The Foreign Service Journal, February 2011

Though I did not know it when Nixon announced his decision in August 1971, I was about to embark on an intellectual and professional adventure that continues to this day. Most of that adventure took place during my 32 years as a State De- partment Foreign Service officer (1973-2005). During that third of a century, the State Department and its diplo- mats played a vital role in helping create the dynamic global economy of today, with all of its challenges and promise. It has been a fantastic privilege for me to be a part of this history. As I reflect on the next half-century, I have become convinced that the importance of international econom- ics and of economic diplomacy in U.S. foreign policy will only grow. There will be great opportunities and chal- lenges for the State Department and its diplomats. Stated in its broadest terms, the task will be to help bring about not only a lasting recovery of the global economy, but also its transformation. This transformation will affect every corner of international economic policy, including devel- opment, trade, finance, transportation, telecommunica- tions and more. It is a privilege to serve the United States of America as a diplomat. We represent a great country that will play an indispensable role during a period of transition. Young FSOs with an interest in international economics can look forward to careers full of excitement and opportunities to make a difference. I have no crystal ball, but I expect the future to bring some of the following challenges. Transformation and Recovery in the Global Economy For there to be a recovery in the global economy, there must be a transformation of the international financial sys- tem. The Great Recession of 2007- 2009 was not a normal setback, but rather the end of an economic era. Accordingly, the traditional tools of policy response — expansionary fiscal and monetary policy—will not by themselves restore economic growth. We cannot go back to where we were. The old global economy has been destroyed, and we are building a new one. The major stakeholders in the old global economy — including the United States, Europe, China and Japan — fell into lazy economic patterns and habits that now need to be set aside. As stakeholders and trustees of the global economy, the governments of these economies have a re- sponsibility to establish new frameworks that impose dis- cipline and work for the benefit of all. These new frameworks must: • discipline the international exchange rate and pay- ments system; • promote compatibility among national economic strategies; • ensure national budgetary discipline; • transform the international energy system; • strengthen the open international investment and trade regime; • promote the growth of the developing countries; • foster innovation, including through the spread of in- formation technology; and • eradicate international business bribery and corrup- tion. As an economist, I knowmarket forces can be effective tools in enforcing good government behavior. As a for- mer diplomat, I know that intergovernmental institutional arrangements play a necessary supporting role. As an in- ternationalist, I know that American statesmanship is needed to persuade governments that they can protect their national interests only if they also promote the greater global good. And as a career government official who served in both Republican and Democratic adminis- trations, I know that only a renewed commitment to bi- partisanship can foster the necessary changes in U.S. economic policy. The establishment of a new international system that encourages the major economies to pursue compatible growth strategies, and allows smooth adjustments where 18 F O R E I G N S E R V I C E J O U R N A L / F E B R U A R Y 2 0 1 1 F O C U S To build a transformed global economy, State will need to revamp the way in which it conducts economic diplomacy. Alan Larson, a retired career ambassador, is currently sen- ior international policy adviser at Covington & Burling. During his 32-year Foreign Service career, he served as under secretary for economic affairs (1999-2005), assis- tant secretary for economic and business affairs (1996- 1999) and ambassador to the Organization for Economic Cooperation and Development (1990-1993), among many other assignments.