Global Economic Crisis: What the November 15 Summit Is Really About

President Bush's invitation this week to the leaders of 20 countries for a summit on the global credit crisis likely marks a historic shift away from the made-in-America power structure for world finance that dates to the waning days of World War II.

To begin the difficult process of reform—especially the eventual ceding of some of the carefully protected U.S. and European clout in international financial institutions—President Bush will meet not just with the traditional Group of Seven (G-7) cluster of industrialized countries but rather with the Group of 20. That larger forum brings in the major emerging-market nations. They include such rising powers and emerging economies as Brazil, India, China, Russia, South Africa, Mexico, and Turkey, among others.

The idea is to begin the work of forging regulatory and institutional arrangements for a new era in which American primacy has been diminished, newer powers flex financial muscle they used to lack, and the enormity of the current financial crisis suggests the need for additional help in getting things back on an even keel. That was certainly a message French President Nicolas Sarkozy gave Bush at a Camp David meeting last weekend.

But by bringing on extra hands to help draw up new financial rules and to recapitalize the markets, Washington—along with other capitals in the old G-7—will in effect see their sway over the world of finance diminished.

Even some stalwarts of the current global finance hierarchy are seeking to broaden decision making to reflect changes in international economic power. "The G-7 is not working," Robert Zoellick, World Bank president and a former Bush administration official, said recently. He is advocating a "new multilateralism."

Pressures to move in that direction have been building for some time, and the financial shocks of recent weeks have galvanized those who favor it. Overseas, calls for deepening financial regulation and introducing more effective international oversight are often paired with arguments for giving countries from China and South Korea to Brazil and Saudi Arabia more voting power in the International Monetary Fund. The IMF, along with the World Bank, were outgrowths of the financial system laid out at a historic conference at Bretton Woods, N.H., in 1944.

The new summit—which some have dubbed Bretton Woods II—will be held in the Washington, D.C., area on November 15.

Though the system has evolved over the decades, the overlay of U.S. pre-eminence, including the widespread use of the U.S. dollar as the reserve currency of choice, has endured. But with the U.S. economy sagging and growing public debt burdens manageable mainly because of the willingness of foreign countries to buy it, Washington probably needs to show unaccustomed flexibility to stay on top of the game—even if to a somewhat reduced degree.

"The U.S. has to yield some of its rights and privileges that it built into the postwar order," says G. John Ikenberry, a political scientist at Princeton University. Ikenberry says that "a consortium of leading capitalist states is needed to rebuild global finance."

Despite the predictions of declining U.S. power in the world, says Ikenberry, those and other adjustments mean that "the United States can remain first among equals for a long, long time in both political and economic terms."

Chas. W. Freeman Jr., a former American diplomat and head of the Middle East Policy Council, calls the G-7 "irrelevant" at this point and foresees inevitable movement away from the U.S. dollar by other countries that have funneled billions into dollar-denominated assets, including U.S. treasury bills. "Nobody wants the dollar. They've been taken hostage by it," he says.