OECD and Asia
Tuesday, 06 December 2011 02:46

How does a Cold War organization respond to the end of the Cold War?  Does it try to hang on to its Cold War identity?  Or does it embrace the "age of globalization", which the end of the Cold War ushered in?  Or does it muddle through by trying to play both games?  Or does it quite simply just close up shop?

To answer the last question first, international governmental organizations never close up shop.  They just hang on, withering on the vine, like UNIDO or UNCTAD.  Hence the attraction these days of creating informal networks like the G20 without permanent secretariats.   

Turning now to the other questions, they could well be asked of all the major international organizations, like the United Nations, the International Monetary Fund, the World Bank or the Organization for Economic Cooperation and Development.  These organizations are part of the post World War 2 order created under the leadership of the United States.

The Permanent Members of the UN Security Council have not changed since its creation, with the US, UK, France, China and Russia still clinging onto their seats.  Over the past couple of decades, there have been various initiatives seeking to secure a permanent seat for countries like Japan, Germany, Brazil, India, etc, but there is always opposition from one or more of the existing members or squabbling among the various new candidate countries.

The IMF and World Bank have been slightly more responsive, with some readjustments in the voting quotas away from the European biais so as to reflect the growing weight of emerging Asia.  But the prize jobs of Managing Director of the IMF and President of the World Bank remain firmly in the hands of Europe and the US respectively.  Not even the embarassment of the European sovereign debt crisis could wrest the IMF job from the old continent when it recently came up for grabs.  True, there have been some recent Chinese appointments to senior posts in both the IMF and World Bank, but this is partly to fob off claims to the leadership.

For its part, the OECD has seen a great opening at the leadership level, with Europe losing its stranglehold on the Secretary-General position in 1996 to a Canadian, Donald Johnston, who was then followed by the appointment of Angel Gurria from Mexico ten years later.  But the opening of the OECD to new membership in response to Asia-led globalization has been much more problematic, as the OECD is weighed down by its North Atlantic identity.

To find the origins of the OECD, you must go back to 1948 when the Organization European Economic Cooperation was created to administer the Marshall Plan launched by the then US Secretary of State to contribute to the reconstruction of wartorn Europe.  This was very much a North Atlantic affair -- between the financiers (US and Canada) and the beneficiaries (much of the Western European group and Turkey).  The countries behind the iron curtain declined the invitation to join.  The rest of the world was on a very different radar screen from the Marshall Plan. 

From these shaky beginnings, the OEEC was transformed into the OECD in 1961, and became the Western bloc (and brand), as distinct from the Soviet bloc, and the group of developing countries.  It was in many ways, the economic brother of NATO.  In the period leading up to 1989 and the fall of the Berlin Wall, the OECD admitted some new members, namely, Japan, Finland, Australia and New Zealand, bringing the total to 24.  But these countries including Japan were in reality members of the West, de facto North Atlantic countries.

And then suddenly the Cold War evaporated in 1989 with the adoption of democratic politics and market economics by the former communist countries of central and eastern Europe.  For the OECD and its member countries, the end of the Cold War was a victory of values and ideology, namely, pluralistic democracy, respect for human rights and market economy. 

But that was not the only thing happening in the world.  Asian economies were emerging rapidly, based on a complex cocktail of export promotion, strong state intervention, and non-democratic politics.  In the decade or so before the fall of the Berlin Wall, a number of these Asian economies were "economically qualified" for OECD membership in terms of GDP per capita.  But there was never any suggestion that they might become OECD members.  They didn't have the right politics and also most were attached to their developing country status.  

The 1990s also saw the end of the debt crisis in Latin America and the return of democratic politics.  Many countries would follow Washington consensus policies of privatization, stabilization and liberalization, but with very modest results compared with Asia.

How could and should the OECD interpret and respond to these dramatic and surprising changes?  The first step was to clarify what the OECD stood for.  That was clearly the values of pluralistic democracy, respect for human rights and market economy.  And then the OECD announced that it was open to accepting new members which were willing and able to accept the "rules of the club", which included these values and many instruments like commitments to open capital accounts and invisible transactions.  During the 1990s, some six countries would be admitted as members.

At the OECD politics has always trumped economics, even though economics is its core business.  And so Mexico was rushed into the club in 1994, even though it was barely a democracy.  It was more importantly a close neighbor of the US, with which it was negotiating a North American Free Trade Agreement.  In the next few years, four central European countries (Czech Republic, Hungary, Poland and Slovak Republic) were also rushed in, while they were still fledgling market economies and democracies.  They were the lost sheep of the North Atlantic community which had been occupied by the Soviet enemy.  They were thus strongly supported by their Western European neighbors and the US.

Korea was very much a different case in point.  It was economically better qualified, with a GDP per capita more than 60% higher than the other five new members.  It was perhaps even more qualified politically.  But there were less urgent political reasons for pushing the Korean membership through, and Korea itself was very keen to earn the prestige of OECD membership.  Thus, Korea found itself under immense pressure to change some policies to be invited into OECD.  It was then subjected to surveillance of its labor rights policies for one decade after membership. 

Many questions would be asked of the OECD membership process when both Mexico and Korea suffered major financial crises within one year following OECD membership.  But one thing is certain and that is that the OECD had gone soft on Mexico and the central European countries, and gone tough on Korea. 

More than a decade would pass between the membership invitations to the six new members and a new round of invitations (Russia's possible membership had been sitting on the table since the early 1990s due to its troubled politics).  The OECD would conduct internal reflections on its role and membership, and make changes to its internal governance.  This period also witnessed great debates about the OECD's alleged "eurocentricity".  While Asian countries were occupying an increasing share of the global economy, only 2 of the OECD's 30 members were Asian, while some 22 were European.  Questions were also asked about the political criteria for membership, namely, democracy and respect for human rights.  Then Secretary-General Donald Johnston once said, "why is the OECD the policeman for democracy?"  

During these transmillenial years, the OECD would conduct a vast array of outreach activities to spread the OECD's good word to emerging economies.  This often reinforced the OECD's North Atlantic identity because it usually amounted to just selling the OECD message.   

The OECD would also develop many more economic instruments in areas as vast as corporate governance, anti-bribery, taxation, the environment and so on.  These would of course represent greater hurdles for any possible new members.  These same years would also witness the great surge in Asian-led globalization, driven by China (following its WTO membership), India, Indonesia and other ASEAN countries, along with dynamism from countries like Brazil and South Africa. 

By 2007 when it came to inviting other countries to join the OECD, the organization was faced with the situation that none of the most interesting possible new members -- Brazil, China, India, Indonesia and South Africa -- had expressed an interest in membership.  They were offered and accepted a program of "Enhanced Engagement" which was designed to prepare them for, and convince them of the merits of, possible future membership. 

At the same time, there was a very long list of liliputian countries, mainly European, which had lobbied hard to become members, and each one was supported by a friendly neighbor.  Thus, Chile, Estonia, Israel and Slovenia were all invited to join, and are now members.  It is not surprising that smaller countries should be so interested in OECD membership, since it accords them with access to policymakers from large countries, which they may otherwise have difficulty in obtaining.  One should also not underestimate the presitge factor for small countries.  And smaller European countries may already have gone through similar conditionality hoops when joining the European Union.

Today, the OECD finds itself with 34 members, with some 22 coming from Europe and only 2 from Asia.  By contrast, the World Trade Organization's list of the world's 34 leading exporters includes 10 Asian economies, namely, China, Japan, Korea, Hong Kong, Singapore, Taiwan, Malaysia, Thailand, India, and Indonesia.  Many of these Asian countries are also major players in the areas of investment, finance, carbon emissions, etc, and school students from Shanghai now outperform all OECD countries in the organization's PISA program which measures literacy, numeracy and scientific ability.  And while the "Enhanced Engagement" countries participate in a wide array of OECD activities, none of them are interested in OECD membership.  A very senior OECD official described this program as a "one way love affair".   

Thus, the OECD which has sometimes called itself a "hub of globalization" seems destined to have a membership which accounts for an ever declining share of the world economy.  This is a completely unsatisfactory situation, the product of the organization's attempts at playing a North Atlantic game as well as a globalization game at the same time.  The OECD thus finds itself at a crossroads.  It is being bypassed by Asian-led globalization at a time when the G20 has more member countries from Asia (China, India, Indonesia, Japan and Korea) than does Europe (France, Germany, Italy, and UK). 

What are the main problems and solutions?

Even though it is essentially an economic organization, the OECD has retained a strong North Atlantic political identity, in part because it is governed by foreign ministries and also because of the dominant role of the US.  And as the recent UN voting on Libya showed, there are still vast political gulfs between the Enhanced Engagement countries and OECD countries.

New members are forced to accept and align their policies with a now vast array of instruments and conditions which they had no role in creating.  From a US point of view, this means becoming a "responsible stakeholder".  From an emerging country point of view, it means being a "rule-taker", that is, swallowing a US agenda, which is an agenda now lacking in credibility following the political humiliation for most OECD countries from the global financial crisis and the European sovereign debt crisis.

The grandfathering of old members means that the OECD has too many European members, and is too Eurocentric.  Something must be done about this, such as by establishing constituencies.  This also reduces the benefit of the organization to old large members.

Overall, the OECD must adapt to the changed world, and offer a more flexible and pragmatic approach to the application of its values and instruments in the context of membership.  It must then launch a major campaign to recruit the Enhanced Engagement as member countries.  The OECD Secretariat and its membership have not yet managed to convince emerging Asian economies of the manifest benefits of the organization.  The OECD is however still in many ways the best idea in town with its excellent analysis and opportunities for policy dialogue.  And emerging Asia has much to learn from the OECD experience in many areas like developing social safety nets, economic upgrading, dealing with ageing populations, and public sector reform, to mention just a few.   

As well as revitalizing the OECD, this strategy could contribute to improving relations between the two major blocs which divide the world today, the OECD countries and the Enhanced Engagement countries.

References:

This article is based on my paper "The OECD and Asia: Worlds Apart in Today's Globalization", which was published in the peer-reviewed journal, Revista de Economia Mundial 28, 2011, 67-92.  See: 

http://www.sem-wes.org/files/revista/DIR_ZN57XF9MT4YBD4Q4UW1Z/rem28_3.pdf

http://www.sem-wes.org/files/revista/DIR_KJLIXUYYJME6Z4NAEBAG/rem28_index.pdf

An edited version of this article was published by the East Asia Forum at:

http://www.eastasiaforum.org/2012/01/11/the-oecd-and-asia-a-cold-war-organisation-in-the-age-of-globalisation/


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