Global governance needs reformed institutions and new ones too

Existing international systems and institutions should be reformed, and new institutions created where needed, to bring about democratic global governance, argues a new collection of essays which advocate structural changes in the Bretton Woods bodies, WTO and UN.

by Chakravarthi Raghavan

GENEVA: The world has changed considerably, particularly over the last decade or so, and the systems and institutions created need to be reformed and new institutions created to address the new challenges, as also to cure the “democratic deficits” in the governance of these institutions.

This is the main thrust of a book, Governing Globalization (Oxford University Press, 393 pp.), edited by Prof. Deepak Nayyar, Vice-Chancellor of Delhi University and a noted Indian academic. It contains essays by various authors who had participated in a research project started four years ago at the World Institute for Development Economics Research of the United Nations University (UNU/WIDER). The book was launched here on 16 October at a press conference by Nayyar and Yilmaz Akyüz, Director of Globalization and Development Strategies at the UN Conference on Trade and Development (UNCTAD).

Both the Bretton Woods institutions (World Bank and IMF) have undemocratic governance, while the WTO, theoretically democratic by the consensus rule, is in practice also undemocratic because of the “green room” decision-making process and other procedures, Nayyar said.

There are a range of public goods whose provision or regulation can no longer be done at national levels, and some “public bads” that need to be regulated and/or eliminated, again needing international cooperation and reform of existing institutions or creation of new ones.

While Nayyar favoured creating new institutions where needed, suggesting for example the idea of a World Financial Authority, Akyüz said personally he did not favour it. Given the current world situation and power relations, whatever new institutions are created would inevitably reflect the same problems of democratic deficits as the current ones like the IMF, World Bank and WTO. He personally therefore favoured leaving the policy space for countries and their governments.

Nayyar, who had presented the publication at a meeting of the UNCTAD Trade and Development Board on 15 October, had stressed that the processes of globalization were being driven by the market. However, Akyüz at the board meeting noted that the trade in agriculture, textiles, etc. was not really governed by the market but was the result of government interventions and protectionist policies of the major industrial countries.

The WIDER study calls for institutional changes at the UN itself, including the enlargement of the membership of the Security Council and circumscribing the veto powers of the permanent members.

Global governance is not about world government, which is not feasible, but about institutions and practices combined with rules that facilitate cooperation among sovereign nation-states, civil society groups and business firms, the WIDER papers argue.

A policy brief based on the book and papers has said that it is aimed at academics, policymakers and diplomats, journalists and NGOs. Nayyar however agreed that in a fast-changing world, the delay between the leisurely academic style of research and turning them into inputs for diplomats or influencing the public (in this case 2-3 years) reduces the usefulness. While he made references to the papers having been available for sometime at the UNU/WIDER website, problems relating to copyright assertions by publishers have made accessibility and use difficult.

The study suggests some kind of a representational system of an executive board at the WTO. However, Nayyar said, when the ILO Commission on Social Dimensions of Globalization met the WTO head Supachai Panitchpakdi in the week of 14 October, Supachai told them that WTO members, at a “retreat” of ambassadors over the weekend, had rejected the idea and insisted on retaining consensus decision-making.

In response to questions about why the book and its discussions of financial problems did not address the Tobin tax, Akyüz, who with Andrew Cornford contributed a chapter on “Capital flows to developing countries and the reform of the international financial system”, said that while the Tobin tax has been a useful symbol in the hands of NGOs to show hostility to the way private international flows take place, “I never thought such a tax would be a solution to the problems faced by developing countries.”

The Tobin tax would be useful to deal with movements of private capital across markets and countries over short periods, but does not help developing countries deal with a situation where private funds flow in for 2-3 years and then all suddenly leave the country. In such situations, instituting capital controls and not opening the capital account or liberalizing the financial sector are important, he said.

Institutions of global governance

The book notes that with the end of the Cold War and competition between systems vanishing, the urge for cooperation has diminished, reducing the relevance and role of the UN. The moral authority of the UN has been seriously undermined by the selective enforcement of its laws and principles when it suits the rich and the powerful. This is compounded by the democratic deficit in the UN system. The responsiveness of the UN to issues of the times has been limited to global meetings - important fora for public concern but not sufficient as solution to problems.

The IMF and the World Bank have been the most ardent advocates of economic reforms, and it is time to reform the reformers, says the book. The role of the IMF needs to be redefined. The Fund’s stabilization policies have resulted in beggar-thyself policies to reduce deficits or inflation through contraction in output and employment. With no accountability to governments in totality, leave aside people at large, the IMF continues to pursue the interests of a subset of the international community. “It is high time the IMF practices what it preaches about transparency”, and the “thinking” in the IMF too needs to change.

The World Bank too must give up being a moneylender and become an institution more concerned with development. It must give up micro-managing economies through conditionality.

As for the WTO, the report calls for an end to its green-room consultations. The access provided by developing countries to their markets has to be matched by corresponding access to technology. The report calls for careful scrutiny of the agenda for changes in the WTO rules, and warns against the “strong temptation” to place issues or lodge agreements on a wide range of matters within the WTO ambit especially because of its enforcement mechanism and the legal right to retaliate.

Nayyar conceded that because of the time delays, in many areas the discussions in the book have been overtaken by events. In a world of unequal partners it is inevitable that it is only the rich and powerful that can create institutional systems for global governance. Historical experience has shown that crises are the catalysts of change. The last time around, the world war and the economic depression led to the founding of the UN and the Bretton Woods institutions. “The book is written in the hope that the world need not wait for another crisis of such proportions to contemplate and introduce much-needed changes in global governance,” Nayyar says in the overview.

The WIDER study also says that the time has come to create an international system of governance for transnational corporations (TNCs) because the economic space of their activities extends way beyond the geographical space of nation-states.

“International regimes of discipline should be concerned not only with the rights but also with the obligations of transnational corporations,” it says.

“There is a need for a discipline on restrictive business practices of TNCs. In a world where economic activities of large firms transcend national boundaries, an international regime of anti-trust laws is also necessary.”

And any rules for the governance of TNCs would have to be lodged in the UN system, perhaps under the auspices of the proposed Economic Security Council in the UN, the book says.

Migration

A chapter in the book written by Nayyar refers to the potential conflict between the law of nations that restrict movements of people across borders and the economics of globalization that induces cross-border movement of people.

The almost complete absence of international institutions or rules in this sphere is a cause for concern. Equally a cause for serious concern is the plight of illegal immigrants, with abysmal living conditions and the “ever present risk of capture and repatriation”.

“This is not simply a matter of enforcing the law. There is also collusion between intermediaries and employers, while governments turn a blind eye to this.

“There is so much emphasis on labour standards, sought to be lodged in the WTO. There is so little concern about rights of migrant workers which are written into obscure ILO Conventions. Yet labour standards and migrant rights are two sides of the same coin.”

In terms of governance, the book says that the concern of poor countries and poor people should constitute an integral part of any democratic design for global governance. “It is essential to influence and shape the rules of the game so that poor countries and poor people have increased degrees of freedom in their pursuit of their development,” the book says.

“It is not enough to focus on the existing systems and to search for missing institutions. It is also necessary to recognize the importance of a new set of actors on the stage who, unlike governments, do not approach problems from the perspective of national interest.

“It is impossible to imagine good governance in a world without nation states, just as it is not possible to have good governance in countries without governments,” Nayyar said at the press briefing. (SUNS5214)                          

From Third World Economics No. 292 (1-15 November 2002)