Saturday, January 5, 2013

Global Governance

This is an article of complete speculation.  Just FYI….

I have previously mentioned my view that the implementation of global governance is behind us, and not in front of us – and that the implementation of the major necessary institutions was accomplished through the United States in the aftermath of the Second World War.  From the post:

Every institution necessary for world government is in place.  Many of those institutions were firmly established in the aftermath of World War II…when guess-which-country held all the cards.  The United Nations, IMF, World Bank, NATO, etc…even the global currency was established at Bretton Woods.

The United States took the place of Britain as being the tool to expand empire – a necessity given the limitations of British power and reach that were being exposed in the first half of the last century.  In the aftermath of World War II, the U.S. tool played its part – establishing the institutions that would enable global consolidation.

In the time since then, we have seen Bretton Woods come apart and the strength of the US economy and dollar grow relatively weaker.  Can it be that, having served its purpose, the US is no longer necessary to lead?

The International Monetary Fund (IMF), at long last, has begun to open up. Gone are the days when it acted as a handmaiden of Western, mainly US, economic orthodoxy. It is even throwing a gauntlet down to the mighty US Federal Reserve, questioning the effects its constant monetary boosting has had on the rest of the world.

Enter the now more open-minded IMF, as Boston University professor Kevin P. Gallagher has documented, it has issued a whole range of reports that cast a critical eye on the spillover effects that quantitative easing in the US has had on emerging market economies.

Members from emerging markets are having a greater say in IMF policy.  But what struck me about this article was the repeated use of the term “global” as regards governance, finance, etc., as follows:

Given that the IMF is the key arbiter on many key issues of global finance and economics, and hence also over global fairness and equity…

Given the global economic dynamics…

…have seen to it that the notion of "global governance" finally gets some real-life meaning.

Global governance reform is about much more than changing voting rights in the IMF's and the World Bank's boards. It concerns a very hands-on process to ensure a fair and equitable share of the burdens of adjustment in the global economy and finance.

The success of this campaign owes much to the fact that the richer countries from the South now act very much as global lenders, too.

…it would represent a big step forward for better global governance.

That this is happening in the field of global finance makes it that much more meaningful.

Could it be that a) with the global systems in place and developed, and b) many of them have gained new “legitimacy” given the financial calamity of the last five years, and c) the economies of the West are clearly living in an unsustainable manner, it is time for d) the move to truly globalize these structures?

A second message I took from this article was the suggestion that capital controls implemented in emerging market economies put in place to limit inflows might also be necessary in the developed economies to limit outflows:

The IMF found, for example, that lower interest rates in the US were associated with a higher probability of a drastic increase in capital flow into emerging market economies. And it declared that such increase in capital flows can cause currency appreciation and asset bubbles, which in turn can make exports more expensive and destabilise the emerging market economies' domestic financial systems.

In addition, the IMF is warming up to the view that, in order to fend off these problems, it may well be advisable to use counter-cyclical capital account regulations, as Brazil and South Korea have begun to do. The use of such regulations flies in the face of the old IMF orthodoxy. At the behest of the US Treasury, especially under secretaries of Treasury Robert Rubin and Larry Summers during Bill Clinton's presidency, it preached the "gospel" of unfettered capital market liberalisation to the newly emerging economies.

What shines through all these technical-sounding arguments is that the burdens of adjustment are no longer automatically imposed on the recipient countries in the South. The countries in the North, mainly the US, may need to regulate the outflow of capital from their shores.

I can think of national reasons to limit international capital transactions, but why do so if global governance is the objective?  Unless the limits are to be placed on “non-approved” entities, with “approved entities able to continue transactions.

The Daily Bell recently speculated on global fascism being the ultimate desire of the elite.  It certainly could be so, with global governance going hand-in-hand with international corporations.  Could the capital limits be put in place for the non-approved entities in order to drive more business through the approved (and much more visible) entities?

(h/t Ed Steer)

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