LESSON 1 CONTEMPORARY GLOBAL GOVERNANCE

ABSTRACTION

What is Global Governance?

Global governance brings together diverse actors to coordinate collective action at the
level of the planet. The goal of global governance, roughly defined, is to provide global
public goods, particularly peace and security, justice and mediation systems for conflict,
functioning markets and unified standards for trade and industry. One crucial global public
good is catastrophic risk management – putting appropriate mechanisms in place to
maximally reduce the likelihood and impact of any event that could cause the death of 1
billion people across the planet, or damage of equivalent magnitude.
The leading institution in charge of global governance today is the United Nations.
It was founded in 1945, in the wake of the Second World War, as a way to prevent future
conflicts on that scale. The United Nations does not directly bring together the people of
the world, but sovereign nation states, and currently counts 193 members who make
recommendations through the UN General Assembly. The UN’s main mandate is to
preserve global security, which it does particularly through the Security Council. In
addition, the UN can settle international legal issues through the International Court of
Justice, and implements its key decisions through the Secretariat, led by the Secretary
General.
The United Nations has added a range of areas to its core mandate since 1945. It
works through a range of agencies and associated institutions particularly to ensure greater
shared prosperity, as a desirable goal in itself, and as an indirect way to increase global
stability. As a key initiative in that regard, in 2015, the UN articulated the Sustainable
Development Goals, creating common goals for the collective future of the planet.
 Beyond the UN, other institutions with a global mandate play an important role in
global governance. Of primary importance are the so-called Bretton Woods institutions: the
World Bank and the IMF, whose function is to regulate the global economy and credit
markets. Those institutions are not without their critics for this very reason, being often
blamed for maintaining economic inequality.
Global governance is more generally affected through a range of organizations acting
as intermediary bodies. Those include bodies in charge of regional coordination, such as
the EU or ASEAN, which coordinate the policies of their members in a certain geographical
zone. Those also include strategic or economic initiatives under the leadership of one
country – NATO for the US or China’s Belt and Road Initiative for instance – or more
generally coordinating defense or economic integration, such as APEC or ANZUS. Finally,
global governance relies on looser norm setting forums, such as the G20, the G7, the World
Economic Forum: those do not set up treaties, but offer spaces for gathering, discussing
ideas, aligning policy and setting norms. This last category could be extended to
multistakeholder institutions that aim to align global standards, for instance the Internet
Engineering Taskforce (IETF) and the World Wide Web Consortium (W3C).
In summary, global governance is essential but fragmented, complex and little
understood. In this context, the key questions raised by the Global Challenges Foundation
are, how to reform institutions, how to develop alternative institutions, and how to use the
new possibilities of technology to improve governance. (Global Challenges Foundation
2020)

Core Principles of Global Governance

Five principles are critical to guiding the reforms of global governance and global
rules according to the United Nations’ Committee for Development Policy to wit:

I. Common but differentiated responsibilities and respective capacities:

This principle calls for recognizing differences among countries in terms of their
contribution and historical responsibilities in generating common problems, as well
as divergences in financial and technical capacities, in order to address shared
challenges. This principle also acknowledges the diversity of national circumstances
and policy approaches—a diversity which should be embedded in the architecture of
global governance as an intrinsic feature of the global community, not as an
exception to general rules.
II. Subsidiarity: Issues ought to be addressed at the lowest level capable of
addressing them. This principle implies that some problems can be handled well
and efficiently at the local, national, sub-regional and regional levels reducing the
number of issues that need to be tackled at the international and supranational
level. Subsidiarity suggests an important role for regional cooperation in addressing
issues of mutual concern.
III. Inclusiveness, transparency, accountability: Global governance
institutions need to be representative of, and accountable to, the entire global
community, while decision-making procedures need to be democratic, inclusive
and transparent. Robust governance implies mutual accountability, verified by
transparent and credible mechanisms and processes to ensure that agreed
commitments and duties are fulfilled.
 IV. Coherence: Definitions of global rules and processes need to rest on
comprehensive approaches, including the assessment of possible trade-offs, so that
actions in different areas will not undermine or disrupt one another, but instead be
mutually reinforcing. Enhanced coherence is also needed between the international
and national spheres of policymaking. This also requires improved coordination
among various stakeholders and enhanced information sharing.
V. Responsible sovereignty: This principle recognizes that policy cooperation is
the best way to achieve national interests in the global public domain. It also
requires Governments and States to be fully respectful of the sovereignty of other
nations so as to fulfil agreed policy outcomes. (The UN Committee for Development
Policy 2014)

The Role of Government

As with many issues pertaining to globalization, concerns and hopes about international
investment revolve in many ways around what governments may do. This means both what
governments may do to regulate foreign investment, perhaps to make it less volatile, as well
as actions government may take simply to get out of the way of the market, clearing the
existing barriers to capital. In addition, the role of government refers not only to individual
nations, but to international institutions such as the WTO and the IMF, which serve
functions relating to global governance.

Some of the steps these institutions of governance can take to help influence the
choices made by international investors include:
• The creation of new infrastructure and other facilities to attract foreign
investment. As described earlier, an array of services can help promote
foreign investment in a country, ranging from basic services such as the
provision of electricity and clean water, to fair and effective dispute resolution
systems.
• The ability of governments to prevent or reduce financial crises also has a
great impact on the growth of capital flows. Steps to address these crises
include strengthening banking supervision, requiring more transparency in
international financial transactions, reducing the risk of moral hazard, and
ensuring adequate supervision and regulation of financial markets. The
majority view among economists is that financial sector reform must precede
capital account liberalization. Other steps have been suggested to help limit
the volume of volatile short-term capital such as small taxes on foreign
exchange transactions. One prominent advocate of this idea was Nobel Prize
winning economist James Tobin. Although many countries have imposed
limits or taxes on capital outflows, another creative way to address volatility
was applied by Chile, which imposed a small transaction fee on capital
inflows. This measure served to limit the amount of short-term investment
but did not create a risk of deep concern to investors, namely, of having
trouble getting their money out of the country at some point in the future.
• Working with developing country governments in particular to help establish
more stringent labor and environmental standards to prevent either one from
being exploited.
 • Protecting domestic infant-industries only long enough to allow them to
become competitive internationally. This step remains controversial, but
some economists have pointed out that a number of developing countries—
indeed many of the countries that have recorded the highest long-term
growth rates— have done so after resorting to some protection of sectors of
domestic industry.
As you can see from this list of policy options, people from almost the entire
spectrum of beliefs about globalization have prescriptions for government policy, even
those who advise that governments need only act to remove market-distorting tariff and
regulatory barriers. And this list is by no means comprehensive.
Ongoing events are leading an increasing number of analysts of globalization to
suggest that we explore the challenges and opportunities of globalization more fully, to
better understand its consequences and learn how to maximize its potential benefits while
mitigating its disruptions.
Economic events such as the East Asian financial crisis and more recent incidents
such as the collapse of the Argentinian economy in late 2001 have made many economists
argue for improved market mechanisms, such as regulatory measures and oversight. The
fact that different countries encountering similar problems have received different
prescriptions from the international community has also led many to argue for a more
firmly established set of ground rules.
Coordination between governments will be crucial for dealing with the global
financial and economic crisis of 2007-2009. According to UNCTAD, “the challenge is to
restore the credibility and stability of the international and financial system, to provide
stimulus to economic growth in order to prevent the risk of a spiraling depression, to renew
a pragmatic commitment to an open economy, potentially put at risk by rising protectionist
tensions, and to encourage investment and innovation” (United Nations Conference on
Trade and Development, 2009).
In addition, political events such as the large protests in 1999 at the Seattle WTO
meeting or in 2001 at the G8 meeting in Genoa, Italy, have led some political leaders to
conclude that certain kinds of market interventions or regulations are necessary to assist
those who are endangered by globalization, simply to sustain political support for
continued liberalization.
Joseph Stiglitz, formerly chief economist of the World Bank and Nobel Prize winner
for economics in 2001, has characterized the globalization of international finance as
suffering from “global governance without global government.” He notes that the
nationalization of the U.S. economy, which began 150 years ago and was analogous in many
ways to the process of globalization, was accompanied by a significant expansion in
government oversight and regulation, to help temper crises and provide accountability.
One surefire prediction about the globalization debate is that much of the discussion
will continue to revolve around appropriate government policies. (SUNY 2017)
You should note that, if opportunity costs were the same, then there would be no benefit
from specialization and trade.