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:

• 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

• 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

• the definition of global rules will require a dialogue with financial operators, central banks and other supervisory authorities

• 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 CO_² 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 CO_² 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 CO_² 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.