Fourth, regulatory structures will need to be rebuilt, and this will require a global effort. Absent international coordination, the opportunities for destructive regulatory competition will defeat regulatory reform. Finally, both the interdependence and global risk that are evident in this crisis will and probably should cause countries to adopt policies with respect to financial structures that provide for some insulation from external shocks, even if such policies impose a cost.
The interdependencies in the global economy (in areas as diverse as financial markets, product safety, infectious diseases, natural resource dependency, and global warming) have outrun our collective capacity to manage them and coordinate policy responses. Restoring that balance will take time, leadership, a shift in attitudes, and creativity.
In the interim, the mismatch creates risks for everyone, including developing countries. It creates skepticism about whether the net benefits of openness are positive, and uncertainty about what adaptations are needed in the regulation of free markets to achieve a reasonable balance between their benefits and risks.
Influential developing countries share a joint responsibility with the G-8 for the stability of the global financial and economic systems. But they currently have limited channels for discharging that responsibility and influencing global policies. In addition, collectively we must do a better job of anticipating problems rather than being in reactive mode in the face of crises.
The global economy and its increasing openness made it possible for 3 billion people to enjoy the fruits of growth in the postwar period. It may also provide an economic springboard for another two billion people to fulfill their aspirations in the coming decades.
But openness brings risks, many unanticipated and most under-managed. People are skeptical for understandable reasons, and in the case of the credit crisis, angry.
Openness needs protecting and the best way to protect it is to manage the areas of growing interdependence effectively, pragmatically and inclusively.
Michael Spence, a Nobel Laureate in economics, is professor emeritus at Stanford University and chair of the Commission on Growth and Development.
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