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Global Governance and the Role of Markets (Part III)

How will failure to address the excesses of past decades lead to greater disharmony in the future?

November 26, 2011

Greed and exclusive bonus payments have all added to a growing sense of anger, disillusionment and distrust. Markets shifted out of the real economy and into “illusory” wealth creation with disastrous results for all but a handful of lucky speculators. The market had become a casino where few win and most lose.

There is a need to reposition economics as an important driver of fair, equitable and efficient markets. There is an urgent need for an ethical code of conduct that goes well beyond what is on the books today.

In addition, markets will need to play a new role in facilitating the funding and delivery of a great many services that will be required for a sustainable world in 2050, including ecosystems services and carbon reduction.

New markets will also increasingly display both a public good and a private good character suggesting that new forms of risk-reward frameworks will be needed to ensure that both streams are served and provided appropriate returns.

Four sets of questions need to be addressed:

  • What form of national and international regulation and oversight can provide the correct balance between profitability and public good concerns? What levels of transparency protect the common good yet provide the incentives for financial accumulation? What is good governance and how can it be rewarded?
  • How can markets be developed that provide the goods and services that are commensurate with the need for a sustainable planet? How do we lengthen the financing horizon to ensure that long-term sustainable investments in forests or in climate change can be realized? How do we develop markets for global and national public goods in which fair economic returns can be provided to the public good and fair financial returns to the private sector? Where do the most promising markets for sustainability lie (carbon, forestry, ecological services, jobs, social outcomes)?
  • What is the correct role for the public sector in a world where public and private returns will be commingled? What is enlightened public policy and what role should it play in creating markets for future goods and services with a high public good content?
  • Is there an ethical base that accompanies the economics of markets? Does the corporate and private sector have a moral duty to serve beyond the “bottom line”? And if so, how?

Markets need to be reoriented to ensure that real economic values are reflected fully in market decisions:

  • Moving wealth into productive and sustainable investment opportunities and measuring real gains.
  • Developing new market mechanisms that can better realize the real value of all assets, including social and natural capital.
  • Substituting opaqueness for transparency to reduce financial risks.
  • Substituting prudence and predictability for the kind of “casino banking” that has produced such spectacular failings and human misery.

Could global governance be a countervailing force? In my view, the odds are good. The world has rapidly become a smaller place. Each and every one of us is a global citizen. What we do affects our planet, and what happens to our planet affects us, no matter where we live, no matter our income. Indeed, our future depends on how well we manage “issues without passports.”

There are three groups of global issues that now require our urgent attention. First, the rise of “global commons” issues such as climate change and the loss of fisheries and damage to the oceans. Second, a strong “global conscience” that has turned attention to world poverty, hunger and security. Third, a dramatic rise in establishing “clear global rules” that make each of our lives safer, more predictable and protected.

Global rules on common standards of air safety, accounting standards and on the conduct of war have been in existence for many years. New considerations are required for financial and banking transactions, environmental goods and services, human trafficking and on many more issues.

Yet despite the demand for such services, the world has struggled to find the correct frameworks to effectively and efficiently develop new standards and to provide the means for effective implementation.

The reasons for this are varied and complex. They include a lack of political will, myopic leadership, ineffective and underfunded institutions (such as the United Nations) and undemocratic and nonrepresentative global institutions (such as the Breton Woods organizations). There is also the inability to find institutions that are multi-stakeholder at a time when state-centric policies require broader legitimacy. Another hurdle to overcome (at long last) is the marginalization of the emerging economies in key global decisions.

The spectacular failings of the climate change meeting in Copenhagen, in December 2009, brought it home to many: When consensus becomes the agreement of the least committed with the least interested, we know we have a global problem. As citizens of the world, we deserve better. Citizens everywhere deserve a voice in global decision-making and greater accountability.

Global governance is no lofty issue. It is a matter for serious attention for citizens with a keen interest in democracy everywhere. Fortunately, a few progressive governments and researchers are now beginning to explore new forms of global governance. They could provide a cornerstone of broad-based support for the implementation of progressive and equitable global policies.

There are, of course, those who claim that the idea of global governance and the rights of local communities are in direct conflict with each other. Worse, they believe that the entire notion of global governance nullifies local power. Far from it. Individuals and local communities can and do make a big difference as to how we resolve global issues.

Individual behavior and actions make a difference. Recycling, once considered the preserve of only a few dedicated environmentalists, is now a standard and accepted practice in millions of households. Personal choice on decisions to improve household energy choices and to reduce personal and household carbon footprints has had a global effect.

Individual commitment to a changed and better world is fundamental. Providing the opportunity, aligning the correct policies, introducing the appropriate incentives are all important — and yet it is at the individual and local community levels where we will see real change.

Major changes in the speed, cost and quality of information — as well as more recent changes in scale economies in the energy and other sectors — suggest that in order to bring about real global change, it may be feasible to scale down to the household and community level rather than scale up to larger sources.

The case for increased attention to “the rule of subsidiarity” is clear. Local community organizations and local administrations will rise in importance over time.

Global governance will also get to govern if it is adapted massively at the local level in communities all across this globe.

Read Part II here and Part IV here.

Editor’s note: This essay was adapted from the author’s presentation at the 2011 Salzburg Trilogue. Hosted by the Bertelsmann Stiftung, the Salzburg Trilogue facilitates international cultural dialogue by bringing together recognized public figures to consider matters of global importance.