It's the Global Economy (Stupid) - or Is It?
"This is the day that the world came together, to fight back against the global recession. Not with words but a plan for global recovery and for reform and with a clear timetable," said
This was somewhat exaggerated. There was no plan for global recovery or even a commitment to increased fiscal stimulus. It remains to be seen what kinds of reforms will actually materialize.
But recovery and reform will not necessarily hinge on what the G20 agrees to do. Roll back to the last major economic crisis - that which began in Asia in 1997 and spread to
It should not be surprising that the
Of course the current world recession is much worse and more widespread than the crisis of the late 1990s. The high-income countries that comprise the majority of the world economy, including the
It is good that the G-20 leaders are at least talking about increased international co-operation in order to deal with the world recession, and there are some areas - e.g. regulation of the financial sector or preventing illegal international capital flows and international tax avoidance - where increased international co-operation can be especially helpful. But even in these areas, many of the most important reforms can be implemented by individual governments.
The global nature of the "global economy" has been grossly exaggerated, as have been its implications. The world today is still much more a collection of national economies, and national governments - especially in the larger economies - have the potential to choose most of their economic policies much as they did thirty or forty years ago. The government of
The contemporary idea of the "global economy" is based on a misapplied analogy to the historical development of national economies. For example, the
Thus, it is reasoned, we now live in a "global economy," and this too must be regulated to iron out some of the irrationalities and instabilities inherent in a market economy.
Of course there is some truth to this argument. The idea of a world reserve currency to replace the dollar, for example, most recently floated by
But the concept of the "global economy" is very often an exaggerated one, generating confusion and negative political consequences. Reforms that are both necessary and feasible at the national level, such as appropriate exchange rate, fiscal, and monetary policies (especially in normal times), or capital controls, are rejected as incompatible with the "global economy." At the same time, reformers often mistakenly look to supra-national institutions that are mainly deregulatory, unaccountable, and regressive - the International Monetary Funs (IMF), World Bank, and World Trade Organization are prime examples - to resolve the problems that these institutions have themselves helped to create. Finance Ministers (or Treasury Secretaries) that are beholden to powerful interests at home are even less accountable to the public when making decisions in these bodies that are another step removed from the electorate of member countries. If they won't do the right thing at home, they are far less likely to do it at the IMF or the World Bank. For the present, at least, reform at the national or perhaps regional level is a much better bet.
Indeed, "globalization" under inappropriate rules and policies has contributed significantly to the current crisis. Even the European Union, a project that compares favorably to the "race-to-the-bottom" economic integration of the NAFTA variety, is currently hampering the Eurozone's recovery. The restrictions on budget deficits and the ultra-conservative central bank set up by the
Efforts to redraw the rules for global commerce in a more equitable and rational manner - such as those of the UN commission headed by Joseph Stiglitz - are a vital part of creating a better future for the generations to come. But the world cannot wait for the time when the governments of the rich countries are willing to cede decision-making power to institutions - such as the United Nations -- that they cannot completely dominate. Nor does it have to wait.