Sat, Oct 12, 2013 - Page 9 News List

Global government can be a force for good if used properly

By Nancy Birdsall

Unlike in the past, there probably will not be large protests at the annual meetings of the IMF and the World Bank this weekend, or at the subsequent WTO meeting of trade ministers in Bali. However, that is not because these international institutions are perceived as effective and legitimate. It is because, compared to a decade ago, they are seen as too small and impotent in the face of larger market forces to bother about.

The 2008 global financial crisis and its aftermath have caused a loss of faith not only in markets, but also in the ability of democratic governments to ensure that the benefits of market-led growth are widely shared. On economic, financial, tax, trade and climate issues, many people around the world are fearful or angry, believing that a worldwide cabal of bankers, corporations and G20 elites uses insider deals to monopolize the benefits of globalization.

However, few people — whether ordinary citizens or

internationally oriented economists — recognize that our seemingly weak and ineffectual multilateral institutions are the world’s best hope for managing and democratizing the global market. Only these institutions are capable of preventing the elite capture and insider rents that are putting global prosperity at long-term risk.


To be sure, a growing number of mainstream economists are paying attention to the costs of unfettered global markets. There is greater concern that cross-border capital mobility makes it harder to collect taxes and enforce financial regulations at home; and that trade agreements, combined with global supply chains, are exacerbating job losses in developed economies. Likewise, global integration means that eurozone distress threatens the US economy, while the US debt-ceiling standoff threatens financial markets everywhere.

Yet many economists are as ambivalent about “global” rules and institutions as ordinary people are. They worry that international bodies, lacking democratic oversight, make it easier for the rich, powerful and well-connected to run things to their own advantage.

Dani Rodrik’s 2011 book The Globalization Paradox criticizes globalization enthusiasts for wanting full liberalization of foreign trade and capital movements. He argues that when democratically established social arrangements clash with the demands of globalization, national priorities should take precedence.


True, global “government” can go too far — for example, when WTO rules conflict with sensible local environmental safeguards, or when IMF requirements for developing-country borrowers narrow the scope for creative heterodoxy in growth and poverty-reducing policies. It is also true that countries dependent on official aid and IMF loans can face unwarranted pressure to conform to outsiders’ wrongheaded policy views — from premature opening of capital markets in Asia in the 1990s to force-fed austerity in Greece and Spain right now.

However, there is a more positive way to look at the issue. Sometimes, even powerful sovereign states use global commitments to help them lock in sensible policies that might otherwise be difficult to initiate and sustain.

A 2009 G20 agreement to refrain from protectionism in the aftermath of the global financial crisis helped to fend off protectionism. Today, a G8 or G20 agreement on exchanges of tax information could help to shore up national revenue bases and the reputations of governments for tax fairness.

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