Globalization at Risk: Challenges to Finance and Trade

2012-05-02T10:05:11Z

Finance and Trade are indeed in the eye of the storm, as for many citizens they appear to create more problems than solutions. In their name, politicians seem to avoid tough decisions at global level. Kati Suominen speaks to The Global Journal: she argues that the US is still the quarterback of global governance and that right now Europe is the main problem. Is this an out-of-date view or a hard-to-admit reality?

You recently co-wrote a book, Globalization at Risk: Challenges to Finance and Trade, with Gary Hufbauer, published by Yale University Press, which was named one of the best books in International Relations in 2011 by Foreign Affairs. Globalization at Risk dives into the debate about whether globalization is really the winner of the 20th century, given that the financial crisis of 2008 to 2009 has seriously called into question the benefits of economic integration. What do you feel are the challenges to finance and trade in 2012?

I would take a step back. I think global governance, if we define it as the institutions of postwar global order, has much to celebrate. Despite the financial crisis and despite the fact that a lot of international institutions, such as the IMF and the WTO, were blamed when the crisis hit, they have remained intact. The IMF’s resources were practically tripled amid the crisis, and the WTO is still around despite the challenges of the Doha Round and it has continued to be a credible framework for countries to resolve their trade disputes. All the doom and gloom hasn’t been validated by the events following the crisis. The overarching challenge is that there is much more complexity in today’s world economy than there was just 10-15 years ago. Global trade and finance have soared, and every country is increasingly dependent on the world economy and on each other, both in good times and bad. Globalization has been a tremendous force for growth and development in the past several decades, and it must be nurtured. But in a globalized world economy and globalized financial market, shocks transmit quickly: even seemingly isolated financial crises spread across borders, and the magnitude of markets also means that the negative impact of such contagion has grown. Politically, there used to be five main nations – Japan, Germany, the UK, France and the United States. Now there is the G-20. So there is greater complexity in terms of economic globalization and in terms of global governance. The setting creates a great deal of noise – future outcomes become harder to interpret, and harder to design responses to.

I am sure each generation thinks the world is more complex than it was in any previous generation. Can you explain what makes the world so politically complex now?

Just like in the 19th century, we have a system of nation states where each country pursues its own national interest. There is a prisoner’s dilemma on the global level: every country wants the same objective – to grow and be stable – but the pathways to prosperity often clash. For example, every nation wants to be a net exporter in order to grow through exports, which is of course impossible on the global level. Emerging nations want to impose capital controls to manage what they claim can be inflationary investment inflows; developed countries want open markets to ensure frictionless financial markets. And so on. The situation is conducive to deadlocks among nations. The post-war institutions built in order to advance growth and stability are now under pressure because of the magnitude of the global economic challenges and the rise in the number of relevant players in the system that are not, unlike the G-5, necessarily all that likeminded. Indeed, it seems to me that the United States and China are philosophically at odds about what “global governance” should be – quite unlike, say, the US and UK. The solution I have in mind is that someone still has to coordinate and lead in this space. We need leadership. In the past the US has played that leadership role – and today it must do so as well. There is no alternative.

You say the US is the de facto global leader, but do you see disenchantment with the United States by other countries, given the political and economic challenges it is having at home?

It’s a challenging time. A good share of Americans say the US should play a reduced role in world affairs. There is in America disenchantment with international engagement and there have been growing protectionist sentiments. One of the greatest challenges is how we transcend this moment in America and globally. The United States is needed as the quarterback. The Europeans can’t lead. The Chinese won’t lead. And even if they did step up to the plate, my guess is they would not be followed by others. Only the United States can uphold the global economic order it created. It is much in fashion to argue America is in decline, but I take issue with that: this country has a remarkable, perpetual capacity for self-reinvention. Besides, those talking about American decline forget the world economy is a win-win place where the success of others is good also for the United States. And they assume history is linear, when it has been anything but, and proven to be capricious. Only the Obama Administration has not exercised adequate leadership in global governance.

To read the full interview, order a copy of the magazine.

by Ruthie Ackerman

theglobaljournal.net: Latest activities of group Kati Suominen

Globalization at Risk: Challenges to Finance and Trade