We need a stronger institutional basis for international economics

From today's Washington Post:

Presidents and prime ministers from major countries around the world will gather in Washington in two weeks to begin heated negotiations over the shape of global financial regulation as they scramble to avoid a deep worldwide recession and restore confidence in markets.

Key European allies are pushing for broad new roles for international organizations, empowering them to monitor everything from the global derivatives trade to the way major banks are regulated across borders. But the Bush administration has signaled reluctance to go that far. In the past, it has resisted similar proposals as potentially co-opting the independence of the U.S. financial system or compromising free markets......

The summit does have a precedent, one reaching back more than six decades. At the 1944 Bretton Woods conference, world leaders gathered to design the current international financial architecture, laying the groundwork for the International Monetary Fund and the World Bank. The Nov. 15 summit has been popularly referred to as Bretton Woods II.

But this time is different. Two years of preparation went into the 1944 summit. And whereas the United States and Britain largely shaped the postwar financial system, financial regulation and coordination will now require the participation of a broader and more unwieldy group, including emerging economies, many of them loaded with foreign exchange reserves, foreign debts and influence over global financial markets.

Comment: I am no expert on international finance, but it seems clear that the institutions developed more than 60 years ago need to be strengthened. If the data in the following charts showing the growth of the global GDP and the even more rapid growth of world trade don't make that point, the current global economic crisis must do so. With some 200 sovereign nations in the world, there are lots of places for corporations and individuals to locate to avoid the within-country regulations that the world depends on these days.

The Bush administration ideology should not get in the way of doing the right thing. The United Nations and its Security Council are acceptable incursions on U.S. sovereignty, given the security problems that they help to defuse. So too, a properly negotiated strengthening of the intergovernmental economic institutions should justify any needed loss of sovereignty to help avoid risks from the global economic systems that can not be dealt with domestically.

On the other hand, I would hope that the summit does not try to do too much in too short a time. There is always a balance between prompt action and prudent action. I hope they get it right. JAD