Thursday, 1 October 2009

Global Economics And Global Government

(Funny how an idea that looked so strange and impossible even a few years ago, is self evident now.)

A very odd thing is going on in the world. The rise of the global market led to unprecedented global flows of products and services, technology and capital, people and resources. International economics is giving way to global economics. It has become clear that there can be no national stability without taking into account global systemic risk. And there can be no - or at least little - national economic development without being integrated into the global economy. We are living, in other words, in a global socio-economic system with global stability risks, global environmental problems, and global resource constraints.

But we do not have a global government.

If we look back to the way we thought about the world even ten years ago, it is striking how much more global our problems have become. The economic crisis (arguably one of the two largest in the Western world ever, and probably the first truly global crisis) has highlighted the cost of not having a global financial regulatory framework. The panic and despair of policy-makers as they have tried to react to the meltdown has made us painfully aware of the necessity of a global economic policy framework.

At the same time - and independent of the crisis - economic inequality and the lack of a global cultural framework bring serious instability issues.

And if that was not enough, the world, or to be more precise the global society, is learning how to live with an ecological system that has run out of buffers. The climate is warming as a direct effect of human action, the Earth is going through its sixth major extinction period (and all signs show that this is also the fastest), fish stocks are almost certain to collapse in the foreseeable future as a consequence of overfishing, and our short-termist exploitation of resources is set to make a large part of the global population destitute in the coming decades.

To top it all, the threat of nuclear proliferation has returned, a situation which is certain to worsen thanks to easier access to technology and a renewed interest in nuclear power, both of which we otherwise see as positive developments.

Imagine that the above list of functions and problems was not about the global society and the global economy or the biosphere or the global climate, but were characteristics of just one country. It would be obvious that this country needed country-level rules to prevent financial meltdown. It would need institutions able to manage the economy and solutions that would ensure internal systemic stability, whilst preventing self-destructive, unnecessary weapons from spreading. We have known for quite some time now that there is no other solution to the tragedy of commons problem than a communally accepted and enforced set of rules. These are all government functions. Obviously.

The funny thing is, that the above reasoning is a technocratic argument and not a political one. There is no need for any other values than the value of human survival and common sense (in economics terms, a not very high discount rate of the future, and a minimum efficiency requirement when managing socio-economic systems). There are no other norms at play here. It should not matter whether you are socialist, conservative, or liberal, or any other flavour, as long as you agree on the value of human survival and common sense. And, apart from some fringe movements, these values are rarely questioned. The rest should be straightforward.

But it is not.

The global society is now learning to think hard about itself. Our record in creating knowledge about our global self is not bad at all. Global climate models were extremely rudimentary 20 years ago, and did not exist 40 years ago. Global economics was still international economics five years ago, and there were no global economic models whatsoever 30 years before that. Even a few decades back we did not understand the first thing about ecological systems or the role of human societies in them.

The trouble is that we are not learning fast enough. We understand short-term climate change well, but our understanding of the long-term climatic cycles is very limited. Thus we know that it is getting warmer but not compared to what. We have unprecedented quality and quantity of economic data collected in publicly available data sets, combined with computing capacity that we only dreamt about a few years back. Still our economic models can predict the behaviour of the global economy only a few months or perhaps a year ahead, at the best of times. Worst of all, although we increasingly understand the fragility of the ecological systems that we are part of, our understanding of the details and thus our ability to intervene is extremely limited.

We need some serious thinking about the global socio-economic and ecological system, and we need to get down to building those global institutions earlier than later.


  1. It is unrealistic to expect the political elites of the western countries to give up power for the sake of an ellusive, and unpopular global government. The US cannot even sign up for a an international criminal court! Add to that the newfound global strength of India and China. They will not be happy someone coming again to tell them what to do.

    This is hopeless.

  2. Perhaps time to re-read Elinor Ostrom...