[THE WALL STREET JOURNAL] 2011-11-04
Middle Powers Can Punch Above Their Weight
Korea, Australia, Indonesia and others should remind the ‘big boys’ at the G-20 of the benefits of liberalism
By ANDREW COOPER AND JONGRYN MO
As the G-20 summit unfolds in Cannes, France this week, global economic policy making might appear solely to be the preserve of the very large. The pressing issue of the day is the debt crisis in the euro zone, one of the world’s biggest economic blocs and home to a major currency. Europeans are turning for help to China, the second-largest economy and clearly a rising power.
But, as obvious as it sounds, the G-20 has more than a handful of members. The original impetus for the grouping was that many of the world’s large economies need to be involved in policy discussions, not only a few. Sure enough, G-20 members such as Korea have a potentially important role to play, if Seoul and other similar capitals choose to do so.
Underneath the preoccupation with scrambling to stymie the European debt crisis and ensure financial stability lies a profound struggle at the G-20 to shape the future of the international economic system. Large emerging market economies seem determined to use these new stages of global financial troubles as an opportunity to change the embedded multilateral rules.
In return for investing in the European bailout fund, for example, China is trying to extract political concessions from Europe on trade issues such as the treatment of China as a market economy and Europe’s cooperation in easing international pressure for the revaluation of the yuan. India equally views the current multilateral system of trade liberalization and financial regulations as constraining its drive to catch up with the West in economic development.
Traditional economic powers such as the United States and Europe are justifiably concerned about growing mercantilism in major emerging economies. These developed countries have taken actions such as World Trade Organization suits and bilateral-trade safeguards to defend the basic rules of the liberal international economic order such as subsidy rules and market-determined exchange rates.
Preparing to speak: Korean President Lee Myung-bak at Cannes.
Yet those old-line powers also suffer credibility gaps. While they say they support trade liberalization, in reality they both regularly impose antidumping duties and other sanctions on trading partners. Washington only belatedly ratified three major free-trade agreements with strategic allies last month.
This creates an opening for so-called middle powers, such as Korea, in forums such as the G-20. These countries form a natural constituency for a liberal global economic order, having benefited so much from one in the past. They have the credibility to defend those principles now from assaults on all sides by the big players.
Korea’s growth today is a result of its ability to tap into global export markets, and Seoul increasingly embraces trade liberalization for imports at its own borders. Korea emerged from its own financial crisis in 1997-98 the way the large economies should be healing themselves now, reducing the role of government and pushing forward with structural reforms to make the economy nimbler and more resilient. This development model is at least as compelling as the alternative “Beijing consensus” some purport to see in China.
Canada and Australia also are middle powers. Both are liberalism success stories, having grown wealthy on the back of free trade and relatively open domestic markets. Both also avoided the financial excesses that led to crises in the U.S. and Europe, showing that liberalism and economic collapse do not, after all, go hand in hand as large developing economies have grown fond of arguing.
Mexico, Indonesia and Turkey fall into the same category and have a stake in advancing liberal priorities. All three are regional anchor economies and have long led the integration and development of their regions. Turkey in particular is a beacon of hope for secular liberalism in the Middle East. Their global roles have also expanded in recent years. After its successful chairmanship of the UN climate change negotiations in 2010, Mexico will have another chance to leave its mark on global governance as the chair of next year’s G-20 summit.
The great benefit of the G-20 is that it brings such voices to the table. They can no longer afford to be free riders, contenting themselves with lending support to big-economy champions of liberalism. Instead, the middle powers need to start doing what the big powers themselves increasingly are unwilling to do: stick up for liberal principles.
Such advocacy could take several forms. Above all, these governments need to defend the principles that are making their countries prosperous from rhetorical attack. On a more practical level, the structure of the G-20 is such that the middle powers can mediate disputes between the bigger players. They should use the influence this lends them to press the largest economies in a more liberal direction.
If that doesn’t work, the middle powers also have the option of forming a more public bloc of their own. Working as a loose coalition, they could be in a position to break any gridlock among the biggest economies by offering credible alternatives.
The middle powers have been largely left out of discussions of immediate import such as a European bailout, for which they can probably be grateful. But that doesn’t free them from their responsibility to play an important visionary role at the G-20 and in other settings. At a time when the largest economies seem preoccupied with putting out one fire after another, the middle powers need to keep the world’s eyes on the liberal principles that have lifted so many people into lasting prosperity.
Mr. Cooper is a professor at University of Waterloo and a distinguished fellow at the Center for Global Governance and Innovation. Mr. Mo is a professor at Yonsei University, a research fellow at the Hoover Institution and a fellow at the Asan Institute for Policy Studies.