21 Aug THE GOVERNANCE GAMES
THE GOVERNANCE GAMES
As happens every four years, the world is transfixed by the Summer Olympic Games. Yet even the brilliance of Usain Bolt, Simone Biles, Wayde van Niekerk, Katie Ledecky, and so many others has not obscured the dirty underside of the Olympic Movement – the self-serving governance of the International Olympic Committee.
Lucy Marcus of IE Business School gets straight to the point: “Thanks to the IOC,” she says, the Olympics now “embodies some of the most prominent problems the world is facing today, from inequality to exploitation to sheer hypocrisy among our leaders.” The IOC disregards the athletes’ interests, to the point that it permitted the Russian team to compete in Rio de Janeiro, despite recent revelations about Russia’s official doping program and the World Anti-Doping Agency’s recommendation that the team be banned. Likewise, it is “indifferent to how host cities and countries” fare, particularly the vast debts that pile up in hosting the Games.
Tokyo’s new governor, Yuriko Koike, is already concerned that the 2020 Summer Games in her city may “hobble future generations with debt,” not to mention “white-elephant structures that served a single purpose in 2020, only to mar the skyline for years and decades after.” But no one should be surprised by the IOC’s disregard for its stakeholders. After all, says Smith College economist Andrew Zimbalist, the IOC is “an unregulated global monopoly” with arbitrary, self-interested decision-making practically programmed into its organizational DNA.
There was a time when the Olympic Movement was viewed as an almost perfect reflection of the shining ideal of a global commons and a global common good. But the IOC’s stunning fall from grace is hardly unique: governments of all types – international, supranational, national, and local – are held in low esteem almost everywhere nowadays. It is a trend that both reflects and reinforces the rise of populist politics in much of the developed world, and few Project Syndicate commentators are hopeful that governments will recover lost legitimacy anytime soon.
A Conspiracy So Immense?
The populist complaint about government is not that it is too big and expensive, as Ronald Reagan and Margaret Thatcher once alleged, but that it has become a conspiracy among national and international elites against ordinary people. Of course, conspiracy theories only lead us down the proverbial rabbit hole. But why are so many people going there?
Former Turkish economic affairs minister Kemal Derviş believes that “the need for global governance has admittedly been exaggerated in recent years.” He wonders whether it “too often promises more than it can deliver,” relative to “more practical reforms that national governments should implement.” Ultimately, however, stronger global governance is imperative, “because the major challenges we face today are global in nature.”
Harvard’s Dani Rodrik disagrees: “Contrary to what we often hear,” Rodrik argues, “the problems of our day have little to do with a lack of global cooperation.” With a few notable exceptions, such as climate change or epidemics, our main problems “are domestic in nature and cannot be fixed by rule making through international institutions, which are easily overwhelmed by the same vested interests that undermine domestic policy.” As a result, he concludes, “Global governance can do only limited good – and it occasionally does some damage.”
The University of California at Berkeley’s Barry Eichengreen probably comes closer to the truth. Reviewing a recent internal assessment by the International Monetary Fund of its actions during the long and painful euro crisis, Eichengreen sees institutional overreach and self-interest working in tandem. “IMF surveillance, intended to detect economic vulnerabilities and imbalances, was inadequate,” he says. “While staff sometimes pointed to booming credit, gaping current-account deficits, or stagnant productivity, they downplayed the implications,” owing to “a tendency, conscious or not, to think that Europe was different.”
That tendency is not hard to understand. “European governments are large shareholders in the Fund,” Eichengreen points out, and “the IMF is a predominantly European institution, with a European managing director, a heavily European staff, and a European culture.” The only way to avoid such self-interested decision-making would be to require the “IMF management to demonstrate that it can consistently make decisions based on program countries’ economic interest, not on the political preferences of powerful national shareholders.”
Bureaucratic self-interest, says Anatole Kaletsky, is also likely to prevent the European Union from effectively confronting the greatest challenge it now faces: managing – or perhaps reversing – Britain’s exit from the EU. Only by undertaking reforms of EU governance to make the Union more acceptable to the British can the Brexit challenge be met. But such changes, though possible, are unlikely. “The real obstacle to reform is not the difficulty of treaty change,” Kaletsky concludes, but rather, “the [EU] bureaucracy’s resistance to ceding power.”
For Philippe Legrain, the threat to Europe posed by such self-serving behavior leads directly to disintegration, which could take an “insidious form if governments choose to ignore EU rules with impunity.” Exhibit A is Italy, where “Prime Minister Matteo Renzi sought to take advantage of post-Brexit instability to use public funds to recapitalize Italy’s zombie banks, without imposing losses on their creditors, thereby bypassing the EU’s new ‘bail-in’ rules for banks.” Similarly, Manuel Valls, France’s prime minister, “threatened to ignore the EU’s posted-workers directive unless it was modified to prevent employers from hiring workers from other EU countries on worse terms than locals.”
Daniel Gros, Director of the Center for European Policy Studies, views the EU’s decision not to sanction Spain and Portugal for violating the Stability and Growth Pact in much the same light. “It is now clearer than ever,” he says, “that EU member states prioritize domestic political imperatives over common rules – and Europe’s common good.”
For Nouriel Roubini, however, the threat facing the EU is less immediate. “The eurozone and the EU are unlikely to disintegrate suddenly,” Roubini argues, because “[m]any of the risks they face are on a slow fuse.” Nonetheless, complacency within the EU institutions could spell the end of the European project. Like Kaletsky, he believes that preventing disintegration requires “a political vision that balances the need for greater integration with the desire for some degree of national autonomy and sovereignty over a range of issues.”
This clash between the need for effective transnational institutions and the self-interest of those who run them is unlikely to diminish soon. As Derviş points out, “the push for stronger global governance has not happened in a vacuum.” Given the effects of “trade, travel, and telecommunications, not to mention multinational corporate structures and international financial flows,” globalization has become “broader, faster, and more ubiquitous than ever before.”
The key to improving governance of this process, Derviş continues, will be the “principle of subsidiarity,” or pursuing “national or local policies” when these “are sufficient to address a problem.” Though he advocates a greater role for global institutions than Rodrik does, he agrees that the mere “presence of global-governance frameworks should never become an excuse for national or local inaction.”
Governance or Fragmentation
The inertia and self-interested behavior that have sapped legitimacy from the EU and the IMF are not unique to supranational governance and multilateral lenders. Michel Forst, the UN’s Special Rapporteur on the Situation of Human Rights Defenders, decries international development institutions’ willingness to turn a blind eye to “efforts by governments to restrict freedom of expression, association, and assembly” when civil society raises questions about development projects.
Similarly, at the regional level, Moha Ennaji of Morocco’s Fez University chides Arab governments for not doing enough to help neighbors who are “shouldering the overwhelming share of the burden” of the region’s refugee crisis. “The Gulf countries, despite their vast oil wealth, have taken in hardly any refugees; they contend that, because they are not parties to the 1951 United Nations Refugee Convention, they have no obligation to do so.”
But such indifference doesn’t surprise Richard Haass, President of the Council of Foreign Relations in New York. On the contrary, the “refugee issue provides yet another glaring example of the gap between what needs to be done to meet a global challenge and what the world is prepared to do.”
Even the Internet, invisible and ubiquitous as it seems, faces a threat from poor governance. According to Harvard’s Joseph Nye, the three distinct approaches to Internet governance now being discussed each poses risks, though some are far more dangerous than others.
Nye points out that the “multi-stakeholder approach, originated organically from the community that developed the Internet,” was able to provide “technical proficiency but not international legitimacy.” On the other hand, “greater control by the International Telecommunications Union, a United Nations specialized agency,” would boost international “legitimacy but at the cost of efficiency.” Meanwhile, “authoritarian countries like Russia and China” favor “international treaties guaranteeing no interference with states’ strong sovereign control over their portion of the Internet.”
Unlike other areas of global governance and rule making, the Internet may not offer a second chance to get it right. Choose the wrong governance format, Nye suggests, and “[f]ragmentation – meaning the end of the Internet – is a real threat.”
One international institution, NATO, had long seemed immune to criticism. With many countries clamoring to join, there was no salient internal political opposition or risk of fragmentation. Widespread acceptance of NATO among its member countries’ citizens and leaders reflected a simple fact: the Alliance always seemed to deliver what it promised – real security from external threats. Even after the Cold War’s end, when NATO’s raison d’être seemed to disappear along with the Soviet Union, its legitimacy was never seriously dented.
Now, however, Donald Trump, the Republican Party’s US presidential nominee, regularly treats the Alliance with smug disdain. As Christopher Hill, a former US assistant secretary of state, puts it, Trump “has indicated that he would flout America’s NATO obligations, disregard institutions of global governance, and treat negotiations with other countries as ceremonies of surrender to US positions, rather than two-way deliberations.”
Trump’s unsettling strategic musings come at a moment when the Alliance is already dealing with a wayward leader in its midst – Turkish President Recep Tayyip Erdoğan. Like Trump, Erdoğan regards all politics as personal, and he governs accordingly. When he feels offended, he files lawsuits (as he did against a German comedian who insulted him). And when he feels threatened, as he did following July’s failed military coup, he purges not only army officers and enlisted men, but also thousands of academics, journalists, judges, and others, for their alleged role.
And now, with Erdoğan attempting a rapprochement with Russian President Vladimir Putin – the first foreign leader he met following the coup attempt – such Pavlovian policymaking is threatening NATO’s unity. Even some Western observers are somewhat understanding of Erdoğan’s outreach to the Kremlin, on the grounds that Turkey’s NATO allies let him down by not wholeheartedly endorsing his massive post-coup round-up of opponents.
Although he is no apologist for the Turkish government, former Swedish Prime MinisterCarl Bildt nevertheless believes that, “No one should be surprised that Turkey is now trying to purge” those whom the Erdoğan government thinks responsible for organizing and carrying out the coup. “Any state faced with insurrection from within would do the same.” Of course, “we should not ignore abuses in the immediate post-putsch crackdown,” Bildt says, “but we should put ourselves in the authorities’ shoes.”
That sense of perspective matters, says former Belgian Prime Minister Guy Verhofstadt, because Erdoğan’s actions, particularly his visit to Russia, seem to be intended to send his Western allies a powerful message: “I don’t need you.” Coming at a time when Trump is suggesting that the US, too, doesn’t need the Alliance, the West must answer Erdoğan quickly and decisively if NATO is to re-establish the unbroken trust on which it has depended since 1949.
For Verhofstadt, that answer must be a firm one: “Rather than allow Erdoğan to use his relationship with Putin to manipulate his NATO allies, the West – and the EU, in particular – must condemn, more clearly than ever, his accelerating shift toward autocracy.” In particular, European leaders “must make him understand that his current path leads away from EU membership and could cost Turkey some of the economic ties on which it depends.”
Closing the Governance Gap
Although citizens might expect – and even tolerate – indifference and self-interested policymaking from international institutions and supranational bodies, they hold their own governments to a very different standard. For Shlomo Ben-Ami, a former Israeli foreign minister, it is no surprise that citizens in the world’s rich democracies, made anxious by “the impersonal dark forces of the ‘market,’” should back a “revolt against intellectual orthodoxy, embodied by cosmopolitan professional elites.”
Of course, as Ben-Ami admits, “Populism can sometimes be a legitimate channel for aggrieved voters to make their frustrations known, and to call for a change of course.” But this is not one of those times. Most of the populist leaders we see today, he observes, are “less interested in tackling economic grievances than they are in using those grievances to win support for an agenda that would roll back social and cultural openness.”
For Sciences Po’s Jean-Paul Fitoussi and Khalid Malik of the United Nations Development Programme, governments regarded as impotent or self-interested by some of their citizens need to ask themselves a basic question: “Who benefits from growth – the many or the few?” And then they should decide how to act.
But policies to ensure more inclusive growth will almost certainly require abandoning the austerity mindset that many governments have maintained since 2010. Fortunately, policymakers have an opportunity to contain fiscal costs. As Carmen Reinhart points out, as a result of the major central banks’ “‘whatever it takes’ approach” to spurring growth, “interest rates have been low, and remain low” – if not negative.
Reinhart’s Harvard colleague Kenneth Rogoff, however, sees growing risk in continued short-term financing and thinks that a forward-looking US government should “lock in today’s ultra-low borrowing costs by issuing longer-term debt.” Borrowing costs may be low now, but “[w]ith net US government debt already running at 82% of national income, the potential fiscal costs of a fast upward shift in interest rates could be massive.” Lengthening the maturity of US debt, Rogoff believes, would provide “a less risky stream of future interest obligations” – surely a boon for a government that has spent the last decade watching its debts mount.
Creative governance is needed in major emerging countries as well, particularly China. As David Lipton, First Deputy Managing Director at the IMF, observes, “credit is growing about twice as fast as output,” and “its ability to spur further growth is diminishing.” As a result, “warning signs are flashing”; if they are not heeded, the risk of a crisis will mount.
“It is especially important,” Lipton says, for China to tackle the problem of inefficient state-owned enterprises, which contribute “only one-fifth of total industrial output,” while “accounting for about half of all corporate debt.” Only a “serious restructuring effort – including stricter budget constraints and an end to lending to non-viable firms and government guarantees on debt, along with other supply-side reforms already underway – will create space for more dynamic companies to emerge and contribute to growth.”
A Modest Proposal
What if governments continue to lose legitimacy? Clearly, populists in power will only make matters worse if they actually try to implement their policies. As Kaletsky bluntly puts it: “If Britain becomes the only European country apart from Russia to exclude itself from the EU single market, it will not succeed economically.”
Given the bleak scenarios Britain now faces, Howard Davies, Chairman of the Royal Bank of Scotland, wryly invokes Bertolt Brecht’s mordant suggestion that “the government might find it easier to ‘dissolve the people and elect another.’” Of course, as Davies recognizes, when the people are “wrong,” it is up to governments to improve their game. But can they?
Javier Solana, a former EU high representative for foreign and security policy, holds out a ray of hope. “In recent years,” he points out, “the inadequacies of existing global governance structures, particularly with regard to issues like taxation and employment, have become starkly apparent.” At the same time, the G20 summit in China next month will feature “discussion of concrete measures to reduce inequality.”
But talk is cheap. With major elections looming in Europe and the US, it is vital, Solana says, that “national leaders prove, right now, that they can and will tackle inequality and the plight of those who feel left behind by globalization.” The Brexit vote means that “[t]he unthinkable can happen,” he concludes. “Populists can win. It is time for national leaders to show that they are paying attention.”
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