Fundamentals of global governance: what are the challenges ahead?


Remarks by Angel Gurría, OECD Secretary-General - Follow-up meeting at the invitation of Chancellor Merkel

Berlin, Germany, 5 February 2009

Dear Chancellor Merkel, Dear friends, it is a pleasure to join again you in this meeting.

When we met in December 2007, we agreed that to live up to the complex challenges of globalisation, the international governance structure needs to be adapted, including the role of International Organisations. We focussed on the possible ways in which we could co-operate better. In 2008, this was acknowledged at the Toyako summit, which invited “international organizations, in particular the World Bank, the International Monetary Fund (IMF), the World Trade Organization (WTO), the International Labor Organization (ILO) and the organisation for Economic Co-operation and Development (OECD), to enhance their cooperation and to improve coherence”.

A lot has happened since we met, including a global economic crisis of a magnitude never experienced before.

Even governments are transforming their ways of working together. We have witnessed the emergence of various “architectures”, all very innovative: the G8+, the Major Economies Meeting (MEM), the OECD Heiligendamm Process or now the G20 at leaders’ level. We have to adapt to these new structures for global governance. We have to respond properly to their requests for inputs and follow up as appropriate. 

All major International Organisations are being faced with such an important adaptation issue. How best to respond to the calls of these different groupings? How can we help our international organisations become stronger, more inclusive and agile?

The OECD is engaged in a comprehensive exercise to assess the characteristics of its own co-operation with other international bodies. Our forms of co-operation have evolved in a decentralised manner, and increasingly they operate on the basis of a light formal framework. Our Member Countries like this mix of bottom up and top down approaches, which they see as giving us more flexibility.

On top of many other areas of co-operation, only yesterday at the OECD’s headquarters in Paris, we hosted an important workshop with the IMF and the World Bank to exchange views on the Response to the Crisis and Exit Strategies. There was another similar workshop some time ago on food and fuel prices. We also work extensively with ILO on labour and employment issues and WTO on trade-related issues including aid-for-trade and trade and investment protectionism. However, we can and must do more.

We should remain very focussed and pragmatic. No need to pursue grand designs. Instead, we should identify concrete areas where we see scope for improvements.

Let me provide two examples.

Did the International Organisations raise the “red flags” in the advent of the crisis? Individually, there may have been early warnings from some of us. However, because we lacked coordination, the effectiveness of our messages was limited. This is particularly the case when dealing with G7 countries, which tend to ignore these messages or to avoid the surveillance they support for others. 

Similar considerations are also important when it comes to other sensitive policy issues – such as the need to convey a balanced evaluation of globalisation, the benefits of trade and investment liberalisations, the fight against poverty, or the climate change agenda.

One way we can ensure that our shared messages become reciprocally reinforcing, is through reinvigorating our communication channels. In our first meeting, I advanced the proposal to develop an informal mechanism of regular consultations among the leaders of the International Organisations present here. It would be good to put this idea in practice, provided it adds value and increases efficiency to international economic governance.

In thinking of a pragmatic approach, we also need a division of labour that, while taking into account the comparative advantage of each International Organisation, also allows for different perspectives of the same issues. In many important domains our member governments may benefit from a diversity of views and expertise. It is not about duplicating efforts on the same issues. It is about being complementary. What happens when single institutions are given exclusive responsibilities and they fail? Consider the parallel with the ICT infrastructure. There are always back-up facilities in case of breakdowns. The world should do nothing less. 

These considerations are particularly important in the current period of crisis.

Specific proposals:

First, the immediate policies to counter the crisis. I would like to propose that our five organisations get together to set out ideas and guidelines about how banks can start lending again. Think of the separation between “good” and “bad” assets.  Implementing such separation is going to demand a lot of cross-country coordination. Also, we can produce a set of guidelines to help governments manage their stimulus packages in the most effective way.

In dealing with issues that concern our political leaders today we should stay focussed on the daunting employment prospects and on the implications of expansionary fiscal packages for public debts and future pension commitments. It is up to us, to single out today those policies that may result in future vulnerabilities.  

Who else, if not us, should advance viable proposals on how to tackle these urgent dimensions of the crisis? The guidelines we produce would support the work of both the G20 and G8+. And they would serve to show that we are actively implementing the spirit of Toyako - that we are working together. 

Second is the need to avoid this from happening again. Chancellor Merkel mentioned the need for a “Global Charter” for a sustainable world economy. A similar endeavour is being promoted by the Italian G8 Presidency, namely the establishment of a worldwide “Legal Standard” for sound business behaviour. How to define the scope of these new mechanisms? What will be the nature and extent of the commitments for both business and governments? Should we seek to develop binding rules or voluntary initiatives? Can both concepts be merged?

Call it “Global Charter” or “Legal Standard”, or perhaps “Global Standard”, the objective is a compact of legal instruments and co-operative processes related to transparency and propriety in the conduct of international businesses. I can see several OECD instruments that would be useful to include here. But I also see the space for others around the table to make critical contributions to such a compact.

Third is climate change. The challenge is to devise the most cost-effective policy packages and to help policy-makers understand how the different choices will affect the cost of action and its economic consequences. Both mitigation and adaptation strategies would need to be analysed and developed. 

Many issues of implementation will emerge. The current proposals to address the crisis are providing us with the opportunity to combine the stimulus packages with measures to achieve a “low carbon economy”. What could be the most effective enforcement and monitoring mechanisms? How to ensure that the funds generated through a cap and trade regime are put to the most productive uses? How can the cap and trade system itself work at a global level? What is the best way of involving the developing and emerging countries? There are many questions to ask, where we could jointly provide convincing answers drawing on our respective strengths and our collective voice.

Fourth and finally, the avoidance of protectionism. In addition to outright protectionist measures, there is also the risk of indirect protectionism. For example through national labour market policies or national content requirements, proposed with the intention of protecting employment, but with a negative impact on open markets and or investment flows. How can we reduce the risk of protectionism as a result of renewed economic nationalism?

I would like to make another practical suggestion. That between now and the next G20 Summit we create a dedicated team involving our Deputies to identify the contributions of our organisations in these policy areas. In other words, to assess how to come up with a “horizontal” and coherent response, and how to draft a mandate from the G20 and/or the G8.

Given the crisis, the global governance architecture is moving faster than we anticipated when we met last time. Thus the need for International Organisations to work together has increased in parallel. If we are willing to take on this challenge, we should move now – in the areas I have mentioned above, or wherever you see even greater pressure and urgency for action.