Conclusions

Club theory provides a framework for examining the challenges of global cooperation. It suggests, in particular, that while clubs present effective solutions to problems common to reasonably homogeneous members, they become inflexible and ineffective as their membership grows large and diverse. As currently structured, the IEIs conform to these predictions and are not meeting the public goods requirements of the world economy.

Partially decentralized decision making offers a promising solution. The concept of institutional families—global institutions built from regional or otherwise differentiated building blocks—offers a way to put decentralization into practice. Under such a system, decisions would be made by different groups of countries, but would be governed by common rules and standards and would benefit from a shared infrastructure. Such “federalism” has served governments well in other contexts and has begun to emerge also in the existing framework of international organizations.

Crisis stimulates innovation. The opportunity created by the current crisis should be used not merely to change the “chairs and shares” of existing institutions, but also to make them more flexible once and for all. The newly emerging arrangements for global financial stability may also build on such principles. Institutional reform needs to look beyond the causes of the present crisis as it is impossible to predict those of the next one. New, unanticipated challenges will inevitably come, and partial decentralization offers a tool for coping with them in real time.

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