Cooperation matters in a brave, connected world

Protectionist and “bring-back-control” movements will continue to flourish so long as globalization remains leaderless, lacks a human face, and advances like a runaway train careening out of control.

Sadly, there are good reasons why globalization has become a dirty word for millions of people. The pillars of the 30-year-old Washington Consensus have been collapsing. Most now agree that free trade without fair trade creates millions of losers, in addition to some winners. Unregulated capital flows, especially short-term speculative flows, can destabilise economies. And rising social inequalities can be bad for growth.

These realisations are punching holes in the free-market fundamentalism – focused on liberalisation, deregulation, privatisation, tax-cutting, and the shrinking of the state – that has prevailed in policymaking circles over the last few decades. Ten years after the global financial crisis, we can now accept that individuals and corporations acting solely in their own self-interest do not always serve that of the public.

And yet a new economic paradigm for the global age still has not emerged. In the resulting vacuum, protectionism, anti-trade populism, and illiberal – often xenophobic – nationalism have gained ground, fueled by anxieties about stagnant wages, technological unemployment, and rising insecurity. Make no mistake: those left out and left behind by globalisation are actively searching for something and someone to articulate their discontent and shelter them from change.

But neither nationalism – whether that espoused by US President Donald Trump or its other manifestations – nor overly formulaic or elaborate systems of global governance will meet the needs and desires of people for prosperity, security, equity, and selfdetermination. The former fails to confront the realities of a world where our independence is limited by our interdependence; the latter runs counter to a strong current in public opinion favoring more local control.

If we are to tame globalisation and respect national identities, we must strike the right balance between the national autonomy most citizens desire and the international agreements most countries so patently need.

While it is sensible to oppose the wrong kind of global cooperation, the right kind of cooperation is vital to achieve national prosperity in this hyper-connected era. Striking the right balance between autonomy and cooperation comes down to being clear about the distinction between nineteenthand twenty-first-century concepts of state sovereignty. In the former, power is centralized, held by a single state that is seen as indivisible;

Only through innovation can we adequately provide for the world’s 20 million refugees and 60 million displaced people

the latter is focused on popular selfgovernment, with citizens making their own democratic choices about whether power resides locally, nationally, or internationally.

Getting the balance right is the unstated issue at the heart of the argument not just about the limits and extent of global cooperation, but also, and more immediately, about the future of the UK’s relationship with the EU. Reflexive reactions like Brexit, America First-style strategies, and overly intricate frameworks of supranational governance are all inadequate to satisfy the modern world’s imperatives to cooperate across borders and to uphold the pride people have in their distinctive national identities.

Striking the balance between national independence and cross-national cooperation will more likely be achieved on an issue-by-issue basis, and the boundaries will shift as the world economy and popular opinion change.

In 2018 and beyond, we should establish realistic plans for responding to the backlash against globalisation by managing globalisation better. No one has a complete roadmap for balancing national autonomy and international cooperation. But the best way to begin is to focus international cooperative efforts on areas where the benefits are greatest, or the costs of non-cooperation are the highest. But we will also have to deal directly and forthrightly with distributional questions, whether in trade, climate change, investment, or the development and deployment of technologies.

First, it is time to create a worldwide early warning system for financial markets that is based on globally applicable standards for capital adequacy, liquidity, transparency, and accountability, and includes agreed trigger points for action when risks multiply. For example, New York University economist Roman Frydman has proposed a mechanism to impose a ceiling on new debt creation when asset prices escalate too quickly.

More broadly, we need to expand the scope of post-crisis financial-restructuring efforts to cover all global financial centers. Otherwise, when the next crisis hits, we will still not know what is owned or owed by whom, where, and on what basis. Critics will be right in asking why we failed to learn from the 2008 financial crisis.

Second, we need to reform global supply and value chains. Of course we should have fair intellectual-property, tariff, and non-tariff rules. But we must also address the fundamental injustices that are at the heart of global supply chains, fueling today’s anti-globalization protests. Intelligent reform of global supply chains should stamp out environmental free riders; reverse the current race to the bottom in labor markets; curtail trafficking and money laundering; eliminate transfer-pricing and tax-avoidance schemes that allow for goods to be taxed – at a lower rate – in countries they never enter; and shut down the tax havens that now hold trillions of dollars.

Third, we need to improve macroeconomic cooperation. For the past decade, growth in global output and trade have been much lower than they should and could have been. Proposals such as the G20 Mutual Assessment Process (MAP) and the International Monetary Fund’s “imbalances” initiative have made only token progress.

We must also develop mechanisms that go beyond simply holding out a begging bowl. Only through innovation can we adequately provide for the world’s 20 million refugees and 60 million displaced people. It is right for the international community to set ambitious development goals. But our failure to deliver on those goals will invite charges of betrayal. Nationalists will continue to argue that mainstream leaders cannot be trusted, and extremists of all stripes will insist that coexistence among countries, cultures, and religions is impossible.

With America in retreat and Brexit threatening to isolate Britain, 2018 will almost certainly have setbacks. But waiting in the wings is a new agenda that can ensure prosperity for all countries, not just through national actions, but also through enhanced international cooperation, starting in the areas with the most promise, and then spreading across the board. — Project Syndicate