Economic globalization and global economic governance Federico Steinberg

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

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). (De la Dehesa, 2000). : Increase in international flows of: Goods Goods Services Services Capital Capital Information Information ¿Migration?

The expansion of trade Recent developments and projections in world trade and output (volumes). Source: IMF World Economic Outlook.

Trade and investment

New global value chains: Example: Volvo S40

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

Globalization Explanations: Explanations: - Ideas - interests - Institutions - technology Is reflected in: Is reflected in: - Deep economic liberalization - Incorporation of millions of people to the world economy, especially in Asia world economy, especially in Asia - Change in the balance of power

Theoretical Economic implications of globalization Greater economical interdependence Greater economical interdependence Better allocation of natural resources Better allocation of natural resources Greater opportunities of growth Greater opportunities of growth Higher speed in technological transfer Higher speed in technological transfer But… But…

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

Rapid growth of emerging countries The emerging world is already larger than the advanced in GDP termsmore importantly in terms of GDP than the advanced

Emerging markets re-emerge

And the trend will continue

But China is the convergence story

But wait Size is not global presence, YET But wait Size is not global presence, YET

A new world map

Social trends (I) Ageing Urbanization

Social trends (II): Inequelity  What is driving it?  Will it generate a backlash against globalization?

Social trends (III) New middle classes  New opportunities for MNCs  But products need to be costumized

Growing energy demand

Structural features and transformations of the world economy Convergence Multipolarity Interdependence Growing rivalry and competition Geo-economics and mercantilism/nationalism Crisis/transformation of global economic institutions

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

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

Increasingly globalized world economy + Economic Polices and Regulations still national + Unequal distribution of gains from globalization + Loss of sovereignty (and legitimacy) = CONFLICT (specially after the financial crisis) Need for new global rules Need for new global rules  Global Economic Governance  Global Economic Governance (Everywhere?) (Everywhere?)

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: Economic perspective: global governance focuses on providing global public goods: No rivals in consumption No rivals in consumption Non excludible through prices Non excludible through prices With positive externalities and trans boundary effects With positive externalities and trans boundary effects In a multipolar world, without an hegemonic power, international cooperation is needed In a multipolar world, without an hegemonic power, international cooperation is needed ¿WHICH ONES?

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

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

Problems and challenges (III) A more legitimate leadership (and effective) A more legitimate leadership (and effective) What role for the G-20? What role for the G-20? Long run perspective

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