By Claire West
The way that nations design their economic policies is woefully inadequate to prevent financial and economic crises, says a report jointly published by Chatham House and The Centre for International Governance Innovation (CIGI).
Preventing Crises and Promoting Economic Growth: A Framework for International Policy Cooperation, calls on governments to grasp the international implications of their domestic policies.
National policy makers should publish 'international impact assessments' about the international effects of their domestic policies, recognising that their decisions can cause ripples across the global economy which - in turn - can have a domestic impact.
In a connected global economy, this type of public and international accountability could provide a step-change in the way nations decide which policies are in their national interest.
The report recommends practical steps to develop a framework for international policy cooperation. A new tone of cooperation from the G20 leaders and a single statement of purpose for the G20 should be established. The transparency and accountability of the G20 should also be improved, including looking at electing the presidency of the G20 from among the group.
'International policy cooperation should be strengthened through leadership, accountability and transparency at the G20 level, but global challenges shouldn't only be discussed at global economic summits. Nations need to upgrade their domestic policy to recognize the effect on other countries and on the wider economic system. Ignoring these effects will only help perpetuate international economic instability and incre ase national exposure to global economic shocks,' says Paola Subacchi, International Economics Research Director at Chatham House.
'One of the pressing needs of global governance is to further the process of building a consensus on the nature of global interdependencies. In 2011, the G20 needs to look beyond its roots as a crisis steering committee to build a new framework for cooperation structured around an understanding of what ties us together and a common diagnosis of the challenges we face, individually and collectively. International policy cooperation should be the new modus operandi of policy making,' says Paul Jenkins, Distinguished Fellow at CIGI.
Setting out an ambitious schedule for cooperation, the report calls for credible action to reduce current account imbalances and to dampen commodity market volatility to be in place within five years; and to move beyond the dollar to a more stable multi-currency monetary system within 15 years.
This report is the result of a nine-month research project that involved consultations in Europe, Asia and North America, with finance and foreign affairs ministries, multilateral institutions and research institutes.