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No one model for new global economy

Yoichi Funabashi
AS the global economic crisis tightens the future of the world, the capitalist system looks grim: Major countries find their interest rates approaching zero, leaving little room for maneuvering. Against this dire back-drop, capitalism is likely to take divergent courses in different countries. The solution to the current crisis may no longer be the earlier call for a "new Bretton Woods" but closer coordination among the major economies.
As the world capitalist system seems
headed for a period during which major national economic models diversify, the time and mood are not right for a "new Bretton Woods." Instead, recognising that weight has shifted to the financial poles of China and Japan, the United States must adjust its global financial strategy.
New global governance cannot be effectively established without taking into account the change in the world's political economy, namely the ongoing power shift from West to East. A central focus point of this gravitational shift is China. As events unfold, Beijing’s role,
as well as the development of the US-China bilateral relationship in the wake of the crisis, will be critical fronts to watch.
Applied to today's dynamic, Asia may be able to build new global governance, but is perhaps not fully willing to assume the mantle of responsibility at this stage. The United States, on the other hand, is willing to gallop to the rescue, but given the current crisis, is no longer able.
Yet several hurdles bar the smooth path to a new global governance with Asia at the helm. Asia is far from being one unified entity. In particular, China and Japan hold significantly divergent views on matters of global governance. There is also a danger that the strains of the crisis are unleashing protectionist forces.
Asia-Pacific countries must ponder agendas along with a global governance framework for tackling the deepening economic challenges in the months ahead. First, Asia aspires to have more of
its own voices incorporated into global governance. With the rise of Asian economic might over the last decade, Asian countries are increasingly dissatisfied with their representation in such governance structures as Bretton Woods, the IMF and the World Bank, which do not reflect shifting global power balances.
There's no need to build a new Bretton Woods from scratch. Rather, the existing one must be rebooted. The G-20 platform can be gradually developed, while at the same time strengthening the G-7 as a sort of caucus to G-20 at the financial minister level for the purpose of macroeconomic policy coordination.
Second, there is the matter of the saving-investment balance. Asia, particularly China and Japan, are best advised to boost slumping domestic demand. China and Japan, along with the United States, should likewise strive to stem the rising tide of protectionist pressures within each country.
Third, China, Japan and the United
States should take incremental steps toward the ultimate object of a form of trilateral consultation on macroeconomic policy. The best strategy is to ease into coordination through discrete bilateral platforms to be merged once conditions have seasoned sufficiently.
Ultimately, trilateral cooperation will be most desirable, as Japan can ease and soften the US-China mutually-assured-destruction brand of a "balance of terror" in financial geopolitics. Even beyond the coordination of capital flow management, Japan has a leadership role in the environmental realm.
Fourth, there is a pressing need for currency realignment. The renminbi must appreciate vis-i-vis the dollar significantly in order to correct global imbalances in the coming years. Though discreet negotiations may still be coordinated between the two countries to realign the dollar against the renminbi in an orderly manner, US-China policy consultations should be confined for the
time being to behind-the-scenes maneuvering or risk instigating a dollar freefall, something that is not in anyone's best interest.
Fifth, the coming years will likely witness an emerging diversification of global capitalist systems among the major global players, and China and the US should be open to new ideas for innovation from all corners.
Finally, as Asian regionalism continues to deepen, the US must remain part of the process. To this end, the Asia-Pacific Economic Cooperation should be restored to its original format: a forum designed simply to promote trade and investment, while facilitating development and cooperation.
Yoichi Funabashi is editor-in-chief of Asahi Shimbun and author of many books, most recently, The Peninsula Question: A Chronicle of the Second Korean Nuclear Crisis
O Yale Center for the Study of Globalization All rights reserved Repnnted by arrangement.