded. China is the only developing country in the P-5 and it is there for historical reasons, not as a large and economically important developing country. It is obvious that if the system was being designed today it would be very different. However, while the problems have long been recognised, efforts to reform the system have made little headway.

The unworkability of the existing structures has led to greater reliance on plurilateral groupings. Some of these such as the G-7, later expanded to the G-8, are to be seen as a group of countries with common interest, not necessarily representative of the global community. The original rationale of the G-7 was the belief that it would evolve more effective consultation among the more powerful countries on one side of the bipolar world of the 1970s and 1980s. Its expansion to the G-8 reflects the disappearance of that particular faultline by the collapse of the Soviet Union. However, while the Group includes many of the economically powerful nations, it is obviously not representative as it does not include any developing country.

Some years ago the G-8 has been expanded into the G-8+5 by adding China, India, Brazil, Mexico and South Africa. More recently, the group has been expanded even further to include a handful of countries in the name of achieving additional outreach. While these ad hoc expansions are a useful way of broadening the range of consultation undertaken by the G-8, it suffers from two limitations. The expanded group is not cohesive since the countries included for purposes of outreach do not participate fully in the proceedings, or the preparations, and the expanded group therefore does not have a composite identity. Second, these groupings do not have any special legitimacy within the UN system.

The deficiencies of the existing system of governance have been dramatically brought home during the recent international financial and economic crisis. The crisis has highlighted the fact that all economies are now highly inter-connected and problems originating in one part of the world economy can quickly snowball into a global crisis. It has forcefully exposed fundamental weaknesses in the approach to financial regulation which emphasised light regulation and greater reliance on inhouse controls and market discipline to control risk. This approach gained popularity in the 1990s and is now perceived to have been overdone. The issue has revealed the inadequacies in the existing domestic regulatory systems in the industrialised countries and also in the international institutions set up to police these areas and to take remedial action when needed.

Whatever the causes and specific failures underlying the crisis, the world was quick to realise that a global crisis requires a global solution. It was also realised that the existing institutions of global governance did not permit effective coordination of a global response. The world therefore responded not by working within the existing system, but by convening a meeting of the G-20 at the level of leaders. The G-20 was established in 1999 at the suggestion of Paul Martin of Canada and has a composition which is somewhat different from the IMFC which meets regularly at the finance ministers level. The G-20 has been meeting at the level of finance ministers since 1999.

Recognising the seriousness of the crisis, the United States convened a meeting of the leaders of the Group of 20 in Washington DC in November 2008. The Group met again in London in April 2009. Unlike the G-8+5, this group has a composite identity since all member countries participate on equal terms including in the preparatory process. However, the selection of countries remains arbitrary and can be questioned as to its representativeness, especially since it departs from the composition of the IMFC which reflects the representation on the Board of the IMF.

The G-20 meeting in London certainly achieved a great deal more than normal meetings of this type, especially in two respects. First, it succeeded in expanding the perimeter of financial regulation and endorsing the establishment of global standards to which national standards can be aligned. These standards will be developed by the Financial Stability Forum (now renamed the Financial Stability Board) which has been expanded to include all G-20 countries that were not members earlier. Second, it achieved a significant expansion in funding for the Bretton Woods Institutions. However, it did not achieve any significant reform of the international financial institutions. The Group has decided to meet again in September and it remains to be seen whether it will be able to evolve some ideas for making significant reforms by then.

The problems faced by the institutions of governance charged with handling the financial system are also relevant for other international institutions dealing with political and security issues, trade, climate change, etc. They need to update structures and upgrade work methods; reform decision-making and ensure effective delivery. They need to adapt, adjust and accommodate to adequately reflect ground realities, contemporary aspirations, and pressing requirements of developing countries including emerging economies.

India, as the largest democracy in the world and an emerging economy that has achieved the ability to grow rapidly, remains deeply committed to multilateralism. It has been an active member in global institutions -- the United Nations, Bretton Woods Institutions, World Trade Organisation, International Atomic Energy Agency and so on. It will continue to be so in the decades ahead, based on commitment to principles and values that define these institutions. India will seek its due place, play its destined role and share its assigned responsibility, giving voice to the hopes and aspirations of a billion people in South Asia.

It will continue to strive for the reform of the United Nations to make it more democratic; to fight against the scourge of terrorism and dismantling its infrastructures on the basis of zero tolerance; to fight piracy on the high seas; to restructure the Bretton Woods Institutions to create a new financial architecture; to achieve an early conclusion of the Doha Round of trade negotiations, with its development dimension, and to address climate change issues, guided by the principle of common but differentiated responsibility and respective capability.

India's view of the world has always been guided by the wisdom of that ancient Indian saying -- Vasudhaiva Kutumbakam -- 'the whole world is one family'. This idea found expression in Jawaharlal Nehru's very first address as prime minister: 'Those dreams are for India, but they are also for the world, for all the nations and peoples are too closely knit together today for any of them to imagine that it can live apart. Peace has been said to be indivisible; so is freedom, so is prosperity now and so also is disaster in this One World that can no longer be split into isolated fragments. That eternal message of the Indian people will guide us in our attempt to seek inclusive global solutions to intractable global problems, and give new hope to humanity.'

Prime Minister Dr Manmohan Singh's article was published in the compendium brought out by the G-8 nations on the eve of their summit in Italy

Dr Manmohan Singh