Economic globalization and global economic governance

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Economic globalization and global economic
governance

• Federico Steinberg

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Outline

• Economic Globalization
• Economic and Political effects of globalization
• The challenge of global economic governance

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What is economic globalization?

• A dynamic process of global economic integration
  characterized by increasing freedom in the
  movement of labor, goods, services, technology,
  and capital
• (De la Dehesa, 2000).
• Increase in international flows of
• Goods
• Services
• Capital
• Information

Migration?
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What is globalization?

• Globalization is explained by
• Reduction of transactions costs (transport and
  communication)
• Deep economical liberalization (last 3 decades)
• Incorporation of millions of people to the world
  economy, especially in Asia

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The expansion of trade
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Number of regional trade agreements notified to
the GATT/WTO, 1948 - 2006 (includes active and
inactive agreements by year of entry into force)
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Immigration

• 3,5 of world population is migrant (220mn)
• Causes labor shortage and ageing in OECD,
  abundance in developing countries
• Impact higher employment rate, higher mobility
  and low unemployment rate in OECD countries
• Elements of conflict in the EU
• Direct competition for jobs and ? wages
• Fear over the sustainability of the Welfare State

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Is globalization something new?

• Ratios of commercial and financial integration
  similar to the ones in 1900BUT
• New role of trade in services
• Intra-industrial trade
• Role of MNCs
• Role of emerging markets
• Higher financial interdependence
• Importance of the portfolio investment flows
• Frequency of crisis México 1994/95, Asia 1997,
  Brazil/ Russia 1998, Argentina 2001, CURRENT

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New map of the world?
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El mundo emergente ya es más importante en
términos de PIB que el avanzado
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The great Financial liberalization

• Deregulation, free capital movements and the rise
  of shadow banking
• Explosion of new financial instruments and hedge
  funds in an environment of increased leverage
  (derivatives, new forms of securitization, CDS)
• Fostered by excess liquidity in rich countries
  and excess savings in emerging markets (global
  imbalances)

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The financial crisis
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Economic impact of globalization

• Greater economical interdependence
• Better allocation of natural resources
• Greater opportunities of growth
• Higher speed in technological transfer
• But

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New costs and risks

• Less policy space for governments in economic
  policy
• The Welfare State under pressure in rich
  countries
• Unequal opportunities in poor countries
• Short run adjustment costs
• Higher unemployment/lower wages
• Sectorial restructuring, relocation and
  outsourcing
• Increased inequality
• Greater economic insecurity
• Microeconomic level personal economic risks
• Macroeconomic level higher markets volatility
  and greater exposure to external shocks

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Public opinion perceptions
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Example United States

• Free Trade increases the output in the USA by 1
  billion dollars per year, 10,000 per each
  American home. Peterson Institute for Internat.
  Economics
• In 2004 the real income of the 1 USA richest
  population increased 12 and the rest 99 average
  increased 1,5. In other words few people
  received most of the benefits of growth Paul
  Krugman
• In real terms, the average wage increased 11,5
  between 1979 and 2006 the lowest 10 increased
  just 4 and the 90 highest increased 34. Ben
  Bernake, Fed Chariman

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Correlation Welfare state and support for free
trade, OECD, 2000-03
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Debates about convergence and inequality
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The rise of global imbalances

• After the 1997 Asian Crisis developing countries
  pursued self insurance policies
• Undervalued exchange rates
• Current account surplus
  Increased
• Reserve accumulation Global
  Imbalances

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Political impact of globalization

• Diffusion of power in the world economy
• States lose power in favor of
• Markets
• International economic institutions
• New non-state actors(MNCs, NGOs, mafia, )
• ? sovereignty reduced
• BUT
• States are still the main actor of IR
• The loss of power does not affect equally all
  countries
• This situation demands new global economic rules
• 
  ? Global governance

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• Increasingly globalized
• Economic Polices and Regulations still national
• Unequal income distribution
• Loss of sovereignty (and legitimacy)
• CONFLICT
• (specially after the financial crisis)
• Need for new global rules
• ? Global Economic Governance
• (Everywhere?)

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Global Governance

• Global governance refers to the creation of
  rules and the exercise of power on global scale
  Since there is no global government, global
  governance entails strategic interaction among
  entities that are not hierarchical distributed.
  Robert Keohane
• Economic perspective global governance focuses
  on providing global public goods
• No rivals in consumption
• Non excludible through prices
• With positive externalities and trans boundary
  effects
• In a multipolar world, without an hegemonic
  power, international cooperation is needed

WHICH ONES?
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Problems and challenges (I)

• But since global governance is exercised from
  different areas it raises problems
• It can be democratic or not
• Even if it is democratic, it will present
  accountability problems and democratic deficit
• Therefore, the challenge is to establish a global
  economic governance that allows
• Taking advantage of globalization and reduce its
  adverse effects
• Distribute more fairly its benefits as to avoid
  a backlash against globalization

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Problems and challenges (II)

• Resistance to the transfer of sovereignty to
  supranational organisms
• US (Climate change, ICC, ODA, etc.)
• Emerging countries (irresponsible position?)
• European Union as a supranationality model?

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Problems and challenges (III)

• A more legitimate leadership (and effective)
• What role for the G-20?

• Long run perspective

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The global economic governance agenda

• Global Trade Governance WTO
• Reform of the international monetary system
• Global imbalances, reserve currency, adjustment
• Development and fight against poverty (ODA, ODG
  and food security)
• Energy security and climate change
• International Migrations
• More equality in the distribution of income and
  opportunities?