Interview with Robert Zoellick/ YOICHI FUNABASHI, Editor in Chief: G-20 should tackle problems in coordination with the U.N.

Editor's note: This is the fourth installment of an interview series that appeared in the vernacular Asahi Shimbun under the title "Brave, grave new world."

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Long a key player in U.S. foreign policy, Robert Zoellick now tackles poverty around the world as president of the World Bank. He rejects unilateralism and steadfastly advocates international cooperation for issues related to global governance in the 21st century.

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Question: Will the G-20 be the future of global governance in the 21st century? Is it a viable model or is more work needed?

Answer: I'd say, possibly, for the future of global governance. It has the benefit of being more representative than the G-7 or G-8, but it's also larger, and therefore will have the challenge of being effective. Even though it has more of the influential industrialized countries, emerging powers and some representative of regional groups--APEC, the African Union--it still leaves others out.

The G-20 should work with existing institutions such as the IMF and the World Bank and the WTO and the U.N. agencies because we have the legitimacy.

The G-20, to be most effective, needs to move away from older, hierarchical bureaucratic models and rely more on a network system, drawing on existing institutions and processes for expertise, execution, but also broadening the legitimacy.

I think it's a mistake when some people suggest that the G-20 will replace the U.N. It can be a complementary aspect to the U.N.

Q: The G-20 seems to be ill-equipped for the critical task of attacking the global imbalance. The group is perhaps a bit better in coping with regulation issues, but the G-20 still has not been functioning on the global imbalance.

A: A very important observation. My own belief is the added membership gives a greater sense of participation and more players, but it also makes it harder to be effective. And therefore, I think, to help the G-20 be more effective, there will need to be informal interactions by subgroups.

For example, one subgroup will be European Union members. Another could be APEC members. Another could be the G-7. Another could be the BRICs. Another could be on a key issue, such as imbalances, (with) some of the key players . . . the United States, China, Europe.

The point is this will have to be done informally. And it will change. And it will evolve. And it will be varied by issue.

So if you were talking about a climate change group, you would certainly have Japan playing a key role. Depending on the economic issue, you'd also have Japan engaged.

The real challenge is that there's always a momentum to try to add more players because it makes people feel that they have a say in the process. But the bigger it gets, it sometimes gets harder to have the informal discussions to accomplish things.

What I pointed out in some meetings with a historical perspective is the League of Nations had "one country one vote," but it wasn't ultimately effective.

Q: You talked about the League of Nations. In the interwar days, the United States did not feel comfortable with that international institution. It was allied with the contemporary predominant power that was Great Britain. The U.S. actually was not fully committed to sustain international institutions. So how can we expect China and India to really strengthen support for the current Bretton Woods system?

A: One has to be cautious with the readings of history.

If you actually look at the reservations that Senator (Henry Cabot) Lodge and others posed on Woodrow Wilson's League of Nations, they were actually more interested in an alliance model than a collective security model. Lodge was saying what was more important would be to have a security alliance with France and Britain, and that frankly was what the French and others would have wanted.

I think the answer to the question of why should the emerging powers accept the system is I think they would accept the system if they see it in their broader self-interest.

Whether it be trade or financial affairs or security issues, it has to be seen as not done out of charity but done out of a calculation of a broader self-interest.

One of the things that I'm trying to do in modernizing the notion of multilateralism is getting developed countries to see that support for developing countries is not just charity or solidarity with the poor. But it's in (their) self-interest.

So I've talked with some U.S. political officials and told them that they should be more attuned to some of the innovations in public-private partnerships in infrastructure development in the developing world because there are interesting things they can learn from there.

Q: Would I be wrong to say that your multilateralism looks almost like the Concert of Europe vision (that existed from the fall of Napoleon until World War I)?

A: I think a true view of the Concert of Europe is one that accepted more of the Peace of Westphalia notion in which you don't pay attention to what's going on in a country's internal affairs.

In the 21st century, you can't avoid that.

Also, the Concert of Europe was really more of a security balancing device.

When you start to talk about subjects such as economics and environment, you actually create greater win-win possibilities. That I single out economics as opposed to some other traditional fields is that you can expand the pie and everybody can gain in the process, too. In the sense that the Concert of Europe represented a network of powers trying to coordinate common interests, there's a commonality.

My vision also says. "Let's take the existing institutions, IMF, World Bank, U.N., WTO, regional integration institutions, APEC, and connect those to the larger concert."

Q: Regarding the rise of China, is the Beijing Consensus going to be the new order of the world? Do we have to accommodate the Chinese standard and will China be a responsible stakeholder?

A: Well first, certainly, China is an increasingly influential power. Regionally, but also globally.

Second, I think it has the opportunity to build partnerships.

Third, as a country with greater influence, it also faces a potential risk of people perceiving its increasing power, and so because of that, others will be sensitive to any Chinese chauvinism.

Coming back to your point about a Chinese standard, I don't see a Chinese standard. I see that Chinese will pursue their interests, and the question is whether it will pursue the interest in the international system of shared responsibility. That's the question.

Q: Since the meltdown of the Lehman shock, China state capitalism seems to be gaining more currency among many poor countries. Whereas the U.S. market model has now been undercut, I think state capitalism is appealing more to many more people in the world.

A: I think one has to be careful with that. I think that's the facile sort of impression. But here are some things that one needs to do to question it. Even within China, you will have debates about the role of the state versus the role of the private sector and markets. And Chinese authorities are debating this because they can see some of the limitations of some of the state system.

I think it is fairer to say that people are perhaps more open, but in a very pragmatic way, to discussing the roles of state government in private sector.

When you talk about the Chinese model, one has to define which aspect of the Chinese system you're talking about. There are still aspects of Chinese society that, while it can be encouraging for people for economic growth, may not be as appealing in terms of access to information, open society, ability to move. But it varies by country and culture and experience on things like that.

We won't know for sure about the attractiveness of Chinese society over time. Some people are going to do business there. Do large numbers of people want to immigrate to China?

And my own view is that I think the Chinese authorities of this generation, we'll see what happens with the next generation, are sensitive to this point about Chinese chauvinism. They are aware that if they act chauvinistically, that it'll create a common reaction. So they bend over backwards under most circumstances not doing it.

Now there are younger Chinese who are proud from a nationalistic perspective, from an economic perspective. But in general, what I still find when I go to China is that their economic success has led to a confidence that has led them to be very open-minded and eclectic about discussing systems. So the confidence hasn't, in general, led the society to an arrogance that they know exactly what to do.

Q: What is the U.S. place in the world now? Where will it be in 20 or 50 years?

A: The first point is the U.S. is the one power with global reach and influence across the full range of national power--security, economics, and politically.

Domestically, I believe that compared to other developed countries, it has more favorable demographics, and I believe it has the institutions and culture to be innovative and dynamic and still attract talent and capabilities and capital and ideas from around the world.

Third, I think the major challenge will be dealing with the budget and debt issues.

And then the fourth is, I think, its international challenge will be to keep modernizing its ties regionally and globally and bilaterally, whether through alliances, institutions or other activities.

So what I tried to do is not answer where it'll be in 20 or 50 years' time because I can't predict that. It depends on events, but identifying some of the variables will be important.

Q: You said after the global financial crisis that the U.S. would be mistaken to assume the dollar would remain the predominant reserve currency. What is your view of how to determine which currency acquires the reserve currency status? Do you think we should leave it to the market? Or do you think we should devise some way of determining or even negotiating that position status?

A: I think the reality is that people who have financial assets decide in what currency they want to hold those.

I think that governments can create opportunities depending on how, in a sense, they can make their assets and their currency more attractive through the securities they have, through the liquidity in their markets, through the viability of their markets, through the ability to, in a sense, have investors feel confident that that asset will be protected.

But ultimately, as long as you have private holders of assets, which is the vast majority, they're going to make those decisions. And so in that sense, yes, Japan can make the yen more or less attractive to foreign investors based on decisions about financial policy, liquidity, how much control they want to have, things like that.

And people can make the euro more or less attractive, and people can make the dollar more or less attractive. But it's ultimately going to be driven by those market determinations. And so you've seen that whenever there's a crisis, the safe haven tends to be the dollar. So that tells you something about their determination.

But you also see when they become more confident they may move and have a different distribution of their assets.

My point for the U.S. was: Just don't take this for granted. It's not written in stone. It's not written by policymakers. It's written by a market decision. And it's written based on actions in the United States starting with Alexander Hamilton, and going downhill for a while after that and coming back.

And so my point was, your budgetary policy and your monetary policy are going to be important in determining that.

The analogy I gave to another historic piece, which I still think is a good reference point, was . . . in reference to the Napoleonic wars. . . . Most people who study the Napoleonic wars read about the great campaigns in Europe, or maybe in the Royal Navy, and Trafalgar. But Britain could have never, never sustained 20 years of war and funded all its other parts of its multiple coalitions if (William) Pitt hadn't restored the value of the British financing system.

So if you look at it, Napoleon had to finance out of cash. I mean he had to raise money or he had to steal the assets, and the British could issue securities. And so one contributor to their success was the financing system that Pitt restored. And he had to restore it, actually, you know, because the British financing system was not in a very good position after the revolution in the United States. But he restored the credit.

Q: Globalization certainly has brought about positive effects on alleviating poverty in India and China. At the same time, globalization has been charged with widening income and wealth gaps everywhere. You have come up with an inclusive and sustainable globalization concept. Could you elaborate a bit further? What is the real picture concerning poverty?

A: Well, it means that you need to think of policies that support inclusiveness and sustainability, and that growth by itself may not be sufficient.

One of the lessons of the East Asian and Latin American financial crisis was that it's not sufficient to return a country to macroeconomic stability if the price is that you lose basic social safety nets that make sure that kids have proper nutrition and stay in school. Because if you do, you could lose a generation.

And so in this crisis, we have consciously tried to not only give countries the financing they need, but help them with the experience of other countries, of not just throwing money at the poor, or those in need, but doing it in a more effective fashion.

But in Africa, where they may not have the capacity to have those types of programs, you might have some feeding programs, other types of child nutrition programs, and food for work programs.

If you focus on children from the period of pregnancy to the first couple years all the way up to school, you have healthier kids. They learn more, they're more productive, they stay in school longer, they become more productive workers, they don't drop out and become a tax on society.

If you wait until somebody is 25 or 30 to have social intervention, it's much more costly. So this is good policy. The reason this is a powerful cause? It's cost effective. It's fair, everybody feels a child should be given equal opportunity. People may differ if you're 25 or 30 years old and you've made choices in life, but how can you pick on a poor kid and say they shouldn't have an equal opportunity?

And because of that, it also can generate policy support.

Now for those interested on the policy side, you also have to be rigorous and say, "Well let's learn what works, let's test results."

We have to make it work. And build a record and then share with other countries what we learned.

What Mexico does is they have a system where they focus on the poorest in a community, they give them cash but in return the people have to send their kids to school and people have to get health checkups. And so those are the conditions. Now they're designed a little differently in Mexico or Colombia or others, and there are now about 15 of these around the world in one form or another.

"Sustainable" in my view is not only "environmentally sustainable," from carbon or pollution aspects, it's also "systemically sustainable." So part of the point is if Japan and the United States have got countries that are neighbors that are in a state of breakdown, you're going to encounter those problems. It may be through immigration, it may be through refugees, it may be through disease, it may be through other sources of violence. So when I talk about sustainable, I'm also talking about a system that recognizes that it has some interest in what happens with others.

Q: You said, why couldn't we form a peace dividend at the end of the Cold War like so many had hoped? Looking back, what went wrong in the last 20 years and what went right?

A: One underappreciated fact is that if you look at the surpluses that the Clinton administration was able to generate in the late 1990s, part of this was the fact that defense spending was cut very significantly. And frankly, it was also, if you look at the revenue gains, you saw there were huge capital gains as those stock markets went up.

Second, let's keep in mind there were some pretty significant accomplishments. And here, let's give the much-chastised Europeans the credit that they're due. Overcoming the division of Europe, which you can say was at least for the Cold War or frankly you can go back through all the 20th century, was a huge accomplishment.

Having the European Union bringing in the central and eastern Europeans, you can see the power of the attraction. Look at how it's helped the Balkans countries.

I mean this is not completely done yet, but you can see the magnet of Europe's success.

So yes, it hasn't done everything, it's got a problem. It's dealing with (a problem) right now related to the euro and some of the political aspects related to economic integration. But this is a huge historical success.

We spent most of the 20th century dealing with a Europe that was at war with each other and dragged in everybody else, so this is not such a bad result.

Another point is look at the developments of China and India. For certainly the people of China and India, but now China and India are also economically beneficial to others in Asia. Japan's growth is very much linked to China's growth, so that's a plus.

But another way of looking at this is any success doesn't mean that you've overcome all challenges, and sometimes they'll be new challenges. So one of the challenges that comes from the rise of China and India and Latin America is the issue of integration and shared responsibility. So in a sense, China's success creates a new challenge.

As you said, globalization creates opportunities and risks--within countries and across countries. So in a developed economy like the United States, I have been suggesting this for 20 years, you have to help people adjust to change.

If you're going to have a dynamic open system, you're going to have a system that changes around it. You have to have policies that help people adjust to change because they're going to be fearful, and change is a frightening thing for many people.

And this is where in a democracy there're legitimate political views, part of which you're hearing . . . in the U.S. in the left and right.

Some say (this will) help people adjust for change but allow people to have their choices. Others say no, it has to be done more systematically. But that's society's debate.

Then you have other challenges related to natural resource wealth and governance. When I look at Africa, I look at three groups. One group that has basically been developing reasonably well, and what they need is what the Europeans wanted 60 years ago: energy, regional integration linked to global markets, infrastructure, and a healthy private sector.

A second group has natural resource wealth. And their real question is will they have the governance to have inclusive and sustainable development.

The third group are fragile or broken states, ones that have dragged down their neighbors.

So there are those challenges to deal with.

And the extreme case are those extreme Islamic movements that want to restore the caliphate. I'm not sure it's fair to say they reject modernism, because they'll use the Internet, and they'll use weapons of mass destruction. But they have a political view that they want to restore something going back to a distant time period.

If you can take the big picture, I'm not worried about that view persuading people. I mean not many people I know want to live that way in any country, and I travel a lot. But it can do a lot of damage in the meantime.

I think one of the complications is if you combine dangers with more violent tools, their weapons of mass destruction--chemical weapons, biological weapons, airplanes, so you can crash into towers--or now also our dependency on the Internet and other capabilities. Then you have different types of dangers.

So I don't find it shocking that we haven't reached a peaceful nirvana. So let's recognize the good things that have been done. Let's try to learn lessons and try to build systems that cooperate.

We still live in a world of nation-states. And the political legitimacy for decision-makers, whether in Japan, the United States and others, flows to their citizens. You can broaden their view, and you can broaden the public's view of self-interest to include others. But you've got to still have a system where you connect the nation-state to a greater degree of cooperation.

I think one of the interesting debates is if you spend time in Europe, Europeans have what they like to call a post-modern politics that reflects their European integration. But the rest of the world doesn't necessarily see the same things the way they do.

So that's not saying that they've made a mistake for themselves, but you need to be realistic at the same time as you need to be aspirational.

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As president of the World Bank, Robert Zoellick directs efforts to support economic growth in developing nations. From 2001 to 2005, he served as U.S. trade representative under the George W. Bush administration. In 2005-6, he played a key role in U.S. economic and foreign policies as deputy secretary of state. He became president of the World Bank in 2007 after serving as vice chairman of Goldman Sachs. Known for his insightful views on global affairs, Zoellick's remarks often draw attention. In September 2005, as deputy secretary of state, he urged China to fulfill its international obligations as a "responsible stakeholder,"while being instrumental in forming the Bush administration's engagement policy toward China.

In his speech in September 2009 following the global financial crisis, he urged the U.S. administration to reduce its budget deficit, saying the United States should not take the dollar's status as the world's key reserve currency for granted.