New Rules for the Global Economy

CAMBRIDGE – Suppose that the world’s leading policymakers were to meet again in Bretton Woods, New Hamp­shire, to design a new global economic order. They would natu­rally be preoccupied with today’s problems: the eurozone crisis, global recovery, financial regulation, international macroeconomic imbal­ances, and so on. But addressing these issues would require the assembled leaders to rise above them and consider the soundness of global economic arrangements overall.

Here are seven commonsense principles of global economic governance that they might agree on. (I discuss them in more detail in my new book, The Globalization Paradox.)

1. Markets must be deeply embedded in systems of governance. The idea that markets are self-regulating received a mortal blow in the recent financial crisis and should be buried once and for all. Markets require other social institutions to support them. They rely on courts, legal frameworks, and regulators to set and enforce rules. They depend on the stabilizing functions that central banks and countercyclical fiscal policy provide. They need the political buy-in that redistributive taxation, safety nets, and social insurance help generate. And all of this is true of global markets as well.

2. For the foreseeable future, democratic governance is likely to be organized largely within national political communities. The nation state lives, if not entirely well, and remains essen­tially the only game in town. The quest for global governance is a fool’s errand. National governments are unlikely to cede significant control to transnational institutions, and harmonizing rules would not benefit societies with diverse needs and preferences. The European Union may be the sole excep­tion to this axiom, though its current crisis tends to prove the point.