WASHINGTON, DC – Unlike in the past, there probably will not be large protests at the upcoming Annual Meetings of the International Monetary Fund and the World Bank, or at the subsequent World Trade Organization meeting of trade ministers in Bali. But that is not because these international institutions are perceived as effective and legitimate. It is because, compared to a decade ago, they are seen as too small and impotent in the face of larger market forces to bother about.
The 2008 global financial crisis and its aftermath have caused a loss of faith not only in markets, but also in the ability of democratic governments to ensure that the benefits of market-led growth are widely shared. On economic, financial, tax, trade, and climate issues, many people around the world are fearful or angry, believing that a worldwide cabal of bankers, corporations, and G-20 elites uses insider deals to monopolize the benefits of globalization.
But few people – whether ordinary citizens or internationally oriented economists – recognize that our seemingly weak and ineffectual multilateral institutions are the world’s best hope for managing and democratizing the global market. Only these institutions are capable of preventing the elite capture and insider rents that are putting global prosperity at long-term risk.
To be sure, a growing number of mainstream economists are paying attention to the costs of unfettered global markets. There is greater concern that cross-border capital mobility makes it harder to collect taxes and enforce financial regulations at home; and that trade agreements, combined with global supply chains, are exacerbating job losses in developed economies. Likewise, global integration means that eurozone distress threatens the US economy, while the US debt-ceiling standoff threatens financial markets everywhere.