A bearish view of global governance

If there were a rat­ings agency for the cred­i­bil­i­ty of “glob­al gov­er­nance” insti­tu­tions, the WTO’s would have been down­grad­ed to a “B” at best[1] after the col­lapse of the Doha Round negotiations.

The triple crown of benign glob­al gov­er­nance — a pros­per­ous, well-reg­u­lat­ed glob­al “com­mons,” the sov­er­eign­ty of nation-states and the assent of the gov­erned — is for the present beyond WTO’s reach. The best that a diverse Mem­ber­ship can con­trive may be to “mud­dle through,” sub­sti­tut­ing con­trolled dis­putes and jaw-clench­ing restraint for mutu­al col­lab­o­ra­tion (the biggest risk being that the Dis­putes Sys­tem will crum­ble under the pressure).

Noth­ing is for­ev­er (of course). But it will prob­a­bly be a long time before the prospects for a benign glob­al set­tle­ment turn around. Progress depends, cru­cial­ly, on the restora­tion of growth and fis­cal pru­dence in the “West” and the devel­op­ment of a more trans­par­ent — not to say “lib­er­al” — polit­i­cal econ­o­my in the giant economies of Chi­na, India, Indone­sia… Who knows when that may hap­pen? I’m not hold­ing my breath.

Dani Rodrik’s sum­ma­rizes this prob­lem in his lat­est syn­di­cat­ed OpEd;

The Unit­ed States and the Euro­pean Union, now bur­dened by high debt and low growth — and there­fore pre­oc­cu­pied with domes­tic con­cerns — are no longer able to set glob­al rules and expect oth­ers to fall into line. Com­pound­ing this trend, ris­ing pow­ers such as Chi­na and India[2] place great val­ue on nation­al sov­er­eign­ty and non-inter­fer­ence in domes­tic affairs. This makes them unwill­ing to sub­mit to inter­na­tion­al rules (or to demand that oth­ers com­ply with such rules) — and thus unlike­ly to invest in mul­ti­lat­er­al insti­tu­tions, as the US did in the after­math of World War II. Extract from Lead­er­less glob­al gov­er­nance — Opin­ion — Al Jazeera English

Rodrik sym­pa­this­es with the emerg­ing economies’ argu­ment: he, too, thinks that the WTO has over-reached. He describes four kinds of inter­ac­tion between domes­tic poli­cies and GATT/WTO rules:

  1. Those with triv­ial (or no) exter­nal mar­ket con­se­quences such as edu­ca­tion policies
  2. Those poli­cies that direct­ly “tar­get the glob­al com­mons”; Rodrik evi­dences “green­house gas emis­sions” but he could have referred to, say, unre­strained tuna or cod fisheries
  3. Beg­gar-thy-neigh­bor” poli­cies that have con­se­quen­tial neg­a­tive spillover effects; for exam­ple, manip­u­lat­ed exchange rates or import pro­tec­tion in large economies
  4. Beg­gar-thy­self” poli­cies such as agri­cul­tur­al pro­duc­tion sub­si­dies whose bur­den falls pri­mar­i­ly on the econ­o­my main­tain­ing the mea­sure but that also adverse­ly impact on glob­al mar­kets when, in this instance, the sub­sidised sur­plus­es affect glob­al sup­ply and prices

Recent debate in WTO has been focussed pri­mar­i­ly on the fourth kind of pol­i­cy, Rodrik says: the oth­ers being con­trolled or con­strained since the 1980s by rea­son­ably effec­tive WTO rules). He ques­tions whether WTO should have much (any?) role in reg­u­lat­ing “beg­gar-thy­self” policies:

After all, it should not be up to the “glob­al com­mu­ni­ty” to tell indi­vid­ual coun­tries how they ought to weight com­pet­ing goals. Impos­ing costs on oth­er coun­tries is not, by itself, a cause for glob­al reg­u­la­tion. (Indeed, econ­o­mists hard­ly com­plain when a coun­try’s trade lib­er­al­i­sa­tion harms com­peti­tors.) Democ­ra­cies, in par­tic­u­lar, ought to be allowed to make their own “mis­takes”.

I can agree that non-inter­fer­ence in “beg­gar-thy­self” poli­cies may be a recipe for a rough sort of cohab­i­ta­tion (favor­ing rich coun­ties, how­ev­er, whether in the West or else­where — so I’m sur­prised DR likes it) but it hard­ly adds up to col­lab­o­ra­tive man­age­ment of a pros­per­ous “com­mons”. It’s a recipe for e.g. US cot­ton prod­ders con­tin­u­ing to enjoy pro­duc­tion sub­si­dies that have shrunk the world mar­ket for un-sub­sidised Brazil­ian and North African producers.

The rea­son the fourth cat­e­go­ry of polices is on the GATT/WTO agen­da at all is that gov­ern­ments want them there; even gov­ern­ments that are jeal­ous of their “sov­er­eign rights” and who reject exter­nal “inter­fer­ence” in domes­tic affairs . Glob­al trade rules that lim­it the free­dom to imple­ment “beg­gar-thy­self” poli­cies (so the argu­ment goes) help gov­ern­ments to resist strong pres­sures from self-inter­est­ed domes­tic lob­bies (farm­ers, automak­ers) seek­ing e.g. agri­cul­tur­al or indus­tri­al sub­si­dies that rep­re­sent rents for nar­row pri­vate inter­ests but are a bur­den on aggre­gate eco­nom­ic growth. Even the most pow­er­ful states may wel­come a con­straint on their sov­er­eign free­doms if it shields them from unwel­come domes­tic polit­i­cal pressures.

Of course, this argu­ment some­what depends on the gov­ern­ment in ques­tion being con­sti­tu­tion­al­ly — or at least polit­i­cal­ly — respon­si­ble to a par­lia­ment. Pure tyran­nies are unlike­ly to be trou­bled. But there are few of those: Chi­na is cer­tain­ly not one. In the 1980s, when Deng Xiao Ping’s gov­ern­ment devised an eco­nom­ic strat­e­gy that includ­ed a resump­tion of Chi­na’s his­tor­i­cal GATT Mem­ber­ship, Bei­jing’s motives may have includ­ed con­trol of the fourth cat­e­go­ry of eco­nom­ic poli­cies; keep­ing the Provinces and local gov­ern­ments in-line as wealth grew and nation-build­ing sub­si­dies (and the oppor­tu­ni­ties for pec­u­la­tion) expanded.

I guess it is like­ly that Chi­na will again be will­ing in the future to dis­cuss mul­ti­lat­er­al lim­its on “beg­gar-thy­self” poli­cies; India too, prob­a­bly. But in both coun­tries the pace of reform slowed after the 1980s and we’ve had almost two decades of pol­i­cy “con­sol­i­da­tion” and drift on the big issues of con­trols on con­sump­tion, invest­ment and micro reform (as well as on the devel­op­ment of con­sti­tu­tion­al rights in China).

1Any bond rat­ed “BB” or less is con­sid­ered “junk”[↑]

2He might well have added WTO’s lat­est Mem­ber, Rus­sia, to the list of like­ly non-coop­er­a­tors. [↑]

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