IMF got me rethinking multilateralism: How nations need to worry about aligning incentives, not about size or power
Published:
IMF got me rethinking multilateralism: How nations need to worry about aligning incentives, not about size or power
by
Danny Quah
Sep 2025
Synopsis: Multilateralism benefits everyone but its costs are asymmetrically distributed. This didn’t use to bother the US. It did not have a zero-sum view of the international system. Now it does. But the outcome isn’t just America wins, we lose. It’s everybody loses. What will successfully restore the best features of multilateralism is incentive alignment, not size or power; inadvertent cooperation, not contractual consensus.
Multilateralism is not a topic that appears in any PhD macroeconomics or microeconomics core course. When I was an Economics grad student, where I might have learnt about multilateralism was in Economic History. But I paid little attention there, and thought of it as just a distribution requirement to fill. I even deliberately skipped that part of International Economics that might have connected with multilateralism: Too wordy, and lacking the elegance and power of a Krugman, Helpman, Melitz model.
But now I research and write multilateralism because, for me, it is the best tool we have to understand what is happening to the international economic system.
Multilateralism is like all of us operating our own boats in a very large swimming pool. A rising water level in the pool keeps us all afloat but those with larger capacity know they expend more effort into filling up the pool than do the rest of us. When you’re a small-boat nation, no matter how hard your people by the side of the pool are working to fill up the pool, you never achieve as much as the big-boat people do. So multilateralism provides benefits (the rising water in the pool) enjoyed by all but with costs that are asymmetrically distributed.
Previously, when the US worked to fill the pool, it attracted respect and admiration from all the rest of the world, not least because the other big boat, the Soviets—America’s ideological rivals—were thereby revealed to be less capable. Everyone saw and admired the value of America’s approach to open markets and free trade. Asymmetric costs did not use to bother the US. We benefited; America benefited. America did not have a zero-sum view of the world. But now it does.
Small nations not on the frontline initially thought we would never be able to compete economically with Great Powers like the US or Western Europe. But we worked hard to overcome these challenges, confident that hard work gave us a chance because we saw multilateralism extend a level playing field. Now, however, that that we have gotten to where we can compete, we find out that richer nations, America in particular, have decided multilaterism’s rules are no longer how they want to play.
Middle-power states might have capacity to step in but my own prediction is, this is just a phase. Their incentives to support multilateralism will soon line up the same way as America’s.
What will successfully restore the best features of multilateralism is incentive, not size or power; inadvertent cooperation, not contractual consensus.
Podcast: “Rethinking Multilateralism”, IMF podcast (Sep 2025)
Article: “Multilateralism Can Survive the Loss of Consensus”, IMF Finance and Development (Sep), pp. 14-15
Chapter (Economics and geopolitics alignment): “Correlated Trade and Geopolitics Driving a Fractured World Order”, Ch. 5, pp. 54-66, in Ing, Lili Yan and Rodrik, Dani (eds.) The New Global Economic Order, New York: Routledge. (Open Access from July 2025)