One Good Book

The Case for International Institutions

What if global powerhouse institutions actually did their jobs pretty well during the Great Recession?

National Journal
July 11, 2014, 1 a.m.

What if glob­al power­house in­sti­tu­tions, which people love to hate in a knee-jerk way, ac­tu­ally did their jobs pretty well dur­ing the Great Re­ces­sion? That’s the premise of The Sys­tem Worked: How the World Stopped An­oth­er Great De­pres­sion (Ox­ford Uni­versity Press, 2014), a coun­ter­in­tu­it­ive book from Daniel Drezn­er, a pro­fess­or of in­ter­na­tion­al polit­ics at Tufts Uni­versity, as well as a pro­lif­ic tweeter and fre­quent con­trib­ut­or to The Wash­ing­ton Post.

While try­ing not to sound too Pol­ly­an­naish, Drezn­er makes the case that the G-20, the In­ter­na­tion­al Mon­et­ary Fund, the World Trade Or­gan­iz­a­tion, the Bank for In­ter­na­tion­al Set­tle­ments, and oth­er such groups helped to lessen the blow to the glob­al eco­nomy in­flic­ted by the worst U.S. fin­an­cial crisis since the Great De­pres­sion. They ac­com­plished this by co­ordin­at­ing policy, re­writ­ing rules, and en­sur­ing that trade re­mained strong even as mar­kets tanked throughout the de­veloped world. “Com­pared to sim­il­ar crises of this mag­nitude in the past, the world eco­nomy did not suf­fer as big of an eco­nom­ic hit, and growth re­sumed more quickly than ex­pec­ted,” Drezn­er writes in the open­ing chapter.

(Lorenzo Gritti)Spe­cific­ally, he ar­gues that glob­al in­sti­tu­tions re­acted quickly and staved off a worse fin­an­cial crisis by im­ple­ment­ing new bank­ing reg­u­la­tions, known as Basel III, to en­sure that banks kept more cash on hand. The IMF helped to nudge ne­go­ti­ations between cap­it­al im­port­ers and ex­port­ers to keep trade go­ing. The G-20 sup­planted the G-8 as the primary eco­nom­ic for­um, al­low­ing more coun­tries to par­ti­cip­ate in key in­ter­na­tion­al de­cisions. And the WTO, IMF, and Or­gan­iz­a­tion for Eco­nom­ic Co-op­er­a­tion and De­vel­op­ment jumped in and did a good job of mon­it­or­ing eco­nom­ic trends.

These achieve­ments, Drezn­er con­cludes, trump any break­downs in glob­al gov­ernance in the last few years, such as dis­agree­ments over fisc­al aus­ter­ity or the failed Doha trade talks (in­ter­na­tion­al ne­go­ti­ations that stalled when rich­er coun­tries dis­agreed with de­vel­op­ing ones, primar­ily over ag­ri­cul­tur­al sub­sidies). “Look­ing for per­fec­tion in glob­al gov­ernance is the en­emy of find­ing the good,” Drezn­er main­tains, giv­ing him­self some wiggle room in his ana­lys­is of how well the sys­tem worked.

That key caveat al­lows Drezn­er to draw his con­trari­an con­clu­sion that the glob­al gov­ernance sys­tem func­tioned post­crisis; it also lends the book less of a con­tro­ver­sial sweep than his thes­is first im­plies. It’s a bit like giv­ing props to Con­gress in 2013 when law­makers man­aged to pass a bill at the last minute to stave off massive tax hikes and spend­ing cuts. The bar is so low for co­oper­at­ive policy-mak­ing now, in­ter­na­tion­ally or do­mest­ic­ally, that any move­ment is cause for cel­eb­ra­tion. “The ques­tion is not wheth­er glob­al gov­ernance has been flaw­less, but wheth­er it has been good enough in sup­ply­ing the ne­ces­sary policies and pub­lic goods,” Drezn­er says.

With­in these nar­row para­met­ers, Drezn­er of­fers a thought­ful and con­tem­por­ary ana­lys­is of glob­al gov­ern­ing sys­tems and their un­der­ly­ing polit­ics. The book isn’t ex­actly a beach read, but it still con­tains im­port­ant takeaways for D.C. poli­cy­makers in today’s hy­per­crit­ic­al, hy­per-par­tis­an cli­mate. Drezn­er wants read­ers to ques­tion the con­ven­tion­al wis­dom that noth­ing works glob­ally or oth­er­wise. This “power­ful bi­as” to­ward neg­at­iv­ity, as Drezn­er calls it, can blind people to mo­ments of in­ter­na­tion­al suc­cess, such as the one that fol­lowed the Great Re­ces­sion. And a per­man­ent sense of pess­im­ism can feed in­to a false sense of nos­tal­gia for the good old days. Drezn­er’s point? Those golden days nev­er truly ex­is­ted, nor will they in the fu­ture — so why not cel­eb­rate the smal­ler vic­tor­ies and mo­ments of co­oper­a­tion?

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