Co-operation vs sovereignty in an unequal world order

Global governance is understandably something of a preoccupation as economic globalisation seems to be in retreat at the same time that the scale and intensity of global challenges – climate change, the AI race, actual or simmering conflict, organised crime – is increasing. The Bretton Woods institutions – IMF and World Bank – established in the wake of World War Two remain important and powerful, and will have a lot on their plates in the next year or two, including the possibility of a new debt crisis alongside a surge in poverty and hunger. This context raises two questions. One is what is their guiding philosophy in terms of economic analysis and policy recommendations going to be now the old Washington Consensus version of conditionality has been more or less ditched? The other is whether they can help address the new kinds of challenges, or whether instead new institutions are needed?

They were forged out of a crisis of course, but in The Meddlers: Sovereignty, Empire and the Birth of Global Economic Governance Jamie Martin traces their forbears in the international economic institutions established near the beginning of the 20th century. The key issue he highlights is on the one hand the delicate balance between mutually beneficial co-ordination and voluntary loss of sovereignty among peer countries, and on the other the exercise of power by some countries over others (Imperial powers over colonies or later the US over its debtors) at the expense of the latters’ sovereignty. Co-ordination and co-operation require ceding some decision-making ground but when there is a parity of power this expands the opportunities or benefits each party experiences. However, the international institutions also embed inequalities of power – symbolised by the Asian crisis image of an IMF bureaucrat (Michel Camdessus) leaning over a local politician (Indonesia’s President Suharto) signing up to loan conditions.

Some technocratic institutions governing for example international post or shipping have lasted throughought the century plus, while the BIS (established in 1929/30) is an interesting example of an organisation with a broader mandate yet lasting throughout the 20th century and beyond, despite its missteps during the 1939-45 conflict. Other pre-WW2 international bodies such as the Economic and Financial Section of the League of Nations fell with the implosion of the international order at the outbreak of war. The book argues that the context of post WW1 reparations, the tensions in the European empires, the growth of US economic power and the pressures of the gold standard and the tariff wars of the 1930s all contributed to their downfall. International co-ordination was both essential and impossible.

The lesson for the 21st century, it concludes, is that today’s context of shifting economic power and economic crisis pose similar challenges for the Bretton Woods institutions. The history of earlier institutions suggests that it is fundamentally hard to resolve the core dilemma of a need for co-operation with the desire for sovereignty in a world of unequal power: “Tweaks to existing international institutions, like the IMF and World Bank, may be insufficient to produce a more stable reconciliation of global governance and democratic politics.” But what form should new institutions take? This very interesting book leaves the question hanging.

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All the Cs but how many Gs?

The title of Fred Bergsten’s latest book is somewhat misleading: it’s The US vs China: the quest for global economic leadership. But the argument of the book goes against the polarisation presumed in the title. Bergsten’s argument is that while the US and China are bound to compete in some economic domains, they should, and will find they must, co-operate in others. Tackling climate change and ensuring global financial stability are two of the examples of the latter. Indeed, he calls for ‘conditional competitive co-operation’, with the formation of a G2 on issues of global public goods, pandemics and other crises.

This all seems super-sensible. But it also has the flavour of a book from a distant era. Although the pandemic had happened, the Russian invasion of Ukraine had not. Nor at the beginning of 2022 might we have expected both China and the US to seem as unstable internally as they do at this moment, with astonishingly bad covid-exit policies on the one hand and the resurgence of Trumpism in public life on the other, alongside what is going to prove the most serious crisis of capitalism for at least a generation. The (geo)political pack has been not just shuffled but thrown up in the air. (And who had a monkey-pox epidemic on their 2022 bingo card??) At least Bergsten does warn about the dangers of a leadership vacuum, a G0 world, with the 1930s as a spectre of what could be.

The author’s knowledge of the international monetary system is legendary, and this is a terrific book to read for the economic insider’s perspective. Alongside Adam Tooze’s books, particularly Crashed, I now feel as informed as I’m going to be about international monetary matters. But the future now looks even more frightening than the most frightening prospect described here. Screenshot 2022-05-20 at 15.53.40

Globalisation past and future

Sitting in quarantine in my office is the Piketty tome, Capital and Ideology, the book that’s so ridiculously massive it arrived with its own tote bag. I’d got far enough in to it to reach the long historical section, to which my first reaction was he didn’t need to show us all his workings in such immense detail.

Another economist who has turned to history is Jeff Sachs in his latest, The Ages of Globalisation: Geography, Technology and Institutions. Sachs has long been alert to the implications of geography for economic outcomes; in this book he adds a very long historical perspective. So long that we start in paleolithic times at 10,000 BCE. The narrative is framed in terms of seven ages: paleolithic, neolithic, equestrian (domestication of horses), classical (Rome/Han China, ocean (start of European empires), industrial and digital.

There has been a trend towards these long-perspective books in recent times: Ian Morris’s Why the West Rules (For Now), Jared Diamond’s Guns, Germs and Steel and Collapse, James Scott’s Against the Grain, the dreadful Sapiens by Yuval Noah Harari. If you have read a number of these, then much of the ground covered in Sachs’s book will seem familiar; there’s only so much that is known about paleolithic times. Its great merit – especially if you haven’t read any of the others – is that it’s concise, and sends the interested reader to other sources. It doesn’t need its own tote bag, and Sachs wears his own extensive reading lightly. He’s a very clear writer, too, and the book has some lovely (colour) charts and maps.

The pitfall of taking this synoptic approach is that a lot hangs on the narrative thread and underlying argument. Sachs’s seven ages work quite well in this regard, and do include sections on China, India, and the Islamic world. The argument in this book – a bit like Martin Sandbu’s new book, The Economics of Belonging, which I am reviewing for another publication – is that we shouldn’t be turning our back on globalisation. It can be made to work better for the many, not just the few, if we take the SDGs and international organisations seriously and reform the latter.

I’m sceptical that reforming the UN will fix anything. One of the earlier threads that gets lost in the final ‘what to do’ chapter is the way technologies shape what is feasible in terms of governance as well as shaping the form of economic globalisation that occurs. Still, it’s a good thing there are still some advocates for globalism rather than nationalism, and for the global public good. It’s a pre-pandemic book but post-publication events suggest this is the time to argue for at least some parts of the international order to be strengthened.

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The Great Game of trade

I was reading about the US-China trade war in Foreign Affairs, an article (The Unwinnable Trade War) strikingly awash with metaphors of conflict – blazing guns, cease fire, détente….) It sent me back to the excellent book by Rebecca and Jack Harding we just published in the Perspectives series, Gaming Trade: Win-Win strategies for the Digital Era. They (an economist and a political risk analyst) use game theory to analyse the interplay between the win-win economics of trade and the zero sum game of geopoltical power. States (and they mean the big blocs, the US, China, Russia, the EU) need to develop strategies simultaneously for military force, information/cyber warfare, and economic soft power. Trade policy is an important weapon in the complicated strategic game.

The book argues that the focus on old-fashioned trade wars is a distraction from the most important front at present (my goodness, impossible to avoid the military metaphors): control of cross-border flows of information, finance and intellectual property. The physical world  and control of material resources is of course still important; but the new frontier is the cyber frontier. Indeed a new column by the digital guru Andrew McAfee highlights the continuing dematerialization of the economy (as I wrote about in The Weightless World, and Danny Quah also back in the 1990s). Russia’s engagement on the cyber-front is all too obvious, with seemingly little effective counter-attack – or even connivance from the Trump family.

I was persuaded by the Hardings’ argument that the current global situation is very dangerous, threatening economic stability, environmental sustainability and peace. The slow growth or worse will encourage the trends toward populism and authoritarianism, and a spiral into more protectionism. If you consider the economic and political whirlwind associated with the collapse of trade in the 1930s, it’s worse now: the World Bank’s new annual World Development Report paints a vivid picture of the extraordinary economic interdependence of the world’s economies. Unravelling these value chains will be catastrophic (Brexit Britain seems to be offering itself as an early test case of the potential damage).

In the end, the book argues, we all lose unless the current great power conflicts – soft, cyber and potentially ‘hard’ – de-escalate. The strategic path from here to the sunlit uplands of a new era of multilateralism is far from obvious. But it does us a favour in drawing attention to the dangers, and to the need for clear strategies to get out of this situation.

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The politics of depoliticisation

A while ago I had one of those brilliant dinners when you sit next to someone new and strike up a fascinating conversation. The occasion was the dinner celebrating honorary graduands of Bristol University (a boast – I had the honour of being awarded an honorary degree there this year), and Prof Paddy Ireland, my neighbour at the table, recommended in the course of a fab two-hour conversation, Globalists: The end of empire and the birth of neoliberalism by Quinn Slobodian.

It is indeed a deeply interesting book, a history of what Slobodian terms the Geneva neoliberals – those, including Hayek, who were globalists avant la lettre because they looked back with nostalgia to their youth in the Austro-Hungarian Empire. I hadn’t known that these folks, many based at the Graduate Institute in Geneva, named themselves neoliberals (at the Walter Lippmann Colloque in Paris in 1938) (although this makes it seem all the more absurd to me that some people now apply the n-term to  *all* economists.)

Slobodian emphasises that this school of neoliberals were by no means against a government role in the economy, seeing it however as a matter of setting the framework for a globalised economy. In particular, private property across borders was to be held sacred. The domain of the global economy had to triumph over the domain of national politics. Geneva neoliberalism was a “project of politics and law”, as the ambition was to create a system of governance that would “encase and protect the space of the world economy”. Individual rights, particular investors’ rights, would gain the protection of the courts against potential expropriation.”The ongoing depoliticization of the economic was a continual legal struggle, one that required continual innovation in the creation of institutions capable of safeguarding the space of competition.”

What I found particularly enlightening about this account is the way this particular strand of thought eventually got embedded in world trade rules in the form of the steady expansion of investment protections and third party arbitration. Economists tend to find, not necessarily the arguments against such aspects of trade agreements, but the emotion they arouse, a little hard to understand. I think the historical context helps us.

Another fascinating section covers Hayek’s interest in cybernetics – not so surprising when you think about his views on the role of markets as information-processing devices. Slobodian writes: “Radical in its own right, the neoliberals’ own dream of a new international economic order was a world economy of signals – a vast space of information transmitted in prices and laws.” It reminded me of Chile’s Project Cybersyn in the Allende years (described by Eden Medina in Cybernetic Revolutionaries), the same systemic vision from the left.

As Globalists makes clear, depoliticization – what I’ve termed in another context the ‘separation protocol’ – is a political project too. Its fortunes, having flourished during the mid-80s to mid-2000s, are clearly waning now. Politics is baaaaack, bigtime.

51kcoHzJqyL._SX329_BO1,204,203,200_[easyazon_link identifier=”0674979524″ locale=”UK” tag=”enlighteconom-21″]Globalists: The End of Empire and the Birth of Neoliberalism[/easyazon_link]

And for amusement, me in robes…..EAQsyhCXYAcgXcZ