HOW DO WE BEST ADDRESS GLOBAL ECONOMIC CHALLENGES?

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THE GREAT DEBATE | HOW DO WE BEST ADDRESS GLOBAL ECONOMIC CHALLENGES?

By reforming the global order

By mobilizing social movements

By

By

Jean-Pierre Lehmann

Bright B. Simons

The world economy is experiencing its most profound transformation since the industrial revolution 200 years ago. Though the world economy also witnessed spectacular growth, global economic governance is in a paltry state. The WTO Doha Round will reach its tenth anniversary next year without approaching conclusion. Global imbalances are tearing away at the fabric of international economic relations. The climate change agenda is a dog’s breakfast. The Millennium Development Goals (MDGs) that should be met by 2015 will not be. It is not that governments renege on their commitments; the rhetoric is all there, it’s just the reality that is missing! We could be heading for global economic anarchy. So what is to be done? A major problem today is that while many critical issues facing the planet – poverty, pandemics, environment, trade and capital flows, energy and natural resources – are global, sovereignty remains national. This inherent tension, it is argued by some, means that we have to look for alternatives to states as dominant actors and in particular at cross-national entities, eg nongovernmental-organizations (NGOs) and multinational companies (MNCs). Clearly business and civil society have become more involved in the global public policy process and need to become even more involved. They bring a perspective that governments lack. Nevertheless, there is nothing at present that can replace the states, hence governments must remain the key interlocutors and decision makers in global economic public policy. Governments have the obligation – whether they actually assume it is another matter – to promote/protect

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It didn’t require a group of powerful postWestphalian states to meet in Florence in order to chart the course of the Enlightenment. As Kant, in his customary wisdom, perceived, diverse ideational forces collided to overthrow a decaying order that had been based on inflexible power. In doing so, shafts of light were diffused into the dark recesses of the human imagination. These forces were neither state nor inter-state based. They emanated from social movements and cognitive networks that knew no bounds and respected no political frontiers. Today, we survey a world that is fatigued. The old ideas tire us. The grand alliances of the old fail to hold. We have, as Seth Godin has saliently remarked, dissolved back into tribes. Therein lies the explanation for the continuous fracturing of the global system along so many vital planes. The so-called Doha Development Agenda, intended to harness trade for sustainable development across the planet, is slowly wilting. Much hyped efforts to “redesign” the global financial architecture, particularly as anchored to the Financial Stability Forum process, have quietly disintegrated. One needs not mention Copenhagen or the latest fiasco at the World Whaling Commission, much less the atrophy in the Bretton Woods system and UN Security Council reform agenda, all examples of disintegration. The structured instruments of treaties and conventions and grand pacts have taken us as far as they can go. They now appear more fitted to stifle the free flow of people, goods and ideas rather than liberate them. Without an unleashing of the forces of liberty and freedom, economic

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THE GREAT DEBATE | HOW DO WE BEST ADDRESS GLOBAL ECONOMIC CHALLENGES?

the interests of all of their citizens. We cannot do away with government; though we definitely need better governments. The question is which governments? The trends in the current global economy appear irreversible. The rising economies, especially in Asia, will continue to rise as the established economies – the first industrial revolution economies – will continue to decline. The hub and spoke world economy, whereby the hub was the Organisation for Economic Co-operation and Development (OECD) countries and the spokes the rest of the world, is emphatically over. A lot of the economic action is taking place between companies of the global south. It is also increasingly the economies of the global south that are advocating open global market policies as the economies of the north resort to protectionism. The south is becoming more global than the north! The G7/8 is clearly an offensive anomaly. The G20 is a step in the right direction, but it is also a messy compromise whereby the G8 members remain and new members are brought in as a concession. It is also messy because (a) 20 are too many, while (b) in reality once all the hangerson are counted, the G20 is more like the G30. To be effective, the global south must be given more prominence and responsibility, and the global governance group must be more compact. Membership should definitely include from the current G20: Brazil, India, China, Indonesia, Korea, Turkey, South Africa, US, Japan and EU (ie with the EU having only one seat, instead of the half-dozen or so it has at present). Russia may be considered once it has acceded to membership of the WTO. Australia, Canada, Argentina and Mexico would have to be dropped. Saudi Arabia is not really a market economy, though it has acceded to the WTO and should probably be retained in light of its importance in respect to oil. In addition, from among their membership, one state should be elected to represent the least developed countries probably on an annual rotating basis. Thus we would have a more compact G12, which in turn would be representative of the forces transforming the world economy.

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progress and, for that matter, sustainable development cannot be achieved. Any further force-feeding of our hopes through such channels shall only lead to diminishing returns, a steady erosion of the gains we have made over the past three centuries. Except for those with a vested interest in these moribund international decision-making mechanisms, most people around the world have moved on. It would be in the interest of the institutions that define the passing world to take heed. In a world of Skype and Paypal, or better still their successors, the current configurations of the Bank for International Settlements and the International Telecommunications Union, for instance, seem to any objective onlooker more of a bulwark against inevitable revolution or dissolution than a chessboard for possibility. The same can be said for a great many of the international institutions supposedly mandated with the economic wellbeing of our planet. The waves of technological change sweeping the globe and the related compacting of inter-people relations suggests a diffusion of moral autonomies and political legitimacies. While new cognitive networks and social movements rise to fill the spaces vacated by crumbling institutions, vested interests persist in their attempts to contain the emerging shape of world affairs, leading to “leakage.” These “leakages” have been nicknamed “global economic imbalances.” Rising economic poles in the global south and solvency crises in the north are confused by some to mean a mere re-ordering of the world around the existing axis, and thus a cue for structural rearrangement of the same assembly. The truth is that the pieces have melted, and there is no telling what the mold will cast. Just as in the days of the early enlightenment, there are no workable blueprints for a step-by-step reformulation of civilisation. Rather the “imperatives of change” swirl irresistibly around the rigid structures we erected yesteryear and sooner or later they shall yield.

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THE GREAT DEBATE | HOW DO WE BEST ADDRESS GLOBAL ECONOMIC CHALLENGES?

This new G12 should be given a mandate for five years to manage the adjustments necessary reflecting the transformation and to ensure global economic peace and prosperity, both of which depend on a well functioning rules-based multilateral global economic system. (They should also renounce the collective photo-op!)

Jean-Pierre Lehmann is Professor of International Political Economy at IMD, the leading global business school based in Switzerland, and the Director of the Evian Group at IMD. He teaches on the Leading the Global Enterprise program, among others.

The fusion of genetic engineering and cybernetics; the exploration of marine resources well beyond maritime borders; virtual worlds; statelessness (not merely for tax evasion); electronic money; near-space travel; and the new demands of global supply chains, shall channel the thrust of “effective decision-making” in the global system through a multiplicity of loose networks, with the political counterbalance provided by dynamic social movements. New leadership shall emerge alright, but clearly not in the forms to which we have been accustomed. Bright B. Simons is Director of Development Research at IMANIGhana and the inventor of the mPedigree system.

This debate resulted from the recent Trade, Governance and Development Capacity Building Workshop sponsored by The Evian Group at IMD and GARNET, the European Commission’s 6th Framework Programme.

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