WTO - World Trade Organization : Lamy suggests “essential principles” for reform of global governance

I would like to begin by thanking the Rajaratnam School of International Studies and in particular its Dean, Barry Desker, for the invitation extended to me to address the Singapore Global Dialogue.

In my intervention, I will discuss what I think is the key issue of our time: the proper governance of the common house of humanity. My view is that the question of governance cannot be dissociated from the deep changes in the global system of the recent past and the challenges of the near, and not so near, future. So, let me start from there.

Radical changes

In the last 20 years, we have witnessed two radical changes, with which we have not quite learnt to deal. The first is the rise of emerging economies and the second is the growth in interdependencies.

2011 marked the 20th consecutive year that exports of developing economies have grown faster than those of developed ones. The share of world trade of advanced economies fell from 75% in 1990 to just above 50% today. Inflows of foreign direct investments in developing countries have increased from 20 to 50% in the last decade only.

The shift in comparative advantage and economic weight that the world economy is facing today mirrors past experiences in the 19th and 20th centuries. But what is unique about the current transformation is the fast pace at which change is taking place and the immense number of people involved. China's economy, for instance, was less than 2% of the world economy 20 years ago. Today, it accounts for 10% (in current dollar terms) and, according to some projections, it is likely to more than double that in 20 years.

The rise of emerging economies was set in motion by the changes in technology, transportation costs and regulatory environment. This swing in economic power has profound geopolitical consequences that will hardly be reversed in the foreseeable future.

The second big change of the past few decades has been the dramatic increase in interdependencies. I use the plural because the growth of interdependency is not only an economic phenomenon, but it encompasses also relations in the social, environmental and technological sphere.

In the economic domain, increased interdependency has certainly been the by-product of the rise of trade and financial linkages. Globalization first de-nationalized consumption, allowing consumers to buy goods and services from places where they are produced more efficiently. More recently, we have also witnessed a new phenomenon: the de-nationalization of production. The advent of new technologies and reduced trade costs makes it feasible to separate stages of production geographically, leading to the formation of value chains that span across borders. World trade in parts and components of manufactured goods, a rough measure of the importance of cross-border value chains, has doubled between 2000 and 2010, rising from 1.4 to 2.7 trillion dollars.  But economics is hardly the only domain where interdependence across countries has increased.

Migration is a powerful vector of social interaction across diverse cultures. In the past ten years, the total number of international migrants has increased by over 40%, reaching 214 million people worldwide. This means that migrants today would constitute the 5th most populous country in the world.

With the advent of the ICT revolution, technical and managerial know-how have become more firm-specific and less nation-specific. This has led to an unprecedented surge in the international mobility of technical knowledge, the positive impact of which we still may not fully appreciate. But societies have also become more interdependent through "risk sharing" in areas such as health and the environment. Pollution and communicable diseases clearly know no national boundary as we saw with SARS or with the H1N1. The shift in economic power from the West to the Rest is also reshaping the geography of environmental degradation and gas emission.

Challenges and institutions

In light of these deep social, economic and technological changes, the policy and governance challenges that we face today are certainly more complex than they used to be.

We are all familiar with the issues that our societies will have to confront in the decades to come. There are five broad areas where action is needed:

First, in the social domain, key challenges include population growth in the South and ageing population in the North, management of growing migratory flows, rapid rates of urbanization in developing economies and the rising incidence of non-communicable and infectious diseases.

The second area concerns the tasks that we face in the economic sphere: achieving sustainable and balanced economic growth, addressing the rising inequality and unemployment that endanger social inclusion in both developing and advanced countries, and managing an increasingly interdependent global economy.

Third, and as history has taught us, environmental problems can lead to the collapse of civilizations. Climate change and biodiversity loss, food and water scarcity, energy security and the unequal distribution of resources will seriously test the peaceful co-existence, if not the very existence, of our societies.

Fourth, welcome developments in democracy, education and human rights but also more individualism, acquired rights and vested interests have complicated the task of coalescing constituencies and made more difficult the task of managing change. The sense of belonging is more diverse, free riding easier and solidarity more elusive.

Finally, science and technology can offer solutions to address many of the global challenges of our time. But they also bring new risks, such as the threat caused by nuclear proliferation, bioterrorism or cybercrime, as well as a complex array of ethical and legal questions such as those associated to genetic research. Many of these issues are not new. Climate change, for example, has been on the global agenda since the 1972 United Nations Conference on the Human Environment in Stockholm. Disarmament negotiations have been dragging on for decades. The key question then is: why has so little political energy been spent to solve the critical and impending challenges of our future?

A first answer comes from a question that Dante asked in his Divine Comedy:

Now who art thou, that on the bench wouldst sit In judgment at a thousand miles away, With the short vision of a single span?[1]

Short-termism, as we would call today Dante's concept, is first of all an anthropological problem. Short-termism acts as a huge break to the exercise of leadership. But, I believe, it is the role of government to guide, to regulate and to educate. In a word, to correct the collective myopia that affects our societies. The failure to act is, at least in part, a failure of our institutions.

Short-termism, however, is not the only cause of inaction. Three other problems limit our collective ability to respond to the global challenges of our time.

First, the political structure that we have inherited, the Westphalian order, is based on the notion of full sovereignty of nation states. The inconsistency between the extent of interdependencies, on the one hand, and the fragmentation of the political structure, on the other, is often a cause of inefficient policy. The tragedy of this discord is that national governments find it (individually) rational to choose policies that, in the attempt to increase the welfare of their constituency, may actually reduce it. The temptation of protectionism is just one of the many examples of this self-destructive behaviour.

The second problem is what I call a "coherence gap". One often overlooked dimension of interdependency is the interdependency across issues. The increase in biofuel production to address energy security concerns was an important driver of the spike in food prices in 2008, because both biofuels and food competed for scarce land and water. Similarly, climate change will have a huge impact on migratory flows; while the inability to address inequalities in developing countries will continue to affect global imbalances. We need a holistic view, but this often collides with the purely sectoral nature of our international institutions.

The third problem is that, while new economic and political trends have emerged, the rules and institutions governing multilateral cooperation have not kept pace with these changes. In fact, we are to a large extent living on the global rules created in the 1990s, the last period of improvements in global governance. From climate change to trade negotiations, the difficulty in finding a new balance between advanced and emerging economies in a muted context has certainly played an important role in holding back meaningful progress.

Conclusion: a new model of governance

In concluding my talk, let me turn to the following question. If one looks at the reform of global governance from a practical perspective, what are the essential principles? I would point to six elements:

First, global actions require political will, clear projects and common institutions. But these three pillars can only be held together by a system of shared values: a sense of common purpose.

The second principle is multilateralism. A system based on the centrality of a single economic and political hegemon, or some form of directorate of two or three countries, is in contradiction with the emerging structure of economic power and the nature of interdependencies.

Third, public institutions can only be effective if they are articulated according to the basic principle of subsidiarity, which is the ideological basement of federalism. Policy should be allocated at the lowest level of government (national, regional or global) encompassing all benefits and costs.

The fourth element is policy coherence. This means to ensure that international institutions do not function as vertical silos in strict isolation from one another.

Fifth, commitments need to be enforceable. Global governance must be anchored in laws and regulations accompanied by mechanisms for their enforcement, including binding dispute settlements.

The final element is legitimacy. This means finding ways to give citizens greater ownership of common institutions and greater say in their direction. This also means we need to foster greater solidarity by nurturing a sense of global belonging built on a set of common values. This can only be constructed bottom up, starting from the local level and hence the importance of an active civil society.

Shared values, multilateralism, subsidiarity, coherence, enforceability, legitimacy: our task in the years to come is to re-invent a system of global governance founded on these elements.

Thank you for your attention.

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