A To-Do List for the G8 Summiteers

Here's a modest proposal for the leaders assembling in May at the G8 summit and, a month later, at the G20 summit in Mexico: rethink and reform the global economy.

Somebody has to do it. About 20 years ago, nations -- including the ones at the G8 summit -- controlled their own national economies and made them work for the people who lived within them. It wasn't perfect, but it was as fair as any economic system in history.

Then globalization enabled those economies to go global. The major players and forces -- financial markets, big corporations, trade flows -- escaped national boundaries and sailed off into a global economy, where no national government, nor its rules and regulations, could follow.

In this global economy, the laws that force corporations to be good citizens -- to pay taxes, bargain with employees, respect the environment, support their communities -- too often can no longer be enforced. Any company that wants to avoid these laws has a choice, which is to go somewhere else where these laws don't exist. As we've seen, that's exactly what they've been doing.

What's needed now is a form of global governance. Not global government -- that's not going to happen. But we need a system of tax laws that ensures that our global citizens pay their taxes where they make their money, rules that enforce transparency for investors, labor laws that guarantee that, while workers probably never will be paid equally, they at least have a say in how their pay and working conditions are set.

In short, we need some global version of the Internal Revenue Service, the Federal Trade Commission, the Securities and Exchange Commission, the Commodity Futures Trading Commission, and similar bodies. Everybody complains about these bodies but it is impossible to imagine business in the U.S., or in any country, without them. No honest and decent businessperson would abolish them, for the simple reason that they enable honest and decent people to survive. They are the alternative to the jungle.

Without them, business would be no more than mud wrestling, which too much of the global economy resembles right now.

In a way, we've done this before. Now we have to do it all over again.

Back in the middle of the 19th century, commerce in these United States truly was state-based. The concept of a national economy didn't exist. Almost all business was local, and state laws provided all the regulation it needed.

And then came technology -- specifically, the railroad and the telegraph -- linking states and their businesses and taking commerce off into the national realm, where state laws couldn't follow. Thus began a century of political battles to set up national regulators, like the Interstate Commerce Commission, to replace a grab bag of state laws with one national set of regulations. States fought it, because they lost power. Businesses hated it, because the new laws forced them to do things, like negotiate with workers, that they didn't want to do. In some ways, we're still fighting about it: part of the legal opposition to President Obama's health care legislation is based on the notion that it violates states' right.

The only good about all this is that it set a framework around the American Century and made it work.

Now, we have to do it again for the same reason we had to do it before -- technology. Fiber optics, Netscape and other innovations, all creations of the past two decades, have linked national economies in unprecedented ways, creating global markets. These global markets, left to themselves, are already creating the inequalities, tax evasions, labor abuses, and financial and trade distortions that have become daily headlines.

As we saw with the housing crisis, where the market simply overrode complacent regulators, an unregulated market is doomed to crash.

This idea of global governance isn't a new one, and actually there's been some progress. The World Trade Organization effectively enforces rules on trade. The Bank for International Settlements sets standards for the capital reserves that banks must hold: in the wake of the financial crisis, it's just set new standards that, while inadequate, are better than nothing. The International Organization for Standards sets standards for thousands of items, from film speeds to the thickness of ABM cards, so they can be used internationally. International flight is regulated. Accounting laws have been internationalized, mostly to promote listing of foreign companies on American stock exchanges. Much merger and acquisition activity is regulated across borders, if informally.

There was a good deal of academic study on global governance in the 1990s, when the Clinton Administration pushed globalization, assuming it would look like America. The Bush Administration was so hostile to anything that limited American sovereignty that even academics dropped the subject.

It's time to restart the dialogue. Everyone knows the global economy is here, and everyone knows its power. At the moment, it's a mighty locomotive without brakes, sometimes even without tracks.

Obviously, the negotiation of global rules and regulations to supplant out-dated national laws will be so complicated that it will make the framing of inter-state commerce laws look easy by comparison. For an example, look no further than the failed negotiations on climate change control.

The Bush Administration was right, that this will erode American sovereignty, much as European Union laws have eroded the sovereignty of its member nations. But to those who think the United States still controls its own economy, I can only say, Good Morning. That control vanished two decades ago into the globosphere. It's worth paying a little sovereignty to get it back.

Comments

[David]

I think you are romanticizing Twenty years ago (1992). Although the 1990 recession was not that severe, it was our first 'modern' recession.

The movie Roger & Me was a breakout hit in 1990. In 1992 our first jobless recovery and worries about debt propelled Ross Perot to number one in the Presidential polls. Fortunately Perot's truly bizarre behavior spared us a President Perot, however he still got 17% of the vote and a respected incumbent George H.W. Bush was thrown out of office.

The subsequent and unexpected booms (tech, globalization, and cheap oil) have erased this memory. Although parts of the Midwest never recovered from 1990.

It seems like we are back in 1992, except in a far more perilous position.

As to the main point of your post I am skeptical. The level of economic cooperation, regulation and mutual understanding is far higher between Brussels and the US than it was 20 years ago, but Europe and Japan are not the problem.

Can you really see Russia, India, South Africa, and Brazil agreeing and enforcing anything like this?