Fragmented and Weakened Global Governance Perpetuates the World’s Employment Crisis

“A second conclusion is that the multilateral system lacks coherence; that is, comparable and consistent disciplines in closely connected areas of international economic interaction. This is particularly notable between trade and finance. The existing system of global economic governance lacks effective multilateral disciplines over exchange rate, macroeconomic and financial policies, or for redress and dispute settlement regarding the negative impulses generated by such policies. In this respect, governance in money and finance lags behind that for international trade. This is a main source of strains in the trading system.”

 Yilmaz Akyüz, Global Rules and Markets: Constraints over Policy Autonomy in Developing Countries, Working Paper No. 87, Policy Integration and Statistics Department, International Labour Office, June 2008

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“Economic integration and interdependence in the world today have reached an unprecedented level. As a result, the globalized economy cannot function for the benefit of all without international solidarity and cooperation. This was highlighted by the global financial and economic crisis that followed the collapse of big financial institutions, and it has underlined the need for developing approaches to new forms of global collaboration.”

Trade and Development Report, 2011: Post-crisis policy challenges in the world economy, United Nations Conference on Trade and Development

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“Global investors increasingly view risk in binary terms: When things are looking calmer on the global economic front, stock markets rise across the world; when things look scarier, they fall. Instead of differentiating among the economies in the United States, Europe and Japan, market measures are moving closely in tandem.

Moreover, because major U.S. companies have operations around the globe, executives are more likely to try to offset weakness in their overseas operations by pulling back on hiring and capital investment domestically, even if the U.S. economy is proceeding apace.”

Neil Irwin, U.S. fortunes increasingly determined in Brussels, Frankfurt, Political Economy Blog,  Washington Post 09/06/2011

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“Concurrent with the shift in power among nation-states, the relative power of various nonstate actors—including businesses, tribes, religious organizations, and criminal networks—is increasing. The players are changing, but so too are the scope and breadth of transnational issues important for continued global prosperity.

The diversity in type of actor raises the likelihood of fragmentation occurring over the next two decades, particularly given the wide array of transnational challenges facing the international community.”

By 2025, the international community will be composed of many actors in addition to nation-states and will lack an overarching approach to global governance.

Global Trends 2025: A Transformed World, National Intelligence Council, PDF version, November 2008

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“Today, some 50,000 multinational enterprises and their 450,000 affiliates employ over 200 million people throughout the world. Their impact is felt in virtually every facet of industry, trade, services and business activities.”

Multinational Enterprises web page, International Labor Organization

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Over the last several decades, the world’s distribution of economic power has shifted along several dimensions.

  • The distribution of power among nations has become more decentralized (the number of nation-states in the world has doubled since 1950, a number of weaker nations – notably the BRIC countries – Brazil, Russia, India, and China – have substantially increased their positions of power in the world economy, and with the cold war over, the most powerful nations have less ability to dictate foreign and domestic policies to weaker nations).
  • The number of economically competing geopolitical units in the world economy has increased dramatically (increasing numbers of bilateral and multilateral free trade agreements have exposed more and more of the world’s local businesses to global competitors; advances in transportation and communications technologies have brought more and more of the world’s state, provincial, and urban governments into virtual face-to-face competition for investments and jobs)
  • The distribution of economic power between the world of national and multinational governing institutions and the world of global business enterprises has shifted in favor of the business enterprises (.the expansion of the number of competing geopolitical actors in the world economy has increase the number and diversity of investment opportunities available to corporations and investors, increasing their power to play off one geopolitical entity against another and thus limit the willingness of governments at all levels to manipulate flows of capital and goods to favor their own citizens).

These shifts in power have wrought a destructive change in the global environment for job creation.

Business enterprises operate under very different mandates than do governments.  The core mandate for every business is to gain market share, not share market gains; to maximize profits for owners and shareholders, not to maximize general welfare.  In the pursuit of that core mandate business enterprises cannot increase employment, pay higher wages, create safer working conditions, pay taxes, or invest in parts of the world where the greatest need for jobs exist, if doing so will alter the balance of competitive advantages in favor of competitors.    Incurring avoidable costs seldom enhances competitiveness; cutting costs often does.

In a world in which governing institutions lack the power to organize and moderate competition so that it serves the general interest and in which the growth of markets is stagnant, fiercely combative and norm-breaking waves of competition among the world’s 50,000 global corporations and among the world’s millions of globally exposed local businesses and governments are inevitable.  Unrestrained job slashing frenzies in pursuit of lower costs are inevitable.  Waves of hiring that manage to materialize cannot be sustained.  High levels of unemployment and underemployment become the permanent state of affairs.