The Future Of Global Governance 2004

THE FUTURE OF GLOBAL GOVERNANCE : THE FUTURE OF GLOBAL GOVERNANCE J. E. Stiglitz Barcelona September 25, 2004


The Problem : The Problem Closer integration of the countries of the world—globalization—has given risen to a greater need for collective action Economic globalization has outpaced political globalization Just beginning to develop an international rule of law Much of the ‘law’ that has developed—for instance, the WTO rules governing international trade—are grossly unfair Benefit the developed countries, partly at the expense of the developing countries


Problems with Global Governance : Problems with Global Governance Global Governance without Global Government Ad hoc, piecemeal Global warming Global environmental problem with potential immense economic consequences International scientific consensus Largest polluter refuses to alter its behavior Imperfect and limited institutions Undemocratic governance Single country, for instance, has effective veto at the IMF Votes are allocated on the basis of economic power Not even based on current economic standing ‘Smokestack syndrome’ Only the finance ministers and central bank governors that have a direct say Marked contrast within western democracies


Democratic Deficit : Democratic Deficit The underlying lack of democracy gets reflected both in procedures and outcomes Undermines the legitimacy of the global public institutions Procedures: Lack of transparency Absence of regulations that democracies typically impose to prevent conflicts of interest


Outcomes : Outcomes Unfair trade agreements Asymmetric trade agreements Continued huge subsidies for agriculture Unbalanced intellectual property provisions of the Uruguay Round Depriving the poorest countries of the world of access to life saving drugs for diseases like AIDS Global financial instability Failures in East Asia, Russia, Latin America Pushed capital market liberalization Enhanced instability But not growth


Failure to Address Key Problems : Failure to Address Key Problems Huge instability in exchange rates Festering problems with the global reserve system In spite of the seeming advances in the ability of the market to transfer risk, the developing countries still must bear the brunt of exchange rate and interest rate risks in their loans The absence of a mechanism to handle sovereign defaults


Institutional Problems : Institutional Problems Problems not just with formal institutions Growing awareness of the inadequacies of the informal institutions Why, when the leaders of the world get together to discuss future economic reforms, is not China, or India, or Brazil, or representatives of poorer countries, not at the table?


Some Forces for Change : Some Forces for Change Basic questions: Why would those in power give up that power? Powerful within a country have not been the strongest advocates of the rule of law They do better in closed door proceedings, where they can use their economic muscle to get what they want America, the sole remaining superpower, advocates a policy of unilateralism. It does not want to have its hands tied by any international rule of law. It walks away from the global agreement on global warming, or the international criminal court What are the underlying forces for change?


Some Forces for Change : Some Forces for Change Answers Self-interested motives for change Commitment to democratic principles among electorates in advanced industrial countries


Why Change is Needed : Why Change is Needed Even the most powerful need cooperation with others They cannot force cooperation Increasingly unwilling to provide assistance Increasing recognition of the need for the rule of law Dangers of a lack of checks and balances Especially when there is an evident lack of internal controls The ‘bargaining equilibrium’ requires important concessions


Leveraging Limited Power : Leveraging Limited Power Using existing agreements Cotton Applying shrimp-turtle case to global warming


Legitimacy of Global Political Institutions and American Leadership : Legitimacy of Global Political Institutions and American Leadership Issues of legitimacy of political institutions and decisions become most intense when the decisions are seen to fail Trade liberalization did not bring the benefits promised Many countries saw their incomes actually falling In Iraq, leaders have been seen to lie or mislead Thousands of lives have been lost American unilateralism has not made the world safer Many have already suffered as a result of the increased instability to which American actions have given rise, and more are likely to suffer in the future.


Confidence in the Credibility of the Statements of Leaders : Confidence in the Credibility of the Statements of Leaders Why should it be believed that the United States is committed to creating a fair trading system? Why should it be believed that its policies in other spheres represent anything other than ideology or its interests or special interests within America? Problems especially severe when positions seem hypocritical


Hypocrisy and Inconsistency : Hypocrisy and Inconsistency The understanding of the Uruguay Round was that agricultural subsidies would not increase and actually be cut Export subsidies were… But overall subsidies were increased America doubled its subsidies, claiming that technical loopholes that it had put in meant that it was entitled to do so But even those claims exacerbate the skepticism America went so far as to claim that cotton subsidies were not trade distorting When they plainly were (and the WTO panel found so)


Other Examples : Other Examples Differences in positions on Budget deficits Mandate of the central bank Social security


Democratic Forces for Change : Democratic Forces for Change Democratic deficit Voting rights Representation Lack of democratic accountability Those who are dissatisfied with IMF or WTO agreements have limited recourse Gets reflected in actions, procedures, and outcomes Choice of the head of the IMF


Governance Fundamental Problem : Governance Fundamental Problem Helps explain problems Lack of concern for equity Policies that reflect special interests and particular ideologies Seeming lack of concern for public perceptions Special interests often try to get in international arena what they could not get domestically Takings provision in Chapter 11 Unbalanced intellectual property not reflecting concerns of users, scientific community, others Restrictions on generic drugs


Tempering Capitalism : Tempering Capitalism Inside countries, democratic processes have tempered capitalism Recognizing market failures And ensuring modicum of social justice and solidarity


Tempering Capitalism : Tempering Capitalism In the international arena, this tempering is often limited Partly because of lack of democratic accountability But partly because social conscience—notions of social justice and solidarity—often get greatly circumscribed at national borders


Growing Concern About Democratic Deficit : Growing Concern About Democratic Deficit Provides basis for optimism concerning reform Undermines political legitimacy Violates basic commitment to democratic processes The “undemocratic international governance” may undermine democratic processes at home Dominant role played by special interests and ideologies reflects a deficiency in domestic democratic processes


Final Force for Change : Final Force for Change Change in mindset which globalization itself is bringing about Improvements in communication and the lowering of transportation costs have brought with them an increasing familiarity with those in other countries Growing recognition that we live in a single planet and that we are increasingly interdependent


Reforms : Reforms Changes in the Governance of the World Bank and the IMF Changes in voting structure And representation Improvements in transparency And advances in conflict of interest rules Informal procedural and Institutional changes Give developing countries more effective voice Creation of a think tank to help developing countries formulate positions more effectively reflecting their interests


Reforms : Reforms Changes in the Governance of the WTO More transparency The elimination of the green room processes The creation of more representative processes for decision making The creation of an independent body To evaluate alternative proposals their impact on developing countries To assess whether bilateral and regional trade agreements are more trade diverting than trade creation To determine before dumping or countervailing duties are imposed whether there is a prima facie case.


Reforms : Reforms Moving from the G-8 to the G-24 A Strengthened Economic and Social Council Development is too important—and too complex—to be left just to finance ministers Monterey consensus Example—sovereign debt restructuring No country would delegate legislation to creditors


Reforms : Reforms Financing for Global Public Goods Increasing global integration has made global public goods take on increasing importance Today, we rely mostly on moral suasion Moral suasion has been only partially effective The advanced industrial countries have agreed to provide .7% of their GDP for funding assistance to developing countries, and a few European countries have exceeded that target, but the world’s richest country has fallen woefully short


Financing for Global Public Goods : Financing for Global Public Goods Revenues from the management of global natural resources Seabed Global fisheries Antarctica Greenhouse gases


Financing for Global Public Goods : Financing for Global Public Goods Revenues from the issuance of “SDR’s” Current reserve system woefully deficient Inefficiencies Deflationary bias Works only because of unbridled U.S. consumption Instability As U.S. debts mount, will world continue to be willing to hold them Trade deficits like hot potato Sum of trade surpluses must equal sum of trade deficits If some countries insist on having surpluses, others must have deficits But trade deficits increase likelihood of crisis Inequity U.S. benefits from low interest rate loans from poor countries Richest country in the world


Financing for Global Public Goods : Financing for Global Public Goods Taxation of global externalities Arms sales to developing countries Pollution Destabilizing cross border financial flows


Reforms : Reforms 6. Management of Global Natural Resources and the Environment 7. Production and Protection of Global Knowledge Knowledge one of more important global public goods TRIPs recognized this TRIPs shows flaws in currency global governance Did not reflect a balance of concerns Reflected those of America’s drug and media industries Should be financed in an equitable manner May not entail imposing effectively high taxes on the poorest countries and people


Reforms : Reforms 8. A Global Legal Infrastructure One of the most important functions of government within countries is to provide a legal infrastructure The enforcement of contracts The protection of competition Bankruptcy Increasingly, economic relations go across borders In the United States a century ago, most of the legal infrastructure was provided by states In spite of similarities, differences gave rise to multiplicity of problems Gave rise to efforts to harmonize As globalization proceeds, a similar process needs to occur across countries Should not be based on the lowest common denominator Some duplication, overlap may be desirable The overlap in securities legislation and enforcement in the United States proved extremely important


Concluding Comments : Concluding Comments Question is not so much whether there will be change, but will it come fast enough Globalization is not an inevitable process Unless changes are made, the disillusionment with globalization that is already palpable will spread