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From: wolda002@umn.edu
Date: Fri Jan 28 2011 - 02:04:10 EST
New Rules for the Global Economy
Posted on January 26,
2011<http://theglobalrealm.com/2011/01/26/new-rules-for-the-global-economy/>
by The Global Realm <http://theglobalrealm.com/author/carolinamtnwoman/>
New Rules for the Global Economy
By Dani Rodrik
Project Syndicate
2011-01-10
CAMBRIDGE – Suppose that the world’s leading policymakers were to meet again
in Bretton Woods, New Hampshire, to design a new global economic order.
They would naturally be preoccupied with today’s problems: the eurozone
crisis, global recovery, financial regulation, international macroeconomic
imbalances, and so on. But addressing these issues would require the
assembled leaders to rise above them and consider the soundness of global
economic arrangements overall.
Here are seven commonsense principles of global economic governance that
they might agree on. (I discuss them in more detail in my new book, The
Globalization Paradox.)
1. Markets must be deeply embedded in systems of governance. The idea that
markets are self-regulating received a mortal blow in the recent financial
crisis and should be buried once and for all. Markets require other social
institutions to support them. They rely on courts, legal frameworks, and
regulators to set and enforce rules. They depend on the stabilizing
functions that central banks and countercyclical fiscal policy provide. They
need the political buy-in that redistributive taxation, safety nets, and
social insurance help generate. And all of this is true of global markets as
well.
2. For the foreseeable future, democratic governance is likely to be
organized largely within national political communities. The nation state
lives, if not entirely well, and remains essentially the only game in town.
The quest for global governance is a fool’s errand. National governments are
unlikely to cede significant control to transnational institutions, and
harmonizing rules would not benefit societies with diverse needs and
preferences. The European Union may be the sole exception to this axiom,
though its current crisis tends to prove the point.
Too often we waste international cooperation on overly ambitious goals,
ultimately producing weak results that are the lowest common denominator
among major states. When international cooperation does “succeed,” it spawns
rules that are either toothless or reflect the preferences of only the more
powerful states. The Basle rules on capital requirements and the World Trade
Organization’s rules on subsidies, intellectual property, and investment
measures typify this kind of overreaching. We can enhance the efficiency and
legitimacy of globalization by supporting rather than crippling democratic
procedures at home.
3. Pluralist prosperity. Acknowledging that the core institutional
infrastructure of the global economy must be built at the national level
frees countries to develop the institutions that suit them best. The United
States, Europe, and Japan have produced comparable amounts of wealth over
the long term. Yet their labor markets, corporate governance, antitrust
rules, social protection, and financial systems differ considerably, with a
succession of these “models” – a different one each decade – anointed the
great success to be emulated.
The most successful societies of the future will leave room for
experimentation and allow for further evolution of institutions. A global
economy that recognizes the need for and value of institutional diversity
would foster rather than stifle such experimentation and evolution.
4. Countries have the right to protect their own regulations and
institutions. The previous principles may seem innocuous. But they carry
powerful implications that clash with the received wisdom of globalization’s
advocates. One such implication is the right of individual countries to
safeguard their domestic institutional choices. Recognition of institutional
diversity would be meaningless if countries did not have the instruments
available to shape and maintain – in a word, “protect” – their own
institutions.
We should therefore accept that countries may uphold national rules – tax
policies, financial regulations, labor standards, or consumer health and
safety rules – and may do so by raising barriers at the border if necessary,
when trade demonstrably threatens domestic practices enjoying broad popular
support. If globalization’s boosters are right, the clamor for protection
will fail for lack of evidence or support. If wrong, there will be a safety
valve in place to ensure that contending values – the benefits of open
economies versus the gains from upholding domestic regulations – both
receive a proper hearing in public debates.
5. Countries have no right to impose their institutions on others. Using
restrictions on cross-border trade or finance to uphold values and
regulations at home must be distinguished from using them to impose these
values and regulations on other countries. Globalization’s rules should not
force Americans or Europeans to consume goods that are produced in ways that
most citizens in those countries find unacceptable. But nor should they
allow the US or the EU to use trade sanctions or other pressure to alter
foreign countries’ labor-market rules, environmental policies, or financial
regulations. Countries have a right to difference, not to imposed
convergence.
6. International economic arrangements must establish rules for managing
interaction among national institutions. Relying on nation states to provide
the essential governance functions of the world economy does not mean that
we should abandon international rules. The Bretton Woods regime, after all,
had clear rules, though they were limited in scope and depth. A completely
decentralized free-for-all would benefit no one.
What we need are traffic rules for the global economy that help vehicles of
varying size, shape, and speed navigate around each other, rather than
imposing an identical car or a uniform speed limit. We should strive to
attain maximum globalization consistent with the maintenance of space for
diversity in national institutional arrangements.
7. Non-democratic countries cannot count on the same rights and privileges
in the international economic order as democracies. What gives the previous
principles their appeal and legitimacy is that they are based on democratic
deliberation – where it really occurs, within national states. When states
are not democratic, this scaffolding collapses. We can no longer presume
that its institutional arrangements reflect its citizens’ preferences. So
non-democracies need to play by different, less permissive rules.
These are the principles that the architects of the next global economic
order must accept. Most importantly, they must comprehend the ultimate
paradox that each of these principles highlights: globalization works best
when it is not pushed too far.
Dani Rodrik is Professor of Political Economy at Harvard University’s John
F. Kennedy School of Government and the author of One Economics, Many
Recipes: Globalization, Institutions, and Economic Growth.
http://www.project-syndicate.org/commentary/rodrik52/English
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