Reforming Global Governance*

Louis W. Pauly
Centre for International Studies
University of Toronto
www.utoronto.ca/cis

CIS Working Paper 2001-4

January 26, 2001

Not surprisingly, many empirically minded political scientists approach the subject of this

paper with caution. What global governance really is there to reform? Asking myself this

question, I immediately thought of my teenagers. Suppose I called them to a conference on

reforming parental authority. Despite the fact that I would certainly be feeling that there was no

such authority to reform, or if it had ever existed it was rapidly eroding, my children could

certainly be counted upon to attend with enthusiasm, bringing with them many proposals for

changing something that not only persists but is increasingly onerous, obnoxious, and much in

need of reform.

In that same very practical spirit, let me grasp the nettle put in our hands. Where is the

true locus of global governance, and what could it possibly mean to reform it? In a short paper,

let me make one basic argument.

In a world where actual regulatory power is decentralizing and no particular national

authority is truly hegemonic, the main external markets supporting our local societies rest today

not on private authority but on interdependent public authorities and increasingly on the

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delegated public authority of international political institutions. The economic face of

globalization—and there are other faces—mirrors national forms of governance in leading

states. It follows that the tenuous legitimacy of those international institutions and the evolving

global order they underpin are eroded when deepening interdependence is mistakenly assumed

to imply eventual political integration, or the inevitable supranationalization of public authority.

That supranationalization may someday come, but it will not be durable if it arises by stealth.

For today, at least with regard to leading states, including our own, the really important

venue for debate and action on key issues of social and economic governance remains internal.

For tomorrow, there will be no way to move to effective global governance without having first

achieved more effective national or, in some cases, regional governance.

And what do I mean by effective? Since we are at the core of the international system

centered on capitalist social democracies—and we are, even in those that prefer to call

themselves “liberal” democracies—effective governance implies flexible structures that can

balance efficiency goals and fairness goals. Since they are human structures, they will always fall

short of the ideal and they will always reflect strong disagreements about the weight of the

balance. Obvious economic and social indicators can suggest effectiveness. But the ultimate

test of success is impossible-to-measure precisely. It is the broad systemic crisis that does not

arise. By such a standard, the advanced industrial democracies have succeeded mainly but not

only for themselves since the global cataclysm of 1939-1945. By such a standard, the former

Soviet Union and many states in the developing world have failed. In all cases, successes or

failures of mechanisms of global governance are at best only a part of a much larger story. At

worst, they are a distraction of political energy away from the search for practicable solutions to

actual problems at the local level. Mass demonstrations in Seattle, Prague, and Davos may well

be side-shows. Shadow-play may be what we really see when activists focus their energies

mainly at the global level. It is at least arguable that they set themselves up either to discredit

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their cause because of unplanned violence or to prepare the ground for their own diversion or

co-optation. (Before I explore this further, let me take a bow to the obvious counterpoint.

Some say that capitalism informs most actual mechanisms of contemporary governance, it is in

its essence unfair, and it is deficient in other ways. I agree. But the fact is that it works, it can

be and has been adapted to social democracy, and a tamed version of mainly-national, perhaps

regional, capitalism is less deficient than its practicable alternatives.)

At the heart of our panel today lies the real issue of national political authority and its

relationship with international institutions. The issue commonly, and usually mistakenly, evokes

the word “sovereignty.” The concept of sovereignty in international relations has always been

contested. Its association over time with the institution of the state, moreover, is linked with a

number of material and normative transformations. But conflating that concept with the notion of

policy autonomy, as is very often done, obfuscates an important distinction. In an

interdependent world, a turning away from deeper integration by legally sovereign states or by

the collectivity of states remains entirely conceivable. Indeed, some did turn away in the

financial realm as severe debt crises confronted them in the 1980s and 1990s, only to return to

more liberal policy stances after the crises dissipated.

To be sure, most states today confront tighter economic constraints--or clearer policy

trade-offs--as a consequence of a freer potential flow of capital, technology, and labour across

their borders. The erosion of their absolute freedom to pursue internally generated policies--a

conceptual category that should be referred to as policy autonomy, not sovereignty--is the flip-

side of the opportunities for accelerated growth presented by those same flows. The

phenomenon itself is not new, and it boded neither well nor ill for the legal principle of

sovereignty.

What is new is the widespread perception that all states, all societies, and all social

groups are now equally affected by the forces of global integration. The historical record belies

such a perception, and the sovereignty debate, in effect, shrouds important distinctions between

and within states. Underneath much of the overt discourse on vanishing sovereignty and the

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inexorable logic of efficient markets, I suspect, there lays a covert discourse on power,

legitimacy, and hierarchy.

Following World War II, the victorious states, including ours but minus the Soviet Union

and China, attempted to craft a new world order. The initial American dream of a global “free”

market at the center of that order was never practicable. The real order, certainly after 1947,

combined a military alliance, national plans for economic development, a managed trading

system, and an underlying assumption that all markets could and would eventually emulate the

structure of American markets. More open markets increasingly compatible with but never

entirely convergent with the US model eventually followed.

In this regard, the reluctance of states unambiguously to embrace what we might call

"complete mobility norms" --again, certainly vis a vis labour but also, if less obviously, vis a vis

technology and finance, their handling of periodic emergencies in international markets in an 'ad

hoc' manner, and their preference not clearly to designate an international organizational

overseer for truly integrated capital or labour markets suggested deeper concerns. Continuing

controversies on all of these points revolve around traditional issues of power and authority.

The legitimacy of a new order tending in the direction of global integration remains highly

problematic. More fundamentally, the struggle suggests that the architects of such an order

cannot easily calibrate emergent market facts with persistent political realities.

One doesn't need to be an extremist to sense the dimensions of the problem. One only

needs to observe market and governmental reactions to the periodic crises that characterize any

order relying in part on private capital markets. Such markets may be efficient in the long run,

but they are always prone to bouts of mass hysteria in the short run. Since 1945, prompted by

periodic emergencies, advanced industrial states regularly engaged in efforts to manage that

proclivity. In an interdependent economic and financial order, which we have created ourselves

for very good reasons, crises with potentially devastating systemic effects can begin in all but the

poorest countries.

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 From Mexico in 1982 and 1995 to Russia, East Asia, and Latin America in the late

1990s, many national dilemmas threatened to become disasters for the system. But who was

truly responsible for the necessary bailouts and for their sometimes perverse effects? Who

would actually be held responsible if the panicked reaction to financial turbulence in one country

actually began to bring down large commercial and investment banks and investment funds

around the world? "No one," a number of practitioners and analysts now say, for the authority

to manage global finance has dispersed into the supranational ether or has been privatized. I

disagree. Despite the obfuscation of accountability always implied in regimes aiming to advance

public policy agendas through the indirect means of private markets, actual crises in the waning

years of the twentieth century continued to suggest that national governments would be blamed

and that they would respond. If this creates what central bankers call “moral hazard,” excessive

private risk-taking in anticipation of public bailouts, so be it. There is no way around this when

the aim is decent societies and a peaceful world supported by the tenuous but practical logic of

democratic capitalism. I admit, however, that it is the function of central bankers and even

finance ministers to pretend otherwise, to sow a degree of uncertainty in this regard, and never,

never to be truly transparent. But since 1931, they have in fact never failed to make the

distinction in their own minds between pretence and necessity.

Indeed, it is the desire to avoid the end-game of fully transparent national emergency

response in the new world of international factor mobility that provides the driving force behind

continuing multilateral and regional efforts to bolster and broaden the mandates of particular

international institutions and to create new ones. If this is what we mean by the reform agenda, I

wholeheartedly agree that we as scholars, students, and citizens have an important role to play.

But it is mainly the painstaking role of combining the ethical, with the conceptual and the

practical. In more mundane settings likely to attract far fewer people than are assembled here,

we must ask not only what is right, but where have we been, what is the theoretical rationale,

and what will actually work. (By the way, this is exactly what we are now doing in the Munk

Centre across a full range of international policy arenas.) But in a more general sense, in the

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best case, technocratic agencies promise to promote adequate standards of regulation around

the world, design functional programs for crisis avoidance and crisis management, and provide

mechanisms for states to collaborate with one another for mutual benefit. In the worst case, as

we just witnessed in the wake of the Russian and east Asian debacles, those same agencies can

also take on the role of scapegoats, thus serving as a political buffer for responsible national

authorities. What they have difficulty addressing, however, are basic questions of social justice.

Not only are standards across diverse societies themselves still diverse, but those agencies are

charged with helping to manage a system where the mobility of capital is not yet, in fact,

matched by the mobility of people.

Justice and legitimacy are inextricably linked. At its core, the contemporary

international system reflects the fact that the governments of states cannot shift ultimate political

authority, to the global level. Perhaps they do not yet need to do so, because the term

“globalization” exaggerates the reality of international integration at the dawn of a new century.

But surely the vast majority of their citizens do not yet want them to do so. Only in Western

Europe, within the restricted context of a regional economic experiment still shaped by the

legacy of the most catastrophic war in world history, was a shift in power and authority beyond

the national level in sight. And even there, the fundamental construction of an ultimate locus of

authority remained highly convoluted and controversial. In the rest of the industrial world,

intensifying interdependence remained the order of the day as the citizens of still-national states

sought the benefits of international factor mobility without paying the ultimate political costs

implied by true integration. In such a context, unfolding tragedy in a number of so-called

“emerging markets” seemed like a distant roll of thunder. Whether the storm it signaled would

remain distant was now a crucially important question. But when the answer becomes clear, as

it seems to be in the environmental arena, it will be up to legitimate public authorities to respond.

As the entire history of the post-World War II experiment attests, after all, markets are a tool of

policy, not a substitute for it.

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 My conclusion will come as no surprise. In good times, the authority to stabilize

markets can be delegated to the private sector. Voluntary efforts, best-practice codes, even

self-regulatory organizations are nothing new. When such efforts accomplish their goals, the

dog does not bark, catastrophes are avoided, and most of us don’t notice. But when they fail,

or threaten to fail, one of two things happen. Holders of legitimate public authority take back

regulatory power, or markets collapse. From transportation systems in England, to electrical

systems in California, to environmental and social protection systems in Ontario, the emergence

of private authority is a contingent and fleeting phenomenon. The fragility or the durability of

international markets impinging on such systems remains entirely reflective of the interactive

public authorities lying beneath their surface.

Global markets did not cause Canada’s fiscal mismanagement beginning in the 1970s.

Globalization did not put our First-Nation and other fellow-citizens on the streets at the

University’s gates. The Americans did not gut Ontario’s environmental regulatory regime.

Global economic opportunities grasped did not necessarily imply that Canadian economic elites

had to bail out of their own society. Globalization does not determine Canada’s anemic policies

on overseas development assistance, or even the precise balance between public subsidy and

private effort in the funding of our university system. No external power is forcing a particular

agenda of response to the twin challenges technology and demography pose for our health care

system. Of course, openness brings the promise of national prosperity and the responsibility for

global stewardship. In Canada, seizing those opportunities and meeting that responsibility has

always required a well-functioning state capable of systematically building and guiding a

coherent and vibrant society. Not only in Canada, but certainly here, the challenge of reforming

global governance must first be met at home, and it still can be.

* Drawn from "Global Markets, National Authority, and the Problem of Legitimation," in
Private Authority and Global Governance, Rodney Bruce Hall and Thomas Biersteker, eds.,
under review. For related background, see Democracy Beyond the State? Michael Th.
Greven and Louis W. Pauly, eds., Lanham, MD/Toronto: Rowman & Litle field/University of
Toronto Press, 2000.

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Contact: Louis W. Pauly, Director, Centre for International Studies, University of Toronto, 1
Devonshire Place, Toronto, ON M5S 3K7; lpauly@chass.utoronto.ca.