(I dedicate this posting to Peter Raggl who tragically died in an avalanche on February 2, 2010 while leading us towards untouched powder slopes in the Austrian Arlberg Mountains. Peter was an outstanding ski guide, a great companion and a good friend. He had been working in the St. Anton ski school for 42 years, without a single accident. His sudden death leaves a great void for his family and many friends).
The G-7/8 Finance Ministers’ meeting in Iqualuit, Canada, on February 5-6 took place as far north as you can go. Whether this was in response to climate warming or to avoid the threat of demonstrations is unclear. I am sure that ministers and governors got their fair share of dog-sledding and warm winter coats. While important topics, like the financial crisis, development aid, Haiti and the potential capital increases of development banks were on the agenda, participants in the run-up were concerned more with whether this might be the swan song of their formation. Their decision not to publish – as was usual – a communiqué seems to convey a feeling of importance lost.
Having started out as an informal gathering of prime ministers – and in the run-up by finance ministers and national bank governors – during the past years this formation had assumed the role of a global economic policy government, legitimized by itself. The inclusion of Russia into the illustrious group (USA, Japan, Canada, United Kingdom, Germany, France, Italy) was designed to placate this country, hungry for recognition as a major player by the world. Frequently, however, the “original 7” met in advance without the Russians to pre-determine outcomes.
Since November 2008, when at the insistence of the Europeans, then US President Bush convened a crisis meeting of the G-20 which was followed in the Spring 2009 and Fall 2009 by similar meetings in the UK and – again – the USA, it became clear that this new formation had become the new economic policy powerhouse. Better than the G-7/8 it represented the major economic powers of the 21st century, by including 13 large “emerging” countries, from China, to Brazil, South Africa, Indonesia, Mexico to Malaysia and Argentina. Together, these 20 account for nearly 85% of world GDP. By mandating the IMF to play an enlarged role in balance-of-payment aid (with additional funds of up to now 500 bill $) to countries in distress, by giving it the role of a global “macro-prudential” risk assessor, by mandating the Financial Stability Board in Basle to develop new global supervisory rules for the global financial sector (due this coming fall) and by playing a coordinating role in the fiscal and monetary packages to bail out the financial sector and to stimulate the economy, the G-20 has made a large impact. Is this already the dawn of a New Global Economic Architecture?
It is clear that global economic policy governance institutions are needed. Already before the crisis globalization had reduced nation-states’ leverage to regulate their economies significantly – without being replicated at a global level. Globalization, and later even more so the crisis, have shown even to the least believers that markets are unable to regulate themselves. Left to themselves, they lead to self-enrichment, to financial “innovations” running havoc, to global imbalances growing to unmanageable size, to bubbles going unchecked, to income distributions deteriorating, both within countries and between countries and to financial/economic crises which nearly bring the world economy down.
Some regional groupings, among them most prominently the EU, but also Asian, African and American trade blocs and customs unions, have tried to attempt various degrees of regional regulatory frameworks, partly as a result of the lack of a global one. They are only second-best to multilateral and global ones. After World War II, the new world order, led by the UN and, within its framework, the International Monetary Fund (for balance-of-payments imbalances), the World Bank (for socio-economic development) and the General Agreement on Tariffs and Trade (GATT) as a precursor to the World Trade Organisation (for trade issues), gave a semblance of a global economic policy architecture, albeit incomplete, asymmetric and dominated by the Western World War II allies and their preferred economic paradigms. This arrangement managed a rapid rebuilding of the war-ravaged economies, both of the victors and losers of the war, but soon gave way to the neo-liberal-inspired Washington Consensus, running the world economy in the interests of the large industrialized countries. The breaking-up of the fixed-exchange rate system as a result of the Vietnam War in 1971 led to liberalization of financial markets and the emergence of the globalized economies – still regulated by 1944-created institutions and rules.
The near-disaster of the 2008/2010 crisis has proven the dysfunctionality of this non-system of global regulation. During the last 50 years a variety of regional, semi-global institutions has sprung up, overlapping each other, counteracting each other, but also leaving significant regulatory gaps. During this time also a number of global problems have become visible which require regulation on a global scale: environment/climate change, financial instability, spreading of contagious diseases, illegal activities, fair competition with fair working conditions, and others. The present crisis has shown that also in these economy-related fields a regulatory framework is lacking.
Where to go from here?
Global regulatory institutions require legitimacy (maybe a UN mandate, or a substitute), representativity (all types of countries and groups need to be represented, if indirectly), active participation, efficiency (global problems cannot wait for years to be solved, see the Doha Round, climate change negotiations), effectiveness (rules need to have some chance of being adhered to). We know that at present there is no taste world-wide for a World Government, so we need to find a substitute solution. And: in order to be effective, such a solution needs to be all-inclusive and take account of the interests/world views of the diverse countries and groupings. It can no longer be a Western-dominated structure.
Based on what already exists, we could start with the G-20, but expand it by including small, least developed countries, say one or two each from Africa, Latin America, Asia. To stick to 20 members as a yardstick for efficient governance, the 4 EU countries in the G-20 (UK, Germany, France, Italy) should give up their individual seats and be represented by the EU. This group of prime ministers could form (with a UN mandate) a Global Policy Council which meets – without fanfare and the humdrum of “summit” meetings – twice a year. This Council should establish “Thematic Networks”, one each for the large global problems outlined above, plus one that takes care of the spillovers from each problem group onto the others. These networks would be composed of government officials, experts, and representatives of civil society, all chosen for either being especially affected by the problem at hand or the special expertise. The networks would receive guidance from the Policy Council, work out solutions to the problems, taking account of the different viewpoints, and propose them to the Council for implementation.
The Council, lacking formal sanctioning power, could promulgate the rules, invite all countries to join in, and “name and shame” the non-compliers. Compliance would also be assessed by the Networks.
This “voluntary” structure would also make use of existing expertise by global, or regional existing institutions, instead of competing with them. The voluntary structure might it easier for countries to accept and follow rules which initially look against their interests. In the medium run, all/most countries/groups might become convinced that adherence to global rules on whose establishment one has cooperated might be in everybody’s interest.
Existing global institutions are incoherent, out-of-date for changing times, or non-existing. International/global treaties take decades to decide and ratify. Many global problems go unanswered. “Elegant” solutions, a la world government fashioned after the Westphalian nation state, are an impossibility. But we need global institutions for our globalized world. Thus “fuzzy” or “clumsy” solutions must be found, which still satisfy the essential governance criteria. The proposed structure is one such possibility. It needs to encompass the whole world, all types of countries, societal groups and needs to activate the best human know-how. Failure to move ahead will at best lead to new global divides, at worst to a rapid demise of our world society through economic disasters, catastrophic events and wars.