How to build a more balanced global economic architecture

This article is part of the World Economic Forum's Geostrategy platform

The power of regional economic integration does not solely rest in expanding the growth opportunities for its members via lowering trade barriers and making goods cheaper for consumers.

There are crucial external dividends that are reaped by successful and dynamic integration blocks, whereby the soft power as well as the gravity pull of the expanding economic block improves the conditions for trade and investment with the outside world.

In economic integration success breeds success in many respects, including in terms of creating a sufficiently large economic mass whose gravity pull (in terms of the “gravity model” in international trade) becomes progressively stronger with respect to neighbouring economies.

A case in point in this respect is the evolution of EU integration that followed the pattern of building a critical mass of large economies in Europe (France and Germany as the key heavyweights), which served to attract trade flows away from neighbouring economies – the result of the gravity pull of trade flows was the so-called “domino effect” that led to more and more European countries opting to join the ever-expanding and massive European Union.

Integration platforms

Times have changed since, and with the EU facing the Brexit challenge, the next “integration growth” cycle may be performed by the Global South, whose nation states and integration blocks are still largely fragmented, most notably in Eurasia.

The current system of a well-integrated developed world and a largely fragmented Global South may persist for quite some time lest the developing economies step up their efforts to bring together their existing integration blocks within unified integration platforms.

The first undertaking in this process could be directed at building a critical mass first in Eurasia via bringing together India, China, Russia within an enlarged Shanghai Cooperation Organization (SCO+), which forms the basis for attracting other regional blocks of the Global South in Eurasia such as ASEAN into the most extensive platform for developing countries in the continent.

This also forms the basis for engaging the EU into more active economic cooperation with the developing economies of Eurasia, while at the same time an enlarged SCO+ could also facilitate the creation of a global platform for South-South integration either on the basis of BRICS+ or TRIA (see Y. Lissovolik, Valdai, 2018).

The corresponding sequencing of building a global framework of South-South cooperation that becomes significant enough to engender full-scale cooperation with the developed world may progress along the following stages:

It hence appears that there is a certain sequencing that could be followed in building a more balanced global economic architecture.

The most important part of the sequencing has to do with addressing the fragmentations and gaps in the regional layer of global governance (most notably within the Global South) that has become increasingly critical in the past decades for development and maintenance of macroeconomic stability.

The attainment of a more coordinated framework in the relations between developed and developing economy integration platforms is unlikely to exhibit breakthroughs without more active steps on the part of the Global South towards forging South-South integration.

For the developing world the two key integration tools in attaining greater connectivity with the developed economies have to do with the SCO+ framework (for building cooperation with the EU in Eurasia) and the BRICS+ framework (for engendering greater cooperation from the developed world at the global level).

In the end, sustainable globalization or economic integration is unlikely to be secured solely at the level of global economic organizations and without progress in building a coordinated framework among the largest regional integration arrangements.

Rather than performing minor adjustments to the system of global institutions, a comprehensive revamping of the regional layer of global governance and its greater consistency with other layers of global governance, may be the key to a successful restructuring of global economic architecture.

The Global Integration Algorithm: Directing the Forces of Gravity, Yaroslav Lissovolik, the Valdai Discussion Club