Dean Fu
Kishore Mahbubani
Distinguished guests,
Ladies and gentlemen,
It is a great pleasure to join you all here and to share a few ideas on
global governance. It is very timely, with events in these last months
reinforcing the importance of better understanding the many
interconnections in today's world and finding common solutions to
address them.
The Global Public Policy Network preaches by example. It is global in
the spread of its members — in both developed and developing economies —
and in its subject matter, which also has a global dimension, as can be
seen from this meeting's agenda covering finance, energy and the
environment.
Governance today is and is likely to remain mostly local, within the
nation-states, given legitimacy considerations. However, global issues
stemming from our increasing interdependence need to be tackled more
efficiently to ensure world peace and stability. As we have seen with
the financial crisis, purely national solutions are not enough.
Global governance in today's key economic areas — trade, finance and the
environment — is mostly about global regulations. Building these rules
requires four elements: a collective political will to go global; a
consensus on the concept or on the agenda of how to regulate globally; a
place to negotiate binding commitments, and to administrate and enforce
them; and finally a capacity to compromise, which means bringing on
board domestic constituencies.
In the area of finance, the problem starts with the absence of the first
element: no collective political will to go global because of the
division between proponents of traditional regulation and proponents of
self regulation. The embryo of regulation stemming from the
constellation around the Bank for International Settlements in Basel has
proven largely insufficient to address the shortcomings leading to
today's financial crisis.
However, the severe effects of this crisis, which has spread like a
malign disease through the entire world financial system, has raised
again the question of whether or not we need a global system of
financial rules. My sense is that nations are starting to converge
around the idea of the need for greater global regulation in this area
and it is now time to think about building consensus on a possible
regulatory agenda. This will not be done overnight. We will need to
discuss the agenda, the framework within which to negotiate it and the
possible instruments. But the political energy for greater global
financial regulation, which some have called the building of a new
Bretton Woods consensus, may be already here and, in my view, this is a
welcome development. Four elements would need to be taken into account:
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no global consensus can be built today without the participation of developing countries. The Group of Seven or Eight industrial countries cannot do it alone. It is as much a legitimacy as well as an efficiency issue, given the role of world growth engines played today by emerging economies
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it will be a slow and painful process. Global financial regulation will not be built in one day. The most urgent element is to restore confidence in the financial system. The signal that nations are ready to engage in an honest process of global rule-making would contribute to this
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the definition of global rules will require a dialogue with financial operators, central banks and other supervisory authorities
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finally, regulation is not about corseting financial activity, but rather about ensuring that it takes place in a safer environment, where the risks are kept under control. It is like designing the security features in a high-speed train: engineers must be able to design faster, lighter and smarter trains but they also need to make sure they respect safety standards to ensure they do not crash with hundreds of passengers on board. What we need is a set of safety rules to protect us from world financial crashes.
So, there is urgency to start defining a new financial regulatory agenda and it is clear that nations will have to cooperate to get to a result.
Let me now turn to the area of climate change,
where I see the capacity to compromise as the missing element.
The collective political will to go global is there. The need to reduce
CO² emissions is the common belief. The place to negotiate is clear (UNFCCC).
However, the difficulty resides in the compromise needed to share the
burden of emission reduction. A compromise is needed between CO²
emissions per head of 20 tons in some developed countries and 1 ton in
some developing countries.
And while the current financial crisis risks throwing a serious spanner
into the works when it comes to building this compromise, the
deterioration of the world environment continues. Again, another topic
where there is urgency to find a world consensus on the burden-sharing
of CO² emission reductions.
Trade, in contrast, provides a good example of a long-standing
multilateral system of rules. The disastrous domino effect of
protectionist actions in the 1930s provided the collective will to go
global on trade and this is how the General Agreement on Tariffs and
Trade (GATT), the WTO predecessor, was born in 1947. Since then, all WTO
members have shared a broad consensus that gradual and negotiated trade
opening is a win-win game and that it needs to be accompanied by a set
of multilateral rules. There is a place to negotiate, monitor and
enforce these rules, including a binding Dispute Settlement Mechanism
with no precedent in the international system.
Sixty years of multilateral trade rounds, encompassing more and more
aspects of international trade and now comprising 153 members (seven
times the original club of around 20 members) with 30 waiting in the
line for accession, are evidence of the capacity of WTO members to
compromise.
It was this dense system of enforceable multilateral rules which played
a major role in helping the WTO to maintain open markets during the
Asian financial crises in the late 1990s. The WTO was the “shock
absorber” which prevented the crisis from spilling over to trade thus
compounding an already severe situation.
Hence, strengthening WTO rules and disciplines for fairer and more open
trade is an insurance policy against the contagion of financial crises.
Stronger trade rules make the recourse to protectionism more difficult
in periods when markets need to remain open to offer a chance to
crisis-stricken economies to turn around their balance of payments. The
WTO can offer conditions for predictable and stable trade expansion,
while being a major back-stopping mechanism in case of financial
turmoil.
As cross-border financial transactions are inherently more volatile than
the cross-border movement of goods, there is a need to have more
efficient back-stopping mechanisms to limit the contagion of such
financial instabilities on the real economy. The WTO values the
existence of an increasingly globalized financial system, because the
expansion of world trade needs an efficient allocation of capital. But
we are mindful that global financial flows should not become a source of
instability in their own right.
Trade is not the cause of financial turmoil but good trade policies may
be but part of the solution. It allows unused resources linked to the
fall in domestic markets to be exported. Trade opening can also be
useful, by increasing the efficiency of affected economies, bringing
fresh capital inflows — in financial services for example — and by
providing new export opportunities. The resort to protectionism is made
much more difficult for countries that wish, in a non-cooperative mode,
to shield themselves from the exports of crisis-stricken countries.
While trade expansion has been a visible part of globalization, and
hence the target of globalization anxieties, the current crisis in the
financial markets shows that the bursting of the financial bubble may be
much more destructive, leaving people without housing, jobs and savings.
The WTO could play an even stronger role in bringing about more market
access, greater predictability and security in real economy
transactions. Strengthening anti-protectionist disciplines at the WTO,
and offering more stable access conditions to all countries, including
developing countries, will make them less reliant on cyclical
developments and help them widen their export base.
And this is why there is urgency today in concluding the on-going WTO
negotiations under the Doha Development Agenda. A decisive push now
towards the conclusion of the Doha Round would hence be an investment on
which WTO members would find a rapid positive return.
So, trade is the low-hanging fruit in a complex set of issues requiring
collective action now, including finance, the environment and energy.
The question arises whether these issues should be tackled one by one or
as some sort of “grand bargain”. My sense is that, even if these issues
have to be solved one by one, there is a need for world leaders today to
look at all these issues as parts of one reality: the need to achieve a
better redistribution of powers between developed and developing nations
and the assumption by all nations of their corresponding
responsibilities to tackle these global challenges. All nations need to
make their contribution to a global solution. The Doha Round can be
fixed now. Let’s fix it while devising solutions to the rest of the
challenges.
Ladies and gentlemen, to conclude,
John Maynard Keynes once said that “practical men, who believe
themselves to be quite exempt from any intellectual influence, are
usually the slaves of some defunct economist”. Whether you believe this
or not, we know that without a coherent intellectual basis to anchor
policy, government decisions become prisoners of vested interests or of
short-term goals. This has been true for domestic issues for a long
time. It has become true now for global issues.
We need intellectual grasp, knowledge and the hard work of research. The
Global Public Policy Network can help us all to provide these. I would
encourage you to continue helping us better understand the complex
realities ahead of us, so that they can be tackled.
Thank you for your attention and I wish the conference every success.
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