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Commission on Global Governance

INTRODUCTION

The Commission on Global Governance issued its report, Our Global Neighbourhood, early in 1995 - the year the United Nations turned 50. We did so with the hope - shared with many worldwide - that the jubilee would prompt a process of review and reform to improve the world's governance, including institutional change at the UN. Since mid-century there had been important developments the UN so far had not taken fully into account. Furthermore, a world recently freed from Cold War tensions seemed to offer good auspices for efforts to renovate the UN and put in place a more co-operative international system.

In the period since the publication of our report, reform has been on the agenda of the international community, and global governance has become part of the coin of international discourse. There has been some movement towards a better world order, as in the agreements on nuclear proliferation and testing, on landmines and on an International Criminal Court. The notion that poverty and deprivation, as much as war and violence, need to be recognised as threats to human security has gained wider acceptance. At the United Nations, the new Secretary-General has been able to secure some improvements - in management and co-ordination, in particular.

But by and large the UN's member governments have been less ready to countenance change than we had urged. Prolonged discussions in working groups set up by the General Assembly have produced meagre agreement. The status quo remains undisturbed in the Security Council, where key dispositions stay frozen in their 1945 mould. The call for democratic oversight of the global economy has gone unheeded.

In some respects, developments since we issued our report have made the need for changes in governance more compelling. A military alliance led by major powers has intervened with massive force in the territory of a sovereign state that is not a member of the alliance without seeking the Security Council's endorsement. The bypassing of the United Nations may have been linked to the Council's structural defects - which we had hoped that reform would remove - but it nevertheless had the effect of undermining the authority of the United Nations. Tests of atomic weapons and long-range missiles have set back arms control efforts, and the US-Russian disarmament process has been stalled.

Globalisation has continued to create opportunities for economic progress through trade and investment from which many have benefited. But, in the absence of adequate measures of global economic governance, it has made the world economy more unstable; countries have become more vulnerable to shocks, many have been marginalised, and the gap between the very rich and the very poor has widened. The UN and its agencies have seen their budgets squeezed. Rich countries have become meaner, cutting back on support for the poor while the number of very poor people - those having to exist on a dollar a day or less - has continued to rise.

A NEW OPPORTUNITY

We now approach what could be turned into a new window of opportunity. The start of the third millennium challenges us to renew our efforts to make the world a better place for its people.

Governments have accepted the United Nations Secretary-General's proposal that the UN should mark the year 2000 with a Millennium Assembly devoted to the theme of "The United Nations of the 21st Century", and that it should include a segment - the Millennium Summit - to enable national leaders themselves to address this theme.

We urge leaders to make full use of this opportunity.

A great deal of what we said in Our Global Neighbourhood remains relevant to a consideration of the mission and shape of the United Nations in the new century. To give one example, recent developments, including notably the tragedy in East Timor, have reinforced the case we made for giving the United Nations some effective form of standing rapid reaction capacity, available to the Security Council for immediate and timely deployment, so that the Council's decisions may be implemented speedily and effectively in critical situations.

We do not propose to go over the ground we covered in our 1995 report. We wish to focus on two areas: civil society and the world economy. In advocating a larger role for civil society, we see it as a way to amplify the voice of the people, particularly the less powerful, in the affairs of the world. Similarly, our concern with the world economy is driven chiefly by a wish to ensure that the interests of the poor receive adequate attention.

THE UNITED NATIONS AND CIVIL SOCIETY

In public reactions to the Commission's report, it was evident that its call for greater recognition of the potential of civil society to contribute to the world's better governance had a wide resonance. Events since its publication have shown civil society organisations make substantial contributions to essentially inter-governmental exercises to extend the rule of law, as in their role in helping to secure a successful outcome to the negotiations for an accord on landmines and on an International Criminal Court. These achievements have confirmed the capacity of civil society for service to global causes earlier demonstrated by the role of non-governmental organisations at such norm-setting world conferences as those on the environment, women and population.

At another level, voluntary bodies have been of practical service in helping to realise international objectives on the ground in many fields, including security-related fields once regarded as the preserve of states. They have been working in conflict-ridden areas, functioning as watchdogs on human rights, delivering humanitarian assistance, carrying out developmental projects and achieving advances in such social sectors as health and education.

While the UN's relationships with civil society have grown, there clearly is scope for closer and wider links to the public benefit. The Secretary-General has articulated his desire to see a stronger partnership between the UN and civil society. It is known that some parts of the UN system have been less eager to embrace the non-governmental sector than others. But, more importantly, there has been nervousness and resistance on the part of many governments.

We believe that both international organisations and national governments stand to benefit from closer working arrangements with a dynamic non-governmental sector mobilising the energy and enthusiasm of citizens to serve goals that all three seek to achieve. In our view, the achievement of such a partnership should be a high priority for the United Nations of the 21st century. In developing these arrangements, special measures seem necessary to ensure that the non-governmental sector in both developed and developing countries is involved. Furthermore, just as governments - and the staff of international organisations - may need to reconsider their approach, non-governmental organisations themselves must maintain the highest standards of integrity, accountability and transparency - and public credibility.

"Civil society" is a handy if not very precise term, and greater clarity is often desirable when it is used. Non-governmental organisations (NGOs) are only one part, though a prominent part, of civil society. There are other parts of civil society, such as the private sector, academia, and the media, links with which can also be important to the United Nations. But these have their distinctive roles, significantly different from that of NGOs, and while the UN's links with them also need strengthening, the nature of those links must respect the difference in their roles.

We address these issues in greater detail than we did in our 1995 report.

THE WORLD ECONOMY

Our second area of concern is the world economy. Since we issued our report in 1995 globalisation has made further advances - and also shown more of its downside. The financial crisis in Asia involved some of the globalising world's most glittering performers; their economies took a severe beating in 1998, and many millions of the region's people were thrust back into the poverty from which they had only recently escaped. Some 200 million remain there notwithstanding the recovery reported from the region. The Asian debacle did not bring about a global meltdown, but it did aggravate the economic breakdown in Russia and led later to a deep recession engulfing a large swathe of Latin America.

Besides making the world economy more unstable, globalisation has failed to spread its benefits equitably. The world has become more unequal, with disparities being widened, both within countries and amongst them. The marginalisation of the poorest people, notably in many parts of sub-Saharan Africa, has been exacerbated. Even in such countries as China and India which have made robust advances in terms of GDP, there are signs that some of the poor have been marginalised.

One dimension of globalisation is the development of a global knowledge economy powered by new communication and information technologies; this undoubtedly offers countries opportunities for economic advancement, and a few developing countries, including the most populous, have been among those able to exploit them. But there is reason to fear that marginalisation is being reinforced as international disparities in access to the paraphernalia of the wired world - telephones, facsimile machines, computers, e-mail, the Internet - are even sharper than the disparities in income.

Globalisation is driven by market forces but, as the UNDP's Human Development Report 1999 said, the challenge is not to stop the expansion of markets but "to find the rules and institutions for stronger governance" to preserve the advantages of global markets and competition and also ensure that "globalisation works for people - not just for profits".

While sub-Saharan Africa has the highest rates of extreme poverty, the largest numbers of the very poor are in South Asia. The stubborn persistence of large-scale poverty and the deprivation that is the lot of so many people, amid the growing concentration of wealth in the hands of the richest, is perhaps the largest blot on the human landscape as the world moves into the 21st century. At one level, the number of people having to live on incomes of a dollar a day or less is reckoned to have risen to 1.4 billion. At the other extreme, the world's six million millionaires are estimated to have become 12% richer in 1998, the year of financial turmoil.

The extent to which corruption impedes development while enriching a few - and thereby robs the poor - has become even clearer since we first addressed the subject. Poverty has several causes and we need to recognise that in many countries corruption has been a factor, even a major factor. Integrity in the political leadership is crucial to preventing corruption but a vigilant media and a vibrant civil society can be powerful deterrents.

Notwithstanding the growth of poverty, inequality and marginalisation, official assistance for development in poor countries has continued to fall. We said in our report that by 1993 aid had fallen to 0.29% of donor countries' GDP, the lowest level since the international target of 0.7% was set. By 1997 aid had shrunk further to just 0.22%. There was a modest recovery in 1998, partly reflecting short-term measures responding to the crisis in Asia.

International action to relieve nations defined as Heavily Indebted Poor Countries (HIPCs) has also fallen far short of what is necessary to give their people a reasonable chance to put their difficulties behind them. The HIPC debt relief plan launched in 1996 has helped just three countries, from a list of 41, in three years. Even after the improvements announced after the 1998 G7 summit in Cologne, this initiative remains very modest in relation to the size of the problem.

These are among the developments that have added credibility to the Commission's views on the deficiencies in global economic governance and to its early call for reform in the world's economic architecture. Since the international financial system demonstrated its vulnerability to shocks with the series of financial crises starting in Asia in 1998, there has indeed been talk of refurbishing the world's financial architecture, and some improvements in financial supervision have been effected. But as the risk of a global recession has receded, the momentum for reform has also faded, although the inadequacy of existing arrangements remains exposed by recent events. The International Monetary Fund, for instance, despite some increase in its resources, remains ill-equipped to act as a global lender of last resort on the scale required in present circumstances. Its resources in relation to world output were three times higher at its founding than today.

There are many economic and financial issues that call for serious global attention. We remain convinced that there is a gap in the structures of world governance that needs to be filled by a body similar to the Economic Security Council we proposed. We believe the world community will eventually find it prudent to welcome such an institutional innovation. Discussions between the G8 and a similar number of developing countries, as suggested recently, are no substitute for such a formal body, but they will be a step in the right direction.

We have flagged some of the key economic issues the world needs to address as it moves into a new century and discuss these and others later in this report. It is our hope that world leaders will use the Millennium Assembly to give fresh impetus and direction to the search for answers.

SUMMARY OF RECOMMENDATIONS

THE UNITED NATIONS AND CIVIL SOCIETY

Governments, the UN Secretariat and NGOs should assign a high priority to developing a closer and more sustainable working relationship between the United Nations and civil society.

The Millennium Forum, to be convened by a large group of NGOs in late May 2000, should make relations between civil society and the United Nations its first order of business.

Governments and international organisations should encourage the development of an active, independent and dynamic civil society sector and build a close working relationship with it.

Legislators, officials and inter-governmental bodies should take action to protect the freedom of speech, assembly and petition of civil society organisations. Information on best practices in national legal standards for civil society should be disseminated.

When civil society groups lack a solid political and legal footing in their countries, the UN and their counterparts in other countries should reach out to them and involve them in trans-national dialogue.

Civil society groups should demonstrate the highest standards of transparency, accountability and integrity, accepting full scrutiny by the media and public watchdog groups.

Civil society organisations and coalitions should protect their independent status and not accept financial help from official sources for carrying out policy-related advocacy or lobbying work.

At this point, priority should be given to integrating civil society into the daily work of the UN system, consolidating the gains already achieved, and extending them to new areas of UN work.

The Secretary-General and his staff should give the public, the press and governments a precise idea of their conception of the characteristics and dimensions of civil society. They should be consistent in public statements, and there should be no dissonance within the UN system.

Governments, the UN Secretariat and, most of all, relatively affluent civil society and private sector groups should consider ways to increase the participation of NGOs from developing countries in UN-related meetings and conferences.

A privately administered, voluntary fund should be established to support civil society organisations in developing countries, especially to enable them to take part in the activities and information networks of global civil society and the United Nations.

Regional organisations and the UN's regional economic commissions should act as links between local and global NGOs, and foster co-operation among governments, civil society and inter-governmental organisations.

As long as world affairs are built on the nation-state system, advocacy groups should place their highest priority on effecting change at the national level.

The practice of including representatives of civil society on national delegations to UN meetings should be encouraged.

Non-governmental fora sponsored by the UN should welcome participation by civil society groups representing a variety of viewpoints, including those critical of the world body and its policies.

The General Assembly should act quickly to extend the rules and arrangements for NGO participation established in the UN Economic and Social Council (ECOSOC) resolution 1996/31 to itself and its main committees and working groups.

All other UN bodies should review their arrangements for NGO participation and, where these fall short of the ECOSOC provisions, bring them into conformity as fully as possible.

The Secretary-General should launch a lessons-learned exercise to highlight the steps that have been most effective, as well as those that have failed, when implemented by different UN bodies and the Bretton Woods institutions attempting to improve relations with civil society.

As a general rule, NGOs should be given access to all formal meetings of UN bodies open to all member states. In limited membership bodies, such as the Security Council, however, NGOs should not be extended rights of access denied to most UN member states.

The Security Council should regularise procedures for gaining input from civil society groups with relevant expertise. It could assemble panels of non-governmental specialists who could be consulted by members or staff. Another option might be to assign a small staff to conduct NGO/civil society liaison for the Council.

NGOs should focus on consolidating the gains they have made, even as they consider ways of moving forward. They should resist attempts to curtail their access to information and meetings.

The UN should continue to provide, without imposing fees or new restrictions, a full range of information services to NGOs and the public. The UN and member states should take full advantage of the possibilities for information sharing among civil society, the Secretariat and governments.

The UN Secretariat and governments should recognise that the private sector has more to offer besides capital, notably expertise and experience on many functional, financial and managerial questions.

Those NGOs that have taken a consistently harsh stance towards the private sector should reconsider their attitude in the light of changing circumstances and the prospects for the constructive involvement of the private sector in the work of the UN.

The UN should not expect the media, whose job it is to be independent of government institutions, to serve as its messenger on a consistent basis. Each has a right to expect a good working relationship, based on realistic mutual expectations.

The UN's ties with the academic and research communities around the world must be strengthened; it should encourage foundations, scholars and scholarly networks to foster collaborative work between researchers from the South and the North on important world issues.

The practice of including parliamentarians in national delegations to UN meetings should be encouraged. More parliamentarians should be invited to study UN field operations.

The growing co-operation between the Inter-Parliamentary Union (IPU) and the UN should be encouraged, with governments kept fully informed. Good governance and representative democracy would be an appropriate theme for the IPU conference of speakers of national parliaments, to take place on the eve of the Millennium Assembly.

THE WORLD ECONOMY

The Commission urges a fresh initiative to constitute stronger and more representative structures of global economic governance: an informal discussion - or a sequence of discussions - between the G8 and a matching number of developing countries of economic and systemic importance which could lead to a unified body to deliberate on international economic matters from the perspective of global economic security.

A priority of this group should be to review developments over the last two years in standard setting for financial institutions, emergency lending arrangements for governments affected by "contagion", and other responses to instability in the world financial system.

Developed countries whose aid for development falls far below the UN target of 0.7% of GDP should make a fresh commitment to substantial additional aid flows.

Creditor countries should ensure more far-reaching and quicker implementation of debt relief to HIPC countries, as delivery has lagged far behind the generosity of public pronouncements.

An international group of experts should be commissioned to make a rigorous technical study of the feasibility of the Tobin tax proposal to raise modest sums to finance global public goods and to reduce the "churning" of foreign exchange markets.

International financial institutions should adopt a pragmatic approach to governments' attempts to minimise the disruption caused by short-term financial inflows and outflows.

The review of the roles of the Interim and Development Committees and the reassessment of the international financial architecture should be conducted in the context of a comprehensive assessment of the IMF's mandate, including its roles in the surveillance of major economies and in acting as a lender of last resort.

The new round of multilateral trade negotiations should give priority to trade liberalisation in those areas where barriers are still serious, such as agriculture. There should be full participation by developing and transitional countries, including such countries as China which are not currently members of the World Trade Organisation (WTO).

As recent instability in the world economy and unbalanced global growth reinforces the case for a mechanism which can highlight systemic risks and potential crises in a way that specialist institutions and piecemeal initiatives cannot, the concept of an Economic Security Council - however it is designed or constructed - should be further pursued.

THE UNITED NATIONS AND CIVIL SOCIETY

One of the central themes flagged by the Commission on Global Governance in its report Our Global Neighbourhood was the growing importance of trans-national civil society in shaping both the conditions for and the results of global governance. Increasingly, it noted, people with "common interests irrespective of their national or other identities ... are coming together in an organised way across borders to address these". It underlined that "a major challenge for the international community is to create the public-private partnerships that enable and encourage non-state actors to offer their contributions to effective global governance". The Commission concluded, moreover, that "to be an effective instrument of global governance in the modern world, the United Nations must also take greater account of the emergence of global civil society". At the same time, while these conclusions are even more evident today, so too is the Commission's caveat that "issues of legitimacy and accountability will continue to arise everywhere as assessments of the NGO sector become more careful and nuanced". In considering the architecture and priorities of the world body in the 21st century, it has become increasingly apparent that both sides of this equation - making a place for non-state actors at the UN and expecting fuller transparency from them - demand the concerted and balanced attention of the member states.

EXPANDING HORIZONS

Five years after the completion of Our Global Neighbourhood, on the eve of a new millennium, the challenges and opportunities presented to the United Nations by the increasing activism of civil society loom even larger. In championing the call for a new partnership between the world body and civil society, Secretary-General Kofi Annan has taken a series of ground-breaking steps to begin to give content and substance to this evolving relationship. Yet inter-governmental deliberations on ways of enhancing the status of non-governmental organisations at UN headquarters have stalled, as a number of political, bureaucratic and structural obstacles have intervened. Unless these are overcome, the Secretary-General's vision of a closer working relationship between civil society and the UN is in danger of slipping away, jeopardising a prime opportunity for multiplying the organisation's reach and for strengthening its capacities for addressing the challenges of the 21st century.

As governments, the UN Secretariat and NGOs prepare to consider the future of the UN at next year's millennium events, the Commission urges them to assign a high priority to developing fresh and forward-looking ideas for building a closer and more sustainable working relationship between the United Nations and civil society. Both the UN and civil society would benefit.

The Millennium Forum, to be convened by a large group of NGOs in late May 2000, will provide an ideal venue for reflecting on the current state of, and future prospects for, relations between civil society and the United Nations. Though the Forum can no doubt make important contributions to the development of UN policies in other substantive areas, in this field it can make a uniquely valuable contribution. Given the uncertainty and flux that currently characterises UN-civil society ties, we would urge the Forum to make this question its first order of business.

As technology has made worldwide communications cheaper, quicker and more reliable, the scope and reach of civil society have been globalised. More and more, activists and experts alike are discovering colleagues in other parts of the world who share their values and interests. A dense and complex array of formal and informal networks of knowledge and information-sharing has developed in defiance of national boundaries and identities. As a result, substance, not geography, is coming to define the dimensions and pathways of civil society. Beginning in functional and technical fields, but now increasingly in social and political matters as well, the communications revolution is fostering the kinds of co-operation among the peoples, if not always the governments, of the world envisioned in the high ideals of the Preamble to the UN Charter. Yet the highly uneven distribution of computer and telecommunications resources threatens to exacerbate, rather than narrow, the gap in the degree of influence exercised by developed and developing countries.

While the United Nations was established primarily "to be a centre for harmonising the actions of nations" - not of peoples - in the attainment of their "common ends", it has become more and more evident that in the communications age reinforcing progress must proceed on both levels simultaneously. Even relatively repressive governments cannot fully seal their borders from the flow of information and ideas, nor can they perpetually ignore the views of their citizens. The UN cannot begin to fulfil its noble ambitions, or even to implement its programme mandates, without the support of both governments and a range of civic and private organisations. And non-governmental groups should recognise that their growing influence has naturally triggered demands from people as well as from governments for a higher standard of responsibility, transparency and accountability. All three sides of this emerging global governance equation - member states, the UN Secretariat and trans-national civil society - have come to appreciate their interdependence in forwarding those goals they have in common. They have worked together, in fact, to make the 1990s the most productive period ever for the development and codification of international law in fields as diverse as arms control and disarmament, war crimes, human rights, trade, environment and sustainable development. To be sure, stubborn differences remain, within and between countries, on many points of this global agenda. But the scope of multilateral agreement and the degree of co-operation among governments, civil society and international organisations are unprecedented.

The communications revolution has accentuated the centrality of timely information and ideas - two of civil society's prime assets - both to economic development and to the political process. Whether information equals power, it certainly can temper, instruct and guide its use. Likewise, the rise in civil society activism has compelled governments to be more transparent and accountable for their use of power internationally and domestically. In region after region, private enterprise has come to replace the state as the prime engine of growth and prosperity, even as adept information management has become essential to economic success. In the developing world, foreign direct investment by private firms now exceeds official development assistance (ODA) from governments by a factor of six to one. These developments help to explain why civil society and the private sector are coming to play a more influential role at all levels of governance, whether local, national, regional or global. For the UN, these non-governmental forces could represent the wave of the future, if the complex ties among governments, civil society and the world body are handled adroitly.

INTEGRATION AND INDEPENDENCE

An informed, independent and vocal civil society demands greater responsiveness, transparency and accountability from governments, inter-governmental organisations and non-governmental organisations alike. Independent organisations, working with the media, can serve a critical whistle-blower function, both in terms of uncovering malfeasance or incompetence in all three sectors and in terms of drawing attention to emerging policy issues. Though some officials may find this annoying or distracting in the short run, in the long run this process can provide a mechanism for self-correction and periodic adjustment that will produce healthier, more viable and more responsive institutions, just as the establishment of the Office of the Under-Secretary-General for Internal Oversight Services has provided a channel for such concerns at the UN. Over time, this process of independent monitoring tends to enhance the legitimacy, as well as the effectiveness, of public and civic institutions. It is in the long-term interests of national governments and international organisations to encourage the unhindered development of an active, independent and dynamic civil society sector and to build a close working relationship with it based on mutual respect and a natural division of labour.

At the national and international levels, legislators, officials and inter-governmental bodies should adopt standards, rules and legislation to protect the freedom of speech, assembly and petition of civil society organisations, so that they can carry out their work without undue hindrance from official quarters. Efforts to compile, publish and disseminate information on best practices in national legal standards for civil society groups, such as have been undertaken by CIVICUS and by the World Bank and the International Centre for Not-For-Profit Law, should be encouraged.

Civil society groups cannot contribute effectively to the resolution of global problems unless they operate from a sound, secure and respected base within national societies, as well as within international organisations. Where these independent groups lack a solid political and legal footing, the UN and their counterparts in other countries should make a special effort to reach out to them and to involve them in trans-national dialogue.

At the same time, representatives of civil society need to recognise that with rights and powers must come responsibilities. Their organisations, as well, must maintain high standards of accountability, transparency and integrity if they are to maintain public confidence and are to be treated as full partners in the shaping and implementation of public policy. Closer scrutiny is a sign of being taken seriously. As Our Global Neighbourhood noted, the NGO "sector includes a huge range of bodies, not all of which are democratic in structure or broadly representative in participation". Civil organisations that are neither democratic in their internal practices nor representative of public attitudes in their countries will hardly be in ideal positions to chastise governments or inter-governmental organisations for being insufficiently democratic or responsive. All groups, whether governmental or non-governmental, seeking to play a role in the political process must be fully credible and accountable. When mistakes are made, all parties to the decisions or actions should bear their share of the burden of responsibility. Ultimately, the legitimacy of governmental, inter-governmental and civil society institutions alike derives from "we, the peoples", whose needs, interests and aspirations should be the foremost concern of the political process.

It is the responsibility of civil society to organise itself in a manner consistent with the highest standards of transparency, accountability and integrity. By exercising self-monitoring and by accepting full scrutiny by the media and public watchdog groups, civil society has the best chance of avoiding unwanted interference by governments and inter-governmental organisations.

In the five years since Our Global Neighbourhood was issued, one of the most welcome and promising trends has been the evolution and maturation of ties among the UN, governments, and civil society. With this growing intimacy, however, has come a new set of problems and opportunities. In the view of the Commission, it is time to take a fresh look at how to extend and deepen this process, even as mid-course corrections are considered. At the UN, as in most capitals, officials have come to recognise that civil society has an integral, and sometimes indispensable, part to play in the conduct of international relations. As Our Global Neighbourhood pointed out, non-governmental groups "can offer knowledge, skills, enthusiasm, a non-bureaucratic approach, and grassroots perspectives, attributes that complement the resources of official agencies". Even in security-related fields, once thought to be the primary or exclusive province of governments, civil society groups have assisted in conflict resolution, early warning, and the monitoring of arms transfers and of compliance with arms control agreements. As major service providers, they have been full or even leading partners in carrying out programmes in fields as diverse as humanitarian assistance, scientific co-operation, health, election monitoring, refugee relief, education, post-conflict nation-building, codification of international law, and the monitoring of human rights, environmental and labour standards. Both UN and national officials depend heavily on the expertise, information and ideas produced by civil society. Private organisations are often asked by the UN Secretariat or by national delegations to convene groups of member state representatives, international officials and outside experts to consider issues too controversial or forward-looking for official gatherings.

In recent norm-building efforts, there has been a natural and growing tendency on the part of like-minded NGOs and national delegations to work together to build broader international support for those negotiating objectives they share. In two recent cases, the International Criminal Court and the ban on landmines, the results have been particularly remarkable, advancing two of the goals endorsed by the Commission in Our Global Neighbourhood. Such co-operation across civil society/official lines is commendable, so long as the independence and credibility of the civil society organisations are not compromised. If the non-governmental groups receive substantial financial or logistical support from governments or inter-governmental organisations for carrying out policy-related advocacy or lobbying work, however, then their independence would inevitably be called into question.

The closer civil society organisations and coalitions work with like-minded governments, the more careful they should be to assert their independent status. In particular, they should not accept financial or other material contributions from governments or from inter-governmental organisations for carrying out policy-related advocacy or lobbying work.

Trans-national groups devoted to strengthening civil society, such as CIVICUS, should develop and publicise a common code of conduct concerning appropriate and inappropriate sources and uses of funding. For example, such a code should recognise that it is perfectly appropriate for those civil society organisations engaged in operational, research, educational and field work to receive governmental support. It is chiefly in the domain of policy advocacy and lobbying that NGOs should adopt rules to reinforce their credibility and effectiveness as independent voices of the people. Governments and inter-governmental bodies should respect these distinctions.

Within the United Nations, the emphasis on democratisation and the building of a civil society infrastructure in post-conflict societies has reinforced the trend towards accepting a larger place for these groups at the international level. In his July 1997 reform package, Secretary-General Kofi Annan called on every substantive department to "designate a non-governmental organisation liaison officer to facilitate access by civil society to the United Nations", for greater "tripartite co-operation with Governments and civil society" at the country level, and for staff training programmes to "include a component dedicated to co-operation with civil society". Many inter-governmental bodies, even including the Security Council, have established civil society counterpart groups or mechanisms for assuring a regular input from non-governmental voices. Despite some setbacks, discussed below, overall there has been substantial progress in recent years in integrating civil society more fully into the everyday activities of the UN, as well as into the series of global conferences that have done so much to set the international agenda. Though Secretary-General Annan has been a highly visible and articulate advocate for this trend, the growing role of civil society has largely come about through a natural process of evolution and adaptation, spurred by the energy and initiative of the citizens groups themselves. It has not required resolutions of inter-governmental bodies or any significant restructuring of UN organs or bureaucracy for the persistent voices of civil society to be heard in the work and deliberations of the world body.

At this point, priority should be given to steps designed to accelerate and deepen the process of integrating civil society into the daily work of the UN's structures and programmes. As a first step, considerable effort will be required to consolidate and protect the gains already achieved and to extend them to new areas of UN work.

It is a fact of life these days, throughout much of the world, that the most dynamic elements of society arise and function outside formal government structures. In part, this is because some of the most interesting and consequential matters facing national societies are in fact trans-national in scope. The more dynamic and successful governments, in turn, have sought to enlist or co-opt civil society's energies and ideas on issues of common concern, often reaching across borders for the best talent, the latest data or the freshest ideas. The lesson for the UN - as the Secretary-General seems well aware - is clear: its future vitality and relevance will depend, to a substantial extent, on how fully and effectively it manages to rally civil society to its side as it seeks partners in tackling the challenges and opportunities of the new century.

THE DIMENSIONS OF CIVIL SOCIETY

Though there is little dissent about the growing importance of civil society, there is no generally agreed definition of the term or classification system for the disparate kinds of groups that it encompasses. It is a narrower concept than the more generic term "non-state actor," and broader than "non-governmental organisation" (NGO), which includes some 3,000 non-profit groups either granted consultative status with ECOSOC or associated with the UN Department of Public Information. The core of civil society includes those citizen-based associations devoted to advancing any of a wide range of civic, cultural, humanitarian, technical, educational or social purposes, whether at a local, national, regional or global level. These groups are the embodiment of citizen activism, from which they draw their vitality and their legitimacy. They grow out of the popular or professional concerns of groups of people, not because of government edicts. While they may actively lobby governments and inter-governmental institutions, their primary purpose should not be to represent the financial interests of a particular firm, industry or agricultural sector. In most cases, civil society groups operate on a non-profit basis and receive the bulk of their resources from non-governmental sources, though some humanitarian and development-orientated organisations receive substantial government and UN support for their important operational activities. The participation of for-profit firms in broader issues and coalitions sponsored by civil society, however, should be welcomed and encouraged. Likewise, there should be no political litmus test for inclusion in the ranks of civil society, which should reflect all of the political diversity of national and international society.

Civil society groups have two essential characteristics: first, they operate and make policy decisions with complete independence and without instructions from governments, inter-governmental organisations or private for-profit firms; and second, their funding and decision-making processes are sufficiently transparent to assure concerned citizens that they are indeed independent entities without hidden agendas or bias.

In recent years, the pronouncements of leaders of the UN have been imprecise, even inconsistent, about the limits and characteristics of civil society. At times, they have contended that national parliamentarians and local government officials should be included, along with the private sector and the media. Taken to the extreme, such an overly expansive view could imply that everyone and everything is part of civil society except for the executive branches of member governments and their representatives who populate UN meeting halls. This would appear to be neither a workable nor a politically propitious formula, since it would suggest that the UN Secretariat is in partnership with everyone other than the member states in whose name the organisation was created.

The Secretary-General and his aides should enunciate a clear definition of their conception of the characteristics and dimensions of civil society and observe it consistently in their public statements and policy planning in the months and years to come. Before they can properly assess the Secretary-General's call for a new partnership with civil society, the public, the press and member state officials need to have a more precise sense of what he has in mind. Such a clarification would reduce the likelihood of dissonance within the UN system or of public controversies as different UN bodies develop alliances or programmes with various private groups under the rubric of building partnerships with civil society.

As discussed below, the private sector and the media are very important non-state actors with whom the UN has had unnecessarily awkward and distant relationships. All sides could benefit from greater dialogue and mutual understanding. But neither the media nor the private sector picture themselves as part of civil society; both cherish their independence from governmental or inter-governmental control and are likely to be uncomfortable with the notion of a full-fledged partnership with the UN. It would be a serious mistake, moreover, for the UN to treat parliamentarians or local governmental officials as part of civil society. They are integral components of the governance structure of member states and should be treated as such.

North-South Balance

The increasing activism of civil society is a global phenomenon. Yet, judging by participation in events and programmes at UN headquarters, one would get the impression that this movement was largely confined to North America and Europe. Just as the lack of universality narrowed the UN's vision at its founding, so too do geographical barriers continue to restrict the organisation's appreciation of and interactions with the global dimensions of civil society. The inadequate representation of Southern civic groups is doubly worrisome because so much of the UN's agenda concerns the problems confronting developing countries, and the organisation needs to hear more directly from those people most affected. The UN's deliberations - both among non-governmental groups and among the member states - are impoverished substantively when the voices of those who have the most to gain or lose from the international community's choices are under-represented. It is one more way in which the halls of the UN are removed several steps from the reality of the world outside. It has been a goal of the UN, moreover, to encourage the development of a stronger and broader civil society base in those parts of the developing world in which democratic values and practices are not yet firmly in place. Over time, this should serve all three of the UN's core goals: security, development and human rights. Bringing these civic groups more fully into global networks and UN circles also may serve both to encourage their efforts and to impart greater legitimacy to them in their domestic struggles.

As noted above, the communications revolution offers more accessible, reliable and affordable means for North-South, as well as South-South, dialogue. Non-governmental groups have been quick to take advantage of the Internet to build coalitions and networks, nationally and globally, as well as to disseminate their work. Researchers readily tap information from throughout the world through the worldwide web, while keeping in regular contact with colleagues the world over. Yet the communications revolution remains a work in progress, far more developed in the North, especially North America, than in the South. As noted above, the new technologies, in fact, have served to exacerbate the economic and information gaps between the more- and less developed countries. Furthermore, e-mail is hardly a politically effective way to participate in a negotiation or debate at UN headquarters, particularly because of the number of players in the multilateral decision-making process and the practice of acting by consensus. There is no substitute for personal interaction, whether in key capitals or at the site of UN meetings, if one hopes to have a voice in global decision-making.

Correcting the North-South imbalance among NGOs at international meetings, however, has proven to be a difficult challenge. Most civil society groups in the South either lack the resources to send substantial delegations to UN meetings or question whether this would be the best use of such large expenditure, given more pressing needs at home. Through its Non-Governmental Liaison Service, the UN has been able to provide some financial support for NGO representatives from developing countries to attend UN meetings. But the UN has not had the resources for a major effort, nor should it be put in a position, year after year, to decide which groups - and views - deserve to be represented. Some governments, foundations and non-profit groups also have assisted Southern NGOs to attend various international meetings, but the numbers have been far too small to redress the balance, and such ad hoc approaches cannot provide the kind of year-round presence that is needed.

As a matter of high priority, governments, the UN Secretariat and, most of all, relatively affluent civil society and private sector groups should consider innovative means of increasing the participation of NGOs from developing countries in UN-related meetings and conferences. It is not enough to rely on global NGO coalitions to represent the views of their Southern members.

A privately administered, voluntary fund should be established to support capacity-building efforts for civil society organisations in developing countries, with an emphasis on enabling them to participate more fully in the activities and information networks of global civil society and the United Nations. This could include the provision of high-capacity computers and word processors, as well as travel support. While governments would be encouraged to contribute to such a fund, its management and finances should be overseen by a private, geographically representative and politically balanced board. Relatively affluent non-governmental groups in the North should be encouraged to develop working relationships with and to provide assistance to organisations in the South working on similar issues.

Regional organisations and the UN's regional economic commissions, which usefully hosted the UN-sponsored preparatory hearings for the Millennium Assembly, should do much more to encourage the development of and to interact with civil society groups within their areas. They could act as a link between local and global NGOs, as well as fostering co-operation among governments, civil society and inter-governmental organisations within their regions. While some regional bodies have made an effort to reach out to civil society, most lag behind the progress unfolding on the global level.

These avenues should be pursued simultaneously, since they would have mutually reinforcing effects. While governments can help the process, the initiative and funding should largely come from independent, non-governmental sources.

National Foundations

It is the responsibility of governments to represent the interests of the people within their borders, sorting out the competing needs and agendas of different domestic constituencies in an equitable, balanced and democratic manner. Civic groups both help to ensure that governments are held accountable and act to advance particular agendas and causes that they believe have received insufficient attention or resources. While these groups should have grass roots support and should advocate positions they perceive to be in the interest of the public at large, it is not their role or responsibility to seek to displace governments as the voice of the people in international fora. Civil society draws its strength from serving as an independent external critic of government, not from emulating its official functions. Unlike governments, non-governmental groups do not need to balance all the issues and trade-offs on the broader public policy agenda. As Our Global Neighbourhood cautioned, "the focus on single issues that gives some of them strength and expertise may also block out perspectives on wider concerns". Indeed, the most influential voices of civil society, nationally and internationally, tend to be those that focus on a particular cause or that reflect the views of a particular constituency, leaving it to officials to weigh up competing claims for resources, action or priority. In democratic systems, of course, it is ultimately up to the public as a whole to decide whether their elected representatives have made the right choices in selecting priorities and courses of action.

For civil society, one lesson is clear: the surest way to move the UN and the international community is first to build a strong political foundation within the member states, including the most powerful ones. The quickest way to foster dissonance and discord within the world body, on the other hand, is to seek to achieve at the UN what one has failed to achieve in capitals.

As long as, and to the extent that, world affairs are built on the nation-state system - and we see no reason to anticipate that it will fade away any time soon - advocacy groups should place their highest priority on effecting change at the national level.

The practice of including representatives of civil society on member state delegations to UN meetings and conferences should be encouraged. This is the most direct and appropriate way for these groups to influence the international policy-making process, with real benefits both for civil society and for governments.

If the more internationalist NGOs gather at the UN, and the more nationalist ones in capitals, as sometimes seems to be the case, then they will in effect push international and national decision-makers in opposite directions, weakening support for the world body. On the other hand, it would reduce dissonance between the two levels of decision-making if the political mix of civil society groups at the UN and in capitals were to be similar, reflecting the full range and diversity of viewpoints and interests within the body politic.

Non-governmental fora sponsored by the UN should welcome participation by civil society groups representing a variety of viewpoints, including those critical of the world body and its policies. It is more important that these fora reflect the vibrant policy debates that characterise a fully functioning civil society than that they be able to reach consensus positions, which is the task of inter-governmental, not civil society, bodies. The UN cannot be considered truly democratic if it does not welcome dissent.

Given the diversity of civil society, its wariness about official bodies and the number of single-interest groups within it, its support for the UN as an institution has been sporadic, uneven and issue-driven. In that sense, it would be unrealistic to expect the development of any sort of permanent alliance between the UN (or its Secretariat) and civil society, a sector which treasures its independence from governments or inter-governmental institutions in any case. As Our Global Neighbourhood and the Secretary-General have asserted, however, the prospects for public-private partnerships across national boundaries on a range of specific issues and activities continue to grow. It is in the long-term interest of both sides, as well as of governments, to foster such partnerships.

UN-NGO RELATIONS: FORWARD OR BACKWARD?

Paradoxically, at a time of high expectations about new forms of partnership between the UN and civil society, relations between the world body and the NGO community are undergoing a worrisome degree of stress and controversy. On the one hand, a number of NGO leaders have complained that the Secretary-General's bold rhetoric and forward-looking vision have not been uniformly reflected in the attitudes and actions of the heads of many UN programmes and departments. On the other hand, partly as a backlash to the strides NGOs have already made at the UN, many governments have recently expressed reservations about going further down the road towards greater NGO access. Though consultative arrangements for NGOs with the UN Economic and Social Council (ECOSOC) were established under Article 71 of the Charter, how these should be carried out and over what range of subjects have always been matters of debate among governments, along with recurrent questions about which groups should be accredited. As a result, the set of arrangements adopted by ECOSOC in 1968 (resolution 1296 (XLIV)) stood for almost three decades despite the growing involvement of NGOs in many aspects of the organisation's work. In a step welcomed by the NGO community, these rules were finally updated and enumerated in considerable detail by ECOSOC in 1996 (resolution 1996/31).

The important question of scope, however, remains unresolved. Article 71 stipulates that ECOSOC "may make suitable arrangements for consultations with non-governmental organisations which are concerned with matters within its competence", but over the past decade pressure from many member states, as well as from NGOs, has grown to extend consultative arrangements to groups focused on peace and security issues - issues outside ECOSOC's domain. ECOSOC, of course, has no authority over the practices of the General Assembly or the Security Council, each of which will have to determine on its own what course to take. During the first half of 1997, ironically at the time the Secretary-General was assembling his proposals for a stronger partnership with civil society, a General Assembly working group on reform failed to agree on whether, or how far, to extend the ECOSOC rules and procedures to other inter-governmental bodies. While there was broad agreement on extending them to the main committees and working groups of the Assembly, there were deep divisions over mandating similar changes in the Security Council, the specialised agencies and the Bretton Woods institutions, bodies over which the Assembly lacks authority. The resulting deadlock has persisted since, leaving UN-NGO relations beyond ECOSOC in an uneasy political limbo.

The General Assembly should act as expeditiously as possible to extend the rules and arrangements for NGO participation established in ECOSOC resolution 1996/31 to the General Assembly, its main committees and working groups. No other step would have such a positive impact - in terms of both symbolism and substance - on putting UN-NGO relationships back on track. Whatever policy innovations are announced by the Secretary-General, it is up to the governments - first and foremost - to demonstrate a willingness to give civil society a larger voice in the world body.

Throughout the UN system, other inter-governmental bodies should review their rules and arrangements for NGO participation. Where these fall short of the provisions set by ECOSOC, steps should be taken to bring them into conformity as fully as possible, so that a system-wide standard will be in place.

In the light of the variety of procedural and institutional innovations adopted in recent years by different components of the UN system and the Bretton Woods institutions to enhance their relations with civil society, it would be timely for the Secretary-General to launch, through the Administrative Committee on Co-ordination (ACC), a UN family-wide lessons-learned exercise to highlight those steps that have proven most effective, as well as those that have fallen short. The results could prove reassuring to those governments and parts of the bureaucracy that have been reluctant to move forward, as well as suggesting directions for further action.

As a general rule, NGOs should be permitted access to all formal meetings of UN bodies that are open to all member states. In limited membership bodies, such as the Security Council, however, NGOs should not be extended rights of access denied to most UN member states. Nor should the member states feel reluctant to call informal sessions, beyond public scrutiny, whenever this is clearly required to facilitate agreement on sensitive and urgent matters. This practice should be resisted, of course, if some governments are simply reluctant to have their positions and tactics exposed to the light of day.

In considering innovative arrangements for NGO access, the first rule is that they should be designed to further the UN's fundamental objectives of identifying common areas of purpose among the member states and of then defining courses of action for achieving these ends. Civil society groups can make important contributions to both parts of this equation, and on both the national and international levels. They can play a catalytic role in spurring agreement and then in monitoring the progress of implementation by the member states, in whose hands the success or failure of the world body will ultimately rest.

Nowhere has the question of how to put these various principles into practice been more sensitive than in the Security Council. The five permanent members have been cautious about changes in the Council's procedures in general, and decidedly so in the case of opening up its deliberations, especially its crucial informal consultations, either to non-members of the Council or to civil society. Some small fissures have begun to appear, however, in their wall of resistance to NGO access. In recent years, the Council has held formal meetings to hear from selected NGOs regarding developments in troubled regions. From time to time, Presidents of the Council have helped to organise unofficial exchanges with civil society groups and experts. The Council recently went on a retreat, organised by the Secretary-General, at which outside experts spoke. And the members of the Council now hold regular sessions with a group of selected NGOs to discuss questions of common interest. None of this constitutes a radical departure, but rather the kind of steady progress on which mutual confidence and further progress can be built.

The Security Council should take further steps towards regularising procedures for gaining the substantive and timely input of NGOs and other civil society groups with expertise on the issues on its agenda. One possibility would be to assemble panels of non-governmental specialists - on such issues as regional crises, preventative diplomacy, the spread of weapons of mass destruction, arms trafficking, the implementation of economic, financial and diplomatic sanctions, humanitarian affairs and post-conflict peace-building - who could be consulted by members of the Council and its staff as needed. Another option would be to assign a small staff from the Secretariat to conduct civil society liaison for the Council and its members on substantive matters. These measures would seek to supplement, not supplant, the expertise provided by the Secretariat and governments. The current effort, aided by governments and the Secretariat, to involve international specialists in the analysis of possibilities for targeted sanctions is an encouraging model for civil society-member state-UN Secretariat collaboration on questions before the Council.

Though NGO-UN relations have made important forward strides over the past five to ten years, more recently there have been troubling signs of possible slippage, even backsliding. A major government proposed, and then withdrew, the notion that the UN conduct a study of the costs of the services it provides to NGOs in order to calculate a set of fees to charge them for participation in the activities of the organisation. The UN Secretariat considered levying a hefty fee for NGO access to the Optical Disk System (ODS) of the UN Information System and to the Treaty Database of the Office of Legal Affairs. NGOs charge that the UN's accreditation system has become increasingly arbitrary and politicised, with long backlogs. Some of them complain bitterly of new security regulations at UN headquarters, which limit their points of entry and prohibit bringing a guest into the building. Of these concerns, only the potential fees would significantly hamper the ability of NGOs to do their work. However, the timing of the other steps, when added to the uneven implementation of the Secretary-General's call for a new partnership with civil society, suggests ambivalence on the part of both member states and Secretariat officials. In the current uneasy atmosphere, NGO leaders are understandably prone to read larger political messages into petty annoyances.

At this point, NGOs should focus on the central dimensions of the relationship, acting to consolidate the gains they have made, even as they consider ways of moving forward in the years ahead. In particular, they should be vigilant in resisting any attempts to curtail their access to information and meetings.

So far, despite some inconveniences imposed for security purposes, little, if any, ground has been lost on these key issues. In fact, the Secretariat has developed some extensive and easily accessible web sites, which serve the public, media and Southern NGOs well beyond the limits of the headquarters-based NGO network. NGO facilities at New York headquarters have also been upgraded. Given the financial stringencies under which the UN is operating, the organisation continues to provide an impressive array of services to the NGO community.

The UN should continue to provide, without the imposition of fees or new restrictions, a full range of information services to the NGO community and to the public at large. The member states and the Secretariat should recognise that the provision of public information serves the core purposes of the organisation, while undue restrictions on access would only raise further doubts about its credibility. In serving the public, the UN in essence is serving its own best interests, as well as the fundamental aims of the Charter. At the same time, UN and national officials should bear in mind that information sharing is a two-way street and that they, too, require access to the ideas, information and fora of civil society. In the information age, the UN and some of its member states will be left behind if they fail to take full advantage of the new possibilities for information sharing among civil society, the Secretariat and the member states.

The issues of access are felt much more acutely by those NGOs that are focused on the policy-making process at UN headquarters than by those concerned primarily with implementation efforts in the field. The latter work with UN programmes and operations on a daily basis, often carrying much of the burden of the activities. These working relationships involve continuing readjustment, as the division of labour and the relative responsibilities are worked and reworked in changing, and often very trying, circumstances from one theatre to another. In the field, where the international community - official and unofficial - is faced with trying to repair some of the deeper scars of war and poverty, it is more clearly understood that all helping hands are needed, regardless of distinctions of status, accreditation and access. And it is here where the true value of partnership and of civil society can be seen most directly and powerfully.

BEYOND CIVIL SOCIETY: PRIVATE SECTOR, MEDIA, ACADEMIA, AND PARLIAMENTARIANS

In his July 1997 reform plan, Secretary-General Annan suggested that it was time to reach out to influential constituencies beyond the traditional confines of NGOs and civil society. He emphasised, in particular, the benefits of involving four groups of non-state actors - the private sector, media, academia and parliamentarians - with which the UN had had an overly distant relationship in the past. In his view, the growing role of civil society could be traced "to two interlocking processes: the quest for a more democratic, transparent, accountable and enabling governance and the increasing preponderance of market-based approaches to national and global economic management". These trends have compelled governments and inter-governmental institutions alike to recast their attitudes towards these four groups and towards their potential roles as partners in governance. Not only do these sectors command enormous financial, intellectual and communications capabilities, but their very independence also has contributed to a degree >


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that few governmental institutions can match. None of these groups, however, are organised along NGO lines or see their primary mission as one of public advocacy of a particular cause. With the end of the Cold War and with moderate politics prevailing through much of the developing world, there are fewer political obstacles in the way of closer working relationships with these four groups, though each poses a particular set of challenges and sensitivities.

The Secretary-General has paid the greatest attention to repairing ties with the private sector. Although the International Chamber of Commerce (ICC) was one of the first NGOs to be granted full consultative status with ECOSOC in 1946, relations between the business community and the UN have since soured over time. Differing views about the relative roles of the state and private enterprise in economic development accounted for much of the mutual distrust that came to characterise the relationship. But in recent years, with an evolving political climate and a higher place for the market in economic thinking throughout most of the world, opportunities have grown for a more productive relationship, if not yet a full partnership. The thaw in relations, however, seems to be proceeding more rapidly on the official level than between business and UN-linked NGOs, many of whom remain deeply suspicious of the profit motive.

We applaud the initiatives taken by the Secretary-General to build a new relationship with the private sector, including the principles he enunciated in his Global Compact speech at Davos in January 1999, his continuing dialogue with the International Chamber of Commerce, and the growing ties between individual UN agencies and private firms. These steps were long overdue. At the same time, it should be recognised that there are bound to be limits to the budding partnership between the UN and the private sector given the different perspectives and motivations of the two sides. These should be weighed carefully by both parties at each decision point in order to minimise the possibility of false expectations.

In seeking to involve the private sector more fully in the development, humanitarian relief and peace-building work of the UN in the field, the Secretariat and member states should recognise that firms have much more to offer than just capital and investment. On a range of functional, financial and managerial questions, private companies have a great deal of expertise and experience to offer. This is particularly true in the critical area of human resource management and training.

Those NGOs that have taken a consistently harsh stance towards the private sector should reconsider their attitudes in the light of changing circumstances. It would be ironic if the NGO community lagged behind the Secretary-General and the bulk of the member states in taking a fresh look at the prospects for the constructive involvement of the private sector in the work of the world body.

To many in the UN community, the media have long been something of a puzzle. There has been an inclination to blame poor or insufficient reporting for the inadequacy of political and financial support in key member states. The UN has - often with good reason - felt misunderstood and misrepresented in the press. Most Secretaries-General have not been especially media-savvy, nor has the nature of their work been easy to relate in headlines or sound bites. Some, though not most, governments tend to distrust an independent and assertive press in the first place. The organisation has mounted any number of communications strategies through the years to try to address its chronically troubled relationship with the media. But as each has fallen short, it has become more and more evident that institutional quick fixes cannot resolve the endemic tensions and pressures that separate - quite properly - governments and inter-governmental bodies from a free press.

For the first time in many years, the UN has - in Kofi Annan - a leader who is media friendly, an adept and credible spokesperson for the organisation and its causes. Yet even with an articulate leader, it should be recognised that there are real limits to how far UN-media relations can, or should, progress.

It would be unrealistic for the UN to try to build a partnership with the media, whose job it is to be independent of government institutions and to keep a certain objective distance from its subjects. Though the UN could be doing - and is doing - a better job of presenting itself to the public and the media, it should not expect the media to serve as its messenger on a consistent basis. Each side has a right to expect a good, professional working relationship with the other, grounded on a realistic set of mutual expectations.

This Secretary-General, more than his predecessors, has projected the vision of the UN as a centre for ideas, information and analysis concerning global issues. While this goal may be hard to reconcile with the organisation's inter-governmental character, the UN does have a unique range of interests, experiences and sources of information. The analytical piece of this equation has been harder to assemble, though a modest start has been made in the Secretary-General's creation of a small Strategic Planning Unit in his office. A number of UN agencies and the Bretton Woods institutions have developed credible reputations as centres for world-class data and analysis in their respective fields. And the UN itself is an important source for statistics on national economies, resources and demographics. For small states, in particular, the UN family has become an important source for information and ideas on global trends and developments.

If the UN's existing information base and global reach could be combined with the analytical capabilities present in the world's universities, research centres and think tanks, then one could imagine the UN evolving into a global marketplace for ideas and information, a centre for the collection and incubation of ideas without borders. Whether governments would welcome or permit such a development, of course, remains to be seen. Past experiments aimed at giving the UN a first-class in-house research and analytical capability have not fared well, given the bureaucratic rigidities and political constrictions that seem to be endemic to the UN system. A fully-fledged marriage between the UN Secretariat and academia is also not yet in the works. Yet programme by programme, a natural courtship between the UN and elements of the independent research and academic community seems to be unfolding, with individual scholars and research centres now involved in the work of the organisation across the board.

If the UN is to become a world-class knowledge centre, its ties with the academic and research communities around the world must be strengthened and expanded as a matter of priority. In particular, the Secretary-General and the Secretariat should encourage foundations, individual scholars and international scholarly networks, such as the Academic Council on the UN System (ACUNS) and the International Studies Association (ISA), to accelerate their efforts to foster collaborative work between researchers from the South and the North on important issues facing the world body. Whenever possible, these projects should be undertaken in collaboration, or at least in consultation, with those in the UN with responsibilities for those subject areas.

The developing of ties with parliamentarians, as noted earlier, raises some sensitive issues for the UN. Parliamentarians are an integral part of governments, and should not be treated as a component of civil society. On the other hand, their actions and attitudes can have a defining effect on what the UN can and cannot accomplish in many areas of its work. The UN needs to be responsive to the inquiries and concerns of parliamentarians, since it is essential that they fully understand how the organisation works and what it seeks to achieve. Informal exchanges with parliamentarians, some of whom serve on national delegations to the UN, also permit UN officials to get a better sense of how the organisation is perceived in national capitals. Individual parliamentarians, moreover, have valuable expertise and experience in important areas of public policy.

For a number of years, the UN has carried on a dialogue with the Inter-Parliamentary Union (IPU), as have a number of UN agencies. The IPU opened a liaison office at UN headquarters in March 1998 and plans to hold a conference of speakers of national parliaments at the UN in August 2000, just before the Millennium Assembly. Among the priority topics on which the agendas of the IPU and the UN overlap is the promotion of representative democracy.

The practice of including parliamentarians in member-state delegations to UN meetings and conferences should be encouraged. It would also be helpful if more of them were given opportunities to undertake study trips to UN operations in the field, whether focused on development, humanitarian affairs, peacekeeping or post-conflict peace building.

The growing co-operation between the Inter-Parliamentary Union and the UN should be encouraged, as long as governments are kept fully informed. Since the UN and the IPU share a commitment to good governance and representative democracy - likely to be a central challenge of the 21st century - this would be an especially appropriate focus for the IPU conference of speakers of national parliaments, to take place on the eve of the Millennium Assembly.

On the eve of a new millennium, the UN community faces a series of critical choices about what kind of a world body it wants and needs for confronting the growing range of challenges that defy national boundaries. One of the more fundamental, but least understood, choices concerns the place of civil society in the United Nations of the 21st century. In one field of UN endeavour after another, non-state actors have come to play more significant, and more substantive, roles in the shaping and implementation of public policy. While national governments remain, and will remain for the foreseeable future, the central actors in global governance, they are no longer the kind of dominant players that they were at the UN's founding in 1945. Though some member states would prefer to turn the clock back, the only realistic question at this point is how, not whether, the dynamism of civil society will be taken into account in the UN and other inter-governmental bodies. This should be a central concern at both the inter-governmental and non-governmental events marking the millennium. In that context, the Commission submits the proposals on the preceding pages for consideration by the Secretary-General, member states and civil society alike. They reflect both a forward-looking spirit and a recognition that what is needed most at this juncture is not a radical departure, but a consolidation of the gains that have been achieved and a plan for building on them in the promising years ahead.

THE WORLD ECONOMY

When the Commission on Global Governance reported five years ago, a central theme was the imbalance between the high and growing levels of economic integration and "the lack of structures for managing the system in a stable, sustainable way".

The Commission warned that "as economies become more interdependent, it is not only the opportunity for wealth creation that is multiplied, but also the opportunity for destabilising shocks to be transmitted from one country to another" and that "no satisfactory mechanism exists to anticipate or respond properly to future shocks".

At that time it was not obvious where and how these shocks would manifest themselves. There was in Europe and North America a strong sense of optimism arising from the peaceful end of the Cold War and the success of the Western model of economic organisation. In East and South East Asia, including China, rapid growth continued inexorably. Any suggestion of far-reaching international economic reform would meet the objection, "If it ain't broke, why fix it?"

In some respects, globalisation has continued apace in the five years since. World trade has continued to grow at roughly twice the speed of global output. The combined turnover of the two largest foreign exchange markets - London and New York - has more than doubled in six years from $440 billion to around $1 trillion a day. Corporate reorganisations, alliances and mergers in oil, telecommunications, investment banking, vehicles, pharmaceuticals and information technology reflect the fact that economic activity and investment flows are predicated on a global marketplace.

The Commission's warnings of deficient governance have, however, gained credibility as a result of two factors. The first is the vulnerability of the international financial system to shocks and crises, highlighted by the financial crisis in SE Asia, Russia and, subsequently, Latin America. The other is the flagging international commitment to poverty reduction reflected in the fact that aid flows (0.23% of donor GNP in 1998) have reached a new low and in the slow progress even in such fields as low-income debt relief where there is a broad political consensus.

As to the first, the emerging markets' financial crisis did not develop into a full-blown global economic crisis largely because its deflationary effects were offset by continued expansion elsewhere, mainly in the USA and some Asian economies, for example, India, China and Taiwan. The world economy as a whole is expected to grow by 2% in 1999, and while this is half the 1997 level, there has been no global recession, let alone a collapse like that of the 1930s. While relief and some limited self-congratulation may be in order, recent events have been a sobering reminder of the power of contagion in financial markets and of the unbalanced nature of rich country growth that is highly dependent on favourable conditions and enlightened policy in one developed country.

A long forecast, major correction in the US stock market still has the potential to precipitate a serious global downturn. Moreover, significant numbers of people are still mired in poverty generated by recession in emerging markets. The five worst affected Asian economies lost 8-10% of their GNP in 1998, with Indonesia losing 15%, though some, particularly South Korea, are recovering fast. A deep recession, resulting from the spread of financial weakness, has spread to Latin America, engulfing, in particular, Brazil, Argentina, Venezuela, Chile and Colombia, making it likely that for a second decade in succession per capita incomes will not have risen in Latin America. Russia was thrown into economic and political turmoil with potentially alarming consequences for global security. Commodity prices - even allowing for some recovery in oil prices - have slumped to an historic low, with severe consequences for many commodity exporting countries.

The second trend is more long-standing: the continued, and arguably growing, economic marginalisation of the world's poorest people. After two decades in which per capita private consumption in sub-Saharan Africa actually fell by almost 2% per year there is little sign of recovery. Projected growth on a trend predicted by the World Bank of 3.4% per year barely keeps pace with population growth. Although there is measurable progress in poverty reduction in some important low-income countries such as India, China and Bangladesh, this progress is very uneven, somewhat precarious, and does not invalidate the broader conclusion that the number of very poor people - the 1.4 billion living on $1 per day - is still rising. While the solutions for the most part lie in improved governance and policies in poor countries themselves, a supportive international economic environment is an essential ingredient. And in some key respects - aid flows and debt relief - there is a wide gulf between aspiration and delivery.

Triggered in part by the emerging world's financial crisis last year, there has been a revival of interest in global economic governance. The Commission's report envisaged, at the apex of a reformed system, an Economic Security Council with a wider and more balanced membership than the G7 and an integrated approach to international finance, trade and environmental concerns. Little progress has been made towards that specific objective. But there has been growing recognition of the desirability of a fresh look at the "architecture" of international economic institutions. And some positive developments in economic governance have taken place elsewhere: in developing co-operative arrangements for financial supervision; in reforms within the IMF to create a more representative board structure; in preliminary work being done for a new round of trade negotiations, the Millennium Round; in the agreement, albeit circumscribed, to set quantitative objectives for the emission of global greenhouse gases; and, at a regional level, the creation - on time, in good order, and against fashionable predictions - of Monetary Union in Europe. However, as previously noted, these advances are offset by the disappointingly modest progress in fields such as debt reduction for low-income countries, despite G8 declarations in Cologne and at the September 1999 Washington meetings, the growing evidence of "aid fatigue", and the continued marginalisation of the poorest countries from the international economic system.

The Commission argues for stronger global economic governance not as an end in itself but because closer international economic integration - or globalisation - through the opening up of markets in goods and services and private capital flows has generated a demand for public goods: financial stability; the rule of law to govern trade and investment flows; standard setting; and environmental protection. We start with the basic issue of how poverty and development is being dealt with in the evolving system of governance.

GLOBALISATION AND POVERTY

The Commission's genesis lies in a succession of reports dating back to Brundtland in the 1980s, Brandt in the 1970s and Pearson in the 1960s, all of which in different ways posed the same dilemma: how can a world which is becoming more integrated economically, and ecologically, deal with enormous - and seemingly growing - disparities in income and wealth, and the instability which these disparities could bring?

The specific focus and context of this discussion has, of course, changed. Initially, emphasis was placed on the roles of development and of developing countries in a world polarised between East and West. In turn, it was then moved to the issues surrounding commodity and oil prices in the wake of the two oil "shocks", to the bank debt crisis of the early 1980s and, finally, in the mid-1980s, to the challenge posed by such global environmental threats as global warming. But there has been a common thread: the need for structures of global governance which could properly address issues of sustainable growth, development and poverty.

The particular circumstances of the late 1990s have added a new dimension to this underlying problem: the impact of globalisation and the burgeoning of information and communications technology which is both a cause and effect of it. First, there has been a big step forward in the wealth-creating potential of knowledge-based activities. Economists argue inconclusively about the contribution made by new technologies to growth. It seems inherently likely that the new knowledge-based information and communications systems make it possible for already developed societies to grow faster without hitting against constraints of labour supply, physical capacity or pollution. There are some instances where poor countries are also becoming integrated into the global knowledge economy - most notably through the software engineering capacity of India and China - but international disparities in information - as in access to telecommunications and personal computers - are far greater than other international inequalities. More generally, developing economies have 80% of the world population, around 40% of GDP, but well under 20% of published material of all kinds, and only around 2% of scientific patents.

Second, new communications and data management systems have enormously increased the speed and volume of financial and other information flows, creating what has been called "the end of geography". It may well be that deeper, wider and more mature global financial markets will contribute to greater stability, in general and in the long term. But the 1998 crisis also highlighted the risks of contagion and the vulnerability of many emerging economies to sudden flights of capital for reasons unconnected with their economic fundamentals.

Third, while conventional wisdom suggests that global economic integration will speed up the eradication of poverty by creating trading opportunities and easier access to technology and capital, experience has been mixed. There is something of a globalisation "backlash" amongst the losers from some intense competition in rich countries and amongst parts of the developing world. No one is seriously advocating the "North Korean model" but restrictions on capital flows and trade have forceful advocates and, unless the process of globalisation can be better managed, there will be a damaging reversion to more autarkic approaches.

Last, global inequalities are more visible. Famine and extreme poverty are broadcast to the rich, and the lifestyles of the rich broadcast to the poor. The extremes are more evident. There is a category of super-rich individuals who have been able to benefit enormously from the existence of global markets, exploiting proprietary knowledge and "star" appeal, who can largely evade national tax jurisdictions, and who can take advantage of globally integrated capital markets to maximise returns on their financial assets. The World Wealth Report of Merrill Lynch and Gemini estimates that the world's six million millionaires are now worth $21.5 trillion, their wealth having grown strongly - by 12% - throughout last year's financial crisis.

The long-term consequences of extreme and highly visible global inequalities between countries, classes and individuals are difficult to predict. The social fabric of some countries has proved extraordinarily elastic in the face of economic extremes, the US being the most obvious case. But it is difficult to believe that global structures are similarly stable since there is no unifying political consensus and only a weak structure of global governance.

Development Assistance

There are two specific respects in which the issue of global poverty - if not inequality - is being addressed. The first is through aid. However, official development assistance (ODA) is at an all-time low: 0.23% of developed country GNP, 30% of the UN target, and half the level of a decade ago. In sub-Saharan Africa net official flows have fallen in real terms by a third since 1991 and now barely cover interest to official creditors. Arguably there has been an improvement in quality to offset the decline in quantity. There is no longer the same degree of aid tied to the pursuance of Cold War security objectives or to the promotion of exports. The proportion of grants has risen relative to loans. Aid is more explicitly targeted on poverty reduction. IDA - the World Bank facility for concessional loans to the poorest countries - has completed its latest replenishment. But the hope that improved policies would lead to aid being replaced by private capital flows has been belied. Sub-Saharan Africa attracted net private flows of only $3 billion in 1998 out of $150 billion to all emerging markets.

However, after a decade in which "aid fatigue" has become an excuse for dwindling commitments, this may be the time to try to reverse the trend. Now that ODA is accepted to be better targeted and better managed, it should be possible more easily to counter political resistance in donor countries. In some countries - the UK, for example - ODA as a share of GDP is now rising again with added political commitment, despite tight budgetary constraints. Aid flows have been sustained at around the UN target in Scandinavia and Holland. One way of galvanising greater enthusiasm could be to mobilise additional resources for a specific crusade - to address, for example, the problem of public health in poor countries, utilising new technology (currently overwhelmingly concerned with rich world diseases). A Millennium Vaccine Fund to create a market for malaria, TB and AIDS vaccines - proposed by Jeffrey Sachs - is one possibility. Such an approach poses challenges to global governance because it involves both public-private sector partnership at a global level and the lead UN agency - the WHO - working alongside the World Bank and bilateral donor agencies. It is to be hoped that this will create a model for other global agencies.

Debt Relief

The second specific initiative addressing the issue of global poverty is (official) debt relief for low-income countries. In Our Global Neighbourhood, the Commission emphasised, in common with other reports over the last decade, that, though the mechanisms for alleviating problems of debt owed by middle-income countries to commercial creditors could be further improved, there had been progress on that front, while there had been much less progress in relation to the mainly official debt of low-income developing countries. Over the last decade there has been a stream of initiatives ("Toronto", "enlarged Toronto", "Trinidad", now the HIPC initiative) announced amid considerable fanfare but producing little in aggregate terms.

Debt relief is one development issue on which there is real political pressure in rich countries, due in part to the Jubilee 2000 coalition launched by civil society groups. Responding to it, G7 governments promised to improve the concessionality of debt relief culminating in the agreement at the G7 summit in Cologne to extend debt relief more widely on official, including multilateral, debt. It has to be said, however, that even in its latest form - after fifteen years of rescheduling initiatives and numerous summit declarations - the HIPC initiative is modest in relation to the scale of the problem. Until Cologne the HIPC initiative, then three years old, had produced three beneficiaries (Uganda, Bolivia and Guyana), with another (Mozambique) close to agreement, out of 41 countries affected (with another four in line before 2002). Of the three former success stories, two have since relapsed into unsustainable debt. The Mozambique deal would save only $20m a year out of $120m debt service. The Cologne package, which was fleshed out in agreements at the IMF/World Bank meetings in September 1999, will implement debt relief more swiftly (reducing the six-year probation under IMF supervision to a possible three years), pay more attention to debt service rather than the stock of debt and to the fiscal position of government, and raise revenue for HIPC countries through gold sales. But it will probably do no more than cut by a quarter the $250 billion or so of external HIPC debt.

While the debt relief campaign has been enormously important in reviving flagging interest in rich countries in development and in reinstating a moral imperative into relationships between rich and poor, the HIPC initiative taken in isolation is in danger of detracting from wider aims. What matter financially for highly indebted countries are the net transfers they receive which involve additional concessional inflows as well as debt relief.

SYSTEMIC STABILITY AND FINANCIAL AND ECONOMIC CRISIS

A central concern of the Commission's report was that "the pace of globalisation of financial and other markets is currently outstripping the capacity of governments to provide the necessary framework ... to ensure stability". It highlighted, as an example of both the opportunities and the risks presented by globalisation, the "veritable explosion of portfolio investment in emerging markets ... as stock markets became truly global in reach". Much of the drama - and instability - of the last two years has stemmed from this particular manifestation of global economic integration and lending by Western banks to companies and governments in those developing countries.

Like avalanches, financial crises have small beginnings and grow rapidly in intensity. The recent global financial crisis started with the loss of confidence in the Thai baht in July 1997, with capital flight leading to enforced devaluation and a succession of comparable financial crises in Indonesia, South Korea and Malaysia. Russia was similarly caught in the summer of 1998 in what appeared to be a generalised lack of confidence in emerging markets and the crisis then shifted to Brazil and elsewhere in South America where the consequences are now being felt most acutely.

There is a thread - a "contagion" effect - in the succession of financial crises and some common lessons which we discuss below. But there are some crucial differences too. Although the crisis was described as an "Asian crisis", the big closed economies of China and India were scarcely affected, although China independently faces a major problem of economic restructuring and also deflation, while Japan continues to struggle with a long-standing domestic financial crisis and slow growth. Other Asian economies - Hong Kong, Singapore, the Philippines - have been hit by fallout from the regional crisis but Taiwan has been largely unaffected and Australia, despite extensive trade and investment links to Asia, is growing more strongly than any other OECD country except Ireland. The response to the crisis has also differed, with Thailand and South Korea seeking to restore confidence with IMF support and implementing severe but, so far, successful adjustments, Indonesia trying the same strategy but facing much bigger obstacles, Malaysia adopting heterodox policies including capital controls, and Russia seemingly facing continued economic decline.

Despite these differences there were common elements in the recent succession of crises:

  • All the countries were seeking to maintain a fixed exchange rate peg (on advice from the IMF and private investors that this was desirable to underpin financial stability). All collapsed.
  • None of the five Asian countries most damaged by the crisis had perpetrated failures of macroeconomic management which would, in the past, have precipitated a crisis of external financial confidence. South Korea was commended by the IMF a few weeks before the crisis. Indonesia had a current account deficit of 4% of GDP throughout the 1990s, no budgetary imbalance, 10% inflation, and no evidence of real exchange rate overvaluation. Thailand, notably, and Malaysia had large current account deficits but also high domestic savings rates and no prior indication that their external creditworthiness was seriously in doubt. Even Russia, despite its profound problems, had done enough to justify an IMF loan. With the subsequent spread of the financial crisis to Latin America, there have been serious repercussions - currently in the form of deep recession - in such countries as Argentina and Chile which had been regarded as examples of prudent economic policy.
  • All the countries had liberalised capital flows resulting in a gradual, stable build-up of long-term direct investment and capital market borrowing (for example, bonds). There was also a large and sudden build-up of mostly short-term bank lending and portfolio equity investment which, in the five crisis-hit Asian countries, rose from $32 billion (net) in 1994 to $67 billion in 1996 followed by a net outflow of $34 billion in 1997. This sudden turnaround of $100 billion - 10% of their combined GDP - precipitated the crisis.
  • The only practical response available to the governments, in the absence of external support of a comparable magnitude to the capital outflow, was a sharp increase in interest rates precipitating company insolvencies and recession, and enforced devaluation leading to further insolvency amongst companies with foreign debt exposure.

Some observers with unusual perspicacity, such as economist Paul Krugman of the Massachusetts Institute of Technology, could reasonably claim to have foreseen the crisis gestating in the form of "crony capitalism", over-investment in projects with poor returns, and weak, poorly regulated banking. But, for the most part, wisdom came with hindsight. And those countries like Argentina and Chile which did most to remove these weaknesses have been hit nonetheless. As the economic journalist Martin Wolf put it, "Such faults hardly justify the enormity of the punishment".

Even if the emerging market crisis spreads no further it has raised fundamental questions about the structure of global governance, discussed below.

"Contagion" and Lenders of Last Resort

From the South Sea Bubble and the Dutch "tulip economy" to the present day, history is replete with examples of rapidly escalating financial claims built on self-fulfilling confidence in ever rising values which then collapse and, in collapsing, drag down "innocent" institutions and individual lenders or investors who have played little part in the speculative bubble. Such "contagion" effects have led governments to assume a "lender of last resort" function to stand behind banks, particularly those whose collapse might cause a "domino effect", and also to safeguard bank depositors who might otherwise be tempted to withdraw savings in a panic, precipitating a run and a liquidity crisis for the banks.

It could be argued that since recent financial crises have been contained (the equity market crash of 1997, the Savings and Loan debacle in the US, the Scandinavian banking crisis of the early 1990s and now - arguably - the 1998 crisis) without serious damage to the world economy, there is no cause for radical action. Indeed, there is a view that attempts by governments, singly or co-operatively, to provide greater financial security by providing a lender of last resort will - if they result in imprudent investors being "bailed out" - merely aggravate the problem by encouraging more imprudent transactions in future: the so-called "moral hazard" problem.

The answer to those who believe that these "moral hazard" problems are of over-riding importance comes in two parts. The first is that the degree of international integration and the volume of cross-border financial transactions are now so large that an enormous amount of economic damage can be experienced if crises of confidence are allowed to run their course. The scale of resources available is vast. Hedge funds alone - by no means the only contributors to the recent wave of speculative investment in emerging markets - had unleveraged resources worth perhaps $400 billion which were then leveraged by a factor of 5 or 6 - enough to buy out the total stock markets of the countries affected by the crisis.

The second is that there are large "spillovers" not just from badly managed companies and banks to better managed suppliers and customers but from badly managed to well managed countries as well. The spread of the recent financial crisis to the Southern Cone of Latin America exemplifies this problem. There is now a growing volume of theory explaining why financial markets can behave in "irrational" ways, or in rational but herd-like ways, spreading financial instability more widely than the original source of the loss of confidence.

There is then a risk of widespread systemic collapse as defaulting financial institutions trigger a radical change in consumer and investor behaviour - i.e. panic - leading to conditions of slump; in this case, global slump. The risks of a global meltdown are probably very low, if only because governments and central banks have learnt how to manage incipient crises over the last half century and have developed habits of co-operation and experience of crisis management. But it is possible to see some challenging problems ahead: a sharp fall in US and other equity prices with consequent "wealth effects" on consumption; a deterioration in the deflationary experience now affecting China; or a future serious downturn and deflation in Western Europe to which the European Central Bank produces an inadequate monetary response.

The mere fact that these threats are discussed and responses rehearsed suggests that policy makers would be well prepared. Nonetheless there are serious weaknesses. What has been exposed by the recent crisis is the worst of all possible worlds: financiers who acted as if there were a global lender of last resort to bail them out combined with the lack of a lender of last resort when the crises actually struck. The former illusion was fostered mainly by the "bail-out" of investors in Mexico in the crisis of 1994/5 following the IMF rescue. The resulting "moral hazard" is credited with a lack of prudence in investments in Asia and in Russia. But in reality, in a major crisis, the IMF was not able to perform a lender of last resort function and in any case its method of operation made it unsuitable for the task. As was demonstrated in Russia, it lacks the resources to stem panic: its carefully negotiated conditional loans disbursed in tranches are inappropriate for this task which requires large-scale immediate lending. Concern over Brazil did lead to arrangements closer to those of a proper global lender of last resort: a rapidly assembled package of loans secured through the General Agreement to Borrow, plus some private bank loans to ensure that banks also shoulder risk, so reducing "moral hazard". The Brazilian package did not, however, stop forced devaluation although it did limit the crisis.

In the wake of the recent financial instability, one lesson to be learnt is that the IMF is seriously ill-equipped and under-resourced to handle a series of major crises simultaneously. Its resources - now $284 billion after quota increases, plus $45 billion under the new Agreement to Borrow - seem large but the Fund is only a third as large in relation to world output as it was when it was established. IMF resources are tiny in relation to those of the world's foreign exchange markets - a third of their daily turnover. This might matter less if governments allowed their exchange rates to float or fixed them permanently (as in the EMU). Indeed that may be a lesson from the recent crisis. But as long as governments try to maintain fixed pegs in the interest of domestic financial stability, the Fund cannot realistically be expected to provide large-scale financing on the scale required of a true global lender of last resort. Other approaches are also required, of which more below.

Global Financial Regulation

Prevention is invariably better, and cheaper, than cure. If imprudent lending behaviour is prevented, then the risks of "contagion" with the disastrous effects seen in Asia are reduced. All major financial markets are subject to prudential regulation: sufficiently light to encourage financial innovation and competition but sufficiently tough to prevent reckless behaviour which threatens the stability of the system. There is no comparable system of prudential regulation at a global level. There is a club of central bankers, and other financial regulators, who work through committees of the Bank of International Settlements (and, for securities markets, informal groups of regulators such as IOSCO). The bank regulators have made some headway. The Basel Committee has set global capital adequacy ratios for banks which have gone some way to reduce the vulnerability of the global banking system to a loss of confidence. Best practice is encouraged. There is a voluntary code of disclosure for banks' derivatives risks. The risk of a collapse of foreign exchange markets if settlements fail has been confronted. The club, originally ten developed country institutions, has been partially opened to Brazil, Russia, China, India, South Korea and four other countries.

But the system of international financial regulation lags behind technology and market innovation. Bank lending to hedge funds has not been subject to prudential regulation. The three main international regulatory bodies (for banking, securities and insurance) have headquarters in different parts of the world though the companies they deal with are now integrated financial conglomerates. Although Asian and other emerging markets have been pressed on broad ideological grounds to liberalise their financial markets, there appears to have been little interest in, or understanding of, how these countries might be helped to develop adequate supervision, lack of which contributed heavily to the Asian crisis.

There is a substantial agenda for both formal and informal international co-operation. First, it is necessary to do more to strengthen international standards for banking regulation, auditing and accounting, and corporate governance in fields such as reporting practice and bankruptcy law. The purpose of such standards is to ensure that countries and companies which choose to operate in globalised markets conform to standards of good practice. Bodies such as the International Accounting Standards Committee, the International Bar Association and the United Nations Commission looking at model bankruptcy laws (UNGTRAL) are currently facilitating this work but one of the tasks of the IMF is to police it (and reward good practice).

Second, arrangements for international financial supervision need strengthening and updating. It has been argued, for example, that the IMF and the Bank of International Settlements (BIS) should be brought together to form a single "super regulator" of financial markets. It has to be recognised, however, that prudential regulation requires both great technical skill and political independence (the difficulties involved in establishing a unitary regulator in the UK with a sufficiently "light touch" for the markets to work well but sufficiently tough to catch crooks and pre-empt crises illustrate the point). With or without a "super regulator", there is an urgent need for new capital adequacy rules to give greater weighting to risk and to short-term cross-border loans, and the BIS has formulated proposals to this end as well as to give greater attention to the supervisory problems of emerging markets.

Private Capital Flows and Controls

One of the practical consequences of global liberalisation has been the removal of exchange controls (around 150 countries have currencies which are fully convertible for trade purposes) and - less widely - capital controls on asset movements. There is a broad and growing consensus that capital controls on foreign direct investment have damaged development by deterring inflows of capital, technology and know-how. But one important consequence of the Asian financial crisis has been a questioning of the desirability of unfettered inflows of volatile short-term investments especially by, and to, banks.

This new questioning has often been put in the language of nationalism or socialism which is unhelpful since most governments remain committed to the broader process of economic and financial liberalisation. But, even within that framework, free capital mobility can undermine otherwise prudent policy. Large rapid inflows complicate monetary policy and can lead to real exchange rate appreciation, making tradable production uncompetitive. Large rapid outflows can force governments to raise interest rates to stabilise their exchange rates when other domestic conditions require interest rate cuts. Some provisional conclusions are emerging from the debate on capital controls:

  • There may well be a good case for controls on short-term capital inflows to make them less volatile, especially when domestic banks are weak. The Chilean model (which involved a year's interest-free deposit at the Central Bank of money borrowed abroad) is widely praised, but has actually been scrapped in Chile, which no longer feels the need for such controls. Similar market-friendly controls - in Germany and Switzerland - have also been used, but dropped, in recent years.
  • Controls on capital outflows, such as the Malaysian restrictions on convertibility (involving a year's "lock-in" for foreigners), are more controversial. They may be valuable in stemming a panic, but in the longer term may discourage inward investment generally and may be ineffectual as loopholes are found and exploited; there has been a large amount of capital flight from China and India where such controls have been in place for long periods.
  • Capital controls are more necessary for countries trying to fix their exchange rates (which is one reason why China has not moved to liberalise capital movements). In recent years, the IMF has insisted that such countries should establish market confidence through robust fiscal and monetary policies. While necessary, these policies might be insufficient. The case for capital controls is much weaker for countries with floating exchange rates.
  • The worst of all approaches would seem to be to liberalise short-term capital flows but restrict direct foreign investment (as South Korea did before the crisis).

One issue for the Commission is the so-called Tobin Tax - a global tax on financial transactions designed to "throw sand in the machine". The Commission urged the UN and the Bretton Woods institutions to investigate the feasibility of such a tax partly on revenue grounds and to pursue more independent monetary policies. Recent events have strengthened the broad intellectual case for such a tax but have also raised additional practical difficulties: the proliferation of derivatives which could be used to evade any tax and the scale of "offshore" transactions outside clearly defined jurisdictions. The current state of debate on the Tobin Tax is highly unsatisfactory. The tax is widely endorsed in rhetoric but then damned with faint praise. It should either be taken forward, or buried, after a detailed enquiry by an international group of experts who should rigorously examine its technical feasibility. It would perhaps be more plausible as a mechanism for raising modest sums for global public goods than, as is often portrayed, as a cure-all for financial market instability.

International Economic Co-operation and Exchange Rates

In Our Global Neighbourhood, the Commission commented on the need for "a capacity to ensure that domestic economic policies in major countries are not mutually inconsistent or damaging to the rest of the international community". The broad argument for policy co-ordination is strengthening with greater globalisation since with deeper integration the greater are the "spillovers" from one country's economic policy into another.

The financial crisis over the last two years has highlighted three respects in which policy co-ordination is crucially important: one recognised, one partly recognised, one overlooked.

It has been recognised that the world was in danger of sinking into recession as the Asian crisis spread through contracting trade, reduced corporate earnings and weakness in share markets. Although not specifically mandated by the G7 or the IMF Interim Committee, Finance Ministers and Central Bankers in the US and Western Europe have, led by the US Federal Reserve, combined to reduce interest rates, the EU acting together as an embryonic monetary union. Although the key step has been the expansionary policy of the Federal Reserve acting on its own initiative, the principle of a strong, concerted response to an incipient crisis has been accepted.

It has been partly recognised that in a world in which capital is able to move freely it is extremely difficult to maintain pegged exchange rates. The Commission expressed the hope that the IMF would have "greater capacity to support nominal exchange rates, where these are not fundamentally overvalued, in the interests of exchange rate stability". The collapse of Asian and other currencies has shown that the conditions for maintaining exchange rate stability are more onerous and specific than earlier thought. Among the techniques being employed are: continued capital controls (as in China); severe and sustained domestic policy discipline (as in Argentina); and full monetary union as is being attempted, so far successfully, in Western Europe. There is a starker choice than has hitherto been posed to emerging economies.

Some countries will opt for flexible exchange rates, notably as between the dollar, the euro and the yen. The idea has recently been aired of seeking to achieve a broad band of stability for the dollar-euro rate, which will become the most important price in the world economy. The rate, however, is potentially very unstable, and subject to substantial "overshooting" in the absence of any attempt to co-ordinate policy and this could, in turn, become a source of considerable friction. Attempts to suggest "target zones" for the new currency relationship have been dismissed by those responsible for policy in the US and Euroland. The underlying rationale for closer policy co-ordination - the impact on the countries of policy "spillovers" with closer integration through trade and investment flows - remains, however, stronger than ever.

Commodity Prices

Largely unrecognised is the problem presented for the world economy at large by weak commodity prices. Commodity futures are at a 20-year low. Oil prices went to lower levels in real terms in the last year than at any time since the 1973 "oil shock" though they have since recovered. Non-oil prices are now a remarkable 70% lower in real terms than when the Club of Rome warned of growing shortages and soaring prices. Until very recently the slump in commodity prices has been seen by commodity importers simply as a trade gain: an involuntary transfer of income from resource-rich countries to the resource poor. Falling commodity prices have helped most Western countries (and Asian countries like South Korea, China and India) to maintain low inflation without undue monetary contraction. There is, however, a growing realisation that the deep slump in commodity prices is not an unalloyed blessing. It has increased the risk of economic collapse, debt default and political turmoil in Russia, Venezuela and Nigeria and, although there is enormous private wealth in the oil-rich countries of the Arabian Peninsula, the public sector of Saudi Arabia and the other Gulf states is now in a parlous state. South Africa has been hit by a well-intentioned plan to sell off gold to raise cash for debt relief. A further consequence of depressed commodity prices is that the big cutback in investment in oil and mineral exploration and production now taking place will produce a discontinuity in supplies when strong global growth resumes (leading to a commodity price resurgence which will undermine non-inflationary growth) and may also undermine long-term endeavours to encourage energy and raw material conservation and efficiency for environmental reasons.

Falling commodity prices may have been helping to create a deflationary cycle. Although Japan has had a (mild) taste of deflation, the phenomenon is largely unknown since the slump of the early 1930s and the various trade cycle depressions of the 19th century. Deflation presents a difficult, and, to our generation, new, economic problem in as much as expectations of falling prices lead (rational) consumers and investors to postpone spending decisions in order to increase the real purchasing power of any cash. Deflationary psychology can lead to a deep slump in output and employment unless vigorously countered by aggressively expansionary monetary and fiscal policy. The world is not - yet - in a deflationary spiral but large segments are subject to falling prices: most primary commodities until the summer of 1999; manufactures subject to serious over-capacity (computer chips, chemicals, petrochemicals, steel and - perhaps - vehicles); and some new, high technology products benefiting from scale economies and rapid innovation (software, telecommunications). What may be occurring is that the main developed countries (the US, UK and Euroland) are setting monetary objectives appropriate to their own domestic inflation - caused by labour shortages in the US and labour market rigidities in Euroland - but not for the world at large. What is lacking from the major international institutions is a detached overview of global price levels and the appropriate global monetary policy response.

Debt and Debt Relief

The recent debt crisis in Asian economies was, in some crucial respects, different from that in the 1980s. The latter mainly involved sovereign lending from the banks or capital markets to governments (and there are parallels today in the Russian bond defaults). The former has involved largely private debt - loans from banks to the private sector. Nonetheless, the consequences are not entirely different, not least because governments have, in practice, assumed responsibility for some of the debt in order to avoid the bankruptcy and closure of their leading banks and enterprises. Banks have, in some cases, been nationalised to maintain a flow of credit for investors, working capital and households (for example, in South Korea). So what started as a crisis of private debt has become in part a problem of public debt. And, as in the 1980s, there is the same prolonged hiatus in growth in Latin America. Although its specifics are also different (and it doesn't suffer from an external debt problem) Japanese stagnation throughout this decade is also a warning of how previously dynamic Asian economies could become incapacitated.

There are lessons here for global governance (beyond the point already discussed: that a better-funded international lender of last resort would reduce "contagion" effects which drag otherwise solvent institutions and countries with generally prudent economic policies into debt default in the first place). One is the lack of rapid and flexible global procedures for dealing with what is, in effect, international bankruptcy in comparison with the availability of expeditious treatment at the national level. There is an urgent need for speedy rescheduling, debt write-offs, debt equity swaps, and improved corporate bankruptcy procedures in relation to external claims on Russia and SE Asian countries. A crucial difference from the early 1980s is that Western banks are in far better shape - in terms of exposure in relation to their reserves - and better able to handle write-downs where necessary. Reforms have been proposed to create the international equivalent of smooth domestic bankruptcy proceedings which could involve the IMF not merely in supervising loan programmes for debtor countries but also in sanctioning delays in debt repayment as part of a contingent role in crisis prevention.

The IMF and International Financial Governance

In Our Global Neighbourhood, the Commission declined to join in the fashionable attacks on the IMF pointing out that "despite the emotions aroused by IMF conditionality, the problems now often lie with the workings of the global international economic system as a whole rather than the IMF".

Recent events have, however, exposed the Fund to yet more criticism. It has been attacked for promoting "moral hazard", notably through its "bail out" of Mexico (or as Mr Newt Gingrich has put it, throwing away taxpayers' money "to prop up the crooks"). The IMF failed to back Asian countries' efforts to support their currencies, lacking the resources or credibility to act as a lender of last resort, and then failed in efforts to help defend the Brazilian currency despite assembling a substantial package of assistance. The most recent Russian programme has been criticised for alleged misappropriation on the Russian side. The IMF's support for capital liberalisation has fallen into disrepute in countries with underdeveloped domestic financial markets. It publicly endorsed the macroeconomic policies of Asian countries (notably of South Korea and Thailand) and then, months later, set new and stringent austerity objectives for the same countries, as conditions for crisis loans. It largely failed to anticipate the problems arising from poorly supervised, liberalised financial sectors in Asia but is now charged with overseeing the necessary reforms. It is attacked from the left for its hard heart and devotion to market liberalisation and from the right for weakness in creating "moral hazard" and for promoting "French socialism" (Mr Gingrich again).

It is tempting to believe that by irritating both political extremes the Fund is probably operating in the sensible middle ground between them. In fact the recent crises have brought to the surface contradictions in its basic objectives. It is trying to operate, first, as a lender of last resort but cannot do so because it lacks the resources and because, even if it were allowed to operate on a much bigger scale, it would have to operate quite differently: allowing easier access to money in advance of a crisis. Critics allege that it has managed to generate the problem inherent in a lender of last resort system - "moral hazard", encouraging lending especially to Russia - without being able to deliver when required.

A second function has been that of credit rating agency, helping countries, through its "seal of approval", to achieve or regain access to capital markets, bank lending and foreign investment. In this capacity it has emphasised good practice and also, increasingly, transparency. Unhappily, transparency may have the effect of triggering or accelerating panic if it reveals what lenders and investors do not want to see. Transparency may also be at odds with the requirements of confidentiality implicit in sensitive negotiations. Overall, this role raises the question of whether the Fund is truly acting to support client governments.

Third, the IMF has been trying to act in support of governments implementing either macroeconomic stabilisation or structural reform or both. There has been in recent years a greater awareness of the social impacts of adjustment as it affects the durability of such programmes. However, much of the resistance to Fund programmes stems from what is perceived to be an excessive weight placed on adjustment rather than supporting external finance. But that is not a matter over which the Fund has much control. In that context, though, the recent agreement to augment Fund resources is welcome and eases that particular constraint.

The discussion above suggests however that there are gaps in the system of financial governance which it now falls to the IMF, with other agencies, to try to fill or co-ordinate.

The first, and the one on which there is the greatest consensus, is standard setting. It is now widely recognised that globalised financial markets require agreed international standards comparable to those available in leading financial markets. There is now a plethora of standard setting activities underway operating with varying degrees of formality and success involving financial supervision and regulation by the BIS (banks), IOSCO (securities markets) and IAIS (insurance), harmonisation of bankruptcy proceedings (UNGTRAL and International Bar Association), auditing and accounting standards (the International Accounting Standards Committee), corporate governance (OECD, BIS, World Bank, International Corporate Governance Network), payments systems (BIS Committee on Settlements), greater fiscal transparency (an IMF code, the OECD), and data dissemination in the interests of transparency (the IMF, the BIS, the UN, and the "Willard Group" of Finance Ministers). The role of the IMF and the World Bank is to reinforce these standards by bestowing official status and to ensure compliance through conditional lending backed up by research and advice, the IMF in the macroeconomic policy field, the World Bank in microeconomics. The UN has an important role in areas where it has expertise and where universal participation is valuable.

The second area is crisis management. We have discussed above the reasons why the IMF has been unable to play a lender of last resort function in the recent crisis. Its resources are being enlarged but those resources and processes fall far short of what would be required of a global central bank. An important potential initiative is a new facility for "pre-qualified" countries to pre-empt crises at national level rather than to react to them after the event, either operating directly out of the IMF or through the General Agreement to Borrow.

A third area is currently neglected but of great importance: a mechanism or forum for looking at the issue of economic policy co-ordination outside specific regional initiatives (for example, EMU) and the broad and loose understandings of G7 Finance Ministers which, by definition, do not cover important countries such as Brazil, China and Mexico, which are all subject to major economic uncertainties. The IMF initially had major responsibilities in this area through its oversight of the global fixed exchange rate system (before 1973), major exchange rate adjustments, and liquidity provision when policy "spillovers" were less important than today. But it now has very little standing in relation, say, to the conduct of US or EU monetary and fiscal policy. This is an issue relevant to the broader debate on international economic policy dialogue and the role of a possible Economic Security Council. It is possible that the new G20 group of systemically important countries created at the September 1999 Washington meetings will be invaluable here. As long as the world economy performs well, the case for governance reforms seems weak; if it does not, however, reforms may come too late.

TRADE, INVESTMENT, AND INTERNATIONAL COMPETITION

The Commission noted in its previous report that a "central issue confronting governments is how to provide a framework of rules and order for global competition in the widest sense". In this sphere, unlike the international financial system, there has been significant evolutionary progress - but there are some major threats emerging on the horizon.

The World Trade Organisation (WTO) was established a few weeks after the Commission reported. It has already made significant advances and the upbeat state of world trade is reflected in volume growth of 9.5% in 1997, three times output. Agreements have belatedly been reached to liberalise financial services, information technology and telecommunications on a multilateral basis. The agreements were achieved after other members stood firm against US demands that the "most favoured nation" principle be suspended to coerce reluctant liberalisers to make concessions or face discrimination. The telecommunications agreement, in particular, breaks new ground in creating common principles for competition and regulation for a service industry which is not directly traded across frontiers.

Of far greater importance is the acceptance that the rule of law should apply in trade disputes, through dispute panels. In the five years of its existence, the WTO has had over 150 cases brought to it, four times as many as were dealt with in the 47 years of the GATT. So far it has not been necessary to invoke compensation and sanctions despite the fact that some rulings have enraged vested interests and pressure groups in leading countries, such as that against a US ban on shrimps from Thailand and another on clothing from Costa Rica. But the dispute over the EU banana quota regime has raised the question of how panel rulings can be enforced if simply ignored by a major trading entity.

The multilateral system is still fragile and faces threats on several fronts. First, the financial crisis in Asia and Latin America has intensified strains in the trading system. Since developing countries do not have access to external private capital they are forced to adjust by cutting imports and promoting exports. The large, forced devaluations will, in any event, have given a powerful stimulus to exports and import substitutes in these countries. The aggregate current account deficit of emerging economies is expected to shrink by 1% of their combined GDP this year, 1999. China, Indonesia, Malaysia, the Philippines, South Korea, Singapore, Taiwan, Thailand and Russia are all running substantial surpluses this year - $115 billion for these nine countries, about half the US deficit.

Second, there is a good deal of ill-focused hostility towards foreigners, foreign products and foreign companies which could be described as a "globalisation backlash". It is found mainly in the political fringes - the far right, the far left, "green" parties - but is a potent force in parts of Europe, notably France, the US, and democracies elsewhere, such as India. However marginal these protest groups may be in isolation, their concerns have entered the political mainstream. This was an important reason for President Clinton's failure to secure a "fast track" for further free trade area agreements. In Europe, the new German government, like the French, has taken to complaining about "wage dumping"; with such crude prejudices circulating in influential governments, developing countries in particular have good reason to be apprehensive. Were the Western world to enter a new period of recession it is easy to see how the free trade consensus among policy-makers could unravel.

Third, there is a more subtle problem than crude nationalism: reconciling different national systems of regulation and different rules or standards, or what Sylvia Ostrey, the Canadian economist, has called "systems friction". As quotas and tariffs become less important it is the subtle obstacles to trade and investment created by different sets of rules which come to dominate. The deeper integration of the EU since the launching of the Single Market has thrown up numerous problems of this kind but also new approaches - a mixture of harmonisation and mutual recognition of different standards. At a global level, there has been a move to harmonise legal standards for intellectual property protection and to create common standards for food safety (Codex Alimentarius) so that these are not used as barriers to trade. But the agenda is potentially much wider: safety standards (used to control car imports, for example), corporate governance (some national systems being used to block take-overs), animal welfare (with numerous problems from the US-Mexico tuna/dolphin dispute to EU-Canadian friction over fur trapping), and serious, highly emotive debates about domestic preferences in relation to trade in food (beef hormones, GM food). Without a consensus on how to resolve these disputes, they promise to be a source of considerable conflict.

In order to build up a new head of steam behind liberalisation, the idea is being promoted of a new "Millennium Round" of negotiations. Liberalisation negotiations are built into the WTO process so that the decision over whether to inaugurate a round is more political and psychological than procedurally necessary.

There are, however, some compelling arguments for launching a new round at the forthcoming Seattle trade "summit". The first is that trade policy appears to operate on the "bicycle principle": unless it moves forward, it falls over. The problems described above could easily drag the system down into debilitating conflict in the absence of a commitment to strengthen it. Second, the experience of the last trade round was that while final agreement proved difficult it was made possible by the opportunities for trade-offs across issues. And, third, globalisation is creating a genuine demand for global rules in new areas - as was the case for traded services in the 1980s. The most important of these are now discussed.

Investment

Direct investment has grown about twice as fast as trade in the last two decades and is one of the key driving forces in "globalisation". Many countries are liberalising unilaterally and most now welcome inward investment. Yet the structure of rules and incentives is exceedingly messy, with most countries discriminating against foreigners in some areas (usually through the denial of access to certain market sectors) and in favour of them in others (usually via tax inducements). There is a plethora of bilateral agreements but little, or no, multilateral governance beyond the limited TRIMS agreement on trade-related investment issues.

The OECD marched into this policy vacuum in 1995 when it tried to negotiate a Multilateral Agreement on Investment essentially designed to extend the principle of non-discrimination from trade to investment. The negotiations have been a disaster and may have blighted any future negotiations in the WTO. Developing countries, not unreasonably feeling excluded, were suspicious and hostile. Environmental and labour NGOs campaigned against the agreement, no doubt with some legitimate concerns but also tapping into a powerful anti-business, anti-multilateral, anti-globalisation constituency. In the event, OECD countries showed more concern for achieving opt-outs for politically sensitive industries than for advancing liberalisation and non-discrimination and the negotiations have effectively collapsed. It now has to be shown that relaunching negotiations in a WTO context will not produce the same damaging impasse, as there will again be pressure to introduce into the negotiations such other emotive and divisive issues as labour and environmental standards.

Competition

As global integration proceeds, individual national authorities are no longer able fully to control anti-competitive behaviour by footloose companies. The Commission argued that "the WTO should adopt a strong set of competition rules and we suggest that a Global Competition Office be set up linked to the WTO". In this spirit the WTO has now undertaken to study the relationship between trade and competition policy.

Recent developments have made the issue more pressing. There have been a number of cross-border mergers and alliances between giant companies which raise the question of how such entities are to be policed. This is not to say that there is some inexorable progression to greater size (the share of Fortune 500 companies in total US sales has declined sharply overall since 1980). But there is effectively one company dominating global software systems and two large passenger aircraft manufacturers, and recent moves suggest that the oil and gas industry and, separately, the telecommunications industry, will coalesce around three leading groupings. This trend presents problems both of global monopoly and of jurisdictional conflict (as in the case of Boeing and Airbus). Most of the resistance to the creation of an international competition authority of the kind envisaged by the Commission comes from the US, which argues that its Justice Department is already acting against Microsoft and can manage the anti-competitiveness ramifications of the Exxon-Mobil deal, or others (provided there is limited co-operation with the EU). Developing countries also wish to see the prolific use of anti-dumping action in the US and the EU as a trade barrier for developing and former Communist countries' exports put at the centre of the debate. The problem of competition policy as an international issue is now widely recognised, but the solution is not.

Extraterritoriality

In the absence of a fully recognised rule of law governing investment and trade there will be a tendency for one or more hegemonic powers to impose their will on other countries. This problem has arisen in the context of competition policy, with US and EU competition authorities requiring home countries to follow their own jurisdiction rather than that of the host country (a further argument for internationally agreed competition policy). More seriously, it has arisen as a result of US Congressional efforts to pressurise foreign companies to follow US sanctions: against Russia in the 1980s (in the case of gas pipelines) and more recently against Cuba (Helms-Burton) and Iran (D'Amato). European countries ignored the first. The latter two problems have led to disputes which the EU referred to the WTO. These issues are especially difficult to deal with satisfactorily since they impinge on "national security" and it is likely that any attempt at enforcing multilateral rules would be resisted. Since the extraterritorial dimension largely affects European companies and US laws, the matter is being dealt with in the context of the Transatlantic Economic Partnership, an otherwise low key structure mainly concerned with standards and public procurement. But the wider global implications and the special problems of smaller economies will have to be faced in due course.

Cyberspace

Information technology is running far ahead of the institutional structures required to regulate it at a global level. A new generation of problems is being created with the rapid development of the Internet and electronic commerce. There has been inter-government discussion about the implications since 1995, largely in a G7 and OECD context and of an exploratory kind. And with 80% of electronic commerce targeted at the 70 million Americans with Internet access and originating in US companies, the policy debate has largely been in the US. It is possible to see coming over the horizon, however, some major international issues and disputes: the potential for large-scale customs duty evasion since it is much harder to identify the origins of transactions; new sources of competition in the services sector; different national regimes for the protection of data privacy; disputes over corporate and contract law on the Internet; and overlapping boundaries of government interference in the Internet in relation to national security, censorship, and action against organised crime. There are already potentially large cultural differences between the US, which prefers a market-led, self-regulating approach, and the EU, which is evolving a government-led process (in relation, for example, to data protection).

While the Internet and, now, e-commerce enjoy explosive growth, it is not yet clear what the most important questions are for policy and governance, let alone their solutions. It is not clear who runs, or ought to run, the Internet; one issue, for example, is that of who should be the custodian of the Internet address system. Governance is required which is genuinely international, which recognises the public goods involved - in address registration and other protocols - and which represents the "information poor" as well as the "information rich" who currently use the system. There is potentially a major role both for the International Telecommunications Union and the WTO in this area.

The "Fairness" Issue

Trade policy is often technical and dry. But it is also often directed at raw emotion. From time immemorial, liberal trade has been rejected by some on the grounds that it is "unfair", the assumption often being that trade (or investment flow) is a "zero sum game" and that gains to some countries involve losses to others. Post-war history has undermined that negative premise but it is still widely believed. The "fairness" argument frequently centres on trade (and investment) between rich and poor countries. Poor countries see unfairness in the fact that the remaining tariff and quota business in rich countries is heavily skewed to discriminate against them - though the slow phase-out of MFA textile restrictions will help to reduce that concern. Rich countries complain about lack of "reciprocity", though that is also being met by far-reaching trade liberalisation in many emerging markets (leaving a rather legalistic issue of how far these measures should be "bound" in the WTO).

A potentially disruptive influence is the demand from so-called "fair traders" in rich countries, partially conceded by their governments, to introduce restrictions on "unfair" sources of low-cost competition (such as child labour or non-union labour, or production processes operating at low environmental standards). Developing countries have seen these demands as a barely concealed attempt to penalise them for their poverty, to undermine their ability to compete in the few sectors - like garments - where they have a clear competitive advantage, and a diversion from inequities in the system (such as restrictions on the free movement of labour). It is likely that, as in the Uruguay Round, these demands will not be pressed but withdrawn in return for concessions from developing countries in other areas.

Regionalism and Globalism

One of the most striking governance features of globalisation is that it has a strong regional flavour. Deep integration has proceeded fastest on a regional basis, notably within the EU. To a large degree, this has been compatible with a broader global approach. Despite fears of a "Fortress Europe", the EU has continued to liberalise its trade policy, albeit reluctantly in such areas as agriculture, and has championed global governance through the dispute settlement process of the WTO. Many of its internal advances - such as the Single Market - have provided models for deeper integration at a global level. But doubts remain. Regional integration, by its very nature, diverts as well as creates trade. Practices like regional rules of origin can reinforce diversion. There is also a lingering fear among trading partners that at times of stress or recession regional groups will become more inward-looking and turn their back on the rest of the trading system. For this reason there is a strong case for a fresh look at GATT Article 24, which provides a fairly permissive waiver of the "most favoured nation" principle in allowing regional preferences, and for tighter rules to ensure that regionalism remains "open" rather than "closed"; but it should be noted that different considerations might apply in respect of developing countries.

Complexity and Commitment

Since the Uruguay Round of trade negotiations was completed successfully, it is easy to forget that agreement was reached only with enormous difficulty, after some years' delay and with some sensitive issues postponed (financial services, audio-visual services, telecommunications). The agreement represented, however, a succession of major breakthroughs: a serious agreement on agriculture; active participation by leading developing countries, with their acceptance of property rights; a major advance in the "rule of law" through dispute settlement; and a big psychological boost to the process of international integration and liberalisation.

Proponents of any new round will have to start by addressing some of the formidable obstacles to a comparably successful process: liberalisation "fatigue" in many countries; complexity arising from growing numbers of countries applying for WTO membership (probably soon to include China, Russia, and others) and in the - rather more straightforward - OECD context; the strong resistance of many developing countries to allowing some new issues to be debated - environment, labour standards - which are interpreted as protectionist ploys; and the reluctance of the US to concede the idea of global governance applying in competition policy, cyberspace, and in extraterritorial applications of trade rules with national security overtones. There is at this stage, therefore, a considerable political and intellectual challenge to see a way through the maze.

ENVIRONMENT

One of the tests of global governance is whether it can rise to the challenge of genuinely global environmental problems: management of the global commons and cross-border pollution.

It is difficult to see much evidence in the last few years that the idea of sustainable development has taken any firmer root than was the case when the Brundtland Commission reported in 1985 - save in one important area, climate change. Since that Commission reported, there have been three international conferences to consider implementation of the UN Framework Convention on Climate Change. Although it fell short of environmentalists' expectations, the last - Kyoto - meeting achieved several important breakthroughs in terms of targets for greenhouse gas emissions by developed countries (which account for half the total). There will be an overall cut on average of 5% in emissions below 1990 levels before 2010 (the US demanded no cut but accepted 7%, Japan proposed 2.5% but accepted 6%, and the EU sought 15% but settled for 8% overall, with a 25% cut in Germany and a 10% cut in the UK). Second, mechanisms have been developed to apply these targets in a flexible and efficient way across countries. There is agreement in principle on "emissions trading" to allow participant countries to buy and sell excess emissions credit among themselves in a way reminiscent of sulphur trading in the US. Detailed rules have yet to be worked out and a fully developed global proposal - involving using the profits from permit trading for assisting developing countries - is still on the drawing board. Nonetheless a breakthrough has been achieved on an issue to which we attached particular importance in our 1995 report.

Overall, the Kyoto agreement falls well short of the demands of, for example, the Alliance of Small Island States (which sought a 20% cut) and it is also more than possible that the US will refuse to ratify the protocol. But within these considerable limitations, the climate change agreement and protocol do demonstrate some of the possibilities for achieving consensus - among 160 countries - and common action within a UN regulatory framework. One awkwardness, however, concerns growing pressure to include within the WTO a provision to allow trade measures to be introduced to enforce multilateral agreements like Kyoto, the Montreal Protocol for CFCs or the CITES agreement on threatened species against countries which have signed but flout the agreements or haven't signed them. This is potentially a seriously divisive issue for some countries which are not convinced of the arguments for enforcement action.

INSTITUTIONS AND GOVERNANCE

A key theme of Our Global Neighbourhood was the need for "a global forum that can provide leadership in economic, social and environmental fields", and the Commission proposed the establishment of "an Economic Security Council to give political leadership and promote consensus on international economic issues, where there are threats to security in its widest sense".

There has been little progress on this specific initiative, but the strengths and weaknesses of the current arrangements have been more firmly underlined. On the positive side, there has been genuine and considerable progress in creating a rules-based system for trade within a multilateral organisation of (near) universal membership. There is now the potential to widen the agenda, increase participation and deepen liberalisation. The UN-brokered Climate Convention and subsequent Kyoto Protocol also represent considerable achievements, albeit well short of the hopes of environmentalists.

In practice many of the advances in governance have taken place in informal groups or at a regional level. The European Monetary Union is shaping up to be a remarkable achievement by any standard, in the face of much scepticism and formidable technical difficulties. The EU has also confounded some of the fears that as a regional bloc it would become introverted. It has been active in supporting WTO dispute settlement mechanisms, promoting global solutions to monetary instability, and supporting global environmental agreements. However, the idea of regional protectionism is still strong as shown by the response to imports from low-income countries. More generally, regionalisation has failed to develop elsewhere, notably in the Americas and Asia.

The most serious weaknesses remain as they were. One is the absence of any mechanism for paying attention to the problems of development in, and to the marginalisation of large numbers of, low-income countries. The manifest limitations of the HIPC agreement on low-income debt relief, even after Cologne, highlight one specific problem. Developing countries, which according to the IMF have a 40% share of the world economy, are unrepresented in the G7 (or G8 if Russia is included). China and India, which together account for 16% of world GDP and 36% of the world's population, are both unrepresented (China, which has played a key role in stabilising the Asian financial crisis, has no representation in either the G7 or the WTO).

The other limitation which has been exposed by the global financial crisis is the lack of solid institutional infrastructure in the field of international finance. There is a great deal of useful work taking place involving a variety of formal and informal institutions to strengthen global financial supervision and regulation especially. But there is no real international lender of last resort in the event of panic, and confusion over the various roles of the IMF is widespread. The global financial crisis has not turned into a global slump due to the continued strong growth of the US economy, but the unbalanced character of world growth and some looming threats such as collapse in equity values suggest that existing structures are far from secure.

Out of the recent crisis are emerging some constructive actions and proposals which could lead to a more fundamental reform of the structures:

  • The creation of an informal group of 22 countries' finance ministry and central bank officials (the "Willard Group") to deal with the Asian crisis, bypassing both the BIS and the IMF. This group was later expanded to 27 to accommodate small European countries.
  • Discussions within the Bretton Woods institutions to merge the 24-member Interim and Development Committees with the aim of ensuring that discussions of global finance properly reflect development and social concerns.
  • Proposals from the British Prime Minister and French Finance Minister, among others, to reform the IMF to produce greater accountability.

One way forward would be an early informal meeting along the lines sketched by Jeffrey Sachs: an informal discussion between the G8 and a matching group of eight developing countries chosen on grounds of economic and systemic importance (in practice, this would very probably be China, India, Brazil, Mexico, South Korea, Indonesia, Saudi Arabia and either South Africa or Nigeria). Operating in this way, the group - invited by the host of the next G8 summit - could be assembled quickly, avoiding the difficulties of navigating through the rapids of political conflicts (India and Pakistan), regional balance and constituency politics which would face a formal group working within the UN or Bretton Woods framework. Tight limits on participation would cause some diplomatic irritation but are necessary to prevent a dilution of businesslike and practical discussion. If such a meeting proved to be successful it could become a regular event, like the G7/8 summits.

In parallel, and additionally, the debate on the merging of the Interim and Development Committees could lead to a structure which is already located within the Bretton Woods institutions and which has, in an observer capacity, an input from the other agencies whose participation would be necessary for a meaningful dialogue on global economic security (the WTO, World Bank, EU and ECB, BIS, the relevant UN agencies). The recent establishment of the G20 Group of systemically important countries goes some way towards that end.

In both cases the objective would be the same: to put in place a dialogue over those areas where global economic governance is deficient or malfunctioning. The agenda would vary from time to time but meetings taking place now could address some of the following:

  • the problem of "aid fatigue" and how it can be reversed: possibly through new, imaginative and targeted programmes for, for example, attacking the health crisis in poor countries;
  • taking forward, beyond Cologne and the 1999 Washington meetings, the HIPC debt initiative;
  • reviewing the numerous initiatives being taken to strengthen global financial governance through standard setting and considering whether a global financial supervisor of some kind should oversee and co-ordinate this work, in addition to the IMF;
  • conducting a thorough and objective study into the desirability and feasibility of a Tobin Tax;
  • reviewing the position of the IMF particularly in relation to its future role in helping to stem "contagion", its function in monitoring and supporting economic policy co-ordination where policy "spillovers" are important, and its approach to supporting fixed exchange rates which proved unsustainable in the recent crisis;
  • building support for stronger multilateral rules and liberalisation within the WTO, looking in particular at the links between the work of the WTO and other multilateral agencies (in environment, for example);
  • reviewing the global governance arrangements in relation to cross-border information flows to provide a structure which facilitates innovations but also helps the "information poor" (with a comparable review for the latest biotechnology developments); and
  • considering sources of systemic risk and potential crises in the international economic system and how these might be addressed.

The purpose of this paper is not to compose the agenda, let alone to answer the questions raised by those issues but to suggest a way forward in terms of a structure or process to handle them.

RECOMMENDATIONS

Following its earlier recommendation to support the establishment of an Economic Security Council, the Commission urges that a fresh initiative be made to constitute stronger and more representative structures of global economic governance. In particular it urges, first, that an informal discussion - or a regular sequence of discussions - takes place between the G8 (including Russia) and a matching number of developing countries which are of economic and systemic importance. This meeting would cover much of the same ground as a G7 meeting but with wider participation and a particular emphasis on the merging of the Interim and Development Committees. The Commission anticipates that the meeting will lead to a unified body which can deliberate on international economic matters from the perspective of global economic security.

The Commission is concerned by the evidence of "aid fatigue", given the enormous and growing scale of poverty and the fact that large numbers of post-Communist and transitional economies have embarked upon far-reaching economic and institutional reforms designed to ensure that resources are well spent. It takes some encouragement, however, from the replenishment of IDA and the latest (post- Cologne) stage in extending relief against the official debt of low-income countries. It urges those developed countries which fall far below the UN target of 0.7% of GDP - the average was only 0.23% in 1998 - to make a fresh, and meaningful, commitment to substantial additional flows, recognising that the policy environment in many recipients has changed for the better, even while their poverty has grown. It suggests that a focused set of commitments built around public health - incorporating additional ODA flows, technology and private equity capital flows - would be one way to re-energise international aid. One of the objectives of the G8+ meeting could be to launch such a programme. The Commission also calls for more far-reaching, rapid execution of debt relief to HIPC countries, noting that its delivery lags far behind the generosity of the public pronouncements of creditor countries.

The 1997/98 financial crisis, which threatened to have major global ramifications, was contained, although there were severe adjustment costs in some Latin American and Asian countries. The Commission welcomes the detailed, co-operative, technical work being carried out involving the IMF, the BIS and a miscellany of informal networks to strengthen global financial governance and it also welcomes additional resources for the IMF to help it limit future "financial contagion". But it fears that the current improvised and largely informal arrangements for crisis management, without attention to the basic institutional architecture, leave too much to chance and to continued economic leadership from one country, the US. One of the main purposes of the G8+ meeting would be to review developments over the last two years in standard setting for financial institutions, emergency lending arrangements for governments affected by "contagion", and other responses to systemic instability.

The Commission recognises that much of the recent financial turbulence has stemmed from governments seeking to maintain pegged, or stable, exchange rates in the face of enormous, electronically mediated, short-term financial flows. The Commission does not think it possible, even if it were desirable, to stop or reverse the globalisation of financial markets but would like to see a detailed, technical study of the feasibility of the Tobin tax proposal to reduce the "churning" of foreign exchange markets. It believes there should be a pragmatic approach by international financial institutions to governments' attempts to minimise the disruption caused by short-term financial inflows and outflows, and supports efforts to achieve the stability of fixed rates on a regional basis (as with the EMU).

The current review of the roles of the Interim and Development Committees and the overall reassessment of "institutional financial architecture" sought by several major countries should be conducted in the context of a comprehensive assessment of the IMF's mandate.

The Commission is concerned that the IMF has become excessively preoccupied with structural adjustment-type lending to developing countries - valuable though individual loans may be - at the expense of broader functions: surveillance of major economies with a view to monitoring and supporting policy co-ordination where policy "spillovers" are important; acting as a "lender of last resort" to help stem "contagion"; and overseeing international co-operative activities, financial regulation and supervision where these concern systemic risk.

The Commission welcomes the way in which the WTO has emerged over the last few years as a body whose dispute settlement procedures increasingly command respect and strengthen international law; it, however, requires a process of "review, repair and reform" of the already agreed arrangments as the basis of future progress. It regrets attempts by powerful trading nations to defy or disregard WTO judgements. The Commission would welcome a new round of multilateral negotiations to liberalise trade and long-term investment flows - and remove discrimination - provided that priority is given to trade liberalisation in those areas where barriers are still serious, such as agriculture, provided there is full and active participation by developing and transitional economies including countries such as China which are not currently members, and provided there is acknowledgement of a development dimension to the rules and disciplines themselves.

The Commission welcomes the progress in strengthening multilateral governance in the environmental field, notably the agreement of the Kyoto Protocol on emission targets for greenhouse gases, and the agreement in principle to develop emission permit trading.

The instability experienced in the world economy over the last few years and the unbalanced nature of global growth reinforces the case for a mechanism or institution which can highlight systemic risks and potential crises in the way that specialist institutions and piecemeal initiatives cannot. The Commission remains convinced that the concept of an Economic Security Council - however it is designed or constructed - must be further pursued.

SOURCE: http://www.cgg.ch/ (Commission on Global Governance WebSite)




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