I never finished Globalization and its Discontents, the book that made Joseph Stiglitz a cult hero of the political left. I was sympathetic to the thesis that the Washington Consensus served one group of people (American and European corporations and their shareholders) at the expense of another group (workers and farmers in developing countries). But Stiglitz was too much of a firebrand for my taste, so I set the book aside with the intention of returning to it at some point. That was more than a decade ago and I have yet to so.
Lately, I’ve been wondering if I was too quick to dismiss Stiglitz? The army of discontents he observed in the 1990s has been joined by disenchanted workers in the US and Europe, who were told freer trade would make them richer. Those dreams ended with the financial crisis, and the disappointment has manifested into electoral nightmares in the US, the UK, France and elsewhere. “The main message of Globalization and its Discontents was that the problem was not globalization, but how the process was being managed,” Stiglitz wrote in an op-ed for Project Syndicate on Aug. 5. “Unfortunately, the management didn’t change. Fifteen years later, the new discontents have brought that message home to the advanced economies.”
Stiglitz no longer sounds like a radical. Doubts about the way the global economy is being managed span the political spectrum. There has been enough written about the Republican Party’s nominee for president, who prefers “Americanism” to “globalism.” And the left always has been skeptical. But centrists now have doubts, too. Lawrence Summers, the Harvard economics professor and former US treasury secretary, earlier this year said "responsible nationalism" should replace global governance as the new organizing principle of international cooperation.
Michael Spence, an economics professor at New York University’s Stern School of Business and, like Stiglitz, a Nobel laureate in economics, wrote on Aug. 30 that “our unwillingness or inability to implement the right policy mix” is undeniably an important cause of the global economy’s failure to return to its pre-crisis velocity. Spence didn’t say so explicitly, but his observation is a condemnation of the G20 and the other institutions of global governance. Dani Rodrik, the Harvard economist who anticipated the current backlash against globalization, argues that the need for global governance has been oversold. Bad domestic policies, such as weak banking regulation in the US and outsized farm subsidies in Europe, hurt the global economy. But they harm domestic economies just as much, and yet they persist. “The problems of our day have little to do with a lack of global cooperation,” Rodrik wrote on Aug. 11. “They 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.”
That’s a lot of brainpower arrayed against the recent efforts of the world’s leading economies. Hopefully, the leaders of the G20 are listening. They will hold their next summit in Hangzhou, China on Sept. 4 and 5. They will have plenty to discuss: the threat of economic stagnation, the spread of Islamic terrorism, climate change, migration. But the G20 also must confront the crisis of confidence in both the benefits of globalization and the ability of self-interested leaders to work effectively for the greater good. It seems fair to say that the G20 is fast running out of time to prove it matters. The group vanquished the financial crisis, but that was eight years ago. The group has had no answer for global economic growth that has sputtered around a meagre 3 percent for years now.
Kemal Dervis, the former Turkish economic affairs minister who now is vice president at the Brookings Institution, stepped forward to defend global governance. He conceded in a commentary published Aug. 18 that the need for stronger international institutions and rules has been exaggerated in recent years. Dervis also acknowledged failures, such as the current system for negotiating trade agreements, which was set up to reduce import tariffs, not grapple with contemporary issues such as regulatory standards and investment rules. But he insisted it would be a grave mistake to give up on global governance. How else to confront climate change and international tax evasion? These are the some of the most pressing concerns of the moment, and they can’t be solved unless a critical mass of countries moves together. “The push for stronger global governance in recent years has not happened in a vacuum,” Dervis said.
That’s true. But the G20 and other global institutions will succeed only if they are seen as credible. And on that front, they have some work to do.