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. [↑]

No Comments

Leave a Reply

Your email is never shared.Required fields are marked *