Leaderless Global Governance

CAMBRIDGE – The world economy is entering a new phase, in which achieving global cooperation will become increasingly difficult. The United States and the European Union, now burdened by high debt and low growth – and therefore preoccupied with domestic concerns – are no longer able to set global rules and expect others to fall into line.

Compounding this trend, rising powers such as China and India place great value on national sovereignty and non-interference in domestic affairs. This makes them unwilling to submit to international rules (or to demand that others comply with such rules) – and thus unlikely to invest in multilateral institutions, as the US did in the aftermath of World War II.

As a result, global leadership and cooperation will remain in limited supply, requiring a carefully calibrated response in the world economy’s governance – specifically, a thinner set of rules that recognizes the diversity of national circumstances and demands for policy autonomy. But discussions in the G-20, World Trade Organization, and other multilateral fora proceed as if the right remedy were more of the same – more rules, more harmonization, and more discipline on national policies.

Going back to basics, the principle of “subsidiarity” provides the right way to think about global governance issues. It tells us which kinds of policies should be coordinated or harmonized globally, and which should be left largely to domestic decision-making processes. The principle demarcates areas where we need extensive global governance from those where only a thin layer of global rules suffices.