Can The Global Economy Be Civilized?

Prof Gerald Helleiner*

Geneva, 11 Dec—Can the global economy be civilized, be made more civil? Yes, it can. But there are powerful political and economic forces to be overcome.

Political processes and the governmental decisions to which they give rise are influential, within all countries, in the determination of the level, composition and location of economic activity, and in the distribution of income and wealth. Even though world government does not exist, political processes carry such influences within the global economy as well. Global economic governance, of sorts, already exists and continues to evolve. Its evolution has been driven by political processes and power.

In political systems, whether “democratic”, oligarchic or dictatorial, whether national or international, money talks. “He who pays the piper” still generally “calls the tune”. In democratic politics, as in market economies, systemic imperfections abound. In the US for example, it has been estimated by one independent research body that political parties and their supporters spent $3 billion (!) on this year’s elections; and another has declared that the federal election system has collapsed into a system of organized bribery (quoted in Financial Times, 25 October 2000). Even Business Week, the American business magazine, recently ran a front-page headline asking the question: “Too Much Corporate Power?” to which, according to the story which followed, the majority of Americans are today answering “yes” (11 September, 2000). Corporate influence over US and other major powers’ political decision-making can obviously carry profound spillover effects for rule-making in the global economy.

Large private corporations purchase influence within all so-called democratic societies. As all Geneva trade diplomats know, their influence over ostensibly international negotiations is also considerable; witness the role of the pharmaceutical industry in intellectual property debates and the banking and financial sector in those over capital account regimes and trade in financial services. The international activities of business lobbies are subject to no limits or registration requirements or regulation. The bulk of their activity is untransparent to the public. If the public sees them at all, it is only “through a glass darkly”.

Their activities, though usually formally legal, constitute a graver threat to the prospect of democratic and accountable global economic governance, and therefore ultimately to sustainable global human development, than the corruption in developing countries (and payments made there by Northern businesses) which have so far received so much more attention in the OECD and the international financial institutions. They must be “exposed”, i.e. made transparent, and their effects analyzed and, if baleful, addressed.

Any UN Global Compact with private business that does not address this issue cannot be taken too seriously.

If money impacts heavily upon both domestic and international political processes, there should be no illusions as to where the bulk of the power in decision-making relating to the global economy is likely to continue to rest - that is, with those countries, firms and organizations that are economically (and, it must be added, militarily) the strongest. Still, universally recognized democratic principles ...  provide for equal participation of weak and strong individuals in political processes. There exists a strong case for attempting, at the global as at national levels, to construct global governance arrangements that, at least to some degree, reflect such democratic principles...

Current governance arrangements for the global economy do not even remotely reflect the democratic principles that most analysts and countries espouse, at least in their theory and rhetoric. Until now, such global economic governance as exists has been profoundly undemocratic... Decision-making on key global economic issues remains highly concentrated in the major industrial powers and the main international financial institutions (the IMF, the World Bank group and the Bank for International Settlements) which they control.... If new processes and systems are to carry credibility and legitimacy (and therefore are to be politically sustainable) they must provide for greater collective influence and power for the developing countries.

On the basis of experience to date, there is reason to fear that the future evolution of governance arrangements for the global economy will continue to be seriously biased in favour of the interests of industrial countries, particularly the G-7 countries, whose governments and private firms (and even, in some cases, NGOs) now exercise disproportionate influence over global economic affairs. To the extent that future global governance arrangements are undertaken through or in conjunction with the private (or non-governmental) sector they are likely to be even more biased toward Northern interests and perceptions than they already are in intergovernmental institutions and processes...

However great the divergence of political views on the appropriate role of government at national and local levels, there is now broad consensus that the global economy is under-governed in at least some respects. G-7 Finance Ministers seek improved governance of financial markets. Others in the G-7 seek harmonized rules and “level playing fields” for their private firms. Environmentalists fight to protect the planet’s biodiversity, ozone layer and temperature levels. For the developing countries and many NGOs the prime issues are poverty and empowerment.

It would be easy to despair of the short- to medium-term prospect of developing appropriate political processes and reasonably fair governance arrangements for the emerging global economy... The existing multilateral institutions are the product of their history. They can and will look differently in another 50 and 100 years.

Political processes, including events in the streets, will continue to drive these changes. Significant change there must surely now be. But, just as surely, it is unhelpful to try, as some in the streets seem to want, to shut them all down.

If the global rules system is to be “harmonized” through deeper integration among national economies within an agreed overall framework, as most now forecast and many advocate, there must, above all, be full and reasonably democratic representation as the rules and framework are created and implemented. There can be “no harmonization without representation”.

The global political tide is already running - in the G-7, the OECD, and Northern civil society, as well as in the G-77 and the UN - in the direction of reform in the major institutions of global economic governance: towards greater transparency, accountability, democratic representation, and prime concern for sustainable human development throughout the shrinking planet. The immediate problem is that, for the present, the world lacks political leadership of the required global vision.

The world’s one super-power, particularly its elected Congress, seems to have little interest in multilateral organizations unless they can be used as instruments of its own fairly short-term interests. For the present, one cannot expect leadership towards the kinds of global economic governance processes and institutions that the world increasingly requires from this source.... There is little reason to expect more leadership from the US Government over the next four years.

Others must therefore, for the present, come together to establish processes, make proposals, analyze future possibilities, and, where possible, initiate new regional and functional arrangements to begin to address the new governance realities on their own. It is a time when there is genuine opportunity for fresh ideas and initiatives to be discussed in forums other than the usual power centres. It is a time for “middle powers” and regional or other groupings of developing countries to join, as rarely before, in sustained pursuit of their common interests in a well-functioning and civilized global economy.

Whatever the formal structure of governance and decision-making in international organizations, there is under-utilized potential for increased influence on the part of the small and poor through increased cooperation with one another. Such cooperation can take many forms - ranging from merely ad hoc issue-specific collaboration to more institutionalized arrangements for information exchange and the development of common positions...

Developing countries have not as yet been very successful in efforts at collective action within the principal multilateral economic institutions - the IMF, the World Bank group and the WTO.... It is true that the economic and political interests of individual developing countries often diverge, that mutual fears and suspicions (not to speak of armed conflicts) can be found within the developing country group, and that international cooperation can, in such circumstances, be difficult. But they also have extremely important elements of common economic interest in the global arena... (where) industrial countries with divergent interests pursue those that they hold in common to far greater effect.

The UN (through its relevant agencies) can and should play an important facilitating role in “nudging” the world in the direction in which a majority of its members already agree it urgently needs to go. To some degree, UNCTAD, UNDP, the Department of Economic and Social Affairs, and the regional commissions are already doing this. They must continue; and even intensify their efforts.

The UN Secretary-General himself has more “soft power” in this sphere than he has so far chosen to deploy; should he choose to use it, there are many ways in which he could more actively encourage appropriate political or quasi-political processes towards improved global economic governance.

Serious efforts to prepare appropriate governance arrangements (international financial architecture, not plumbing) for the global monetary and financial system have scarcely begun. The central multilateral institutions concerned with the overall functioning of the global economy and the global monetary and financial system remain the IMF and the World Bank Group... their governance is, by far, the least democratic of the major multilateral bodies....

Far as the IMF and World Bank are from reasonably democratic governance, they at least incorporate some degree of developing-country representation and participation. In the various meetings of industrial countries on economic and financial matters in the G-7/G-8 Economic Summits; the meetings of G-7 and G-10 Finance Ministers; the meetings of central bank Governors in the BIS; and the various committees of the OECD, there is virtually none. Within the past few years, the BIS has invited the participation of several of the larger and more significant developing countries, and the OECD has incorporated Mexico and the Republic of Korea into its membership; but these are marginal changes, in the nature of symbolic gestures, rather than substantive changes in the nature of these organizations.

It is probably more significant that several emerging market economies have been invited to participate in the Financial Stability Forum (from 1998 onwards) and the new Group of Twenty (from 1999 onwards), both of which were initiatives of the G-7 to carry forward the international discussions of financial architecture, outside the Bretton Woods institutions. Increased developing country representation in these key discussions... is to be welcomed. Both these initiatives, however, are primarily directed at the narrow question of the prevention and resolution of systemic financial crises, rather than the much wider range of reform issues in the financial system that require attention.  The G-20 is severely flawed in that it contains no representation either from the poorest and smallest developing countries or from the European “like-minded” countries... Presumably, this is because the poorest and smallest are unlikely ever to constitute any systemic threat. But there are major “architectural” issues surrounding the provision of adequate development finance to these countries and their peoples. They go well beyond the issues surrounding the “HIPC initiative”, the still wholly inadequate global response to low-income country debt servicing, which should have been frozen, without penalty, long ago....

Nor does the G-20 possess any mechanisms either for reporting or for accountability to the broader international community, such as the constituency system provides within the IMF and World Bank, or any provisions for non-governmental inputs or transparency. The G-20 had the potential, and perhaps it still has some, to make a start. But its initial processes have been all wrong.... As at present constituted, it is unlikely to lead anywhere. Its very existence deflects energies from more appropriate and hopeful processes and agendas. The four principal requisites for its possible rescue are:

·        alter its membership to improve its representativeness (while converting the IMF/Bank from members to observers) and institute some sort of “constituency” system to ensure full reporting and a sense of ownership for non-members;

·        declare its accountability jointly to the UN Secretary-General, the Managing Director of the IMF and the President of the World Bank, with the expectation that its report(s) will be presented to the UN’s ECOSOC, and the two Executive Boards respectively, and to the forthcoming UN Conference on Financing for Development;

·        make its discussion papers, documents, and reports publicly available, and encourage public and parliamentary debate thereon throughout the world; and

·        significantly expand its agenda to address the full range of problems and issues in the international monetary and financial system.. and establish technical subcommittees to address them all, as appropriate.

The expanded agenda would include: provision of a more effective system for global macroeconomic management, including provision for adequate liquidity and emergency responses; a stable and equitable system of development finance for all developing countries and finance for development-related scientific research, especially in health and agriculture; agreed framework of rules and obligations for international financial flows (including provision for prudential regulation of international financial markets and institutions), with a capacity for their effective and equitable application; increased representation and participation of developing countries at the decision-making level of international financial institutions to properly reflect developing countries’ growing role in the world economy, including credible processes for the selection of chief executive officers and a more democratic allocation of voting power in these institutions; and most important of all, concrete provision of the financial requirements for the supply of the key elements of human development for all of the world’s population.

Ambitious? Yes. Impossible? Not at all.

Globalized markets operate within politically defined rules and governance institutions. The current global rules and economic governance institutions are in need of repair, updating and re-legitimization.

Governance is not simply a matter of designing an optimal system and then putting it in place through whatever mechanisms are available (including coercion if necessary). Rather, it should be thought of as a communicative and consultative process through which disputes are resolved, consensus is built and performance is continually reviewed.  No less critical to its success than its policy instruments is the forum that a governance arrangement must provide for the expression of claims, review, and discussion of continuing reform. Above all, good governance is good process. To develop the required new arrangements for the effective governance of the global economy one must therefore begin with an effective and credible process - ideally a process involving civil society and (with appropriate limitations) business, as well as governments and existing international organizations.

Current efforts to improve governance in the newly globalized economy are heavily biased towards the interests of the governments, firms and peoples of the wealthiest of the world and this bias will not easily be overcome. Whereas there are signs that larger and potentially more influential developing country players in the global economy may eventually be admitted to global governance and decision-making councils, in the interest of their very effectiveness and efficiency, the smaller and poorer risk continuing exclusion.

Greater effort will have to be made by developing countries themselves, who, despite increased activism in some areas, have still been fairly quiescent in recent years, to develop positions that are in their agreed collective interest and then to press them energetically in the relevant multilateral fora.

An essential early step is for an organized effort to be made, within the South, to exchange ideas and formulate their own agreed positions on international financial architecture and the future of the WTO, wherever such agreement is possible, prior to entering into detailed discussion and negotiation with the more powerful actors who still are accustomed to setting the terms for international policy debate.

Negotiations toward improved arrangements for the governance of the global economy, if they are to be truly effective, require that the developing countries be better prepared for them; and that they take place in mutually agreed and representative forums. Better preparation will require increased resources, and the strengthening of relevant research activities and capacities within the developing countries and their regional and other cooperative institutions. Such reforms are perfectly feasible and long overdue.

The long-term interest of developed countries in effective global economic governance should lead them both to assist in such strengthening of developing country capacities and to the development of improved negotiation processes and fora—ones that carry broader legitimacy and therefore have better prospects of genuine success.

Can the global economy be civilized, be made more civil? Yes, it can. But there are powerful political and economic forces to be overcome.

It will require longer-term and appropriate vision on the part of state leaders and peoples, particularly in the industrialized nations who now exercise most control over events - not the vision of a free-market, level-playing-field, global economy for which many now seem to muster enthusiasm, but rather a vision of humane global governance, with celebration of humanity’s diversity, promotion of democratic processes, and social and economic justice and human rights for all. Such (the latter) vision will see trade, financial flows and macroeconomic stability as no more than instruments of its objectives rather than as ends in themselves. Vision and rhetoric (of which we already have quite a lot) will obviously have to be accompanied by concrete action - action rising far “above” that for which powerful corporate and political interest groups may clamour.

Appropriate process is absolutely critical to success. There should be an immediate start through “salvaging” alterations in the mandate, membership and functioning of the G-20 in international finance. In the sphere of markets, rather than wasting further energies in a doomed effort to launch across-the-board “Development Round” under the existing WTO arrangements, there should be instead a reconsideration of the WTO’s fundamental purposes to ensure its conversion into a “development institution”; and early initiation of an independent review of the WTO’s capacity, under its current rules, arrangements and staffing, to do developmental tasks. Progress is unlikely if “single undertakings” are to be required. A new independent international legal advisory organization should also quickly be launched.

However one proceeds with the task, “civilizing” the global economy will require steady and sustained change; it will probably take place incrementally rather than in “Big Bangs”. It will require a constructive mix of political statesmanship “above” and supportive political pressure “from below”. It should not be necessary to have all countries on board at every stage and in every dimension of global reform, not even the most powerful. Those who are ready can and should together move forward (or in some cases appropriately backward) in whatever ways they can. “Middle powers”, non-G-7 members, and groupings of developing countries can play a critical role in promoting and initiating appropriate change. The UN can play a major role as its facilitator.

Progress will not be easy or automatic. There are bound to be periodic setbacks, and progress, in fact, is likely to be slow. Yet I am confident that it can and will come. And I’m sure Raul Prebisch, if he were with us today, would urge us to get on with the effort.-SUNS4803

[Prof. Gerald Helleiner is Professor Emeritus and Distinguished Research Fellow at the Monk Centre for International Studies of the University of Toronto, Canada. The above is the second part based on Prof. Helleiner’s 10^th Raul Prebisch Lecture at UNCTAD on 11 November.  A news report on his views on the WTO, both in the lecture and in response to questions, as well as his presentation on Globalization, Markets and Liberalisation were in SUNS #4802]