[NSP Report 45] ‘Complex Network Moment’: The Global Financial Crisis and Changes in World Economic Governance

Research Fellow, Regional Studies Division, Sejong Institute. Dr. Kim Chul-wook holds a Master's and Ph.D. in Political Science from the University of Texas at Austin. He previously served as a Senior Researcher at the Institute for International Affairs, Seoul National University, and as a Full-time Researcher at the Center for Asian and Pacific Studies, Catholic University of Korea. His areas of interest include U.S. foreign economic policy, international financial politics, middle power theory, East Asian political economy, and global governance. His recent publications include "The Formation of Global Standards and U.S. Network Power: Focusing on International Investment Agreements" (〈Sejong Policy Studies〉, 2010), "Conditions for Success in Attracting Foreign Financial Capital and Financial Advancement" (《Market Economy and Foreign Investment Attraction》, 2010), "Middle Powers as Units of Analysis in International Politics: Conceptualization and Implications" (〈Journal of International Politics〉, 2009), "U.S. GS Creation and the Networked Strategy of Hegemony" (〈Sejong Policy Studies〉, 2009), "Reform of International Financial Institutions and Middle Powers: Focusing on the Role of the G20" (〈Korean Political Science Review〉, 2009), and "The Rise of the G20 and South Korea's Financial Diplomacy as a Middle Power" (〈National Strategy〉, 2009).

I. Introduction

The uncertainty surrounding the future of the world economic order has grown with the successive financial crises originating in the U.S. in 2008 and the European debt crisis in 2010. While the causes of these two crises may differ, they have cast doubt on the legitimacy and sustainability of the world economic order that the West has led since the post-war era. This skepticism towards Western political and economic leadership is underpinned by the projection that U.S. and European economic hegemony will rapidly shift to China, Asia, and emerging markets following the global financial crisis, and it predicts a potential comprehensive restructuring of the international economic order due to the shift in hegemony between the U.S. and China. In terms of economic ideology, while the 1997 Asian financial crisis called into question the utility of the East Asian development model, the recent crisis has exposed the limitations of the Anglo-American neoliberal model.

Thus, the global financial crisis, beyond its historical significance as the first crisis to originate in the heart of global capitalism since the Great Depression, has amplified questions and debates about the future direction of the international economic order. In 2009, the World Economic Forum in Davos, Switzerland, focused on "Shaping the Post-Crisis World," and the U.S. journal Foreign Affairs, in its 2010 special issue on "The World Ahead," highlighted key trends in international politics and the new status of the U.S. and emerging economies. As the post-crisis world economic order is in a transitional phase (interregnum) after a crisis of legitimacy, its specific shape remains difficult to predict. However, the discourse on the ripple effects of the global financial crisis can be summarized by the trajectory of U.S. and Chinese economic power, the potential decline of neoliberalism as an economic ideology, and changes in the modes of global economic governance.

This paper examines the geopolitical consequences of the financial crisis by focusing on changes in world economic governance. The financial crisis can be seen as having simultaneously brought about a "crisis of authority" and a "crisis of governance" to the post-war Liberal Internationalism 2.0 (Ikenberry 2009). This article posits that the global financial crisis has ushered the world economy into a "Complex Network Moment" of governance. Complex networks refer to a governance model where, in addition to the competition and cooperation among traditional state actors, Inter-governmental Organizations (IGOs), Inter-governmental Networks (IGNs), Trans-governmental Networks (TGNs), and Trans-national Networks (TNNs) share certain responsibilities and authority in resolving world economic issues.

The United States and the West have revealed the limits of their military and economic leadership, respectively, through the Iraq War and the financial crisis. The unipolar moment that emerged with the end of the Cold War has faced changes in some form, and various alternatives such as a G2 (U.S.-China), a tripolar system (U.S.-EU-China), or a multipolar system have been discussed. Concurrently, with the deepening of informatization and globalization, the significance of polarity centered on specific states or regions in global governance has relatively diminished. Instead, the possibility of pluralistic governance, where various state and non-state actors and their networks participate as stakeholders, is increasing.

In fact, the transformation of the world order had been discussed multiple times even before the recent global financial crisis. The so-called "new world order" has been proclaimed after World War I by Woodrow Wilson, after World War II by Winston Churchill, after the end of the Cold War by George H.W. Bush, and after the 2008 global financial crisis by Gordon Brown and Barack Obama. However, while the new world orders of the 20th century celebrated Western victories, the new world order of the 21st century is characterized by an acknowledgment of Western decline. The driving force behind this transformation is none other than the relative decline of the United States and the "Rise of the Rest," including China. The global financial crisis has not only accelerated the restructuring of the material foundations of the international economic order but also provided a crucial key to glimpsing the future of world economic governance by establishing the G20 Summit as the supreme forum for international economic cooperation. In particular, the G20, as a new networked governance mode of the international economy, deepens the complexity of world economic governance in addition to changes in the distribution of capabilities and competitive structures among states.

Of course, the importance of networks in world economic governance was recognized prior to this. However, the complex networks discussed in this paper differ from existing theories of complex interdependence or transgovernmentalism in their focus on the expanded role of state actors. Complex interdependence (Keohane 1972; 1977) highlights the enhanced status of non-state actors in international politics. Transgovernmentalism (Slaughter 2004), while focusing on state actors, emphasizes the role of various governmental networks as actors in sub-politics rather than in realist high politics. As the center of world politics shifts from "government to governance," new non-state actors such as multinational corporations and non-governmental organizations have taken on primary roles in resolving international issues (Underhill 2008). Slaughter (2004) notes that "the most important feature of the new world order is transgovernmental networks," drawing attention to the emergence of networks composed of sub-governmental agencies such as courts, regulatory bodies, and fair trade commissions. Furthermore, these networks are seen as replacing the state, which was previously considered a hierarchical and singular actor.

However, the transgovernmentalism described above does not align with the reality of states returning to the center of world economic governance following the global financial crisis (Altman 2009). A prime example is the G20 Summit, designated as the supreme forum for international economic cooperation, which is a typical state-centric institution (Cooper 2010, 744). Other groups such as the 3G (Global Governance Group), C10 (Committee of Ten African Ministers of Finance and Central Bank Governors), G24 (Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development), and BRICs (Brazil, Russia, India, and China) [illustrated in Figure 3] are all inter-governmental networks that are increasingly vocal in recent world economic governance reforms. Moreover, the networked governance discussed in this paper is distinct from "complex multilateralism," which focuses on multilateral frameworks, in that it includes bilateral approaches such as currency swaps.

Below, to systematically understand the changes in world economic governance after the global financial crisis, we will first examine the challenges posed by the crisis to the material, ideological, and institutional foundations traditionally considered key drivers of international order change in mainstream international political theory. Chapter 3 will then explain the concept of complex networks as the architecture of world economic governance that has emerged in earnest since the financial crisis. Chapter 4 will analyze the process by which IGOs, IGNs, and TGNs form a governance network centered around the G20. In conclusion, Chapter 5 will discuss the theoretical and policy challenges that the networking of world economic governance poses to international politics and South Korean diplomacy... (continued)