By
Bakampa Brian Baryaguma
1.
Introduction
Since
the mid 20th century, the world has witnessed an increasingly
growing trend towards harmonization of world relations and cooperation, in
various matters of international concern. Virtually all aspects of human
society – anything and everything from climate change, crime, human rights,
defence, politics, religion, commerce, to charity – have a global perspective.
Our world is steadily knitting into a shared socio-political, cultural and
economic touch. The world is becoming one integrated whole.
This
harmonization of world affairs is the lifeblood of globalization,[1]
a system that perceives social phenomena from a common worldwide perspective,
necessitated by enhanced interdependence of states on issues of global reach.[2]
One of the issues that rank high on the globalization agenda is streamlining the
global economy.[3]
Therefore,
globalization has ushered in the phenomenon of global governance, which is
characterized by the emergency of international institutions and human
communities working across borders. Global governance entails administration
and management of the global economy, mainly through delegation of national
powers to international financial institutions (IFIs),[4]
which are ‘... charged with [preventing and] solving “technical” problems
arising from uncoordinated decision making in the global economy.’[5]
This is important for ensuring economic
stability, hence sustainable development.[6]
2.
The
Sufficiency of Light Governance?
Having
seen that global governance is an indispensible component of globalization, the
million dollar question now is; how much of it is sufficient or acceptable for managing
the global economy. There is a view that light global governance is sufficient
when it comes to world economy. To my mind, light
governance is the kind which, though international, is fairly decentralized at
regional levels, less formalistic and inclusive. It is akin to soft governance (distinguishable
from hard governance) as a form of
process-based coordination that is designed to facilitate the exchange of views
and information sharing on an ongoing basis, without a priori
expectation of substantial outcomes or agreements.[7]
Light governance aims for more integrated management of global economic affairs
and is supported by two prominent scholars: Amar Bhattacharya and Dani Rodrik.
Mr Amar Bhattacharya believes
that dramatic changes in the global economy should be reflected in the
governance arrangements.[8] He argues that the structures
of IFIs have failed to account for changing economic realities,[9]
because, in his view, there are gaps between their mandates, since they were
created for yesterday’s challenges.[10]
One of the gaps, he says, is the inequitable representation of poor countries at
the IMF.[11] He
proposes that Europe needs to adjust its quota and voting share there,[12]
by reducing its share of membership.[13]
For
his part, Mr Dani Rodrik banks on the European Union experience to support
light global economic governance, which he says, ‘... proves that transnational
democratic governance is workable ....’[14]
But in his opinion, ‘... deep economic integration requires erecting an
extensive transnational governance structure to support it.’[15]
His main concern is with regard to the spread, sustainability and legitimacy of
international institutions, as preconditions that must be satisfied before
global governance can flourish.[16]
He observes that, ‘Our complex and variegated world allows only a very thin
veneer of global governance – and for very good reasons.’[17]
These
views are both compelling and unassailable. In today’s globalized economy,
there must be a modicum of governance. It is notable that, ‘What
happens anywhere affects everybody — and increasingly so;’[18]
such that a full-fledged international economic control mechanism can be harmful
to local communities, because it may not properly understand and effectively
address their peculiar needs. To avoid this misfortune, it is important that global
control mechanisms and institutions be as representative and inclusive as
possible, like Mr Bhattacharya
states.
But equally true is
that none or too little governance can be bad.[19]
So, we need lighter and more relaxed governance structures that are flexible and
effective – like what IMF calls
smart governance.[20]
Light governance is agreement-oriented. It therefore, enjoys trust and
conviction of members, wherein lies its flexibility. Its efficiency lies in its
ease and ability to respond quickly to situations, without undue regard to technicalities.
Therefore, it is in accordance with Mr Rodrik’s proposal for extensive transnational
governance structures that are well spread, sustainable and legitimate enough
to support today’s global economy.
3.
Conclusion
The
current global economic consciousness and interaction makes the idea of a global village a growing reality. Like
any other village, the global village needs a marketplace that must be well
organized, monitored and regulated, because experience shows that separate
decision making is hazardous. It is important to create a system that reflects new economic
realities and responds effectively to new global challenges.[21]
I find that light governance, which allows
flexibility and effectiveness – at the heart of which lays the need for ‘...
more coordination, disclosure and more transparency’[22]
as imperatives – will suffice to achieve this.
Notes and References
[1] Joseph
E. Stiglitz, Globalization and its
Discontents (2002), at 9, defined globalization as ‘… the closer
integration of the countries and peoples of the world …’ due to ‘… the enormous
reduction of costs of transportation and communication, and the breaking down
of artificial barriers to the flow of goods, services, capital, knowledge and …
people across borders.’ It is often termed as going global, in reference to the
growing global interconnectedness and coordination efforts. From an economic
perspective, this trend is due to the need for joint supervised management and
monitoring of exploitation of the world’s resources and efficient use of
financial systems. It is expected that interdependence will improve human
welfare by for instance, reducing or even eliminating high global poverty
rates.
[2] Philippe Cullet,
‘Differential Treatment in International Law: Towards a New Paradigm of
Inter-state Relations’, 10 EJIL
(1999), at 550.
[3] The
term economy emanates from the word economics, which literally, is the
science of the production, distribution and consumption of goods or the
condition of a country as to material prosperity. See, A.S. Hornby, A.P. Cowie
and A.C. Gimson, Oxford Advanced
Learner’s Dictionary of Current English (1983), at 280.
In its normative
form, economics evaluates the design of institutions for the organization of
economic activity, for purposes of allocating social capital through markets.
See, Joel P. Trachtman, ‘The International Economic Law Revolution’, JIEL (1996), at 9.
Consequently, the
term economy denotes a society’s
system of controlling and managing its money, goods and other resources. See,
A.S. Hornby, A.P. Cowie and A.C. Gimson, Oxford
Advanced Learner’s Dictionary of Current English (1983), at 280.
[4] Like the World Bank (WB), the
World Trade Organization (WTO) and the International Monetary Fund (IMF).
[5] Dani Rodrik, The Globalization Paradox: Democracy and the
Future of the World Economy (2011), in chapter 10.
[6] UN System Task Team on
the Post-2015 UN Development Agenda, ‘Global governance and governance of the global
commons in the global partnership for development beyond 2015’ (2013), at 3.
[7] Nemat Shafik, ‘Smart Governance: Solutions for Today’s Global Economy’ (2013). Available
at https://www.imf.org/external/np/speeches/2013/120513.htm.
Ms Nemat gives an example of light global economic governance as the regular
discussions among central bankers at the Bank for International Settlements
(BIS). On hard governance, she explains that it ‘is typified by quid pro quos
in policies with a focus on specific and tangible outcomes.’ For example, the
two initial G20 Leaders’ Summits that took place in the immediate aftermath of
the 2008 crisis and resulted in the creation of the Financial Stability Board
(FSB), created in 2009 with a mandate to develop and promote effective
financial regulation. She explains that, ‘Soft governance works when innovation
is needed but there is time to act, when getting a subset of countries to act
is sufficient and ad hoc implementation can work. Hard governance is needed in
a crisis or when global approaches are needed and when consistent enforcement
is key.’
[8] Amar Bhattacharya,
‘Structural Transformation and Sustainable Growth of the Global Economy: Beyond
the Crisis and Lessons for Global Governance’ G-24, (2013), at 44. See also, his lecture on global economy, in
week five of the Global Civics Academy lectures series on global civics. In his
lecture, Mr Bhattacharya identifies at least three global economic changes:
First, is that before
the 2008 financial crisis, out of some 150 emerging markets and developing
countries (EMDCs), 94 countries were growing at a rate of more than 5% per
annum and a majority of EMDCs – 8 out of 10 – grew at a higher rate than that
of many other advanced economies (ACs). It is expected that this trend will
continue, although the 2008 crisis has affected, in downward way, both advanced
countries and EMDCs. For example, a majority of emerging markets are now net
commodity importers (especially food and fuel, which makes them doubly
vulnerable to food and fuel price shocks) and not net commodity exporters;
financial flows like remittances, have reduced; and high commodity prices;
Second, for the first
time, low income countries and especially Sub-Saharan Africa, are part of this
trend, thus showing a broad based convergence. He explains that a very strong
macro-economic performance, with a vast mature cycle of savings and
investments, growing trade and macro-economic resilience, underlines this
growth. He notes that savings in EMDCs are higher than in Organization
for Economic Co-operation and Development (OECD) countries and have allowed for higher investments and
growth;
Third, is the growing
heterogeneity across regions, considering purchasing power parity (i.e.
comparing like for like e.g. goods being compared at kind of the same price
across countries). The BRICS alliance – Brazil, Russia, India, China and South
Africa – is notable here. With its continued growth and role as new powers, a
rebalancing is taking place.
[9] Colin I. Bradford, Jr. and Johannes F. Linn, ‘Reform of Global Governance: Priorities for Action’ 163 BPB, (2007), at 2, identify four most prominent global changes: first, changing demographic and
economic balances, largely due to the rapid economic growth of China and India;
second, dramatic expansion of global interdependencies with rapidly growing
trade and capital flows, as well as in the energy markets, in health, migration
and illicit drugs, and in the environmental and security arenas; third, there
are increasing links among these global issues such that stove-piped global
institutions, operating on issue-specific mandates, will not be able to deal
with these interrelationships; and fourth, emergence of new and growing global
risks that need urgent attention, including global financial imbalances, energy
insecurity and global warming, and threats of global epidemics.
[10] Amar Bhattacharya
(in his lecture), supra note 8, at 52. This view is shared by Colin I. Bradford, Jr. and Johannes
F. Linn, supra note 9, at 1, who say that, ‘Many of today’s international
institutions were created at the end of World War II, more than 60 years ago. …
[since then] very little has been altered in the basic structure of these global institutions. Global institutions are not
working well individually and as a group.’
[11] Amar Bhattacharya, supra note 8, at 53. The IMF is responsible for international financial stability, for
example harmonizing interest rates. In his lecture, Mr Bhattacharya explains
that, amongst EMDCs, the most disadvantaged and disenfranchised are the low
income countries, including those in Sub-Saharan Africa, who see their shares
in governance actually decline and although they are seeing a modest increase
in their role in the global economy, by virtue of the fact that they are poor,
they are disadvantaged. He notes that the main reason for disadvantage of these
countries is the over-representation of Europe: the IMF managing director is
always European; the IMF board has 24 seats; eight of nine directors are from
Europe; and Europe has 33% of actual and 34% in terms of calculated quota
share, even though its share of GDP is only around 23%.
Colin I. Bradford, Jr. and Johannes F. Linn, supra note 9, at 4, suggest that ‘An unrestricted,
merit-based selection of the Managing Director … and a reduced number of
directors’ seats on its executive board are important ways to strengthen the
effectiveness of the IMF and enhance its legitimacy beyond the rebalancing of
its shares and votes.’
The UN System Task Team on the Post-2015 UN Development Agenda, supra note 6, at 8, has also weighed in on
this matter, warning that, ‘… political sensibilities are likely to
arise in terms of refining the institutional mandates of intergovernmental
organizations, as well as implementing reforms concerning the adequate level of representation of hitherto underrepresented Member
States.’ It therefore, recommends that, ‘… to address these sensitivities,
governance targets should be concrete, where possible, yet must allow for
political compromise and flexibility.’ See, ibid.
[12] Ibid., at 55. Plus, Colin I. Bradford, Jr. and Johannes F.
Linn, supra note 9, at 3, say that,
‘… the IMF suffers from a legitimacy deficit because of an out-dated
distribution of ownership shares and votes — giving too little to the rapidly
growing emerging economies [and] a restrictive leadership selection process ….’
Even the IMF Deputy Managing Director, Nemat
Shafik, supra note 7, is aware of the need for reform,
because she says that, ‘… further shifts in quota and voting shares to
dynamic economies will also be needed. To achieve this, some countries will
have to accept relative declines in their quota and voting shares. [As] … it
will be crucial for the IMF’s effectiveness and legitimacy to ensure that its
governance structure reflects the relative position of its member countries in
the global economy.’
[13] In his lecture. See,
supra note 8. Whether this will
happen remains to be seen. But if what Nemat Shafik, supra
note 7, says; that, ‘The key reason why the IMF has remained relevant
has been a political governance structure that, albeit slowly, does adapt to
changes in the world economy,’ is true, we hope it will.
[14]
Dani Rodrik, supra note 5. But Mr
Rodrik is more critical and sceptical of the concept altogether. He says,
strongly that, ‘We may think we live in a world whose governance has been
radically transformed by globalization, but the buck still stops with domestic
policy makers. The hype that surrounds the decline of the nation state is just
that: hype. Our world economy may be populated by a veritable alphabet soup of
international agencies – everything from ADB to WTO – but democratic decision
making remains firmly lodged within nation states. “Global governance” has a
nice ring to it, but don’t go looking for it anytime soon.’ He therefore, urges
treading carefully adding that at best, the European experience is the
exception that tests the rule, and urges treading cautiously, noting that
Europe’s murky ‘... experience also lays bare the demanding requirements of
such governance.’
However, Rodrik acknowledges the changed international
socio-politico and economic dynamics. For instance, he confidently states that,
‘The nation state is passé. Borders have disappeared. Distance is dead. The
earth is flat. Our identities are no longer bound by our places of birth.
Domestic politics is being superseded by newer, more fluid forms of representation
that transcend national boundaries. Authority is moving from domestic
rule-makers to transnational networks of regulators. Political power is
shifting to a new wave of activists organized around international
non-governmental organizations. The decisions that shape our economic lives are
made by large multinational companies and faceless international bureaucrats.’
[15] Ibid. For example, in his view, ‘We
would need to create a “global body politic” of some sort, with common norms, a
transnational political community, and new mechanisms of accountability suited
to the global arena’ and further, that, ‘... global governance must transcend
exclusive clubs of regulators and technocrats’ in order to achieve legitimacy. ‘The creation of legitimate global institutions,’
Colin I. Bradford, Jr. and Johannes F. Linn, supra note 9, say, ‘ involves multiple goals: First, the institutions must be representative.
Second, the institutions need to be effective. Third, collectively the international
institutions need to serve as an effective global governance system. Finally, the
international institutions should offer opportunities for national and international leaders
to forge coalitions for action and reform.’
[16] Colin I. Bradford, Jr. and Johannes F. Linn, supra note 9, at 1, state that ‘... the global institutions at the
core of the international system, such as the United Nations, the International
Monetary Fund, the World Bank and the G8 Summit are, to varying degrees
fragmented, unrepresentative and ineffective, and generally suffer from an
corosive decline in their legitimacy. They are increasingly fragile and unable
to address the global challenges of the 21st century.’ The UN System Task Team
on the Post-2015 UN Development Agenda, supra note 6, at 4, agrees with this view.
[17] Dani
Rodrik, supra note 5. Some of which
include, according to him, the lack of clear accountability relationships,
which forms the Achilles’ heel of global governance; perceived inability of
international regulators to provide good explanations for what they choose to
do; and a general absence of individuals who feel that they are global
citizens.
[18] Nemat Shafik, supra note 7.
[19] The 2008 financial crisis offers
a good example. Occurring at the height of global economic interconnectedness, its
lesson is that unregulated market systems can be disastrous to economies. (See,
Barack Obama, ‘The Remaking of America’
(2009), in United States Department of State and Bureau of International
Information Programs, President Barack
Obama: in His Own Words, at 8.)
According to Nemat Shafik, supra
note 7, only
then did it become ‘… clear
that there had been an undersupply of global governance in the years leading up
to the crisis.’ She also says that the crisis was a disruption in a relatively small segment of the
U.S. financial system, which spilled into distant markets and countries and
morphed into a full-fledged global financial crisis.
[20] Nemat Shafik, supra
note 7.
[21] Colin I.
Bradford, Jr. and Johannes F. Linn, supra
note 9, at 7.
[22] Hakan Altinay, in his follow-up remarks to Mr Bhattacharya’s
lecture, supra note 8.
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