Zheng Yu

Professor of International Politics at the School of International Relations and Public Affairs, Fudan University

He is a Professor of International Politics at the School of International Relations and Public Affairs, Fudan University. His research interests include international development, global governance, China and Africa, and business-government relations. He received a postdoctoral fellowship at Harvard University.

Multilateralism has a long history, but it was institutionalized and practiced only after the Second World War. The world economy right after the war was impoverished and disintegrated. Thanks to the establishment of multilateral organizations such as the United Nations, World Bank, International Monetary Fund (IMF), and General Agreement of Trade and Tariff (GATT), international economic order was restored, and the world economy entered its golden age of growth for the next three decades. The end of Cold War witnessed a flourishing in multilateral cooperation and expansion of globalization. Almost all countries have liberalized domestic markets and integrated into global market. Trade based on global value chain has accounted for more than 60% of world trade, resulting in international economic interconnection and interdependence.

Crisis of Multilateralism

Despite the growing integration of global economy, multilateralism appears to be in serious crisis today. The 2008 global financial crisis cut global output and trade growth to their slowest spaces, with more protectionist policies and prolonged trade tension damaging the expansion of globalization. Between 2009 and 2018, around 15,000 trade interventions were initiated worldwide. Of which developed countries accounted for the majority of the discriminatory interventions. As the primary architecture of post-war multilateral international system, the United States has essentially abandoned it and pursued unilateral foreign policy instead. Holding the principle of “America First,” President Donald Trump withdrew from the Paris climate accord, the Trans-Pacific Partnership (TPP), the Iran nuclear deal, UNESCO and UN Human Rights Council. Trade protectionism and nationalism are on the rise in many European and Latin American countries. The funding crisis of the United Nations and the failure of WTO Doha round negotiation have challenged the legitimacy and effectiveness of international organizations. Why is multilateralism in crisis in a highly integrated global economy?

Since the 1950s, developed countries have been the dominant players of globalization whereas developing countries were merely passive participants. Thanks to their economic power and well- protected welfare system, developed countries were able to withhold competitive pressure and advance the agenda of trade liberalization. However, since the end of the 20th century, developed countries’ economic growth slowed down significantly. Between 1980 and 2018, the share of the Group of 7 (G7) in the global economic output declined from 62% to 46% whereas the share of developing countries increased from 24% to 40%. Developing countries’ contribution reflects not only on the total output, but also on economic growth. In the end of 1970s, developing countries contributed only 18% of global economic growth. Today, developing countries contribute 70% of world economic growth.

Adam Smith developed the concepts of “progressive state”, “stationary state”, and “declining state” in his masterpiece “Wealth of Nations”. In the 18th century, it was China that looked stationary whereas Europe and the U.S. were in progressive state. Today, much of the developed world, including the US, is stationary. Developing countries diverge in their performance. A small number of high-growth emerging economies are catching up with developed countries. In the mid layer, a large number of middle- income countries have experienced rising labor costs and less policy space. They are likely to be stuck in middle-income traps. At the bottom, a number of less developed countries are confronted by both lack of development motivation and lack of state capacity. For these countries, alleviating poverty is still a daunting task. Power transition in the international economic structure creates new drives and obstacles to multilateralism. As the dominance of developed countries declines, developing countries become more active in participating in global governance.

New Issues of Sustainable Development

In the past three decades, the world has made remarkable progress in poverty reduction. The percentage of world population who live below the global poverty line—USD 1.9 a day—declined from 36% in 1990 to 10% in 2015, but it is distant from the goal of eliminating poverty by 2030 set by the United Nations Sustainable Development Goals (SDGs). According to a new UNDP report, about 23% of world population are multidimensionally poor. Of them, more than two-thirds—886 million people—live in middle-income countries, and about 440 million live in low-income countries.

Absolute poverty is a lesser problem for developed countries, but they are more concerned about rising inequality. During the golden age of globalization (1988-2007), the lower middle class in developed countries barely had any growth of their income whereas the income of the top 1 percentile grew much faster than the rest of the society. Particularly in the U.S., the gap between the top 1 percent and the rest increased by 3 times between 1979 and 2007, reaching the historical level.

Traditionally, foreign aid was the primary external source developing countries can access for poverty alleviation, but foreign aid is far from enough to provide an effective solution, nor can it help developing countries to accelerate and sustain their economic growth. According to an estimate of the UNCTAD, developing countries need to invest at least USD 2.5 trillion per year in order to achieve the 17 goals of SDGs. The total amount of ODA from developed countries is only about USD 15 billion per year.

For the past three decades, China has the most successful experience of poverty reduction—more than 700 million people were lifted out of poverty. Sustained economic growth is fundamental to poverty reduction. Industrialization is a key driver behind China’s economic growth. Industrialization is also regarded as the necessary pathway for less developed countries to achieve economic prosperity. In theory, with the diffuse of technology and capital from industrialized to developing countries, the latter will grow faster and eventually catch up with the former. In practice, however, economic catch-up took place only in a small number of countries with good initial conditions of human capital. Development convergence is the exception, not the norm.

For the majority of developing countries, industrialization has not become the engine of economic development and catch-up. Instead, deindustrialization is a concern for both developed and developing countries. Technological progress, changes in demand, and intensified competition are the major factors behind deindustrialization. The impact of technological progress is more obvious in low-tech sectors. Not only job opportunities disappeared, but also income level declined. However, with the sluggish economy and rising unemployment, maintaining generous social welfare is difficult for both developed and developing countries. Trade liberalization and immigrants became the scapegoat of domestic problems. In both developed and developing countries, trade protectionism and nationalism have been on the rise in many countries. They are the major obstacles of globalization.

What are the origins of these development problems? Labor-saving technological progress, shifts in the structure of demand, and intensified competition are behind premature deindustrialization in developing countries. Low-skilled sectors that are more easily be replaced by digital technologies, are particularly vulnerable. They suffer from not only massive job losses, but also declining income level. However, in the situation of slow growth, rising unemployment, and declining social welfare, trade liberalization and immigrants are more likely to be targeted as scapegoats. As a consequence, protectionists and nationalist tendencies are on the rise in both developed and developing countries, which are major obstacles to globalization.

What Kind of Multilateralism Does the World Need?

Global problems require global solutions. The United Nations SDGs are the blueprint to achieve a better and more sustainable future for all. It means that development is no longer a problem only for developing countries. Countries in different stages of development all face challenges. If multilateralism fails, both developed and developing countries will be unlikely to achieve these goals. Multilateralism is traditionally defined “an institutional form which coordinates relations among three or more states on the basis of "generalized" principles of conduct.” One key feature of multilateralism is “diffuse reciprocity”, so that more countries will benefit from cooperative liberalization. In theory, diffuse reciprocity can bring benefits to all participating countries. In reality, however, the post-war multilateralism was unbalanced with a few great powers dominating international affairs. Developing countries were underrepresented and non-influential in global arena.

The primary goal of multilateralism in the 21st century is to promote global sustainable development. The most important task is to eliminate deepened poverty. For the past decade, the global wealth has increased by 80% from USD 200 trillion to USD 360 trillion, but around 3 billion individuals—57% of adults—have wealth below USD 10,000. Particularly in many developing countries, the percentage of population who live in absolute poverty has barely changed. The real problem of globalization is not about wealth creation. Rather, it is about wealth distribution. To make globalization more open, inclusive, and development-oriented, the world needs “diffuse development”, not just “diffuse reciprocity”.

The good news is that there are joint efforts among many countries to revive multilateralism. Since the global financial crisis, China and some emerging market economies have become the leading defenders of globalization. They are motivated to support globalization, not just because they are the major beneficiaries of trade liberalization, but also because their improved welfare systems domestically enable them to be more open internationally.

At the UN General Assembly convention in September 2019, a group of countries led by Germany and France launched the Alliance for Multilateralism, aiming to revive the spirit and practice of international cooperation. In November, the agreement of establishing Regional Comprehensive Economic Partnership (RCEP) was signed after seven years of negotiation. The 15- country trade deal would be the world’s largest when operational, including 30% of global GDP and 40% of the world’s people. Since the WTO’s Doha Round negotiation is moribund, RCEP offers an optimistic alternative of multilateral trade liberalization.

However, achieving sustainable development needs not only joint efforts from national governments. It also requires the cooperation between the public and private sectors, traditional and new international organizations, as well as national and regional intergovernmental agencies. In other words, the world needs a multidimensional multilateralism.

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