Closing the governance gap

Nothing endangers globalization more than the yawning governance gap - the dangerous disparity between the national scope of political accountability and the global nature of markets for goods, capital and many services - that has opened up in recent decades. When markets transcend national regulation, as with today’s globalization of finance, market failure, instability and crisis is the result. But pushing rule-making onto supranational bureaucracies, such as the World Trade Organization or the European Commission, can result in a democratic deficit and a loss of legitimacy.

How can this governance gap be closed? One option is to re-establish national democratic control over global markets. This is difficult and smacks of protectionism, but it is neither impossible nor necessarily inimical to healthy globalization. As I argue in my book “The Globalization Paradox,” expanding the scope for national governments to maintain regulatory diversity and rebuild frayed social bargains would enhance the functioning of the global economy.

Instead, policy elites (and most economists) favor strengthening what is euphemistically called “global governance.” According to this view, reforms such as those that enhance the effectiveness of the G-20, increase the representativeness of the International Monetary Fund’s Executive Board, and tighten the capital standards set by the Basel Committee on Banking Supervision would be sufficient to provide a sound institutional underpinning for the global economy.

But the trouble is not just that these global institutions remain weak. It is also that they are inter-governmental bodies - a collection of member states rather than agents of global citizens. Because their accountability to national electorates is indirect and uncertain, they do not generate the political allegiance - and hence legitimacy - that truly representative institutions require. Indeed, the travails of the European Union have revealed the limits of transnational political community-building, even among a comparatively limited and similar set of countries.

Ultimately, the buck stops with national parliaments and executives. During the financial crisis, it was national governments that bailed out banks and firms, recapitalized the financial system, guaranteed debts, eased liquidity, primed the fiscal pump, and paid the unemployment and welfare checks - and took the blame for everything that went wrong. In the memorable words of outgoing Bank of England Gov. Mervyn King, global banks are “international in life, but national in death.”

But perhaps there is another path, one that accepts the authority of national governments, but aims to reorient national interests in a more global direction. Progress along such a path requires “national” citizens to begin viewing themselves increasingly as “global” citizens, with interests that extend beyond their state’s borders. National governments are accountable to their citizens, at least in principle. So, the more global these citizens’ sense of their interests becomes, the more globally responsible national policy will be.

This may seem like a pipedream, but something along these lines has already been happening for a while. The global campaign for debt relief for poor countries was led by nongovernmental organizations that successfully mobilized young people in rich countries to put pressure on their governments.

Multinational companies are well aware of the effectiveness of such citizen campaigns, having been compelled to increase transparency and change their ways on labor practices around the world. Some governments have gone after foreign political leaders who committed human-rights crimes, with considerable domestic popular support. Nancy Birdsall, the president of the Center for Global Development, cites the example of a Ghanaian citizen providing testimony to the U.S. Congress in the hope of convincing American officials to pressure the World Bank to change its position on user fees in Africa.

Such bottom-up efforts to “globalize” national governments have the greatest potential to affect environmental policies, particularly those aimed at mitigating climate change - the most intractable global problem of all. Interestingly, some of the most important initiatives to stem greenhouse gases and promote green growth are the products of local pressures.

World Resources Institute President Andrew Steer notes that more than 50 developing countries are now implementing costly policies to reduce climate change. From the perspective of national interest, that makes no sense at all, given the global-commons nature of the problem.

Some of these policies are driven by the desire to attain a competitive advantage, as is the case with China’s support for green industries. But when voters are globally aware and environmentally conscious, good climate policy can also be good politics.

Consider California, which at the beginning of this year launched a cap-and-trade system that aims to reduce carbon emissions to 1990 levels by the year 2020. While global action remained stalled on capping emissions, environmental groups and concerned citizens successfully pushed for the plan over the opposition of business groups, and the state’s Republican governor at the time, Arnold Schwarzenegger, signed it into law in 2006. If it proves a success and remains popular, it could become a model for the entire country.

Global polls such as the World Values Survey indicate that there is still a lot of ground that needs to be covered: self-expressed global citizenship tends to run 15-20 percentage points behind national citizenship. But the gap is smaller for young people, the better educated, and the professional classes. Those who consider themselves to be at the top of the class structure are significantly more globally minded than those who consider themselves to be from the lower classes.

Of course, “global citizenship” will always be a metaphor, because there will never be a world government administering a worldwide political community. But the more we each think of ourselves as global citizens and express our preferences as such to our governments, the less we will need to pursue the chimera of global governance.

Copyright: Project Syndicate, 2013

By Dani Rodrik

The author, a professor of international political economy at Harvard University, is the author of The Globalization Paradox: Democracy and the Future of the World Economy.