Skip to main content
Social Sci LibreTexts

8.4: Towards Global Economic Governance?

  • Page ID
  • One popular way to react to the fundamental changes in the production sphere described above has been the signing of regional and global trade agreements. At times this is combined with further steps towards market integration and intensified political cooperation among nation-states. The exponential growth of such deals has generated a major controversy in the field about whether regional and global organisations constitute a new ideal for the international economic system, making it possible to align the multitude of potential actors for the purpose of creating effective global policies.

    The widespread appeal of regional governance is shown by the prominent examples of regional groupings loosely modelled on the example of the European Union. This can be seen primarily in the North American Free Trade Agreement (NAFTA), the Southern Common Market (MERCOSUR), the Association of South East Asian Nations (ASEAN) and the Economic Community of West African States (ECOWAS). The evidence available so far is inconclusive as to whether regional organisations can act as the final stepping-stone or, perhaps, present a major stumbling block for the emergence of a genuine form of governance in the global system. In the case of the European Union a prime purpose has been to build a single market, but in many areas this has necessitated a range of measures to deal with some of the undesirable consequences of market liberalisation. For the sake of economic prosperity all European Union member states agreed to remove trade barriers and reform some of their domestic regulations, while at the same time devising measures through which particular groups within society are entitled to direct financial compensation. Through its own legislative process, the European Union has also been actively trying to cushion some of the effects of an open market by enforcing environmental targets, health and safety standards and guarantees for equal opportunities.

    The scope of the European Union has also revealed some of the difficulties of regional projects, with member states sometimes wishing to ‘opt out’ of certain areas when they are not in agreement with regional plans – such as adopting the euro currency. An extreme instance of this can be seen in the British vote to leave the European Union in the 2016 ‘Brexit’ referendum. In a wider sense, negotiation rounds for global trade deals, as opposed to regional ones, have stalled and protectionist behaviour for whole industrial sectors has been on the rise. Although tariffs are at unprecedented low levels globally, it has proved much harder to further harmonise national business regulations and guarantee mutual market access. If the aim is to achieve higher growth rates, enhance consumer choice and create more jobs, then hidden trade barriers have to be tackled much more effectively at the global negotiation table. The liberal ambition to take transnational civil society more seriously also comes at a price. Keenly aware of the historical record and detrimental effects of free trade deals, critics are deeply concerned about the repercussions that new large-scale, inter-regional agreements might have. In different parts of the world voters and interest groups have become increasingly sensitive to the impact of trade liberalisation on labour standards, worker rights, income distribution and environmental sustainability.

    More generally, there is a problem with the very institutions of global governance in how they settle a trade-off between their democratic accountability and effective economic policymaking. In the case of the World Trade Organization (WTO), with 164 member states, the implementation of trade rules is not easily reconciled with the demands articulated by international non-governmental organisations such as Greenpeace. These frequently hold the view that the management of international organisations has been captured by a few powerful countries, undermining their role as honest brokers, mediators and enforcers of joint policies (Stiglitz 2002). At the same time, not everyone agrees that giving non-state groups advisory status and better access to the organisation’s internal decision-making would solve the dilemma. Due to the intergovernmental character of the World Trade Organization, its democratic legitimacy is set in a ‘one country, one vote’ system where the governing body consists of trade ministers delegated by the member states.

    From the angle of democratic accountability things look even more problematic in other global economic institutions. Most notably, the International Monetary Fund (IMF), which is charged with the task of ensuring economic stability around the world. The International Monetary Fund allocates voting rights proportional to the size of financial contributions made by its 189 member states. At grassroots level critical voices view this as fundamentally contradicting the organisation’s goal of global policy change and economic reform. They see a desperate need for new social mass movements to address the failings of deregulated capitalism, build working arrangements for global governance and arrive eventually at a fairer world. Despite pessimistic assessments of the viability of such a system of global governance, an element of optimism can be gained from historical experience of bottom-up community building and the transformative power of human agency (Hale et al. 2013). Although there is always the risk that the political adjustment process at transnational level may offer too little too late, the historical work of Polanyi suggests with a degree of certainty that, under exceptional circumstances, previously passive individual actors – the ‘silent majority’ in conservative terminology – can proactively instigate large-scale institutional change.