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https://themarketmogul.com/major-barriers-effective-global-governance/

The major barriers to effective global governance

 10 min read / November 11, 2015

By

James Lambert

Global governance refers to the way governance and international cooperation is achieved in the international system at a global scale. It illustrates the regulation and centralization of states’ governance in the absence of world government. Different analytical approaches present different ideas about what effective global governance entails and the barriers to it being carried out effectively. Global governance can be analysed through different nalytical lenses such as comparative advantage which points to possible cooperation although its critics call attention to some of the unrealistic assumptions it makes. Similarly, game theory expresses the potential of cooperation if certain criteria are met but provides a fairly pessimistic picture of the prospect for cooperation if states are left to themselves. Ultimately, liberal institutionalism holds a more positive view by claiming that international institutions can enforce effective global governance and are increasingly demonstrating this in the United States and China relationship.

The United States and China’s interdependent relationship is based on two important economic factors. On one hand, the United States imports far more goods and services from China than vice-versa. On the other hand, China is the biggest foreign lender to the United States. China’s rapid economic expansion is seen by some to confirm that free trade is a positive-sum game. Others see it as possibly leading to more direct confrontation with other countries. According to comparative advantage, countries benefit from specialisation and trade. If a country specialises in an activity, it can sell the surplus to finance imports of other goods which leave it better off than if it tried to carry out the activity itself. The theory exemplifies a possibility and an incentive for cooperation in global trade as countries become better off by specializing in what they are comparatively best at. However, it relies on a series of assumptions and conditions that are not always readily and realistically applicable to the real world. For example, it is a model of world trade based on only two countries and two products. Additionally, some argue that China’s productivity is much lower than that of the United States because it lacks many of the advancements that the latter possesses. If China were to increase efficiency in making products that the United States specialises in, comparative advantage would disappear. Productivity gains made by China for example can result in outsourcing by the United States so that it benefits from lower production costs. The debate thus provides an example as to why lower productivity countries might want to enter free trade and attempt to specialise despite the vulnerability it can bring. Furthermore, the difficulty in agreeing the WTO’s Doha Round trade deal illustrates the fear certain states can have of being left out. Finally, although the comparative advantage model points to potential cooperation at a first glance, global economic governance is more complex and depends of a variety of other factors such as states preferences.

Economic imbalances between the United States and China have increased foreign policy relationships that reveal both mutual interests and frictions. Policy makers face uncertainty about the intentions and future actions of the other country. There are three important scenarios that englobe possible outcomes. Firstly, both states would cooperate if they knew that the other side would not cheat on them. The fear of being caught out may lead both sides to not cooperate. Economic theory claims that the United States and China would both gain by cooperating. However, by deciding trade strategies simultaneously they can both miss out on a cooperative solution. Secondly, great powers ‘need’ to think alike. The idea is to ensure that both parties make the right and same choice in order to avoid the negative outcomes caused by making different choices. A failure in coordination in this situation can undermine long-term economic gains to both sides. Thirdly, countries can risk mutual harm if they both stick to the same conflicting strategy. Comparative advantage for example is lost if both sides specialise in producing one product. These scenarios highlights both possibilities and barriers to cooperation and effective global governance.

The scenarios can be modelled as a game between two states and can be analysed through a political game theory approach. In situations of interdependency, one side’s expectations and preferred actions depend on the actions available to the other sides’, and what is known about their preferences. Game theory assumes that there are only two players that know each other’s preferences and available actions at the outset of the game in order to calculate the outcomes from each combination of strategies, along with the gains or losses they’ll receive from these. Trade games can portray the prisoners’ dilemma, where players would do better by cooperating but the threat of losing out if another player does not cooperate means that both play the non-cooperative strategy. It is only if both states cooperate that cooperation produces all-round gains. However, they can choose not to cooperate to avoid being the one who is punished by cooperating while the other doesn’t.

In practice, however, both China and the United States have moved towards free trade despite the games’ prediction of non-cooperation. Both states have joined the WTO and settled various agreements that commit them to setting low tariffs. This allows the United States to set low tariffs knowing that China will also do so or can be obliged to do so. The trade game, unlike the prisoners’ dilemma, is repeated which allow states to try out different strategies and adapt to create the best possible outcomes for themselves. Altering payoffs so that non-cooperation is no longer a dominant strategy is another way of ensuring cooperation. The WTO for example tries to enforce cooperative outcomes by enforcing low tariffs, monitoring countries trade policies as well as allowing them to be contested and imposing penalties if cheating occurs. The severity of punishment can cause situations in which it is rational for all players to set low tariffs, even in a one-shot version of the game.

The problem of global governance in the International System is that most situations involve more than two players. The more players there are, the harder it is to reach a mutually beneficial solution through negotiation or repeated play. Finally, game theory is based upon strong assumptions that ignore a lot of constraints on decision making. They assume that states operate as ‘human calculators’ and separate actors from their environment which provides a static view of the world. Conversely, if conditions are made more realistic, game theory loses much of its explanatory power. Despite this, it provides a useful understanding of real life events and can help establish the scope for international institutions to improve the outcomes of engagement between states. Game theory views global governance as dependent of a series of conditions which can be greater transparency, predictability, trust and less uncertainty on regards to the outcome of states’ actions.

The United States and China economic relations can also be viewed through aliberal institutionalism. Liberal institutionalism is partly rooted in the liberal tradition’s focus on international rule making and the possibility of progress. In his book ‘After Hegemony’, leading liberal scholar Robert Keohane, accepted that the international realm was anarchic and that states were key actors. However, he focused on the role of international institutions such as the WTO and how they intervene to alter the outcomes of world politics. He went on to claim that ‘only in the context of institutions could international relations be understood’. Liberal institutionalists also argue that institutions have autonomy from the states that make them. Arguably, although the United States’ hegemonic power has eroded to give place to China, free trade still dominates world trade and states have learnt to cooperate within frameworks established by institutions such as the WTO. In relation to game theory, liberal institutionalists argue that states would cooperate if they knew that absolute gains are available and they were such that fellow states do not cheat. A positive outcome can be met as institutions can provide information, reduce uncertainty and tackle the need for states of pursuing individual strategies resulting in lower collective benefits.

Similarly to game theory, unfair outcomes can be assessed and lessened with the help of institutions that can offset losses and even them out over the long term. In ‘The Promise of institutionalist theory’ Robert Keohane and Lisa Martin set out some important points. They distinguish two barriers to global governance that states face when they attempt to cooperate. Firstly, they worry about the potential for others to cheat. And secondly, they face the problem of coordinating their actions on a particular cooperative outcome. As multiple cooperative outcomes usually exist with different distributional implications, this can lead states to disagreement. This example is the principal barrier to cooperation in coordination games. Cooperation does not equal harmony and that it is not necessarily good from a moral point of view. Harmony, can be defined as common interests whereas cooperation as what is done to deal with clashing interests. Three main situational dimensions affect the likelihood of actors to cooperate: mutuality of interest, the shadow of the future and the number of actors. Institutions make the difference, not by making rules that states have to follow but by changing the contexts within which states make decisions based on self-interest’.

Finally, liberal institutionalism holds the view that rational and instrumentalist calculations of self-interest are what drive states’ behaviour. For the case of the United States and China’s economic relationship, although both states might have diverging interests and preferences, their relation is based on the pursuit of long term interests. International institutions are instruments that aid effective global governance by strongly regulating state behaviour and helping them avoid the uncertainties, hesitations, and search of self-interest that certain game theory scenarios can entail.

In a sense, institutions help states to get around some of the limiting assumptions that game theoretic analysis sees as central: they can help to create higher evels of trust between states and help states to give more credible commitments. They also provide forums in which interactions between multiple states can be managed in a beneficial way. The three analytical approaches used to analyse the case study have different understandings of the underlying dynamics of the international system. Comparative advantage focuses on the benefits states can reap by specialising in the production of certain products. It sees non-specialisation as the major barrier to effective governance. However, it can be criticised for unrealistically representing world economic trade. Game theory brings down governance to a game where states make decisions in relation to each other actions or predicted actions. It views effective global governance as tainted by uncertainty and recognises the need of external factors such as institutions to reach stability and situations of cooperation. In association to this, liberal institutionalism claims that international institutions such as the WTO in matters of trade, are essential in achieving instances of mutual cooperation within the increasingly complex and unpredictable field of world trade. It is important to note that different theoretical models can be validated or discredited and that they remain parsimonious analytical frameworks.

Limits to Growth was right

Dmitry Sokolov

Advanced Microscopy Solutions

@Richard Smith,

your examples illustrate the reactive style of management and reactive economics as the result. We probably need proactive economics to solve the problems already built up. Proactive economics (change from positive to negative feedback loops) would need a cultural change. Culture is the most difficult thing to change, especially in global scale, especially when it affects the income of top managers:

http://confocal-manawatu.pbworks.com/w/page/73198964/Changing%20a%20culture%20is%20normally%20beyond%20the%20reach%20of%20knowledge%20managers

Any further ideas would be great to consider.

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