COVID-19 should have been a chance for global governance to shine. Pandemics are a prime example of a transnational threat that no country can solve alone. Unfortunately, rather than show the enduring relevance of multilateralism, the pandemic and our failure to mount an effective international response did more to expose the fractures and fragilities in our current system of global governance.
Multilateralism had been under increasing strain long before the outbreak. In part, this is due to long-term structural shifts which the system has failed to adapt to. As we start to imagine a renewed system of global governance, it is important to understand five “megatrends” that have strained global governance 1.0 and that any new international system will have to accommodate and adapt to. As discussed below, this is particularly so as, in many ways, the pandemic will only serve to strengthen and accelerate these trends, creating a post-pandemic world that is more multipolar, interdependent, digital, and marked by rising regionalism and geoeconomics.
1.1 A More Multipolar World
The first reality that any new system of global governance must accommodate is that we live in an increasingly multipolar world. The existing US-led system was designed for a world where power was highly concentrated. However, long-term structural trends, in particular the rise of developing countries, mean that in the post-pandemic era, no single power will be able to dictate global norms and rules by itself.
Nowhere is the shift to multipolarity more evident than in the rise of Asia. By many measures, Asia’s economy is now bigger than the rest of the world combined, for the first time since the nineteenth century. Post-pandemic recovery trajectories will likely reinforce this shift. While there are significant differences between individual countries, overall, Asia suffered less and is coming out of the pandemic earlier compared to Europe and America, meaning economic recovery will also be faster. China is at the heart of this story. The country will continue to be the leading engine for global growth for many years to come. 2020 was a milestone in the shift of economic gravity as China attracted more foreign investment than the USA for the first time and the number of Chinese companies on the Fortune Global 500 (124) overtook the USA (121).
It is not only between states that this gradual diffusion of power is occurring. Non-state actors from multinational corporations and philanthropists to civic groups and terrorist networks play an increasingly important role in global affairs, with the power to both create international problems and solve them. While the initial stages of the pandemic seemed to reassert the importance of states as the only agents with the power to take major steps such as close borders and enforce lockdowns, later stages have highlighted the importance of non-state actors. Transnational networks of research institutes, businesses, and foundations played a crucial role in vaccine development and distribution. Technology companies, whose tools played a crucial role in containment efforts and adaptations during the pandemic, have seen their wealth soar. The five leading US tech giants now have a combined market capitalization of roughly USD 7 trillion—greater than the GDP of every country except China and the USA.
Given the trends outlined above, in the post-pandemic era, our global governance framework must adapt to give developing countries a stronger voice in decision making, while harnessing the combined strengths of non-state actors to work on global challenges.
1.2 A More Interdependent World
Interdependence is the next feature that Global Governance 2.0 must be equipped for. It might surprise some to talk of rising interdependence when globalization and long cross-border supply chains are increasingly being questioned. Yet the fates of different countries are more entwined than at any point in human history, and this is only becoming more so.
Rising interdependence stems from two related sources. The first is cross-border flows of people, goods, capital, ideas, and data, which are broader and deeper than ever. These flows tie the interests of different countries together through global supply chains, cultural flows, and global finance. While the movement of goods and people was severely disrupted during the pandemic, global trade has recovered faster than expected, dispelling speculation that COVID-19 would be the death knell for global supply chains. International travel remains curtailed for the time being, but in the meantime, other cross-border flows such as data have accelerated, as discussed below.
Dense cross-border linkages contributed to the rapid global spread of COVID-19, which brings us to the other driver of interdependence: the rise of transnational challenges. In the twenty-first century, the most serious existential threats faced by humanity—such as climate change, infectious disease, and nuclear weapons—share an important commonality; they pay no heed to national boundaries and can only be addressed through global, multilateral efforts.
What’s more, transnational threats intersect in myriad ways. For example, climate change could also increase the risk of future pandemics by damaging natural habitats and raising the risk of zoonotic transmission. Climate change can also act as a destabilizing “risk multiplier” for geopolitics. It will aggravate stress on societies and institutions by exacerbating demographic pressures from climate migration and open new areas for rivalry.
Our current system of global governance was designed in an age when the most salient security threats that countries faced were those emanating from other states. But deepening cross-border linkages and shared global threats mean that no country is an island in the post-pandemic era. The purpose of Global Governance 2.0 will perhaps be less about preventing conflict between states, though that remains a crucial function and more about facilitating collective responses to the myriad shared threats we face.
1.3 A More Digital World
Staying with the theme of growing interconnectedness, perhaps nowhere is more evident than in the rise of transnational data flows and the global digital economy. Just as oil opened new possibilities for commerce and trade in the last century, data has become the lifeblood of global growth in the twenty-first century. Trade in digital services is booming. Data flows increasingly underpin trade in physical goods, too, supporting complex global value chains and emerging technologies such as blockchain, artificial intelligence, and the Internet of Things.
The pandemic has only served to accelerate digitalization. Data flows soared in 2020 as work, play, and education shifted online. International internet traffic surged 48% from mid-2019 to mid-2020 according to data from TeleGeography.Footnote 1 One study found that cross-border e-commerce sales of discretionary goods spiked 53% in the second quarter of 2020.Footnote 2 Many businesses and organizations have had to adopt digitized models amidst the pandemic, including my own thinktank which has shifted to virtual event formats that allow people anywhere on earth to participate or watch.
While the full implications of digitalization for global governance have yet to become clear, they are sure to be profound and manifold.
First, the digital economy is arguably the area where global economic governance is weakest at present. As cross-border data flows soar, our global trade rules have barely changed since the 1990s. In the absence of shared global norms on how data flows should be governed, domestic policymakers everywhere are developing their own “patches” to regulate data and protect national security and their citizens’ privacy. According to the OECD, the number of data regulations has risen from around 50 worldwide in the early 2000s to just under 250 in 2019. The patchwork nature of these rules is making things more complex for firms and stifling the potential of the global digital economy, which should be a bright spot in the post-pandemic economic recovery. These gaps in global data governance are also creating friction between nations.
Second, digitalization will have wide-reaching impacts on the real economy and societies around the world. Change will accelerate as production is dematerialized. Machines that drove earlier waves of globalization had to be made and shipped before use. Upgrading took time and considerable expense. Today, algorithms that overturn industries can be updated instantly at zero marginal cost. Digitalization and the associated technologies of the Fourth Industrial Revolution, such as AI, Internet of Things, and robotics, have the potential to drive inclusive global growth, but will also have a destabilizing effect on many communities and industries. If not addressed, these disruptions and the continuing digital divide may worsen inequality between and within countries.
Digitalization has caused strains on our current global governance framework, but it also creates new imperatives for cooperation—in particular, to develop a new framework that can support the safe and healthy growth of the global digital economy, and to build out digital infrastructure so that all can benefit from this growth.
1.4 The Rise of Regionalism
In recent years, the strains on global governance—such as the weakening of the UN, failure to reform Bretton Woods institutions, and breakdown of WTO negotiations—have led to a proliferation of multilateral initiatives at regional levels.
As global trade rules fray, a patchwork of regional deals has emerged as vehicles for deeper liberalization. The new free trade pact between the USA, Mexico, and Canada (USMCA) came into force in 2020, followed by the African Continental Free Trade Area (AfCFTA), which started trading at the start of 2021. Asia in particular is a locus for regional multilateralism. After it was abandoned by the USA, the reformed Trans-Pacific Partnership (TPP) (also known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP) was revived and came into force at the start of 2019. The Regional Comprehensive Economic Partnership (RCEP), set to be the world’s largest Free Trade Agreement (FTA), was signed in November 2020. These living agreements will continue to evolve and will likely attract new members, offering a flexible, multitrack path to economic integration in Asia. For example, the more rigorous CPTPP may help to set standards for future trade for advanced economies, while the less-demanding RCEP will offer a way for developing countries to participate in free trade.
Some of these new regional multilateral initiatives address existing gaps in global governance. For example, the CPTPP includes rules on e-commerce. The Asian Infrastructure Investment Bank (AIIB), launched in 2014, aims to help close the yawning infrastructure gap, which existing multilateral development banks such as the World Bank have not been able to resolve. One of the tasks for Global Governance 2.0 is to accommodate these regional arrangements, exploit synergies with them, and help to coordinate so that they work together harmoniously.
1.5 The Age of Geoeconomics
The fifth megatrend that Global Governance 2.0 must deal with is the rising specter of “geoeconomics”—the use of economic tools to advance geopolitical objectives.
Until relatively recently, economic cooperation served as a ballast for the international system. Global institutions underpinned a virtuous cycle of cooperation and prosperity, providing powerful incentives to follow rules and avoid confrontation with other countries. However, in our present times, economic relations are increasingly a source of friction that undermines international cooperation and global governance. The use of sanctions is rising and struggles over strategic technologies are a growing flashpoint in international relations. States are increasingly willing to weaponize global networks for finance or critical inputs for their own strategic ends.
The rise of economic statecraft began to cast a shadow over the global economy even before the pandemic dealt it another blow. COVID-19 has increased calls to “reshore” production and some governments are intervening to draw supply chains home. Even the distribution of vaccines and critical medical equipment has been caught up in politics.
As Pascal Lamy, former WTO director-general, has pointed out, in the aftermath of the pandemic, a certain degree of “precautionism”—legitimate safeguarding of citizen needs—is to be expected.Footnote 3 But mechanisms are needed to ensure this is done in a transparent, coordinated manner and does not slide into more sticky and harmful forms of protectionism.
The WTO is the obvious solution to push back against protectionism and the weaponization of economic policy. But like other global institutions, it has been weakened by years of deadlock and fallen far behind the realities of the twenty-first century global economy. Our new system of global governance must find ways to contain dangerous tendencies toward economic statecraft and ensure that competition between great powers remains healthy, to ensure that the global economy remains open and inclusive, and remains a force for peace and prosperity.