Theories of Global Governance
The realist stance on global economic governance is shaped by mercantilism and the belief that the world economy is essentially an arena of competition amongst states, each seeking to maximize its wealth and relative power. Economics is therefore largely explained in political terms. For realists, the combination of state egoism and international anarchy ensure that, in most circumstances, the scope for cooperation amongst states in economic affairs is very limited. This only alters, however, with the emergence of a hegemonic power, a state whose dominant military and economic position means that its interests are inextricably linked to those of the liberal world economy itself. As explained by hegemonic stability theory, a hegemon is necessary for the creation and full development of a liberal world economy because it is the only power that is willing and able to establish and enforce its basic rules. The Great Depression of the 1930s thus persisted as long as it did largely because the UK, as a fading hegemon, was no longer willing or able to re-establish economic stability (Kindleberger 1973). By the same token, the establishment of the Bretton Woods system marked the emergence of the USA as a hegemonic power. From the realist perspective, the breakdown of the system in the early 1970s reflected either the decline of US hegemony, or the emergence of the USA as a ‘predatory hegemon’.
The liberal position on global economic governance is based on faith in the market and in untrammelled competition. As the workings of impersonal market forces draw resources towards their most profitable use and establish conditions of long-run equilibrium, it follows that any obstacle to the unfettered operation of markets should be ruled out. Such a stance could imply hostility towards any form of economic governance, whether operating on a national or global level. Nevertheless, most liberals accept the need for economic governance so long as it promotes, rather than restricts, openness and free competition. The emergence of a framework of global economic governance therefore reflected a recognition that, in conditions of economic interdependence, states have a mutual interest in upholding agreed norms and rules. The nature of these norms and rules is crucial, however. From the perspective of economic liberalism, the Bretton Woods system was defective from the outset, because it set out to regulate a liberal economic order, not least though fixed exchange rates, that works best when it is free and unregulated. The breakdown of the Bretton Woods system thus reflected not the decline in US hegemony but fundamental flaws in the architecture of the Bretton Woods system itself. By comparison, the shift towards neoliberalism brought about by the emergence of the Washington consensus from the 1980s onwards marked the triumph of liberalism over the quasi-mercantilism of Bretton Woods.
The two main critical approaches to global economic governance have been advanced from the perspectives, respectively, of social constructivism and neo-Marxist or post-Marxist theory. Social constructivists, such as Ruggie (1998, 2008), have emphasized the extent to which policies and institutional frameworks designed to regulate the world economy have been shaped by historical and sociological factors. The Bretton Woods system, thus, did not merely reflect a reconfiguration of state power and interests, but also a changing pattern of social expectations, norms and economic ideas in the form of ‘embedded liberalism’, which had come to be widely shared amongst industrialized states. Similarly, the later adoption of the Washington consensus owed a great deal to the growing hegemonic influence of neoliberal ideology, which helped to embed a belief in global markets.
Neo-Marxists, such as world systems theorists, and post-Marxist critical theorists have, for their part, challenged the liberal assumption that the institutions of global economic governance are neutral in the sense that they reflect the interests of all groups and all states (Soederberg 2006). Instead, they are constructed in line with the dominant interests in the global capitalist system: the USA as the leading capitalist state, transnational corporations (TNCs) and banking conglomerates, and so on. For world-system theorists, the institutions of global economic governance have presided over a significant transfer of wealth and resources from ‘peripheral’ areas of the world economy to ‘core’ areas (Wallerstein 1984).