Restore the balance of market and state

In an interim report of late March, the 18-member international committee wrote that the goal in reforming the global economic system must be to provide the greatest possible benefits for everyone. Acknowledging that the effects of the current economic crisis have to be dealt with quickly, the commission emphasised urgently needed long-term reforms. Current measures should be directed towards long-term goals like sustainable and equitable economic growth, better labour conditions and responsible use of natural resources, they argue. The experts caution against allowing the financial crisis to overshadow the food crisis.

The commission’s proposals include the right for sovereign states to file for bankruptcy, a global mechanism for the regulation of financial markets and a new global system of reserves. “Restoring the global economy to health will require restoring a balance between the role of the market and the role of the state,” they argue, adding that returning to the pre-crisis status quo will not suffice. The commission was founded by Miguel D’Escoto Brockmann, the president of the UN General Assembly at the end of 2008. It includes Germany’s Development Minister Heidemarie Wieczorek-Zeul. The commission considers its report a complement to other proposals related to the global financial crisis.

According to the commission, industrialised nations should not only consider their own economies when designing stimulus packages. As economic policies of the rich world always affect poor countries, it is argued, the consequences have to be taken into account from the outset. In addition, the authors call demand that prosperous nations
– set aside one percent of stimulus programmes for additional development aid,
– come up with a new credit facility independent of the International Monetary Fund, and
– refrain from protectionism.

The commission expresses itself in favour of concluding an international round of trade talks with a genuine focus on development.

The experts stress that developing nations need more leeway in economic policymaking. Industrialised nations are blamed of generally employing contra-cyclical policies to counteract economic downturns while encouraging developing countries to act pro-cyclically – often making loans contingent upon such policies. According to the Stiglitz Commission, such policies widen the gap between the industrial and the developing countries.

The experts advocate both the reform of existing institutions and the creation of new ones. Among the new institutions would be a global agency to safeguard competition, a top-level regulator of financial products and a council for global economic policy coordination. At the same time, however, the commission wants to restore the credibility and legitimacy of established institutions – such as the World Bank – by making them more democratic.

Although no other group currently working on reform proposals represents so many countries at once – the members come from different countries – the Stiglitz Commission’s proposals were mostly ignored at the G20 summit in London in April. At the same time, the International Monetary Fund (IMF) made a comeback (note comment on page 218). At the spring meetings of IMF and World Bank in Washington, it was decided to treble the funds of the IMF. Instead of increasing the Fund’s capital stock, a large share of this is to be mobilised through loans from emerging-market nations. Accordingly, those countries will have relatively strong say in the matter.

The World Bank announced it will make $ 55 billion available to developing countries in the next three years, helping them invest in infrastructure in order to cope with the global crisis. Of the total sum, $ 10 billion will be earmarked for private-sector projects. For this purpose, a new “Infrastructure Crisis Facility” was set up. Germany and France were among the founding members. Claudia Isabel Rittel