Tumultuous economic conditions, regional security crises and consistent summit malaise challenged the world’s global governance mechanisms in 2011. As we enter a new year, the global community will face ongoing and new challenges that test how the world comes together to find and enact solutions. This week, we speak to CIGI experts David Runnalls, Eric Helleiner, Gregory Chin and Mark Sedra to hear their thoughts on what 2012 will bring in terms of environment and energy, and global economy, global development and global security challenges.
Eric Helleiner, CIGI Chair in International Political Economy at the Balsillie School of International Affairs
CIGI: What do you see as the major governance challenge(s) for the global economy in 2012?
Eric Helleiner: If I think about “what am I worried about for next year?” it is the prospect of another major international financial crisis of the kind we experienced in 2008. The troubles emanating from the euro zone pose many risks for the globally-integrated financial system. For example, sovereign defaults in that region could trigger major problems for financial institutions with exposure — either direct or indirect — to European sovereign debt. Under that scenario, the major governance challenge for 2012 could be the management of severe international financial instability.
Since the 2008 crisis, authorities have been working diligently to try to strengthen the resilience of the global financial system through the G20, the Financial Stability Board (FSB) and the major international standard-setting bodies. But many of the key initiatives they have undertaken are not yet fully in place, such as those designed to: strengthen bank capital and liquidity; tighten regulation and supervision of systemically important financial institutions as well as the shadow banking system; clarify procedures for cross-border resolution of troubled international firms; and force more over-the-counter derivatives to be cleared through well regulated and supervised central counterparties. The global financial system remains very vulnerable in a number of ways to the risks of contagion and major instability.
If a serious crisis was to break out, its international management would be assisted by some of the reforms undertaken since 2008 to strengthen global financial governance, such as the creation of the G20 leaders’ forum and the FSB as well as the strengthening of the International Monetary Fund. But the management challenges might be more substantial than they were three years ago. The more constrained fiscal positions of many governments leave them with less room to manoeuvre than they had in 2008. The cooperative spirit among the key powers that was associated with the first few G20 summits seems to have given way to a different international political environment in which many leaders — not least those in Europe itself — are focused more inward on various pressing domestic problems. The governance challenges for the global economy may thus be very significant in the new year.
Gregory Chin, CIGI Senior Fellow and Acting Director of the Global Development Program
CIGI: What do you see as the major governance challenge(s) for global development in 2012?
Gregory Chin: With regard to global development, it makes sense to subdivide challenges into those needing immediate crisis management versus longer-term, enduring challenges — neither of which can be looked at separately from the global macroeconomic scenario.
The major immediate challenge is how to stabilize the ongoing global economic crisis in the developed world to mitigate contagion effects so that the crisis doesn’t spread to the Global South, where many emerging economies, including parts of Africa and the so-called “BRICS” have enjoyed strong growth in the last 10 years. Another key challenge is containing the volatility in the global financial system and how it translates into volatility in commodity markets, in particular, food prices which are especially key to the poor. It is critical to manage how this volatility in prices puts strains on local governments’ provision of social services such as health care and education, both of which greatly affect the world’s poor.
However, there are also a number of enduring challenges that require global attention. From the standpoint of “the system,” there is the fundamental question of what will happen to official development assistance (ODA) as G7 and OECD countries face financial difficulties at home. Will these countries continue to meet their ODA commitments or will we see reductions in aid?
The really pressing question, which I think many in the advanced economies have avoided so far, is how to achieve a more effective working relationship between traditional donor countries and the emerging economies — the so-called emerging donors — to work out more globally coordinated solutions to development and tackling poverty. We see from the recent Busan forum on global development that the theme of emerging donors was central. China and other emerging countries are being asked to contribute to globally coordinated benefit sharing. It is no longer just Europe, the United States and other OECD governments.
Finally, for those who are attuned to the fundamental shifts that have taken place in the world economy over the past decade, we are seeing that global development is no longer something that is “happening over there, far away in the South” — a supposed Third World problem only.
The restoration of economic growth, development and job creation is now a concern for all countries and responsible governments, including those of the North. It is crucial that we break through our traditional analytical lens which sees problems of the “global economy” as those of macroeconomic coordination which the North should pronounce on, and where “global development” is confined to the concerns of the South and the emerging world. We need to be thinking in terms of global economy and development as inter-connected.
Mark Sedra, CIGI Senior Fellow
CIGI: What do you see as the major governance challenge(s) for global security in 2012?
Mark Sedra: A number of issues are going to be significant on the agenda next year, and some of these are going to increase in importance over time. Cyber security is one the top issues. We’ve seen a number of developments in 2011 that suggest catastrophic attacks on critical infrastructure such as power grids and water systems are no longer the stuff of science fiction. There’s even talk of military systems being penetrated by hackers supported by governments. For example, there was some initial chatter that the US drone that went down in Iran at the end of 2011 could have been a result of interference by Iranian-backed hackers. More attention must be given to creating global governance mechanisms to control and mitigate the more dangerous consequences of increased cyber attacks and cyber warfare activities.
The political transitions taking place throughout the Arab world are another urgent concern. Elections in Tunisia were very orderly and successful; Egypt is still in the midst of the electoral process so we don’t know how that’s going to turn out, although there have been some worrying signs in terms of how the Salafist party has fared. A setback in these transitions could create major regional and international security crises. These are complex processes and local actors will need some help. There’s a place for international institutions and donor states to support these transitions, but that doesn’t mean imposing their will on them.
Although it seems perpetually on the agenda, the Palestine issue is going to be critically important in 2012. The Palestinian statehood bid at the United Nations has strained both US-Palestinian and Israeli-Palestinian relations, but the Palestinians feel they have no other legitimate recourse and don’t trust their counterparts in the Israeli government. There are indications that both the Palestinians and the Israelis may fully withdraw from the peace process. This is a bellwether issue, so if we start to see a real deterioration of the situation, there will be widespread reverberations — across the region and internationally.
Security analysts such as myself are also quite concerned with the escalating Mexican drug war, which the Mexican government, even with large-scale US support, has not been able to contain. This war has killed tens of thousands of people in the last decade or so, and is now spreading into other Central American countries, impacting Canada, the United States and Europe, where the presence of drugs on the streets has deleterious security, health and social impacts. I think regional solutions need to be seriously considered, including “outside-the-box” thinking on both the demand and supply sides of the problem. Conventional security approaches simply aren’t working.
David Runnalls, CIGI Distinguished Fellow and Acting Director of the Environment and Energy Program
CIGI: What do you see as the major international governance challenge(s) with regard to environment and energy in 2012?
David Runnalls: There are two obvious ones. One is the UN summit on sustainable development in Rio de Janeiro in June, which falls immediately after the G20 meeting. The Mexicans, at least at the moment, are rather keen to have sustainable development on the G20 agenda. But we’ve seen what G20 summits are like — if something happens the week before, the whole agenda’s gone. The Brazilians are making a fairly serious effort to turn the UN summit into something useful, but I don’t think it’s going to do very much. I think it’s the classic UN mistake of organizing a summit and then trying to figure out what the agenda will be. They’re saying “We had this summit in Rio 20 years ago, so we should have another one.” But the summit in Rio took three and a half years of really tough preparation by the secretariat and by governments, so that they had a worked-over agenda and proposals to present. This one has had a maximum of two years’ preparation, is underfunded, has a very poor secretariat and takes place in an atmosphere of really poisonous North-South relationships on these issues.
The international discussions on sustainable development, particularly on climate change, have really come down to whether the Americans are prepared to do anything at all. And until the US appears prepared to do anything, there will not be equivalent concessions from China or India or anybody else. So we’re basically sitting there with this Durban proposal that says it would be nice if we had a binding agreement by 2020, when in fact the scientific community is telling us that if we don’t do something serious about emissions between now and 2020, it may be too late.
A second interesting thing to watch is the increasing public debate about shale gas and tight gas and tight oil, which are all basically produced by fracturing (“fracking”) rock. There’s now increasing evidence that this causes fairly substantial environmental damage. It’s going to be a bit like the Keystone pipeline debate — “Well, this provides lots and lots of jobs, it provides energy security for the United States and it’s preferable to propping up decaying regimes in the Middle East.” So it’s interesting to watch.
That plays into the climate debate too, because if the shale gas industry bowls ahead the way it is in the US, it basically means that we won’t see an increase in natural gas prices for quite a long time. I think you’ll suddenly start to see gas being substituted for coal as an electricity producer. And if that’s true, that could result in really substantial reductions in the US emissions of CO2 for at least the next 10 years.