On stormy seas, we must all steady the economic ship

Annual spring meetings of the World Bank and IMF offer a window on to a couple of fundamental trends that are driving both global politics as well as the world economy.

Emerging economies, such as Russia with its wheat exports, are helping provide global resources. (Andrey Rudakov / Bloomberg News)

The annual spring meetings of the IMF and the World Bank have provided a window on to two fundamental trends driving global politics and the world economy.

Geopolitics is moving decisively away from a world dominated by Europe and the United States to one with many regional powers but no global leader. And a new era of economic instability is at hand, owing as much to physical limits to growth as to financial turmoil.

Europe's economic crisis dominated this year's IMF/World Bank meetings. The fund is seeking to create an emergency rescue mechanism in case the weak European economies need another financial bailout, and has turned to major emerging economies - Brazil, China, India, the Gulf oil exporters, and others - to help provide the necessary resources. Their answer is clear: yes, but only in exchange for more power and votes at the IMF. As Europe wants an international financial backstop, it will have to agree.

The emerging economies' demand for more power is a well-known story. In 2010, when the IMF last increased its financial resources, the emerging economies agreed to the deal only if their voting share within the IMF was increased by about 6 per cent, with Europe losing about 4 per cent. Now emerging markets are demanding an even greater share of power.

The underlying reason is not difficult to see. According to the IMF's own data, the European Union's current members accounted for 31 per cent of the world economy in 1980 (measured by each country's GDP, adjusted for purchasing power). By last year, the EU share slid to 20 per cent, and the fund projects that it will decline further, to 17 per cent, by 2017.

This decline reflects Europe's slow growth in terms of both population and output per person. On the other side of the ledger, the global GDP share of the Asian developing countries, including China and India, has soared, from about 8 per cent in 1980 to 25 per cent last year, and is expected to reach 31 per cent by 2017.

The US insists that it will not join any new IMF bailout fund. The US Congress has increasingly embraced isolationist economic policies, especially regarding financial help for others. This also reflects the long-term wane of US power. The US share of global GDP, about 25 per cent in 1980, declined to 19 per cent last year, and is expected to slip to 18 per cent in 2017, by which point the IMF expects that China will have overtaken the US economy in absolute size (adjusted for purchasing power).

But the shift of global power is more complicated than the decline of the North Atlantic (EU and US) and the rise of the emerging economies, especially the Brics (Brazil, Russia, India, China and South Africa). We are also shifting from a unipolar world, led mainly by the US, to a truly multipolar world, in which the US, the EU, the Brics, and smaller powers (such as Nigeria and Turkey) carry regional weight but are reticent to assume global leadership, especially its financial burdens. The issue is not just that there are five or six major powers now; it is also that all of them want a free ride at the others' expense.

The shift to such a multipolar world has the advantage that no single country or small bloc can dominate the others. Each region can end up with room for manoeuvre and some space to find its own path. Yet a multipolar world also carries great risks, notably that major global challenges will go unmet, because no single country or region is able or willing to coordinate a global response.

The US has shifted rapidly from global leadership to that kind of free riding. Thus, the US currently excuses itself from global cooperation on climate change, IMF financial-bailout packages and global development assistance targets.

The IMF/World Bank meetings remind us of an overarching truth: our highly interconnected and crowded world has become a highly complicated vessel. If we are to move forward, we must start pulling in the same direction, even without a single captain at the helm.

A Jeffrey Sachs is professor of economics and director of the Earth Institute at Columbia University. He is also special adviser to United Nations secretary-general on the millennium development goals

* Project Syndicate

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