June 15, 2006

At the end of World War II a generation of leaders sat down to think about what the future’s world economy would look like.  This generation has lived through the Great Depression, defeated the Nazi’s and the Emperor, and now they were facing a growing Soviet threat.  They faced daunting challenges.

To help ensure the safety and prosperity of the West the World War II generation established the World Bank, the International Monetary Fund, the General Agreement on Trade and Tariffs, a few years later the United Nations, the North Atlantic Treaty Organization, and the Paris Club.   

Fast forward fifty years…the Soviet Union is gone.  We won the Cold War.  The generation that fought the Nazi’s lived to see their children and grandchildren have a standard of living they never could have envisioned.  

But today as the new generation, we face new challenges.  On the security front we face rogue states, stateless terrorists, and natural resources issues.  On the economic front we struggle with how to deal with the threats and opportunities of globalization, we worry about financial crises, asset bubbles and ripping apart of the American middle class.  How are we going to deal with an aging American population in an ever rapidly changing global economy?  The list of challenges seems long.

But what of those international institutions the World War II generation built?  Could they, possibly, help us?  Well…as it turns out, no one really seems to be thinking logically about this.  Oh sure, there are political think tanks writing white papers and holding one-day conferences, but most of these “discussions” are so partisan they don’t accomplish much at all.

But there is a glimmer of hope.  The American Assembly, a non-profit, non-partisan organization originally started by Dwight Eisenhower in 1950, has launched the “Next Generation Project” to evaluate U.S. global policy and the future role of these global institutions.  It was this same American Assembly that came up with the idea for NATO back in 1950.

The Next Generation Project, head by my colleague Frank Gavin over at the LBJ School here at UT, held their first meeting this week.  Frank and Admiral Bob Inman were kind of enough to invite yours truly.  Since I received their invitation about a month ago I have been thinking more and more about these global economic institutions.

I would argue the overall goal of the international economic institutions need to be updated.  With the globalization of our markets the goals of our international economic institutions should be:

1)  ensure liquidity within our global markets,

2)  ensure transparency in market transactions and regulations,

3)  ensure the clear defining and enforcement of property and intellectual rights,

4)  encourage financial market diversification (debt, equity and risk markets),

5)  encourage the expansion of human capital,

6)  minimize harmful, self serving economic policies.

7)  make absolutely sure that financial assistance is being used properly.

I know these are vague but they are principles upon which to restructure our institutions. 

Far too many of our institutions still focused on lending money directly to local governments.  This was acceptable back in the 1950’s to 1970’s where supporting “friendly” governments was the key, and we believed that increased government spending was the lynch pin to economic growth.

Today we realize that economies are more complex.  Economic growth and prosperity comes from well function market institutions and the positive spillover effects of new ideas and products.

The Meltzer Commission report of 2000 gave some interesting suggestions for reforming and updating the IMF and World Bank.  It might be a interesting starting point.  However, looking at each institution runs the risk of losing sight of the bigger picture.  Maybe some of these organizations are simply no longer needed.  Just like my morning chocolate doughnut.

The first step in this process is to identify the needs, goals and dangers we face.  We can not continue to sit back and wait for the next crisis to happen.  We must, as the World War II generation did, create a structure for the future.  The future will be global markets.  What will be the future of the international organizations?  And what will be the future of U.S. global policy?  Very interesting and daunting questions…

For more information about the Next Generation Project see:

http://www.nextgenerationproject.org

All the best,

MBrandl