Economic Crisis and Global Governance: The Stability of a Globalized World

It is difficult to estimate the ultimate effects of an economic crisis that is far from over. Nevertheless, international collaboration during this sharp economic recession has been far more sustained and stable than the course of international cooperation during two previous economic downturns that matched or exceeded its severity: the Great Depression of 1929-33 and the global recession of 1981-82. In both of these earlier cases, economic nationalism grew, and existing modes of cooperation either collapsed or were threatened by unilateralism and corrosive forms of regionalism. The persistence global institutions for economic cooperation in the wake of the current economic crisis bears explanation given this history.Among the explanations considered for this departure from previous responses to economic crisis are:(a) The character of economic globalization. Although global economic integration may have promoted diffusion of the economic crisis; it may also have shifted the incentives of national governments toward more cooperative responses and rendered economic nationalism and decoupling less attractive.(b) Constraints imposed by international economic cooperation. Contemporary international institutions, following the model of Bretton Woods, have combined international constraints with policies to support national economic expansion: policies of economic stimulus, most notably, have been forged as part of international collaborative bargains, not in opposition to those cooperative modalities.(c) The major developing and transitional economies, which led the way in decoupling from the international economy during the Great Depression and bore the brunt of earlier economic crises, have been able to weather the current economic crisis better than many industrialized countries.(d) Each of these possible explanations for the current record of global economic cooperation also points to a shortcoming in current global economic governance that future reforms must address:(e) A more fully globalized economy means that national policies, particularly those of larger economies, will have a more immediate and potentially negative effect on other economies and their well-being. Closer scrutiny of national policies and new means for exercising such scrutiny will be demanded.(f) Although the current mechanisms of global economic cooperation have allowed considerable flexibility for national policymakers in confronting the crisis, the weakness of international constraints also permitted persistent macroeconomic imbalances and lax regulatory policies that produced the crisis.(g) Award of effective decision-making authority in global governance to key emerging economies, such as China, India, and Brazil, has hardly begun. Given the hard stance in defense of national sovereignty taken by these governments, their growing role has ambiguous implications for future strengthening of global institutions.