(Discussion Contribution for the Panel “Change, how will it play out?” at OEKB Roundtable, Vienna 13.12.13)
The most important trend of the global economy during the past 20 years has been “globalization”, a concept hiding more diversity than pointing to a single direction. What is universal, however, is that for most countries the space for national economic policy control has shrunk, that inter-connections have increased, both as positive and negative spillovers, that national and global problems have become more complex, and some, like climate change and resource depletion, and income inequality and exclusion/marginalization of ever larger groups have reached alarming proportions. This globalization has decreased policy control at national level, which, however, has not effectively been replicated at a global level.
True, many institutions have been formed during the past decades at the global level, however in an unstructured way, thus often counteracting or overlapping each other. Well-known unsuccessful global attempts are the meetings to counteract climate change (Kopenhagen, Warsaw, et al.), the laborious, decades-long negotioations of the Doha Round for trade which were concluded last week, with very unsatisfactory results, the inability to reign in global banking excesses. Regional integration mechanisms have their hayday, i.e. EU/EZ integration, Mercosur, African integration models and some in Asia, especially, the Eurasia customs union, regional trade agreements, but also exchange rate mechanisms. Beyond formal regional integration, a few non-regional informal associations have been created– with varying success. Noteable are also the BRICS Meetings whose ascendancy towards global prominence is well-known (and feared by some), the G-20, several other G-s.
But still: in existing institutions (Bretton Woods, UN) rich countries cling to their outdated dominance in some 20th century institutions, short-termism prevails in policy-making, and ministers and heads of state travel to international meetings with fixed positions, making compromise solutions impossible. This has been recently pointed out in an impressive paper by the Oxford Martin Commission for Future Generations.
In 2008 there was a moment where an attempt at creating a global governance institution for economic policy was launched by former UK Prime Minister Gordon Brown at a G-20 Meeting in Camp David, who lifted the existing G-20 structure at finance ministers’ level to that of heads of state, with the ambition to set rules and organize economic policy coordination at that level, surpassing the old G-7/8 structure by including 12 emerging countries.
5 years later, much of that impetus and dynamic has passed (as a recent DG ECfin Economic Brief has detailed). This may be due to the perceived end of the worst of the financial/economic crisis. Yes, the G-20 still meet regularly, under rotating leadership, but they have not been able to establish permanent support structures, instead relying on other existing institutions (the Bretton Woods institutions, the OECD) to supply them with continuity and expertise. On a number of issues, meetings have exhibited strict divisions within G-20 members, sometimes according to the state of development, sometimes along regional lines. Today, nobody outside the G-20 insiders considers them any longer to be “the” global governance structure. The binding force of the “Lehman” crisis of 2008 has vanished, national interests dominate once more global ones.
The continuing triple crisis (economic, socio-political, environmental), the repeated turmoil in the financial markets, the progressive weakening of the once nearly almighty US political establishment which has reduced US global leadership aspirations to ashes (while the Dollar is still holding on to its dominant, albeit weakened position), the inability of the IMF to come to grips with its “quota” reform (under negotiation for nearly 10 years) – all these and more cry for a global economic governance system which could ensure a smoother ride.
My simplified argument is: sustainable economic development requires political guidance , if the economy is to serve society. If this regulation is no longer possible at the national level, it needs to be implemented at the global level. Otherwise, globally footloose capital, in the form of multinational companies, but even more in the form of “hot money” in “search of yield” becomes the arbiter of the economy, instead of the welfare of the global population. The last 30 years have afforded initial glimpses in what this would do to the world economy: crisis after crisis, increasing unemployment, wage dumping, tax competition, environmental pollution and climate change, extreme pressure on social solidarity, increasing inequality with rising poverty and wealth concentration in the hands of the few, labor out-migration at high costs to human life, increasing trafficking in women and laborers, money laundering, increasing organized crime in ever more economic sectors, and many other ills.
(This is not to deny that some progress has been achieved: millions of people, especially in Asia and Latin America have been lifted out of abject poverty; today, more countries than ever before have peacefully elected governments; some positive results have been achieved in terms of tax evasion, in fighting corruption, in bringing justice to some genocidal personnel, some international rules for financial stability are in effect.)
But still: capital is flowing in and out of countries at a whim, conflict-of-interest prone rating agency assessments rule austerity choices, labor norms are flaunted and a “race to the bottom” with respect to corporate taxes and labor costs is harming millions of communities. Environmental damage is increasing at alarming rates.
What we would need is global governance institutions with implementing power in the following areas:
– Macroeconomic Coordination of exchange rates, of growth rates, of a monetary-fiscal policy mix
– Financial Market regulation to bring back FM to their serving role, to close regulatory arbitrage opportunities and create a level playing field for financial institutions world-wide
– A Fiscal Authority to regulate minimum tax rates, harmonize taxable profit definitions, close tax havens, coordinate with Central Banks
– Cross-border Investment Function, in order to create level playing fields between international direct investors and their host countries
– Labor and Environmental Standard Authorities to enforce minimum labor standards and environmental standards, taking into account country-specific circumstances
– Global Crime Fighting Authority: Anti-Corruption, money laundering, illicit trade authority
The G-20 could once more become the core of such an authority. But it would have to be enhanced by including regional representatives of less and least developed countries. It would have to create legitimacy (through the UN??) and accountability to the public. It would need to develop new forms of deliberation and decision-making from the bottom up (active inclusion of civil society and experts). After finding compromises on the most important issues, the most difficult issue would be enforceability of its rules. Some people have thought about such structures, more thought will have to be expended.
Do we really need a further deepening of the crisis, before the world will engage in a serious attempt to create a governance system which can take control over the economic/financial system to the benefit of populations, not of financial capital?.
Michael Spence, Project Syndicate, Oct 2013,
The G-20@5. Is it Still Delivering? ECFIN Economic Briefs, 27, Nov. 2013
Now for the Long Term. The Report of the Oxford Martin Commission for Future Generations, Oxford, Oct. 2013