The UN/Stiglitz Commission recipe for reforming globalization
I finally got round to reading the report of the UN Commission of Experts on reforms of the international monetary and financial system, chaired by Joseph Stiglitz. It’s very sensible, comprehensive and solution-oriented. Trouble is, is anyone listening? Regrettably, the UN process seems largely delinked from the G20/IMF/World Bank leadership on the crisis (see previous post on this).
Highlights from the report – apologies for long post, but there’s a lot of meat in here:
‘The current crisis reflects problems that go beyond the conduct of monetary policy and regulation of the financial sector. It also involves deeper inadequacies in areas such as corporate governance and competition policies. Many of these failings, in turn, have been supported by a flawed understanding of the functioning of markets, which also contributed to the recent drive towards financial deregulation. These views have been the basis for the design of policies advocated by some of the international economic institutions, and for much of the architecture of globalization.
Measures to restore domestic financial markets in developed countries through subsidies to financial institutions have been accompanied by a sharp reduction in flows of capital to developing countries. It is important to ensure that these measures do not create a new form of financial protectionism. Financial subsidies can be just as detrimental to the efficiency of a free and fair trading system as tariffs. Indeed, they may be far more inequitable, because rich countries have more resources to support subsidies.
Ten immediate measures are essential for global recovery.
1. All developed countries should take strong, coordinated, and effective actions to stimulate their economies, dedicating 1.0 per cent of their stimulus packages, in addition to traditional official development assistance commitments.
2. Developing countries need additional funding. Such funding could be provided by an issuance of Special Drawing Rights…. In addition regional efforts to augment liquidity should be supported.
3. Mobilizing Additional Development Funds by the Creation of a New Credit Facility. Given the need for rapid response, the new credit facility might be more quickly established under the umbrella of existing institutions, such as the World Bank, where efforts are underway to remedy existing inadequacies in governance and lending practices, or in Regional Development Banks where developing countries have more equitable representation. [note absence of any role for IMF!]
4. Developing Countries need more policy space. There are asymmetries in global economic policies—countercyclical policies are pursued by developed countries, while most developing countries are encouraged or induced to pursue pro-cyclical policies.
5. The lack of coherence between policies governing trade and finance must be rectified.
6. Crisis response must avoid protectionism
7. Opening advanced country markets to least developed countries’ exports
8. Learning from Successful Policies to undertake Regulatory Reforms.
9. Coordinating the Domestic and Global Impact of Government Financial Sector Support
10. Improved coordination of global economic policies. Following the successful example of the Intergovernmental Panel on Climate Change (IPCC), a similar panel could be created to offer consultancy to the General Assembly and ECOSOC, but also to other international organizations to enhance their capacity for sound decision-making in these areas.
Agenda for Systemic Reforms
There is an equally important agenda of deeper systemic reforms to the international system, that should begin now, if recovery is to be sustainable.
1. A New Global Reserve System: a greatly expanded SDR, with regular or cyclically adjusted emissions calibrated to the size of reserve accumulations
2. Reforms of the Governance of the International Financial Institutions
3. A Global Economic Coordination Council. At a level equivalent with the General Assembly and the Security Council, such a Global Economic Council should meet annually at the Heads of State and Government level to assess developments and provide leadership in economic, social and ecologic issues… All important global institutions, such as the World Bank, IMF, WTO, ILO and members of the UN Secretariat dealing with economic and social issues would provide supporting information and participate in the Council. It could thus provide a democratically representative alternative to the G-20.
4. Better and more balanced surveillance.
5. Reforming Central Bank Policies to promote Development [balancing anti-inflation with need for growth and jobs]
6. Financial Market Policies. While there has been innovation, too much of the innovation was aimed at regulatory, tax, and accounting arbitrage, and too little at meeting the real needs of ordinary citizens. [Advocates introduction of ] a Financial Products Safety Commission, a Global Financial Regulatory Authority and a Global CompetitionAuthority; restrictions on leverage; regulation of derivatives trading
7. Support for Financial Innovations to Enhance Risk Mitigation [eg index bonds and mortgages to GDP]
8. Mechanisms for handling Sovereign Debt Restructuring and Cross-border Investment Disputes. A number of countries may face difficulties in meeting their external debt commitments as the crisis worsens
9. Completion of a Truly Development-Oriented Trade Round
10. More Stable and Sustainable Development Finance. it is especially important for developing countries to be wary of measures that expose them to greater risk and volatility, such as capital market liberalization. Developing countries should use all the tools at their disposal to manage international capital flows. The international community needs to explore a variety of mechanisms of innovative finance, including regular emissions of a new global reserves (SDRs), revenues generated from the auction of global natural resources (such as ocean fishing rights and pollution emission permits), and international taxes (such as a carbon tax, which would simultaneously help address problems of global warming, or a financial services tax, which would simultaneously help stabilize international financial markets.)
The receipts could be directed to support the developing countries costs of reducing greenhouse gas emissions in the context of their national policies to promote sustainable development. The effective implementation of national systems of taxation form a crucial part of domestic development finance.