The Theory and Practice of Global Economic Governance in the Early

Twenty-First Century: The Limits of Multilateralism

Richard Higgott

Introduction

In the aftermath of World War II, a number of powerful institutions were created which have inﬂuenced the course and nature of global economic policy over the past sixty or so years. The so-called Bretton Woods institu-tions—the World Bank and the International Monetary Fund (IMF)—and the General Agreement on Tariffs and Trade (GATT) (which eventually became the World Trade Organization (WTO)) have become central parts of an inter-national order that purports to be multilateral in form and global in scope.¹ Indeed, it is difﬁcult to imagine quite what“globalization” might look like without the existence of international organizations generally or of the inter-national economic (ﬁnancial and trade) institutions (IFTIs or IFIs) in particu-lar. And yet recent events, especially the Global Financial Crisis (GFC) and its aftermath, have caused some observers to question whether the international economic institutions are any longer suitable for the challenges they face in the contemporary age: if they are unable to prevent (increasingly recurring) crises or facilitate a more general process of long-term economic collective action problem solving, what are they for? This kind of analysis misses the point. For all their apparent failings the need for such institutions is unlikely to disappear in an era characterized by higher levels of economic interdepen-dence. Global economic governance may still be imperfect and, in contrast to the global economy, underdeveloped. But if global governance is to evolve,

multilateral economic institutions of one kind or another must be at least one of the key elements of the process.

In order to develop this argument, this chapterﬁrstly provides some initial clariﬁcation of terms and concepts. Secondly, it outlines the role of the original Bretton Woods institutions and the GATT and explains how their missions have changed overtime. Thirdly, it describes some newer multilateral activity such as the evolution of the G20 (note the word “activity” not institution) and suggests why issues of authority and accountability have become increasingly important but contested as—often unelected—policy-makers (public and private) and economic actors accrue greater decision-making authority through the evolution of transnational, if often state-spon-sored, policy networks. Finally, the chapter assesses the ability of multilateral institutions to participate in the management of the complexity and uncer-tainty that seems an endemic part of the current world order.

Globalization, Global Governance, and the State of Multilateralism

The Demand for Global Economic Governance

Let me start by saying something about what I think the literature tells us about the global governance as an analytical concept. For some it is a concep-tual oxymoron, a contradiction in terms or at best the fantasy of scholars.

Realists, or more precisely neorealists if we are thinking of scholars like Ken Waltz (1979), accepted no understanding of governance beyond the level of the state; the principal characteristic of the international system has been, and remains, “anarchy.” Liberal interdependence scholars of both the North American variety (pace Keohane and Nye, 1977) and the Anglo-Australian variety of Bull and the pretentiously entitled“English School”argue that we can do better (Bull, 1977). We may, they argue, live in an anarchical society, but one with recognized norms and rules of behavior. Current-day cosmopol-itan democratic theorists,paceDavid Held, more optimistically, argue that the seeds of a global society are emerging. I accept that such crude distinctions can hide more than they reveal. All understandings are preﬁgured from wider competing political, epistemological, and ontological assumptions about international theory, not just global governance. But what they exhibit is an understanding of global governance as an increasingly salient, albeit con-tested, political concept.

Moreover, the debate is now no longer just the play thing of scholars, especially since the globalﬁnancial crises of the last few years. The whole debate over the governance or, as more frequently described,“regulation”of the global economy of the last few years is really rather a recognition that the

overdevelopment of the global economy has been accompanied by the under-development of the global polity. The integration of the global economy through the liberalization of the trade regime, the deregulation ofﬁnancial markets, and the privatization of state assets have led to what we now com-monly call“globalization.”But this has not been accompanied by a compara-ble development of the global polity and it is increasingly recognized in policy circles that without the development of appropriate norms, institutions, and processes to manage globalization, it could be undone by a failure to mitigate its excesses and negative consequences (especially for large sections of the world’s poor) that emanate from it.

This is no longer the position of just the“alter”or antiglobalization move-ment but also the credentialed defenders of globalization in the economics profession from the likes of Jagdish Bhagwati (2004), Jo Stiglitz (2002), and Paul Krugman through to powerful pundits such as Martin Wolf of the Finan-cial Timesand former Head of the FSA Adair Turner. Writing even before the GFC of 2008, Wolf identiﬁed the growing impact of “. . .[t]he dilemma of global governance”(January 14, 2007: 7). Salient prior to the GFC, a need to understand the dynamics of how we govern the global economy casts even longer policy shadows now. The GFC has merely reinforced these views. All recognize that without proper processes of regulation, globalization has within it the seeds of its own downfall.

This is now, somewhat belatedly we might add, a well-understood conun-drum for advocates of globalization. The case has never been clearer since the end of the Cold War that some degree of institutional control is a necessary prerequisite for rational global economic management. Doubts about our abilities to provide an appropriate multilateral regulatory framework for the management of the economy at the global level abound in the wake of the great recession of 2007–9. It is not clear, however, whether the crisis at the end of theﬁrst decade of the twenty-ﬁrst century will lead to major changes in the existent system of regulation. Does it represent a crisis of multilateralism or, through the evolution of the G20 process, the evolution of a new stage of multilateralism? Precisely the same arguments were heard after the Asian crisis when there were widespread calls for institutional reform and tighter control of the activities of banks andﬁnancial markets (Kenen, 2001; Armijo, 2002).

In reality, little of substance changed between the two crises. Indeed, many of the restrictions that had formerly been put in place to control the activities of banks at a national level were repealed, as policymakers in the Anglo-Ameri-can economies became locked in a competition to provide “light touch,”

business-friendly regulation (Glass Steagall, let us not forget, was only re-pealed in 1999).

This trend probably represented the high-water mark for the ascendancy of the market in the dialectical interaction, broadly conceived, between states

and markets in the evolution of the international economy, and the institu-tions that have sought to manage it, for the last sixty years. Since the GFC of 2008, the institutions which manage the global economy have sought,ﬁtfully at least, to show greater coherence and sense of purpose and develop a greater sense of legitimacy in the eyes of both ordinary people and national governments.

Continuity and Change in Multilateral Economic Governance

We must ask what we might understand by the idea of global governance in an era of increasingly“contested globalization.”Most global governance for much of the second half of the twentieth century, especially in the economic domain on which I focus, is still predominantly seen as effective and efﬁcient collective action problem solving undertaken by or within international organizations. Proponents claimed that“effective”and“efﬁcient”governance was not a normative but an empirical matter and international organizations, with states acting as the agents, were the principal vehicles within which it occurred when necessary. This view is increasingly deﬁcient on two grounds I would argue.

1. First, it presents an excessively one-dimensional view of global gover-nance institutions. Most scholars and practitioners today increasingly recognize that the privileging of effective and efﬁcient decision-making has important normative implications and consequences, and the inter-national economic institutions must address questions of accountability and democratic legitimacy as much as effectiveness and efﬁciency and certainly much more than they have done in the past. This disconnect has led to the debate about“legitimacy deﬁcits”in major international organizations.

2. Second, it overestimates the role of international organizations in global public policymaking at the expense of both emerging state actors and non-state actors operating in other ways and in other regulatory contexts that, in theirmodus operandi, depart from a traditional understanding of international economic diplomacy. It is an empirically outdated view of how the world works—or more importantly does not work—when it comes to collective action problem solving in the economic domain.

Vertically, state power is increasingly constrained by the presence of numer-ous non-state or extra-state actors—MNCs, banks, markets, civil (and uncivil) society, the media, international organizations regions, and regulatory net-works. Horizontally, power, without overstating the case, is undergoing a process of diffusion from the west and the north to the south and the east.

New (and new–old) great powers compete with the United States and Europe.

The reemergence of Russia and the rise of China and India especially are dramatically changing our understandings of global power. This is not to assume, however, that the ﬂattening out of global relationships, especially between China and the United States, axiomatically leads to a new era of bipolarity in global politics, captured in discussions of the emergence of a G2.

G2 activities are only ever likely to be de facto arrangements within wider contexts in which both the United States and China opt for them to be embedded in a wider grouping, such as the G20, as the G20 moves, if indeed that is to be its trajectory, from being concerned with crisis exit strategies to more substantive questions of structural and institutional reform in, and of, the global economy (Garrett, 2010).

In many respects, the balance of power today in the major global institu-tions still largely represents the (modiﬁed) balance of power from 1944 to 1945. The permanent (veto holding) members of the UN Security Council are still theﬁve“victors”of World War II (even if China that holds the seat today is not the same pro-Western China that the West assumed would rule after 1945, and Russia has slipped into the seat created for the Soviet Union). The IMF and the World Bank, despite some changes in their mission and some realignment of the voting patterns of the IMF, still carry the imprint of Harry Dexter White and reﬂect the power secured by the United States in return for underwriting post-World War II economic recovery in Europe and underpin-ning theﬁnancial security of postwar international order (Ikenberry, 2001). Of course, global economic decision-making has undergone change since the end of the Cold War. This is happening at both a speciﬁc institutional level and in a broader systemic sense.

International Economic Institutional Change 1945–2007

From its initial origins, the IMF has undergone a substantial mission change.

Originally established to manage and oversee a system of more or lessﬁxed exchange rates, the IMF’s mandate was fundamentally undermined by the wider, evolving geopolitical context in which it was embedded after World War II and which led to the closing of the gold window and an era ofﬂoating exchange rates (Gowa, 1983). The 1970s saw its mission transformed from one of arbiter of global monetary stability to that of arbiter of developing countries’ macroeconomic rectitude (Elliott and Hufbauer, 2002). This mis-sion evolved throughout the 1980s and 1990s as the IMF became primarily associated with the promotion of a“neoliberal”agenda of economic liberal-ization—and especially policies to enhance asset privatization, government rollback, and capital account liberalization that overtime put the IMF at the center of controversial interventions in the domestic affairs of some of its members.

The East Asian crises of the late 1990s marked the apogee of IMF interven-tionism (Wade and Veneroso, 1998). From that time, criticism of its role in crisis management saw the IMF’s inﬂuence come under increasing criticism.

In effect, the IMF’s desired role as the arbiter of global macroeconomic recti-tude, especially in the developing world, had largely disappeared in the wake of its suboptimal performance in the ﬁnancial crises of the late twentieth century. By the time of the 2006 Singapore Ministerial Meetings, the question of its longer term viability was being widely raised only for it to be saved by its identiﬁcation as a vehicle for supporting globalﬁnancial policy in the wake of the 2007–9 crises and the London 2009 G20 summit.

Like the IMF, the World Bank over its lifetime has undergone a process of mission change that has seen a transformation from its initial role as a vehicle for European reconstruction in the post-World War II era into a vehicle for supporting neoliberal reform in developing countries. This transformation had a natural logic to it in the era of decolonization. Indeed, one of the reasons the Bank attracted so much critical attention in the 1970s to 1990s was because its“structural adjustment”policies complemented IMF policy. Since that time the Bank has undergone a process of self-evaluation and reform reshaped by a changing international environment in which strategic factors and ideas about development changed over time. The postcolonial era preoccupation with

“modernization”and the pursuit of massive, often inappropriate, development projects gave way in the late 1990s to a more technocratic approach that stressed its role as a “knowledge bank” with an emphasis on institutional reform, the provision of“good governance,”and a rhetorical commitment to greater inclusiveness and engagement (Stone, 2001; Stone and Wright, 2006).

The Bank’s intellectual and practical transition, although more widely accepted and less controversial than that of the IMF, has not been without its internal governance failures and critics (see, e.g., Woods, 2006; Weaver, 2008). Concerns about both the Bank and the Fund’s often unaccountable forms of internal organization, especially with regards to voting rights, con-tinue to reﬂect the limits of democratization and the entrenched nature of the political inﬂuence of the major powers, as indeed is the case in many interna-tional organizations more generally (see Keohane et al., 2009). Consequently, despite the Bank’s efforts to differentiate itself from the IMF and respond more effectively to criticisms from“global civil society”and client states over the decade 1998–2007, there remained, as we entered the latest round of eco-nomic crisis in 2008, much dissatisfaction with both the ideational and practical roles of the two principal IFIs.

The original mandate of the third leg of the post-World War II international multilateral economic architectural triangle, the GATT, was to reduce the barriers to trade (principally then tariffs) seen to have played a destructive role in causing and prolonging the Great Depression. The GATT, through a

series of seven post-World War II multilateral trade negotiation rounds, suc-cessfully and substantially reduced the role of the tariff as an instrument of protection and instilled a series of norms and principles into the multilateral trade regime (see inter alia: Hoekmann and Kostecki, 2001; WTO, 2007:

179–201). It also fulﬁlled some of the generally implicit Cold War, geopolitical goals that underpinned its rationale, along with that of the IMF and the World Bank. As the post-World War II era progressed, the GATT developed major capacity constraints which, with considerable US prompting, eventually pro-voked a willingness to contemplate a new trade round which ended in the creation of the WTO, a new organization including not only GATT but agree-ments on services (GATS), and intellectual property (TRIPS) that reﬂected the interests of the most economically developed countries, especially the United States (see Croome, 1995; Narliker, 2005).

As with the IMF and the World Bank, the life of the WTO has not been without difﬁculties in the contemporary era. Criticized by analysts across the political spectrum, from“right-nationalists”in the United States and parts of Europe to the left-developmentalists and the antiglobalization movements of the South, both groups, albeit from their different perspectives, see the WTO as an excessively intrusive, sovereignty challenging, back door to global gov-ernance and would have it abolished. The right nationalists resent what they see as the challenge to sovereignty. The left-developmentalists and antigloba-lizers see it crowding developmental“policy space”(see Chang, 2002). Sup-port ranges across a spectrum from market privileging neoclassicists to interventionist Keynesians. But they too recognize that the WTO faces serious problems in maintaining its global economic institutional salience in the early twenty-ﬁrst century.

System-Level Structural Change from GFC to G20

Discontent over the roles of the IFIs, in both the analytical and policy com-munities, has been a continuing theme in the post-World War II period. The East Asian crisis of the late 1990s brought dissatisfaction with the so-called

“internationalﬁnancial architecture”to something of a head. Observers felt that if the IFIs were not in some way responsible for the crisis by encouraging premature economic liberalization, they were certainly culpable in failing to manage the impact of and recovery from the crisis. Indeed, one of the big lessons that East Asian economic and political elites drew from the crisis was that the region rapidly needed to develop its own economic institutions if it wanted to be able to respond more effectively to future crises (Higgott, 1998;

Grimes, 2009). As a consequence, there have been accelerated efforts to develop new, regionally based economic mechanisms (Deiter and Higgott, 2003). One of the great paradoxes of globalization has been a noteworthy

proliferation of institutions to either encourage regional integration or to generate regional responses to speciﬁc problems of a global nature. Indeed, the growth ofregionalmultilateral economic institutions must be seen as the other side of the coin ofglobalmultilateralism.

Continuing doubts about our abilities to provide an appropriate multilateral regulatory framework for the management of the economy at the global level exacerbated in the wake of the great recession of 2007–9. At the time of the GFC, the international economic and trade institutions, especially the IMF and the WTO, were languishing. The IMF was in search of a new role; the WTO was proving incapable of completing the Doha MTN. At the systemic level, even if“the West”in general (to use our old categories) and the United States in particular remain the dominant loci of power in the global order, they will need toﬁnd new ways of accommodating to the interests and values of others.

A (relative) loss of both moral authority and material power now constrains the US’s abilities to set and implement the global economic policy agenda for

Im Dokument The Consequences of the Global Financial Crisis (Seite 30-49)