The Deepening Crisis
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The Deepening Crisis

Governance Challenges after Neoliberalism

Craig Calhoun, Georgi Derluguian

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eBook - ePub

The Deepening Crisis

Governance Challenges after Neoliberalism

Craig Calhoun, Georgi Derluguian

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Response to financial meltdown is entangled with basic challenges to global governance. Environment, global security and ethnicity and nationalism are all global issues today. Focusing on the political and social dimensions of the crisis, contributors examine changes in relationships between the world's richer and poorer countries, efforts to strengthen global institutions, and difficulties facing states trying to create stability for their citizens.

Contributors include: Immanuel Wallerstein, David Harvey, Saskia Sassen, James Kenneth Galbraith, Manuel Castells, Nancy Fraser, Rogers Brubaker, David Held, Mary Kaldor, Vadim Volkov, Giovanni Arrighi, Beverly Silver, and Fernando Coronil.

The three volumes can purchased individually or as a set.

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Publisher
NYU Press
Year
2011
ISBN
9780814772829

CHAPTER 1

Crises in Parallel Worlds: The Governance of Global Risks in Finance, Security, and the Environment

David Held and Kevin Young
The world has recently witnessed the largest and most widespread financial crisis in many decades. What is the significance of this event? Most commonly, the calamity is seen through the prism of policy failure, albeit on a massive scale—a failure of corporate governance, a failure of financial risk models, or a failure of monetary policy. Even more widespread is the view that the financial crisis has signified the failure of a particular ideology, neoliberalism, and its emphasis on efficient markets and deregulation. While there are elements of truth to each of these observations, comparatively less attention has been paid to the ways in which the crisis relates to the character of governance arrangements at the global level. Yet it is from the deficiencies of global financial governance that some of the most important lessons can be drawn. In this chapter, we argue that the global financial crisis and its fallout speak to broader problems of contemporary world order. Rather than a calamity specific to the domain of financial affairs, the recent global financial crisis is only a symptom of more general problems of global governance. These deficiencies, we argue, are present not just in the system of global financial governance but also in the domains of security and global environmental governance.
Our argument proceeds as follows. In section 1, we outline some of the basic characteristics of contemporary global governance, briefly describing some central problems therein. We argue that the three policy domains of finance, security, and the environment have remarkable similarities both in the way in which they underscore global interdependence and in the ways in which the governance of these domains remains woefully inadequate to manage contemporary global risks. Each of these policy domains suffers from what can be called a “capacity problem”: that is, existing institutions are inadequate to address the global nature of risk and are unfit for that purpose. They also suffer, to varying degrees, from a “responsibility problem”: namely, that the spread of risks and the costs borne by their realization are not commensurate with those involved in their governance.
In section 2, we outline the manifestation of the capacity and responsibility problems in the domain of global financial governance, highlighting the interrelated governance weaknesses among existing institutional configurations. In section 3, we outline similar deficiencies in the domains of the environment and security. In section 4, we describe prospects for the future of global governance in light of these weaknesses. We argue that recent attempts to address deficiencies in global financial governance, imperfect as they are, reflect the fact that focused, politicized attention to the global nature of risks can yield progressive reform. A continued trajectory of progressive reform is hindered, we argue, by the dual challenges of institutional inertia on the one hand and vested interests on the other. We conclude by offering some thoughts on the political space for further transformation in the future.

1. Global Governance and the Paradox of Our Times

It is now increasingly acknowledged that complex global processes, from the financial to the ecological, connect the fate of communities to each other across the world. Despite the fractures and conflicts of our age, societies are becoming more interconnected and interdependent. As a result, developments at the local level—whether economic, political, or social—can acquire almost instantaneous global consequences, and vice versa. Thus, global interconnectedness means that emerging risks or policy failures generated in one part of the world can travel quickly across the world to affect people who had no hand in their generation. Yet the problem-solving capacity of the existing system of global institutions is in many areas not effective, accountable, or fast enough to resolve current global dilemmas. What has recently been called the paradox of our times refers to the fact that the collective issues with which we must grapple are of growing extensity and intensity and yet the means for addressing these issues are weak and incomplete.1
Contemporary global governance is pervaded by a variety of different international organizations and actors. A thickening web of multilateral agreements, institutions, regimes, and transgovernmental policy networks has evolved over the past six decades, intervening in and regulating many aspects of national and transnational life. This evolving system is far from coherent and complete, lacking ultimate legal authority and a means to uphold international law, but it is much more than a system of limited intergovernmental cooperation. With the United Nations as its institutional core, it comprises a vast range of formal suprastate bodies and regional organizations, as well as regimes and transnational policy networks embracing government officials, technocrats, corporate representatives, pressure groups, and nongovernmental organizations (NGOs).2 Although these bodies and networks lack the kind of centralized, coordinated political capabilities and enforcement capacities that are associated with national governments, it would be a mistake to overlook their expanding jurisdiction and scope of global public policymaking.3 International organizations play an increasingly prominent role in the governance of the global economy, by setting standards, facilitating communication, enforcing rules, providing financial assistance, and coordinating policy responses. They are accompanied by an increasingly dense array of nonstate actors organized transnationally with the objective of affecting such global policymaking, and states and regional state groupings of all kinds are themselves embedded in this complex web of interactions, responding and coordinating their policies in accordance with external and supranational prerogatives.
Despite the existence of such a complex system of global governance, global public goods, such as financial stability, seem to be chronically undersupplied, and global bads, such as environmental degradation, build up and continue to threaten livelihoods. Though there are a variety of reasons for the persistence of these problems, at the root the problem is a political-institutional one, a problem of governance. Problem-solving capacities at the global and regional levels are weak because of a number of structural difficulties that compound the problems of generating and implementing urgent policies. These difficulties are rooted in the post-war settlement and the subsequent development of the multilateral order that followed in its wake.4 The multilateral order founded after World War II was designed for a different era—and thus many of its institutional arrangements were designed for a world that no longer exists. Furthermore, the extensity and intensity of many pressing problems today, from climate change to the regulation of global financial markets, sharply increase the governance capacity required of multilateral institutions—something they have not delivered particularly well.
The difficulties faced by these more contested agencies and organizations stem from many sources, such as geopolitical resistance and the tension between state sovereignty and universal values built into them from their beginning. Many global political and legal developments since 1945 do not just curtail sovereignty but support it in many ways. From the UN Charter to the Rio Declaration on the environment, international agreements often serve to entrench the international power structure, with this institutional inertia acting to undermine effectiveness in addressing global issues. The division of the globe into powerful nation-states, with distinctive sets of geopolitical interests, was embedded in the articles and statutes of leading international governmental organizations (IGOs).5 Thus, the sovereign rights of states are frequently affirmed alongside more universal principles. Moreover, while the case can be made that universal principles are part of “the working creed” of officials in some UN agencies such as the United Nations Children’s Fund (UNICEF), the United Nations Educational, Scientific, and Cultural Organization (UNESCO), and the World Health Organization (WHO) and in NGOs such as Amnesty International, Save the Children, and Oxfam, they can scarcely be said to be constitutive of the conceptual world and working practices of many politicians, democratic or otherwise.6
Elements of international law do establish principles for justice beyond borders, but the reach of contemporary regional and international law rarely comes with a commitment to establish institutions with the resources and authority to make declared universal rules, values, and objectives effective. The susceptibility of the United Nations to the agendas of the most powerful states, the partiality of many of its enforcement operations (or lack of them altogether), the underfunding of its organizations, the continued dependency of its programs on financial support from a few major states, and the weaknesses of the policing of many environmental regimes (regional and global) are all indicative of the disjuncture between universal principles (and aspirations) and their partial and one-sided application.
Such problems of governance have a variety of different dimensions;7 however, it is possible to group these succinctly into two categories, noted in the introduction. The first is called the capacity problem. While the globalization of persistent risks means that a growing number of issues span both the domestic and the international domains, the character and scope of institutions are insufficient to deal with the systemic nature of these risks. Institutional fragmentation and competition between states can lead to such policy issues being addressed in an ad hoc, dissonant manner. Even when the global dimension of a problem is acknowledged, there is often no clear division of labor among the myriad international institutions that seek to address it: their functions often overlap, their mandates conflict, and their objectives often become blurred. In this regard, existing multilateral institutions are seldom afforded the institutional resources to tackle what are effectively global-level policy issues. The United Nations, for example, lacks the resources to effectively realize the Millennium Development Goals, the global action plan by the United Nations to achieve eight major antipoverty goals by 2015; international security arrangements lack the orientation and resource capabilities to promote human security; and existing multilateral financial governance institutions lack the capacity to engage in effective financial regulatory reform and control.
The second problem is the responsibility problem. Put succinctly, the existing system of global governance suffers from severe deficits of accountability and inclusion. Less economically powerful states—hence, their entire populations—can be either marginalized or excluded from decision making altogether. This is witnessed not only in the structures of formal representation of states in existing international organizations but also in the decision making and agenda setting of global forums more generally. The severity of this problem is exacerbated, and its persistence sustained, by the fact that the relative costs associated with global risks can be larger for people who play little or no role in the generation of the problem in the first place. The recent global financial crisis is a stark example: the negative consequences of the near meltdown of the Anglo-American banking systems have had rapacious consequences for the economic and social well-being of people in sub-Saharan Africa, for example.
In what follows, we highlight the concrete manifestations of the capacity and responsibility problems. In so doing, we argue that strikingly similar deficiencies within global governance can be seen within three of the major policy domains that affect the basis of people’s interconnectedness: finance, security, and the environment. Each of these domains constitutes a part of what can be referred to as the global commons: the collectively shared domains that tie diverse populations, interests, and concerns together into a global community of fate. Each of the three policy domains has at its core a central element that has a strong bearing on human welfare regardless of geography and culture. In the case of finance, it is the international organization of the supply and management of credit. In the case of the environment, it is the complex resource systems of the natural world, natural systems that do not acknowledge modern notions of sovereignty. In the case of security, it is the access to basic means of physical well-being, most commonly understood as the protection from arbitrary violence. Despite the importance of each of these core elements to the well-being of every human being on the planet, the governance of each of these policy domains remains plagued by difficulties. Finance, the environment, and security all remain, to different degrees, subject in their governance to both the capacity problem and the responsibility problem.

2. Deficiencies in Global Financial Governance

The recent financial crisis demonstrates an important feature of our contemporary world. The interconnectedness afforded by globalization, for all its benefits, also disperses global risks at a rapid rate. The globalization of financial markets has integrated the global economy in unprecedented ways, and yet the rules and institutions that monitor and regulate financial market activity have not kept pace. The rapidity of financial flows and the evolution of private-sector techniques have outstripped the grasp of any single national regulatory authority to govern them; and at the global level, this problem is even more pronounced. The system of global financial governance was weak and largely unprepared for the events of autumn 2008. To be sure, many of the proximate causes of the financial crisis can be attributed to workings within the US financial regulatory system and are thus national and not global in character. However, the transmission of financial shocks as a result of the subprime crisis and the collapse of the US investment banking industry were unmistakably transnational in character. The seizing up of liquidity was a global phenomenon, as were subsequent shocks to stock market capitalization and the rapid changes in the cost of credit. The financial crisis is but one mechanism through which globalization has unified human experiences: the foreclosed and unemployed US worker and the rural African farmer both experience the negative consequences of the crisis they had no hand in making, even if they remain as distant others to each other.
The capacity problem runs deep in global financial governance. The existing system of global financial governance has been, for most intents and purposes over the past twenty years, weak and highly fragmented. While the International Monetary Fund has played an important role in coordinating emergency financing in exchange for structural and institutional reform of national economies, it has not played a major part in the regulation of financial markets. On the contrary, its institutional focus has been on the regulation of governments and government policies, rather than on financial market activity per se. The World Bank has even less to do with the governance of finance on a global scale—despite its importance in development assistance and the shaping of government policy options. At the center of the global financial regulatory regime has been a complex of institutions that have constructed an elaborate system of standards and codes that have sought to govern the conduct of financial activity and its regulation. Across sectors, there has been considerable institutional fragmentation. There is one institution for international standards in securities markets (the International Organization of Securities Commissions, or IOSCO), one for accounting (the International Accounting Standards Board), one for money laundering and illicit finance (the Financial Action Task Force), one for insurance (the International Association of Insurance Supervisors), and one for banking regulation (the Basel Committee on Banking Supervision).8
Some institutions, such as the Bank for International Settlements, the Joint Forum, and the Financial Stability Forum, have existed as overarching institutions that seek to monitor and conduct research on global financial risks and to disseminate ideas. By facilitating communication—formally and informally—between and among national and subnational regulatory regimes, these institutions have performed a valuable function. Such communication has helped stimulate some important advances, such as the limitation of financial regulatory competition among states, the provision of emergency liquidity, the occasional coordination of monetary policies, and the combating of money laundering. Yet the capacity of this system both to detect and to take action on the buildup of global financial risks has not been borne out. The buildup of these risks can be traced back to regulatory deficiencies in the Anglo-American banking systems and to the financialization of capitalism more generally.9 However, it is notable that the existing institutions of global financial governance did not restrain existing tendencies but rather bolstered the Anglo-American models from these countries and made them models for others across the world. For example, strong confidence in banks’ own internal risk assessments was a cornerstone of both the Federal Reserve in the United States and the Financial Services Authority in the United Kingdom, and this confidence was translated into the international regulatory standards for banking in the Basel II Capital Accord. Other regulatory agenda items, such as the regulation of derivatives transactions and hedge funds, seld...

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