There are moments when the world changes and our truths turn out to be not so sure after all. So it felt earlier this month in the Mexican resort of Cancun.
The collapse of the world trade talks at Cancun got plenty of front-page attention, because the 146 countries that make up the World Trade Organization have been trying to write new rules covering trillions of dollars in trade. The Cancun debacle, coming midway through that effort, made eventual success iffy at best.
If that were all there was to it, it would be serious enough. But what we really saw at Cancun was a milestone in the history of the global economy and a sign that it might not be possible to write rules governing it.
The reason is power–specifically, the huge imbalance of power between the First World, which means us, and the Third World, the globe’s poorer nations. We aren’t willing to share that power, and so they don’t trust us enough to buy any deal we want to make. The result is stalemate, as at Cancun. There is no reason to think that the result will be any different, any time soon, when the nations that make up the global economy get together to try to govern it.
This kind of governance is vital if any economy–including a global economy–is to be anything more than a jungle.
Nations like the United States always have wrapped their economies in a web of rules and regulations–laws governing taxation, environment, labor, stock markets, banking and all the other activities that make up an economy. Whatever you think about these laws, an economy without them would be as lawless as the Barbary Coast, the prey of economic pirates, a place where no honest citizen could feel safe or secure.
In the past 30 years, much of the world’s business has burst from national frontiers to roam the globe. World money markets trade $500 trillion or more each year. World trade is $6 trillion and growing. Investment in foreign countries is more than $1trillion per year. Millions of jobs move annually, mostly from rich nations to poor ones, and millions of people cross borders, mostly from poor nations to rich ones, in search of work.
Virtually everything–money, jobs, goods, services, ideas, culture, styles, communications, banks, stock markets–has gone global. So have the spinoffs–wealth and poverty, sickness and health, good environments and bad–that result when economies work well or poorly.
But one thing hasn’t gone global, and that is the web of rules and regulations that govern economies. By and large, the global economy exists in a state of anarchy. There are some global institutions, but most have no teeth. There are agreements between nations, but they are a patchwork, not a pattern.
In short, the economic forces that determine how we live are subject to few laws written by the people who must live within them–with one big exception, and that is the WTO.
The World Trade Organization, established in 1995, is the one true global governing body with teeth. That is because it has a tribunal that rules on trade disputes between nations. It has the power to order the losing parties to change their ways or pay compensation.
And it works. WTO members generally abide by its rulings. No court has authority unless the rest of society recognizes that authority. The WTO’s community–the U.S. and the other member nations–does that.
There is plenty wrong with the WTO dispute policy. Its hearings are closed, its documentation sparse. Most seriously, the WTO exists to further trade, and so its tribunals judge every dispute on the basis of the impact on trade. If trade interests clash with environmental interests (as they often do), the environment loses.
But the WTO works, so far as it goes. As the only authoritative global institution, it is a model for global governance. The problem is not that an organization exists to further trade. The problem is that no organizations with the same clout exist to further the environment or labor interests, which are as important to society as trade is. Nor are there any organizations to regulate the other parts of the global economy, such as money markets or investment.
An imperfect model
Many people have urged other organizations to bring the global economy into some sort of legal structure, to benefit the broader global society. The WTO, with its strengths and weaknesses, was the template, the proof that it can be done.
Well, maybe it can and maybe it can’t. Maybe the WTO doesn’t work after all. The Cancun collapse calls global governance into question and, with it, the future of the global economy.
Cancun broke down because of a clash between the rich nations–especially the U.S. and the European Union–and the developing nations, led by China, India and Brazil. A major cause was farm trade, with each side demanding that the other open its markets to imports. Especially, the poor nations insisted that the U.S. and the EU get rid of their huge subsidies for crops such as cotton that are wiping out farmers in places like Mexico and West Africa.
The U.S. and the EU knew that demand was coming, so they met last month and promised a cut in subsidies–but in the great by and by, by some unspecified amount, with details attached. The Third Worlders saw that as the sham it was and insisted on firm promises, now.
In addition, the First Worlders wanted to set global rules for non-trade areas such as foreign investment, antitrust regulation and government procurement. That is as complex as it sounds, but it basically means that the Third Worlders would have to open their economies to foreign investors and foreign competition.
In a perfect world, all this would be unexceptional. But the global economy is a hugely unbalanced system, with all the power–the money, the big corporations, the international lawyers, the trade diplomats, the expertise–in the rich parts of the world.
Until now, the rich nations have dominated trade talks. In previous rounds, the Third World either played no role at all or lived on the fringes, forced to accept whatever Washington and Brussels wanted. Not surprisingly, the people with the power used it to get the best deals for themselves. The United States and EU, which have benefited hugely from trade, are forever telling the poorer nations that the same trade will be good for them. Those nations are not convinced.
Suddenly, that balance of power is beginning to shift. The WTO has expanded, to 146 countries. The U.S., the EU and Japan still dominate world trade, but the bigger Third World countries–China and India especially but also Brazil, Turkey, Malaysia and others–are playing a larger role and no longer can be ignored.
Recognizing that, the U.S. and the EU agreed to dub the Cancun trade talks a “development round.” That signified that the aim was not the further enrichment of the wealthy nations but the development of the poor ones. It was a nice thought but, like that U.S.-EU farm subsidy agreement, a sham.
Faced with the U.S.-EU refusal to make any meaningful concessions, the Third Worlders dug in their heels at Cancun, and the talks collapsed.
It is easy to point fingers of blame for the collapse, and all sides are doing it. But the question truly is one of power. One side has it and is not willing to give it up. The other side doesn’t and is not willing to bargain from a point of weakness.
If the administration cared more about ending Third World poverty than it does about American business, then it would end its subsidies and write investment rules that limit the power of big corporations. But it doesn’t and, realistically, neither will any other administration in the foreseeable future. Similarly, no EU negotiators will make their farmers or corporations pay for the well-being of non-voters in Africa.
Poor nations use sole leverage
So the WTO probably has gone about as far as it can go in writing global trade laws. Lasting deals can be struck only by parties of roughly equal power. When all the power is on one side, the resulting deal is bound to be unfair. If the only power that the weak have is to block a deal, that’s what they’ll do. And who can blame them?
But that shows the limits of global organizations like the WTO to truly govern the global economy. If the WTO can’t do it, neither can global labor or environmental or investment organizations.
What then? The Bush administration has said it plans to focus on bilateral and regional deals. The EU, U.S., Japan and other First World countries will keep making deals, on trade and other economic issues, because they can negotiate as equals. The Third World, unwilling to bargain on the First World’s terms, will be left out even more than it is now.
All this is dispiriting. For all the opposition it generated, globalization held out the promise that it would spread the prosperity enjoyed by the First World throughout the rest of the world. In fact, without that promise, globalization is meaningless.
But that always raised the basic question: How much wealth and power were the rich countries willing to sacrifice to extend their prosperity to the rest of humankind?
Someday, maybe, when the world’s divisions are much worse or the power of the poor much greater, perhaps a fair bargain can be reached. But the answer that Cancun gave to that question is: For the moment, not much.
