Scholar Probes International Angle on Financial Crisis

Having written three books on international economic institutions, Paul Blustein was motivated by the global financial crisis to begin a fourth. His next book will examine how international institutions performed before the crisis and what that reveals about the economic challenges the world now faces.

Blustein, currently a Wilson Center public policy scholar, is focusing his research on four institutions—the International Monetary Fund (IMF), the G-20, the Basel Committee on Banking Supervision (BCBS), and the Financial Stability Board (FSB).

A former Washington Post staff writer, he has carved out a niche writing journalistic narratives that demystify these kinds of international bodies. His first two books were about the IMF and the financial crises in Asia, Russia, Brazil, and Argentina; his most recent book was about the World Trade Organization (WTO).

"When I was working on books about the IMF and WTO, which most people have at least heard of, I used to joke that at least I wasn't focusing on anything so arcane as the Basel Committee," said Blustein, who explained that the Switzerland-based committee sets international standards for regulating financial institutions. "But thanks to the crisis, we now know how important institutions like that are."

The four institutions he is currently researching, Blustein noted, "have been tasked with coordinating major countries' economic and financial policies, with the aim of making sure the recovery is sustained, and also minimizing the dangers of future crises. But based on how they did prior to the crisis, you have to be rather skeptical about whether they'll be able to deliver."

For instance, he said, one of the biggest post-crisis challenges is how to re-balance the global economy. Countries that once consumed heavily and borrowed from abroad to pay for their imports—the United States being the most prominent case—will have to undergo fairly wrenching adjustments so their debts do not spiral out of control. At the same time, countries that have become export powerhouses—notably China and Germany—will have to consume and import more.

If the Chinas of the world don't pick up the slack, pumping up global demand at the same time as the spendthrift countries are moving toward austerity, he said, the risks of another global recession will be significantly higher. "Not every country can depend on exports for growth," Blustein said. "At least," he quipped, "not unless we're going to start trading with other planets."

An attempt was made to re-balance the global economy in the years leading up to the crisis, with the IMF leading the initiative. But it failed, said Blustein, illustrating the difficulties inherent in trying to coordinate economic policies among powerful sovereign states. In the wake of the crisis, the G-20 has been handed the task of coordinating a re-balancing.

"The hope is that nations will put peer pressure on each other until all of them contribute," Blustein said. "But it hasn't worked in the past. Unfortunately, another crisis may be necessary to force them into action."