GLOBAL PUBLIC GOODS AND TRADE: CONFLICTS, COMPATIBILITY AND COMPLEMENTARITIES
Round Table 1 - Global Public Goods: one definition?


Contribution to the Sustra Workshop "Global Public Goods and Trade: Conflicts, Compatibility and Complementarities"


Federico Foders
Kiel Institute for World Economics, Germany

 1.While markets for private goods are becoming global, the public goods needed to guarantee the functioning of global markets either do not exist at all or only in a rudimentary form. What are the consequences? First, the potential benefits that could be reaped from private activities at the global level are lower than expected and, second, the social cost of private global activities increases because negative externalities are not addressed at the global level.

2.The nation state has proven capable of developing public goods, i.e. legal, social and political institutions, to discipline the market. The rules of the game supplied by nation states allow for an internalization of social costs by private agents. Internalization works where there is scope for both the establishment of secure property rights and the taxation of private activities. Where an internalization of externalities is not feasible, the impact of (negative) externalities can be avoided or reduced by restricting the corresponding private activities. However, external effects of some private activities carried out at the national level are global in nature and fail to be addressed at the international level with a similar degree of effectiveness.

3.On the other hand, the community of states has managed to develop international rules of the game for some global international activities such as trade. Though economists tend to associate large benefits with trade, the actual impact of these rules on the nation states has been mixed at best. The reason is that openness (i.e. integration into the international economy) is not always in line with the political preferences of major social groups in the nation states, particularly in those cases in which the gains from trade are unevenly distributed and in which social groups can be divided into winners and losers. Thus the nation state has been unable to compensate the losers, even in those cases in which the overall gains for an economy have been large. And in those cases in which a country decided to open up in a selective manner in order to protect potential losers, the nation state has had to forgo the gains from trade altogether. The indication is that international trade rules lack democratic legitimacy at the national level and that more often than not nation states are unable or unwilling to compensate for that. There seems to be a trade-off between the national and the global legitimacy of public policy.

4.The evolution of the EU clearly demonstrates that it is not an easy task to build supranational institutions that are democratically legitimized. It took the EU/EC more than 50 years to start to negotiate a constitution containing some elements of federalism and the outcome is still not clear. The emergence of the aquis communautaire (common rules for 6, then 9, 12 and now 15, in a few years possibly 25 countries) had to be supported by an international fiscal policy financed by contributions from the member states. One of the goals of this fiscal policy is to compensate potential losers for the losses arising from the compliance with common European norms. Despite substantial efforts to compensate the losers, fears that the EU might be lacking democratic legitimacy still persist.

5.What does history tell us about the management of global public goods? Hitherto the international community of states has generally chosen two ways of governing GPGs:

- Extend national jurisdiction to include a substantial part of the global good to be managed (the UN Law of the Sea to manage the world oceans and its resources).
- Build an international jurisdiction without democratic legitimacy (the WTO to manage trade and other international economic relations).
As far as the UN Convention on the LOS is concerned, this piece of international law was at first opposed by the US and some European states but strongly supported by most developing nations, and it was finally adopted by all nations. The extension of national jurisdiction is also an extension of national democratic legitimacy and thus may be seen as being legitimate too. The GATT/WTO functioned for a long time only as an instrument of public policy favouring a relatively small number of advanced countries; developing nations seldom felt inclusion and ownership of the matters discussed in Geneva. In addition the lack of democratic legitimacy has put this international organization at the centre of the backlash movement against globalization.

6.How should GPGs for the environment, financial crises or migration be designed? What seems to be necessary is that we need to calibrate three elements that determine an international regime: the nation state, democracy, and globalization. And what we also know is that - to quote Danni Rodrik - we are dealing with another impossible trinity (the first one being the impossible trinity of open economy macroeconomics: fixed exchange rates, capital mobility and monetary autonomy). The impossible trinity of GPGs implies that we can only have two elements at a time, either the nation state and democracy or true globalization and democracy (international federalism). In other words, we have to choose between a welcome party for international federalism or an aniversary party for the nation state if we want to stick to democracy as a means to discipline the market.