The world economy is enjoying a glorious run. In 2003, 2004 and 2005, it had its best years since the early 1970s. Yet that is no encouraging parallel. The torrid expansion of the early 1970s led to a period of inflationary turmoil. We must ask whether the extraordinary growth of recent years also hides dangers – different, perhaps, but still significant. The answer, alas, is yes.

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Are we able to make multilateral institutions work effectively? Or is our world now so divided that even those we have inherited are doomed to founder? These questions have been raised in many contexts in recent years, notably in the United Nations. But they are also raised by the debate over reform of the International Monetary Fund. What makes this example disturbing is that it should be a simple case: not only does the institution exist, but it has clear functions on which reasonable people broadly agree. Nevertheless, progress is enormously difficult.

My view of international institutions is pragmatic. States need to co-operate if our increasingly interdependent world is to function. The best way to do so is via multilateral institutions with clear objectives, legitimate governance and professional staffs allowed to exercise independent judgment.

Against these standards, how far do the present reform efforts of the IMF measure up? “Not well enough” is the answer.

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The International Monetary Fund is in financial crisis. That will give its critics reason to cheer. But its supporters should cheer as well, for the reason the IMF is facing financial disaster is that its clients are not. The Fund needs crises, just as doctors need illnesses. But this particular doctor has been too successful. As a result, Fund credit outstanding has fallen to its lowest level in 25 years.

Bad news for the Fund is excellent news for its borrowers. Financial markets herald the reduction in the perceived riskiness of emerging market finance. Spreads have, as a result, collapsed. Investors are also pouring money in: last year, according to the March 2006 report from the Washington-based Institute for International Finance, the foreign private sector poured $400bn into the group of emerging market countries on which the IIF focuses attention.

“We do not need this money, thank you,” said the recipients. So, they pushed the money right back out again. Remarkably, a paper by three senior Fund researchers suggests they may have been right to do so: Developing countries that have relied more on foreign finance have not grown faster in the long run, and have typically grown more slowly. Does this mean that foreign finance plays no role in development? Not at all. What this does mean, however, is that there seems to be no benefit to being a net importer of capital. Emerging countries should smoke in the capital markets, but not inhale.

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Globalisation remains the great economic story of our era. It is also the great political story. The big question remains how likely is a reversal of our era’s move towards a more integrated global economy. History suggests, alas, that the onward march towards integration is not inevitable: economics may propose, but politics dispose.

This was the issue raised by Ben Bernanke, chairman of the Federal Reserve, in his address to this year’s annual economic symposium organised by the Federal Reserve bank of Kansas City at Jackson Hole, Wyoming. At the end of a brief overview of the history of economic integration, Mr Bernanke argued that “the social and political opposition to openness can be strong. Although this opposition has many sources . . . much of it arises because changes in the patterns of production are likely to threaten the livelihoods of some workers and the profits of some firms, even when these changes lead to greater productivity and output overall”. The need, he suggests, is to ensure that the benefits of integration are sufficiently widely shared.

Mr Bernanke concentrates, implicitly, on the politics of the high-income countries; and, second, he devotes attention to trade in goods and services. He is right to do so. The US and Europe remain the core of the global economy. Equally, nothing is more politically sensitive than trade.

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