global governance

As public relation stunts go, I think the President of Maldives has managed to top that f$%&ing balloon boy family:

President Mohamed Nasheed, Vice President Dr Mohamed Waheed and 11 cabinet ministers donned scuba gear and submerged 4 meters below the surface of sea to hold the world's first underwater cabinet meeting, in a bid to push for a stronger climate change agreement in the upcoming climate summit in Copenhagen.

“We are trying to send our message to let the world know what is happening and what will happen to the Maldives if climate change isn't checked” said President Nasheed, speaking to the press as soon as he resurfaced from underwater.

“What we are trying to make people realize is that the Maldives is a frontline state. This is not merely an issue for the Maldives but for the world. If we can't save the Maldives today, you can't save the rest of the world tomorrow”, said President Nasheed further.

During the 30-minute meeting held in the turquoise lagoon off Girifushi Island, with a backdrop of corals, the President, the Vice President and eleven other Cabinet ministers signed a resolution calling for global cuts in carbon emissions.

This has definitely generated some press coverage, so props to Nasheed for an imaginative stunt. 

Just to be contrarian, however, I do wonder if it's the case that as small island nations go, so does the rest of the world.  Because they are sovereign actors, small island nations often possess greater influence than their population or GDP merits.  Would a rational, cost-benefit analysis of how to allocate climate change resources between mitigation and adaptation really place such a high priority on a bunch of small countries with a combined population of less than ten million? 

This isn't a rhetorical question -- I honestly don't know. 

Jad Mouawad and Andrew Revkin report in the New York Times on just the most darling Saudi proposal for how to help solve the global warming problem: 

Saudi Arabia is trying to enlist other oil-producing countries to support a provocative idea: if wealthy countries reduce their oil consumption to combat global warming, they should pay compensation to oil producers....

The chief Saudi negotiator, Mohammad al-Sabban, described the position as a “make or break” provision for the Saudis, as nations stake out their stance before the global climate summit scheduled for the end of the year.

“Assisting us as oil-exporting countries in achieving economic diversification is very crucial for us through foreign direct investments, technology transfer, insurance and funding,” Mr. Sabban said in an e-mail message....

A recent study by the International Energy Agency, which advises industrialized nations, found that the cumulative revenue of the Organization of the Petroleum Exporting Countries would drop by 16 percent from 2008 to 2030 if the world agreed to slash emissions, as opposed to the projection if there were no treaty.

But with oil projected to average $100 a barrel, the energy agency estimated that OPEC members would still earn $23 trillion over that period.

If Saudi Arabia was serious about diversifying its economy, it would open up its spigots and let the price of oil fall to the point where there were market incentives for economic diversification.  Somehow, I don't see that happening.   

So, this isn't really going to go anywhere -- but what I do find particularly amusing is that if one thought about compensating dirty energy producers for the costs of climate change mitigation, then oil producers would be close to the back of the line.  Coal-producing economies -- like China and the United States -- would be justified in demanding much greater levels of compensation, since coal is a much dirtier energy source.  Oil would be in front of natural gas producers, and that's about it. 

Readers are encouraged to proffer their own proposals in the comments that would seem more outlandish than the Saudi one.  Creativity counts!!

Over at the Financial Times, Gideon Rachman looks back at the G-20 Pittsburgh summit and thinks that Europe will take over the G-20 process: 

The realisation that the G20 is Europe’s Trojan horse struck me at the G20’s last summit in Pittsburgh a couple of weeks ago. The surroundings and atmosphere were strangely familiar. And then I understood; I was back in Brussels, and this was just a global version of a European Union summit.

It was the same drill and format. The leaders’ dinner the night before the summit; a day spent negotiating an impenetrable, jargon-stuffed communiqué; the setting-up of obscure working groups; the national briefing rooms for the post-summit press conferences.

All of these procedures are deeply familiar to European leaders – but rather new to the Asian and American leaders whom the Europeans are carefully entangling in this new structure. Watching an Indonesian delegate wandering, apparently carefree, through the conference centre in Pittsburgh, I felt a stab of pity. “You don’t know what you are getting into,” I thought. “You are going to waste the rest of your life talking about fish quotas.” (Or, this being the G20, carbon-emission quotas.)

The Europeans did not just set the tone at the G20 – they also dominate proceedings, since they are grossly over-represented. Huge countries such as Brazil, China, India and the US are represented by one leader each. The Europeans managed to secure eight slots around the conference table for Britain, France, Germany, Italy, Spain, the Netherlands, the president of the European Commission and the president of the European Council. Most of the key international civil servants present were also Europeans: Dominique Strauss-Kahn, head of the International Monetary Fund; Pascal Lamy of the World Trade Organisation; Mario Draghi of the Financial Stability Board.

As a result, the Europeans seemed much more tuned into what was going on than some of the other delegations. Puzzling over the new powers given to the IMF to monitor national economic policies in the Pittsburgh conclusions, I was interrupted by an old friend from the European Commission, who recognised the language immediately. “Ah yes,” she said, “the open method of co-ordination.”

Hmmm..... no, I'm not buying this.  Or, to put it another way, if the G-20 is a European plot, then it would be the worst plot since.... insert your least favorite M. Night Shyalaman film here.

Sure, the Europeans are overrepresented at the G-20.  But compare that to the G-8, where (when you factor in the EU), they occupied more than half of the chairs around the table.  The G-20 doesn't augment the power of Europe -- it dilutes it. 

This interpretation fits with what I heard from some of the G-20 participants as well.  There was a surprising degree of common cause between the BRIC economies and the United States in the run-up to Pittsburgh.  Given the outcome, there is an obvious explanation for the BRIC economies' behavior. 

Why did the U.S. go along?  Washington maintains stronger bilateral ties with each of the other G-20 members than most do with each other.  If one thinks of the United States as the central node in a more networked governance arrangement, then one can see how the reforms made to date do not weaken American influence.  The primary loser, then, is Europe.

Maybe Gideon will be proven correct -- it's certainly true that the Europeans might have a comparative advantage in this kind of diplomatic death-by-detail approach.  On the other hand, the Americans and Russians aren't exactly newbies at this.  The Chinese and Indians have been moving down the learning curve pretty fast.  And the Brazilians already have a reputation for being diplomats who punch above their weight. 

Developing....

No, that's not the name of my new band -- though, man, that would be a geekily awesome name for a band -- but a cue for my latest bloggingheads diavlog with NSN's Heather Hurlburt.  Topics include Iran, the G-20 summit, and multilateralism more generally:

One follow-up note -- I've been amused to read the reactions to the G-20 summit, which range from (justifiably) mocking the communique to complaining that the summit failed to develop a cure for cancer to worries about a new oppressive global governance mechanism.

I believe that I might be the only blogger who thinks that the G-20 solved the Goldilocks problem of not being meaningless without being so binding that there's no wiggle room.  The peer review mechanism is the best enforcement arrangement that's possible given the heterogeneous cluster of countries involved, and I give the Obama administration full marks for setting its agenda on macroeconomic imbalances. 

That is all

As previously noted, the G-20 has done a much better job than I would have thought possible a year ago.  It now looks like the Obama administration is close to earning consensus on a framework arrangement on macroeconomic policy coordination.  The devil's in the implementation, of course, but the fact that they're close to consensus on such a framework is truly surprising. 

Naturally, the French like to focus on peripheral issues that they are convinced contributed to last year's financial meltdown.  Last April it was tax havens; this time France's pet peeve is placing a cap on bank bonuses (admittedly less peripheral than the tax havens). 

It now looks like there will be agreement on that issue -- in part because the caps will not include specific monetary caps. 

I raise all of this because Nicolas Sarkozy's "bonus tsar", Michel Camdessus, gave an interview to the Financial Times in which he was refreshingly candid about the issue: 

 

France’s bonus tsar on Thursday said that traders’ bonuses were a largely symbolic issue for G20 leaders, and that in terms of money they were the “least important” item on the agenda.

Michel Camdessus, the former head of the International Monetary Fund, said: “If you look at this issue of remuneration in the global agenda of the G20, it is certainly – in terms of cash, money – the least important of all issues on the table.”

Mr Camdessus, charged by Nicolas Sarkozy, the French president, last month with monitoring bonuses of traders at state-aided banks, added: “But if you look at the symbolic value of the issue, it is one of the most important.”

Fine -- it's symbolically important.  But if a symbolic agreement can allow the G-20 to keep their eyes on the macroeconomic prize, then three cheers for symbolic gestures. 

To put it gently, international macroeconomic policy coordination has not had a glorious history over the past century.  Usually, the domestic political and economic costs were large enough to impede most efforts to coordinate.  Sham coordination was far more common than genuine coordination. 

Most successes in global policy coordination occurred when two of the following three conditions held.  First, when there was a state powerful enough to go it alone, coordination was usually a matter of the hegemon unilaterally providing the necessary public goods to facilitate coordination (see:  Marshall Plan, Dodge Line).  Second, when countries were being asked to take actions that boosted their domestic economies, they were willing to coordinate policy.  Contractionary fiscal or monetary policies have proven to be far more difficult to coordinate than expansionary actions.  Third, policymakers needed to be right on the economics.  Agreements to coordinate on an unsustainable set of policy prescriptions - such as the interwar gold exchange standard, Bretton Woods, or the Growth and Stability Pact - had a short half-life. 

Now, to give the G-20 some credit, this current crisis has led to greater levels of coordination than in the past -- and more than I expected.  This might be a function of policy learning from the debacles of the interwar period.  But it could also the fact that, to date, governments have been asked to pursue expansionary policies.  Each country was going to do something like what they are doing anyway -- the G-20 just acted as a useful focal point to cajole some of the more reluctant countries. 

What happens when it's time to clamp down?  Australian PM Kevin Rudd and South Korean President Lee Myung-bak proffer some recommendations in the Financial Times for the hard part of macroeconomic policy coordination: 

At Pittsburgh, G20 leaders should agree to a three-stage process. First, national governments should develop their own national strategies for recovery. Second, they should agree to deliver these strategies to the International Monetary Fund before the end of the year and ask the IMF to report back on their consistency with balanced and sustained global growth. Third, G20 leaders should meet again in 2010 (when South Korea is the chair of the G20) to agree their responsibilities and actions to achieve this goal within the framework of post-crisis global economic management. 

Steps one and two make a great deal of sense, and even have a good chance of being implemented.  The wording of step three is a bit vague, for it to mean anything it boils down to, "make everyone scales back on priming the pump in a coordinated manner." 

If that actually happens, well, tip your cap to the G-20, because the G-7 -- a much more homogenous group of countries -- never succeeded at that task. 

Question to readers:  does the G-20 have a chance in hell of succeeding in their next task? 

The New York Times' Alexei Barrionuevo and Simon Romero report on an entertaining leader summit for the Union of South American Nations.  One bone of contention at the summit was a recent military accord between the United States and Colombia. 

The proceedings were apparently broadcast live.  This part stood out: 

Mr. Chávez had previously described the [U.S.-Colombia] accord as a step toward war and had said it involved American designs on Venezuelan oil. He has been threatening to break off diplomatic relations with Colombia.   

President Alan García of Peru, who has warm relations with the United States, took a shot at Mr. Chávez, noting Venezuela’s continued willingness to export oil to the United States.

“Man, why are they going to dominate the petroleum if you already sell it all to the United States?” Mr. García said. The remark drew laughter, though not from Mr. Chávez.

With the caveat that this as a speculative, half-assed generalization, it does seem that certain regions produce vastly more entertaining summits than other regions.  Latin America and the Middle East produce summit meetings with open and entertaining feuding.  Europe and the Pacific Rim, not so much. 

Why is this?  I don't think it's the number of "colorful leaders" -- if that was true, then Silvio Berlusconi would have made the EU summits rip-roaring affairs years ago.  I don't think it's the degree of security tensions -- East Asia has more enduring rivalries than Latin America. 

Seriously, why? 

Nouriel Roubini provides a rundown of the national economies that have weathered the Great Recession pretty well: 

All economies have been affected by the crisis, but a combination of policy responses and strong fundamentals has given some countries, especially some emerging market economies, a relative edge. These same strengths could lead the countries I highlight below to perform better as the global recovery begins, even if their growth rates remain well below 2003-07 trends.

What do these countries have in common? One major theme is that they tended to have lower financial vulnerabilities due to more restrictive regulation and less developed financial markets, as well as larger and stronger domestic markets that sustained domestic demand. Moreover, they had the resources to engage in countercyclical fiscal and monetary policies, actions that were not possible in past crises.

With one exception, there's one other common denominator to the countries on Roubini's list -- none of them are big enough to act as a "locomotive" to power the rest of the global economy out of recession. 

The obvious exception is China, but I have serious doubts about the sustainability of their fiscal and monetary expansion.  As Roubini acknowledges, there's a lot of "asset bubbles, overcapacity and nonperforming loans" going on across the Pacific. 

So I'm a bit worried that the lessons drawn from these countries contain a mixture of good (prudent macroeconomic policies) and bad (greater levels of autarky) if implemented by a larger swath of economies.  And I'm not sure the good outweighs the bad on a global level.

 Am I missing anything?