Ahead of the G20 meeting in Seoul, former South Korean Foreign Minister Yoon Young-kwan argues that amid a shift in thinking about state-market relations, leaders have to avoid looking inwards and squandering valuable opportunities, and instead make meaningful progress to revitalise and strengthen the IMF and global financial regulation.
The following contribution is authored by Yoon Young-kwan, who was South Korean foreign minister in 2003-2004 and is currently professor of international relations at Seoul National University
"Hubris usually gives birth to disaster. The root cause of the current global crisis was intellectual hubris in the form of the blind belief that markets would always resolve their own problems and contradictions. Thirty years after the Reagan-Thatcher revolution, the ideological pendulum has begun to swing in the opposite direction.
Each time in the last hundred years that a shift of this magnitude has occurred in beliefs about state-market relations, a major political-economic upheaval has ensued. For example, World War I marked the end of the nineteenth-century's laissez-faire liberalism and ushered in a period of state-centered economic systems. The Great Depression and World War II opened the new era of the Bretton Woods system of a more balanced state-market relationship.
Similarly, the 2008 global financial crisis ended three decades of neo-liberalism, characterised by free trade and financial globalisation. We still do not know the nature of the era ahead of us; we can only be certain that the global economy is in the middle of a major transition, and that the old ways will not work anymore.
The main concern in this period of great uncertainty is whether the transition to a new paradigm can be managed without further destabilising the international political-economic order. There are already some serious signs of distress – the currency war between the United States and China, and its spread to other countries, being a case in point.
Indeed, current global conditions have more worrying similarities to the early 1930s than they have differences. Then, every state looked inward, squandering valuable opportunities to achieve common prosperity through international policy coordination. The leadership vacuum caused by America's unwillingness to cooperate and Britain's sudden inability to lead resulted in the failure of the London Conference of 1933, which is often seen as opening the way to the Great Depression and the catastrophe of World War II.
Having learned the lessons of the 1930s, the post-war global economic order was built on a network of international institutions, such as the International Monetary Fund, the World Bank, and what ultimately became the World Trade Organisation. But the lessons of the past seem to be too distant in policymakers' minds these days, whereas domestic political pressure to put national economies first appears overwhelming."
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(Published in partnership with Project Syndicate.)