Democratizing the Global Financial Architecture: Redesigning Economic Regulation for Global Needs

Hope for a new political era fills the hearts and minds of many in the United States and throughout the world. However, the worsening global economic crisis is a stark reminder that President-elect Obama has his work cut out for him. When the $700 billion bailout package passed in October, a large rescue plan was granted to Wall Street which did not address the pain felt on Main Street.

People are crying out for a shared economic recovery that includes low-income and vulnerable people. AFSC and our partners will be working hard to mobilize grassroots support in January for an economic stimulus package that creates jobs, helps states meet their fiscal crises, and strengthens the common good.

Bretton Woods II -- the G20 meeting in Washington, DC

On November 15, sixty-four years after leaders of the Allied countries of World War II met at Bretton Woods, New Hampshire to map out a structure for the post-war global economy, President George W. Bush hosted a financial summit which some called "Bretton Woods II." Like the rapid-paced talks that preceded the Wall Street bailout, the summit planning was done behind closed doors. That should concern everyone who wants to see a more democratic, just, and transparent global financial system rise from the ashes of today's economic crisis.

President Bush invited the leaders of twenty nations with the largest economies (known as the "G20" nations), plus representatives of the United Nations, the International Monetary Fund (IMF), the World Bank, and the Financial Stability Forum, to participate. French President Nicolas Sarkozy is calling for a follow-up session in about 100 days. A historic window of opportunity is opening that depends on pressure from public opinion for a real change of course to be achieved.

European Union leaders have proposed that the International Monetary Fund (IMF) play a new role as "regulator of regulators" to prevent future financial crises. No proposal which places more power in the hands of the IMF should be considered without fundamental reform of the Fund, which itself was born at Bretton Woods. After all, the IMF has not only promoted the type of de-regulated financial system which is behind the current crisis, it has imposed it on dozens of countries which turned to the Fund in times of economic stress. Moreover, the IMF did nothing to respond to mounting signs of imbalance that preceded the full-blown crisis the world faces today.

Like its Bretton Woods sibling, the World Bank, the IMF has been governed by wealthy nations, as a few high-income countries hold a majority of voting shares. Together they have governed the global economy in their own interest, forcing national governments to open up their financial markets, adopt "free trade" principles, and orient their domestic economies to the interests of foreign investors.

This ideology, known throughout the world as "the Washington Consensus," has run its course. Even former US Federal Reserve chairman Alan Greenspan, has publicly admitted that the US free-market ideology is flawed and that markets do not self-regulate. The failures of this model have never been as obvious as they are today. While the US has never been subject to the dictates of the IMF or World Bank, the same Washington Consensus that has caused so much hardship in less wealthy nations has dominated domestic policies and led directly to the Wall Street meltdown.

Crisis Beyond US Borders

In the United States alone, the New York Times reported on November 25, $7 trillion of public funds has been allocated so far for governmental expenditures, investments, loans, and guarantees for the financial crisis bailout. This is in stark contrast to the $24.7 billion in resources committed as official development assistance (ODA) to Africa in 2005, as well as to the $100 billion in resources committed through 12 years of debts cancelled for highly indebted poor countries.

In this context, the invitation list to the next G20 summit table is crucial. There are many who were not invited to the Summit in November, yet they are key stakeholders who must be a part of creating any new system of governance advanced for the global economy. They include representatives of poor nations and of impoverished people from the wealthy nations. Greater transparency and participation are needed to ensure that any new global system meets the needs of billions of people around the globe for decent employment, affordable housing, and adequate health care. Under the existing G20 structure, just as with the Wall Street bailout, changes to the global financial architecture will be designed in the interests of the large financial institutions which dominate the world economy.

An alternative course is possible. We advise that any follow-up process include all governments that wish to participate, plus a range of key representatives from civil society. Together, they should define an open and transparent process for considering proposals, including regional meetings around the world to gather input.

It is not only the opinions of the presidents and finance ministers of the wealthiest nations that matter in shaping an economy that affects lives and livelihoods the world over. A new consensus should have room for everyone.

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