THE MAIN PROBLEM WITH GLOBALISATION IS TOO LITTLE GOVERNANCE

By Pascal Lamy (*)

GENEVA, Jul (IPS) Globalisation dominates our era, but it is an increasingly fragile dominance. Even as global integration delivers enormous benefits -growing wealth, spreading technology, the rise of billions of people in the developing world- it also creates new risks -financial instability, economic imbalances, environmental stresses, growing inequalities, cyber penetration- that we seem to have difficulty managing.

This is not a new concern. Since the industrial revolution, market capitalism’s power to generate both incredible progress and enormous disruption -what Joseph Schumpeter called “creative destruction”- has preoccupied governments. And globalisation is nothing if not the worldwide technology-driven spread of market capitalism, a process that has been unfolding, in fits and starts, for three hundred years.

Karl Marx was wrong about a few things, but he was surely right about capitalism’s inherent tensions and contradictions. “Capitalism has created more massive and more colossal productive forces than have all proceeding generations together,” he wrote in 1848, but it also represents the “uninterrupted disturbance of all economic and social conditions, everlasting uncertainty and agitation.” Market capitalism, Marx fatalistically argued, contains the seed of its own destruction.

A century later, Karl Polanyi used similar arguments to explain why the open economy of the 19th century suddenly collapsed in the early 20th century, Â overtaken by war, economic depression, and totalitarianism. Open markets need social and political cohesion to work, he argued, but paradoxically free markets, left unconstrained, soon undermine this cohesion. Individualism and competition are rewarded, but at the expense of equality and community.

The catastrophic end of the 19th century’s version of globalisation offers a cautionary tale for our age. Beneath the progress of this first age of globalisation, problems and tensions were building. Many sparks ignited the First World War but the one unifying cause was the disintegration of international trust and the break-down of political co-operation. It took thirty years, two world wars, and the Great Depression for the world to begin to rebuild the economic system it had lost.

The post-war economic order succeeded spectacularly -so spectacularly that globalisation is now eclipsing it.

Perhaps the biggest change is globalisation’s impact on the geopolitical landscape. Globalisation has both enabled and rewarded a shift in production, investment, and technology to emerging economies. The result, as Martin Wolf put it recently, is that the periphery is becoming the core and the core is becoming the periphery. The US remains a key player but it is no longer dominant. Fast-rising powers like China, India, Indonesia, and Brazil play a role that was unimaginable even twenty years ago while smaller developing countries want a say in a system in which they have a growing stake.

Make no mistake, globalisation is a revolutionary force. The world economy is eight times larger than it was in 1950 Â and world trade has expanded 33 times since then. Two decades ago, the internet did not exist. Now two billion people -a third of humanity- use the internet every day; four billion people have mobile phones. Over three billion people in China, India, Indonesia and other developing countries are achieving in a generation what it took the West a century or more to achieve.

Yet for all our successes, globalisation remains a discontented dream. The recent financial crisis -and the “Great Recession” which followed- was merely the most cataclysmic in a series of global financial shocks that included the collapse of the European Exchange Rate Mechanism in the 90s, the peso crisis in 1995, the Asian crisis in 1997, the Russian crisis in 1998, and may include Europe again if the current sovereign debt problems are not resolved.

The essential problem today is that there is too little governance of globalisation. Our institutions, policies, and mind-sets have not caught up with the integrated and interconnected world that we have created. The first age of globalisation fell apart because there was no effective political and policy response to profoundly changing economic and social conditions.

Stating the problem is the easy part. Providing answers is more difficult, and implementing them is more difficult still. One challenge is to re-invent international institutions, which were once universally idealised and are now almost universally disparaged. Replacing the G-8 with the G-20 was an important step, an acknowledgment of today’s multipolar world, and a tangible sign that the system can reform and adapt.

But this is clearly insufficient. And re-inventing our institutions is not about building more agencies and more vertical silos. It is about “networking” institutions in a better way ensuring that the WTO, the IMF, the World Bank, and the vast UN system operate as a more coherent whole, not a patchwork of fiefdoms.

The real challenge today is to change our way of thinking, not just our systems, institutions or policies. We need the imagination to grasp the immense promise -and challenge- of the interconnected world we have created. The future lies with more globalisation, not less: more co-operation, more interaction between peoples and cultures, an even greater sharing of responsibilities and interests.

Multilateralism may be messy, frustrating, two steps forward and one step back. But the fiction that there is an alternative is naive and dangerous. Naive because it ignores that we are becoming more, not less, dependent on one another. Dangerous because it risks plunging us back into our divided past -with all of its conflicts and tragedies. It is too often tempting for politicians to mobilise proximity, which defines belonging and identity in opposition to “the others”, the “foreigners”. (END/COPYRIGHT IPS)

(*) Pascal Lamy is Director-General of the World Trade Organisation (WTO).

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