By Sean Cleary
It’s time to redesign, not tinker! The end of WWII demanded new institutions to protect the peace, stabilize global finances, reconstruct destroyed economies and facilitate international trade. This economic crisis requires us to build an economic, social and political order appropriate for our time.
The trillions of dollars already committed are the working capital of future generations. They cannot be wasted to reconstitute the system and habits that created the crisis. We must act to reinvigorate the global economy; use our natural resources responsibly; promote justice and human dignity; and advance global, national and human security.
This crisis was triggered by structural imbalances, avarice, an emphasis on short-term gain and neglect of the controls needed in an effective economy. But a narrow focus on fiscal stimuli and systemic controls will fail.
We placed exaggerated reliance on markets and celebrated extravagant returns from financial engineering, while disregarding the claims of social equity and eco-systemic balance. We must invest now to correct this so as to benefit, not debilitate, our heirs.
Spending on upgrading infrastructures and developing environmentally-friendly technologies, removing toxic assets from the balance sheets of key banks, improving back-office systems and clearing and settlement arrangements, and devising a systemic approach to financial regulation and supervision, are necessary, but not enough: To check protectionism and generate a sustainable recovery, we must reorient our ethos.
The global village was the metaphor of the past decade, but we have not created one. While the global economy is highly integrated and has dramatically improved human well-being, global society is still fractured. We have no global polity and the parlous state of global governance makes us deeply vulnerable. Global risks demand integrated responses.
Our paradigms – power politics that encourage states to seek unilateral advantage, and economic policies that incentivize firms to maximize short-term profits and disregard sustainability – are outdated. We need three initiatives:
Develop a New Rule-based Regime
The imbalance between collective interdependence and parochial regulation threatens our survival. We need coherent, transparent rules based on human values to help governments align short-term domestic interests with socially responsible and ecologically sustainable policies.
The G20 should discuss a new regime in which states would grant privileged trade, financing and collective security conditions to all those that commit to a Global Charter providing for:
(a) international security - abstaining from aggression and engaging in preventative diplomacy, conflict resolution and post-conflict reconstruction;
(b) ecological responsibility - pursuing the highest economically feasible standards of environmental protection; and
(c) social justice - demonstrating respect for human dignity by advancing human security and welfare.
After the G20 have agreed on a Charter, all states could accede to it, thereby transforming the incentive landscape for national policy choices. To make it effective, however, we need means to enforce it.
A New Global Security Regime
Throughout history, integrating individuals into societies and smaller groups into larger ones has prompted restructuring of security arrangements. One does not leave security to individuals in a community, or allow rival armies to advance factional interests within a state. Since the birth of nation states, governments have taken charge of civil order and enjoy a monopoly of the legitimate use of violence in enforcing it.
Global economic integration has brought wider acceptance of secular values, but digital integration and travel have created new avenues for disruption. Efforts by individual states to protect against these are often counter-productive, inviting ideological mobilization and retaliation. A Global Charter must be buttressed with a global security regime that shares responsibility for order beyond the borders of each state with multilateral institutions.
This is not revolutionary. Many states, from Costa Rica through Japan, do not provide independently for military security. The USA is their guarantor, as it was for Western Europe in the Cold War. But no hegemon can provide collective security today. The effort places unreasonable burdens on the provider, risks compromising the integrity of the recipient and invites antagonism from others. Inclusive mutual security arrangements based on doctrines of limits are needed in the Middle East, the Gulf, Central Asia and East Asia.
A Global Charter will facilitate agreement on mutual security pacts. Only clear rules and the means to enforce them can enable collective security. The instruments must be available when and where needed, so localized arrangements will be most effective.
As these will fail occasionally, they should be reinforced with a Global Rapid Deployment Force, with transparent rules for deployment. Uncertainty about the consequences of violations must be minimized. An effective commitment to collective defense must underpin the principle of mutual security.
A Global Security Regime will eliminate incentives for arms races and allow more funding for social development and productive investment.
Investment in Equity and the Environment
A new economic model must address two distortions.
- Ecologically irresponsible growth is unjustified. Abrupt change is impossible – our dependence on hydrocarbons is too great and rapid urbanization has allowed billions to escape poverty – but the crisis offers an opportunity to design a path to sustainability.
- Likewise, while few would disagree that those who contribute more deserve larger returns, today’s wealth asymmetries cannot be justified in humanitarian terms or on the basis of economic efficiency.
These problems can only be resolved together. Socially and environmentally sustainable growth depends on our finding a balance between personal freedom and acceptance of our responsibilities for the common good, and for protection of the global ecosystem
Investments in health and education systems and ecologically viable economic infrastructure in the developing world will accelerate global demand. Much recent growth has been driven by the BRICs and other developing countries.
Future growth cannot be allowed to double carbon emissions and destroy the remaining forests and water basins. We need a new development model combining the best R&D with cultural insights and innovation from the emerging countries.
A $5000 billion multi-year Global Growth Fund should be created. The cost is little more than the wars in Afghanistan and Iraq and the fund could deploy some of the structural surpluses that contributed to the financial crisis.
We must recognize capacity constraints and the need for transparency in delivering the investment. Reform of the IMF and the World Bank is overdue. We have debilitated these institutions and created confusion about their mandates. The G20 should develop a new approach.
The Charter, the Security Regime and the new Investment strategy are intertwined. We cannot optimize their returns in isolation; together they are mutually reinforcing. Implementing them will allow us to build a sustainable future. Failure will squander the inheritance of our children. It is not a difficult choice.
Sean Cleary is Chairman, Strategic Concepts (Pty) Ltd; Chairman, Advisory Board, Abraaj Capital; Founder, Future World Foundation; Chairman, Global Advisory Board, Operation HOPE;Board Member LEAD International.