Global government can be a force for good if used properly

By Nancy Birdsall  / 

Sat, Oct 12, 2013 - Page 9

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.

OPEN MARKETS COSTS

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.

GLOBAL GOVERNMENT

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.

ENFORCING FAIRNESS

Less obviously, when governments provide funding for the IMF, they can sidestep domestic political resistance to assisting countries in trouble and to rules that yield benefits only in the long term. Indeed, embedding fair rules on trade, finance, development, climate change and other issues in the major global institutions such as the IMF and the World Bank is more important than ever, given the rise of China and other emerging-market economies. With these new powers seeking a place at the geopolitical table, they and the older powers can benefit from mutually agreed global “containment” of their domestic parochialism and short-sightedness.

In other words, global rules and institutions can make it easier and more likely that all involved will hew to their own citizens’ broader interests — and thus to the global commonwealth as well. For example, pledges to cut carbon emissions, while lacking any enforcement mechanism, may be helping countries to do the right thing for their own citizens’ children and grandchildren.

Moreover, fair global rules can help to “democratize” the global market, especially if they are embedded in institutions with a degree of autonomy for highly professional staff who can act with some independence from short-term political pressures. It should come as no surprise that the anti-globalists’ erstwhile punching bags — the World Bank and, increasingly, the IMF and the WTO — are more open and transparent than many of their member states. They thus provide a vehicle for ordinary people to lobby for fairer rules and policies, not only in their own countries, but also in others.

GLOBAL DEMOCRACY

One example of this was the citizen-based movement that fought WTO intellectual property rules, adopted at the behest of the US and other rich countries, that were sustaining high prices for anti-AIDS drugs in Africa. The campaign succeeded, resulting in changes that dramatically increased poor countries’ access to such drugs.

Ultimately, as I argue in greater detail in a paper for the Global Citizens Foundation, ordinary people are better off with global institutions, notwithstanding their weakness relative to their most powerful sovereign members and their lack of legitimacy relative to their democratic members.

Of course, a world “government” could never have democratic legitimacy; for this reason, it is a scary idea. However, like a socialist utopia or pure libertarianism, the idea of world government can illuminate a sensible path for capturing the benefits of a more effective global polity.

Given a fully interdependent global market, we should worry less about the risk of bad rules and policies from imperfect global institutions and more about how to exploit these institutions’ potential to lock in policies at home and abroad that minimize risks and maximize opportunities for people everywhere.

Nancy Birdsall is the founding president of the Center for Global Development.

Copyright: Project Syndicate