The Global Governance Context
The current financial crisis has impacted the real economy worldwide. Such a global crisis has both international and national dimensions. The international dimension relates, in my view, to the global governance regime . The national dimension relates to national public choices and policies.
As it concerns the global governance regime’s failure to materialize equitable and improvement of people’s living standards worldwide, it is worth recalling that such regime results from both historical and political factors. Since the historic change marked by the fall of the Berlin wall in 1989 and the end of the cold war, political discourses on development and economic policies put emphasis on the role of the private sector, including the financial sector in development. As a result of this political shift, those discourses also advocated for cuts in useless public expenses, particularly in sectors such as education and health care and also for a reduced role of the State in the economy and a public policy actor. Relying upon market forces to achieve economic development was the mantra of economics worldwide. Economic development would have a natural cascading effect from the international to the national and local level. These policy lines proved to be misleading .
Simultaneously, the financial economy has taken a central stage in countries’ economy, particularly in the industrialized countries. Such a trend has had catastrophic consequences for both the world economy as well as for national development policies worldwide. Indeed, national authorities diluted supervision of the financial sector activities, while leaving the real economy to the Market self-regulatory function. The market-based society was indeed due to take care of world welfare. Meanwhile, empirical evidence showed that fiscal privileges and privatization of public goods, such as for example water and electricity did not automatically result in economic growth worldwide. In many cases the links between economic growth, production systems and development and the virtual economy were neglected. These policies neglected polarizing social effects of development policies and market instruments as well as political dynamics at the local and national level. The current crisis proves that international economic development policies that neglect the political economy of power relations among social groups cannot achieve social justice.
At the national level, the role and the margins of maneuverability by national authorities in formulating, implementing and evaluating national economic and finance policies was delegated to the Market. At the moment, practically all nations continue to face the challenges posed by the Washington consensus . The reduction of resources available to national authorities to provide services to their population, including essential services was part of the public choices and policies. On the other hand, the post-industrial countries gave-up fundamental function of the State as an economic actor of redistribution and guarantor of social peace and stability. The real economy was bypassed by the virtual economy of the financial markets. The faith in the Market took over even in countries with a long tradition of social democracy that has brought social rights and dialogue in the political sphere. These policy choices resulted in social and political unrest worldwide.
The present architecture of global governance is definitely to be improved. It must take into account the challenges posed by the services economy as well as the unbalance of international rules, including trade rules. The existing economic regime development fundamentals have failed in promoting social justice both nationally and internationally. Policy Recommendations
At the International Level
(i) The existing global economic, trade and financial governance regimes must be rebalanced. The entry point of such a process would be a large debate among governments’ representatives, civil society and parliaments on the right-based and justice-based international laws. The G20 Summit provided a first step towards a new political framework that however needs to be discussed more in details among stakeholders. International and national processes have to be based on cooperation rather than competition and provide a more equilibrated power balance in the financial and trade political economy. (ii) The Doha Development Agenda (DDA) must be part of the global rebalancing process and policies. Trade indeed remains a means to complement the real economy development. Multilateral trade negotiations must be resumed to consolidate the achievements of the July 2008 package. A consultation should also be engaged to point out issues on which consensus cannot be achieved in this Round, and could be eventually be part of the next round of negotiations. The rebalancing of the world trading system remains a political choice to be made by the major players in world trade. However, it must also be put in the context of the whole set of measures that are to be taken to draw the lessons from the current crisis. Leaving the multilateral trading system rebalancing for “later” would be a mistake. Indeed, the real economy needs to be put again at the center of the rebalancing process both nationally and globally and together with it trade-related issues and policies . As of the discourse, the element that is to be emphasized is the need to sustain existing production both in the full range of sectors. (iii) International (as well as domestic) financial rules are to be formulated and implemented to better anticipate actors’ behaviors and to avoid costly emergency situations as the system is witnessing nowadays. Public funds used to save private companies do pose a serious reflection issue with regard to the existing governance rules. The present system has put governments in the uncomfortable position of reacting ex post to the crisis, while demonstrating its volatility and instability. The new Global Regulation should allow action to be taken ex ante. To do so, monitoring and evaluation rules are to be put in place. (iv) Transparency and accountability must also become the core principles underpinning a new global financial regime. (v) The idea of a Global Financial Regulatory Body should continue to be explored. It should be avoided to create a bureaucratic super structure. It should however function as a body of surveillance of risk management and transparency in the global banking system (the IMF cannot play such a role). This idea was taken up by the G20. The main question regards the level of responsibility: should it be at national or international level? This paper would argue that given the internationalization of the economy, national action would not be effective enough. It should therefore be an international body.
At the National Level
(vi) Role of the State shall be refocused and strengthened, in particular as the guarantor of the necessary balance of power among economic and social. (vii) Role of National Institutions needs to be redefined to support market–friendly reforms or to mediate and support redistribution and ensure social peace. (viii) Role of markets in societies and regulation and transparency in risk-taking. The idea of self-regulated markets and societies must be replaced by the idea that the economic activity must be embedded in the social behaviors and aimed at the well-being of the whole populations. The banking system and (ix) Methods to ensure clear and open channels of communication between governments and their population must also be improved to make sure that decision-making at the national level takes into account interests of the majority, while being based on national consultative and negotiating processes. (x) Public policies must give priority to active employment and taxation policies to sustain production and services in the real economy. (xi) Studies could be launched on how to shift from an un-embedded to a socially embedded economic paradigm in the services and information societies. Such studies could focus on the role of redistribution policies aiming at ensuring sustainable income for people in the services economy.
The Need for Change
The existing global economic and financial governance failed to guarantee the necessary stability and predictability of its operations and impacts. It did not manage to lift peoples out of poverty. The economic activity and global economic growth are not ends in themselves. They have to serve human realities, while promoting a respect for social and economic rights including through economic welfare. If economic policies serve a minority against a majority, then they fail in what should be their main mission: build social peace and cohesion. Economic policies have to be at the service of social welfare and well being for all. Time has come to put citizens at the center of international and national policy-making through national consultation mechanisms and the participation of stakeholders in decision-making. Therefore, decisions taken by their representatives are to be in harmony with local needs and aspirations. Social cohesion has to be improved, worked upon over time, and its achievement demands a constant political dialogue and compromise as well as political accountability and commitment. This is not utopia but rather the lucidity of those, who had realized already in 1944 that “Poverty anywhere is a threat to prosperity everywhere ”
References
(a) Documents and Reports
Declaration of Philadelphia, Constitution of the International Labor Of?ce, 1944. UNCTAD Report on LDCs, September 2006.
WORLD BANK, World Development Report 1987, Washington, 1987.
WORLD BANK, Global economic prospects for developing countries, Washington, 1993.
WORLD BANK, Workers in an integrating world. World Development Report 1995. Oxford University Press, pour la Banque mondiale, Royaume-Uni, 1995.
WORLD BANK, Indicateurs du d?veloppement dans le monde, Banque mondiale, 2001.
INTERNATIONAL LABOUR OFFICE, Des valeurs ? d?fendre, des changements ? entreprendre la justice sociale dans une ?conomie qui se mondialise : un projet pour l’OIT, Rapport du Directeur G?n?ral, 81?me session, Gen?ve, 1994.
INTERNATIONAL LABOUR OFFICE, Conseil d’administration, GB276/WP/SDL, 12 76esession, Gen?ve, novembre 1999.
INTERNATIONAL LABOUR OFFICE, Le travail dans le monde. Relations professionnelles, d?mocratie et coh?sion sociale, Gen?ve, 1999.
(b) Books and Reviews
POLANYI, K., The Great Transformation: The Political and Economic Origins of Our Time (Boston: Beacon Press, 1944), Excerpts from Chapter 4, “Societies and Economic Systems,” pp. 43-55.
GILPIN, R., US Power and the Multinational Corporation – The Political Economy of Foreign Direct Investment – Basic Books, Inc., Publishers, New York, 1975.
GOSTA-ESPING, ANDERSEN, “The Three Political Economies of the Welfare State” in Power Resources Theory and the Welfare State, A Critical Approach, Edited by Julia S. O’Connor and Gregg M. Olsen, University of Toronto Press, Toronto, 1998.
GRAMSCI, A., Selections From the Prison Notebooks of Antonio Gramsci, International Publishers, New York, 1971.
