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Rules for the Global Economy

Rules for the Global Economy

Horst Siebert
With a foreword by Gary Hufbauer
Copyright Date: 2009
Pages: 288
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  • Book Info
    Rules for the Global Economy
    Book Description:

    Rules for the Global Economyis a timely examination of the conditions under which international rules of globalization come into existence, enabling world economic and financial systems to function and stabilize. Horst Siebert, a leading figure in international economics, explains that these institutional arrangements, such as the ones that govern banking, emerge when countries fail to solve economic problems on their own and cede part of their sovereignty to an international order. Siebert demonstrates that the rules result from a trial-and-error process--and usually after a crisis--in order to prevent pointless transaction costs and risks.

    Using an accessible and nonmathematical approach, Siebert links the rules to four areas: international trade relations, factor movements, financial flows, and the environment. He looks at the international division of labor in the trade of goods and services; flow of capital; diffusion of technology; migration of people, including labor and human capital; protection of the global environment; and stability of the monetary-financial system. He discusses the role of ethical norms and human rights in defining international regulations, and argues that the benefits of any rules system should be direct and visible. Comprehensively supporting rules-based interactions among international players, the book considers future issues of the global rules system.

    eISBN: 978-1-4008-3072-5
    Subjects: Business, Law, Political Science

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Foreword
    (pp. vii-viii)
    Gary Clyde Hufbauer

    When Horst Siebert started work on his pathbreaking book, more than a decade ago, the world economy was running smoothly. The bubble was still expanding. The attack of 9/11 was over the horizon. China had already entered its growth spurt, pulling much of Asia into years of prosperity. And five fat years of American prosperity were around the corner.

    In fact, before the Great Crash of 2008, an informed observer might well have asked, “Why worry about new rules for the global economy? Didn’t we survive the burst and al-Qaeda? Don’t we already have the best of possible...

  4. Preface
    (pp. ix-xvi)
  5. I The Concept of a World Economic Order
    (pp. 1-19)

    Institutional arrangements—including informal norms of behavior, laws and property rights for the use of land, and natural resources and the environment—represent a set of rules and procedures which humankind has introduced for the governance of society and the economy. These arrangements draw from historical experience, originating mostly from past mistakes, that is, learning the hard way from errors and false approaches. In a broader sense, institutions—not to be confused with organizations—both reflect and help establish the way things are done within a society.

    In the domain of economics, institutional arrangements assign the benefits and opportunity costs...

  6. II Globalization and Its Impact on the International Rule System
    (pp. 20-31)

    Global rules become especially important in a globalizing world economy in which the economic interdependence between nation states is intensifying. Similarly, as the development of property rights and other rules have followed increases in scarcity throughout history, the global rule system has to reflect the stronger interdependence between countries.

    Globalization is a process in which the segmentation of national markets is reduced and economies become more open and interdependent. Catalysts for the globalization process are as follows: falling transport and communication costs in the past seventy years; the technological revolution in information technology and the rise of the World Wide...

  7. III How Rules Are Established
    (pp. 32-49)

    Institutional rules have emerged in several ways: by learning from experience and searching explicitly for lower transaction costs; by relying on competition between institutions; by agreeing on markets as a mechanism of allocation; by trying to secure cooperation gains; by internalizing border-crossing externalities; and by dealing with global public goods.

    One way to explain the emergence of rules is to interpret them as the result of learning from experience. Most importantly, rules often spring from a negative experience that inflicts severe hardship on people. They are establishedex post, after the negative experience has occurred. In these cases, they may...

  8. IV How Rules Are Stabilized
    (pp. 50-74)

    International rule systems contain mechanisms that play a stabilizing role in the institutional arrangement. Such mechanisms are needed in order to prevent countries from defecting from agreed-upon procedures and to induce them to abide by multilateral rules. They become particularly necessary when the real world is in flux, i.e., when the conditions to which the rules apply change quickly and markedly. The richest experience of this is available in the WTO, but the issue extends to other areas such as global public goods. The questions to ask are: how do these mechanisms function and how can they be improved?


  9. V Rules for International Product Markets
    (pp. 75-99)

    The international division of labor is the area that has seen the most important advance in the international rule system. It is in this area that quite a bit of experience has been collected. The purpose of GATT/WTO is to prevent distortions in international product markets, such as those caused by a country’s strategic behavior in the trade of goods and international services. The basic principle is that differences in endowments and in preferences between countries are accepted as the starting point for the international division of labor. Moreover, institutional arrangements in the field of competition policy try to prevent...

  10. VI Rules for Border-Crossing Factor Movements
    (pp. 100-120)

    Whether rules for international factor movements are necessary depends on which role border-crossing factor mobility plays in the international division of labor. It can be argued that the need for rules increases together with the mobility of factors, unless factor mobility can be considered to be a normal affair that can be left to the market. Factor movements include capital flows as well as the relocation of firms, the flow of technology, and the migration of people. These movements are driven by different economic opportunities for factors in different countries, i.e., different rates of returns to capital and technology and...

  11. VII Rules for the Global Environment
    (pp. 121-149)

    Whereas a rich institutional experience exists for the international trade order including factor markets, an international rule system for the global environment has not yet developed. In this domain, we have a problem that is quite different from those involving the international division of labor. In trade, all countries can benefit individually from the acceptance of common rules. Each of them enjoys gains from trade. A country like China can expect that its benefit from trade will grow over time together with its internal development; with world economic growth, an individual country’s gains will grow as well. Trade lifts all...

  12. VIII Preventing Financial Instability
    (pp. 150-176)

    In the monetary and financial area of the world economy, rules are necessary because money is not neutral. If money were simply a veil that only hides the real side of the economy, the veil could be lifted, and then the real side of the economy, untouched by money, would become visible. Since money is more than a veil, the real economy is affected by such monetary phenomena as inflation, hyperinflation, and deflation as well as by financial and currency crises and, of course, by the malfunctioning of the financial system and bank runs. Consequently, the correct institutional arrangement for...

  13. IX Avoiding Currency Crises
    (pp. 177-196)

    A specific aspect of the instability of the international financial system is exchange rate crises. With the abrupt fall in the external value of a currency, they can cause major damage to the individual country affected by the crisis and they involve the risk of contagion of other economies and endanger the stability of the global financial system with systemic risk. Consequently, rules and institutional arrangements are necessary to reduce the likelihood of such currency crises. It is apparent that national arrangements in favor of a solid and robust banking system and in favor of the solidity of public finances...

  14. X Ethical Norms, Human Rights, Fairness, and Legitimacy: Restraints for the International Rule System
    (pp. 197-214)

    To be put in place, international rules evolving in a bottom-up process need acceptance. Lowering transaction costs and preventing hardship, as stressed here, are decisive aspects that are likely to bolster the acceptance of rules in the long run. However, these rules must also prove acceptable at a given moment in time under the political conditions then prevailing. Countries find themselves involved in political cycles, and political topics follow waves of fashion. Apparently, in disastrous situations, such as the condition existing in pretransformation economies in Central and Eastern Europe, people are more willing to accept new rules. The acceptability of...

  15. XI Interdependence of Orders, Structure of the Rule System, and Institutional Fit
    (pp. 215-230)

    The institutional arrangement for the world economy represents an international economic order in which nation states have ceded different degrees of sovereignty in specific areas of economic policy. The reason behind this move is that states expect welfare gains from shifting some decision-making authority to multilateral institutions. These expected gains would come either as direct benefits for their countries, or as general improvements of given international conditions. By giving up policy instruments, nations bind their future actions to the respect of internationally agreed-upon rules. The international rule system is a complex institutional arrangement which sets incentives and restraints for nation-states...

  16. XII Major Challenges to the Rule System in the Future
    (pp. 231-248)

    Within the world economy, continuous change is a normal feature. In this concluding chapter, I look at how the forces of change impact on the rule system and how rules have to adjust to accommodate the change.

    In the past, we have seen trends in which important variables change at a more or less steady pace. Such trends include population growth; urbanization; the reduction of transaction costs through the removal of market segmentation; the integration of developing countries into the international division of labor; a rising awareness of environmental deterioration, especially in the industrialized countries; the increasing expansion of major...

  17. References and Further Reading
    (pp. 249-262)
  18. Index
    (pp. 263-272)