For a Reasonable Governance of the World

Antonio Mosconi
Research Department, Robert Triffin International

 Guido Montani
Supranational Political Economy. The Globalisation of the State-Market Relationship
Routledge, New York, 2019.

There is no need to present the professor of international economics Guido Montani through his excellent academic curriculum. We federalists are interested instead in remembering, for those who have not had the fortune to follow his political story, that he was one of the closest collaborators of Mario Albertini[i], the leader who managed to merge, for the goal of European integration, the radical federalism of Altiero Spinelli with the gradual constitutionalism of Jean Monnet. After obtaining the direct election of the European Parliament and putting the European Monetary System in the pipeline, Albertini began to reflect on the goal that Europe should pursue in the world. His answer was: peace. “Unite Europe to unite the world” became his watchword at the MFE Congress in Bari in 1980.

This mention, albeit minimal, of Montani’s biography seems to me to explain why he, among many economists, felt the need to explore the transition from international economy to supranational economy, from the politics that tolerates and sometimes prepares for war to that which is committed to prevent it.

Montani’s book was also written as a response to the rejection of multilateral institutions by the United States, which had devised them in the past, at the very moment when the ecological crisis has reached the threshold of irreversibility in numerous processes, and also other global emergencies prove unmanageable by part of the nation states. Trump considers the European members of NATO to be enemies if they do not pay their required contributions to military expenses; he challenges WTO rules by imposing duties and does not replace the US members of its jurisdictional body to avoid decisions contrary to American interests; he prefers bilateral agreements (divide et impera); he drastically reduces the US fees to the UN to punish agencies like UNESCO, guilty of approving critical resolutions against the US government; he uses the dollar as a weapon to sanction States deemed “enemies” (eg Iran); he may decide to exit unilaterally from international treaties already approved, such as the Paris agreement on climate change; he explicitly points to the disintegration of Europe; in sum, he comes into conflict with the common good of humanity.[ii]

The book consists of three parts. I wish to give a quick idea of their content and then focus on the third part which, dealing with global governance, is more interesting for the connection between federalist theory and practice in the difficult phase of the transition from hegemonic to cooperative global control systems, between the tail blows of the last hegemonic power and the dawn of the organized multipolar world.

1. The first part traces the history of economic thought from Smith (political economy, relationship between state and market), to the marginalists Jevons, Walras, Menger, Marshall (they no longer speak of state and international relations. Economics and politics become two separate disciplines). Only after the end of the Bretton Woods regime is the interest in the relationship between the state and the international market rekindled. A new discipline is born, international economic policy (IEP). The contemporary challenge is the transition from the IEP to a supranational political economy, the SPE. With the dollar standard and with the abolition of any control over the movement of capital and exchange rates, the control levers of the economy have been transferred from the States to the international financial markets (in which Wall Street is dominant), but now global institutions are needed.
2. The second part illustrates the historical and institutional aspects of two concepts, the federal principle and the supranational one, from Hamilton to Monnet-Schumann. After the financial crash of 2008, of American origin, the Keynesians, with good reasons, did not ask for an increase in spending at the European level, but a greater expenditure at national levels (methodological nationalism). In the Troika’s intervention in Greece, the federal institution, the ECB, is the one that responded best to the crisis. Today the problem presents itself on a global scale. While the American Federation’s purpose was to eliminate war between the states of the continent, the European process towards a new form of multi-level governance must pursue the goal of peace in the world.
3. The third part investigates the major political and economic challenges of our time, first of all sustainable development (UN 2015), to ascertain that the attempts to manage global risks by national governments and by international cooperation are totally inadequate. If at world level there is no government that establishes the rules of the game, these will be fixed by the market, that is, by the Multi-national Companies, as appreciated by Hayek. Instead, we need to restore the original definition of political economy (Smith). The current “survival unit” (Elias), the National State, seeks to create a false sense of security by closing its borders, but uncertainty (globalization and the environment) requires a greater level of integration, where the “survival unit” is the whole human race. The nation state can no longer be a “survival unit” if not as a part of a global unity. Contemporary financial capitalism is global, and can only be reformed on a planetary scale. The main flaws to be corrected are inequalities and unemployment. The main objectives of global governance are:

• Creating a new international monetary and financial order (IMF-BIS).
• Defending and strengthening the WTO as a body controlling international trade and global imbalances.
• Sharing the financial and technological policies to ensure sustainability.
• Regulating the relations between national and supranational powers.

 I now examine the first three of the four areas of supranational governance indicated by Montani as priorities, with an eye to the “line” that the federalists could adopt in their global action. I do not dwell on the fourth one because I think that, in the short to medium term, our action cannot point to the creation of a multilevel world state, while the defence of the already existing agencies (IMF-BIS and WTO) and the creation of the missing one (for the Environment) is a priority. I will not talk about the radical transformation of NATO into the World Security Agency for several reasons: the subject has already been treated by federalists[iii] and Montani does not mention it in his book; my only conviction on the subject is that Europe will not be secure as long as Russia does not feel secure, which means that the policy carried out so far, under American instructions, has worried Russia and has made Europe less secure, and that an independent Europe’s presence in the Atlantic Alliance must mark this difference.

Currency and finance

The 2008 financial crisis marks the epilogue of the Bretton Woods crisis, the end of the unlimited confidence in the dollar, the acceleration of de-dollarization in the new global multi-currency system introduced by the euro and strengthened by the renminbi (China is going from the big divergence to the new convergence), the need for a stable anchor and the victorious battle of Zhou-Xiao-Chuang for the inclusion of the renmimbi in the SDR. Why should oil supplies from Saudi Arabia to China, now the first world consumer since the United States has become a competitor to producers, should be paid in the currency of a third power? An oil market in renminbi has already been launched. The renminbi reserves of oil-exporting countries can be reinvested in Chinese assets and contribute to the progressive internationalization of the renminbi itself. Tariff war and currency war intertwine. Russia reduces its dollar reserves in favour of the euro, renminbi and yen, thus tending to build a basket similar to the SDR. China, after having reduced its dollar reserves up to ranking in the second place among the dollar-holding countries after Japan, is issuing a warning to the United States by deactivating its Treasury bond purchase program for a few hours. The continuation and the tightening of the sanctions towards some countries make, in fact, the dollar not convertible in such areas. The safest way to avoid sanctions is not to use the dollar in transactions with sanctioned countries. Moreover, the dollar is the currency of the most indebted country in the world, which continues to increase its debt exponentially to finance the appalling deficits of its current account balance of payments (which the credulous Italians consider as a great Trumpian relaunch of the American economy). Like the (dis)United Kingdom, another fallen empire finances its maintenance of high living standards and military strength by selling assets that are often overrated or toxic.

Although the euro is the only currency with wide commercial and financial diffusion to be fully convertible all around the world, not subjected to sovereign whims and with an active current account balance of payments, the “Triffin dilemma” applies to it as already to the dollar and, in future, to the renmimbi. None of the five currencies that make up the SDR basket (USD 41.73%, EUR 30.93%, CNY 10.92%, JPY 8.33%, GBP 8.09%) can guarantee international-currency functions alone. There are only two possibilities left on the field, using gold for war (corresponding to Albertini’s “primitive right”) and the special drawing rights (SDR) for cooperation (Albertini’s “developed right”).

Europe should aim to strengthen the euro in its own area (which can be expanded) and encourage the anchoring to the SDR of the areas without a global reserve currency: Africa (1 Afro = 1 SDR), Russia, the Gulf, Western Asia and Latin America. Even Japan and the ASEAN countries, to escape the choice between subordination to the dollar or to the renminbi, could constitute a monetary area anchored to the SDR.

Trade

The WTO, strongly desired by the EU to give a structure to the GATT, came to a block in 2001 at the opening of the Doha Round in Seattle. The no-global demonstrations highlighted a plain fact: the new challenge consisted in the convergence of the emerging economies. The negotiations did not concern so much the customs tariffs (already reduced to a minimum) as identities and values.

Now we focus on the Trade Facilitation Agreement (TFA) because “value chains” require minimum costs and obstacles at the borders. The goal is a 14.3% cost reduction.

We need a reform of the WTO that brings back to the fore the goals envisaged in its foundation Agreement. This means that the development of commerce is not pursued as an end in itself, but as a means for sustainable and equitable human development; that the WTO devices be consistent with those of the ILO, with the international Treaties on the environment, with the UN programs for development and with the respect for human rights.

The United States practices an “empty chair policy” to prevent any progress and even the ordinary functioning of the Dispute Settlement Body. The rest of the world should implement a “full chair policy”, face the risk of American isolation and work towards the inevitable reunion. The strength to proceed for a stretch of the road even without the United States can only derive legitimacy from a democratic WTO Parliament. In 2001, met for the first time in Doha the WTO Parliamentary Conference, a joint initiative of the Inter-parliamentary Union and the European Parliament, as a response to the Seattle protests; it became an annual event, but with the same initial limits of the European Common Market Parliament: a second degree representation with consultative powers only. The direct election of this parliament and the extension of its powers should be included in the MFE-UEF-WFM objectives.

Sustainable Development

Achieving the objectives related to pollution, climate and biodiversity requires planetary planning and adequate resources.

The cost of maintaining carbon dioxide concentrations in the long term below a doubling with respect to the pre-industrial level is less than one percent of world annual income (Jeffrey Sachs). What is missing is a United Nations Agency (or multi-national one, in the case of isolation of the United States) that sets the goals for each country, monitors the progress and sanctions the failure to comply with the agreements. The Agency should have its own resources coming from a share of the taxes on CO₂ emissions (carbon tax / carbon dividend), on financial and currency transactions (Tobin tax) and on the consolidated profits of Multi-national Companies. It is estimated that tax evasion through the “havens” is equal to eight percent of the world’s wealth (7.6 trillion dollars). A global register of financial activities would allow for their identification for taxation, but to do this the agreement of the main countries would be required – as it was established under the Obama Administration –, while today the foolish fiscal competition between States has begun again.

To conclude, peace is the value-aspect of federalism, and it is the raison d’état of Europe.

Translated by Lionello Casalegno

[i] Mario Albertini (1919-1997) taught Philosophy of Politics at the University of Pavia. He was President of the European Federalist Movement and the European Union of Federalists.

[ii] Guido Montani, The European Union as Stabilizer of the World Order. The Lessons of the Twenty Years’ Crisis, International Workshop Jean Monnet Chair, Department of Political Sciences, University of Roma Tre, Thursday, June 6, 2019.

[iii] Domenico Moro, Verso la difesa europea. L'Europa e il nuovo ordine mondiale, Il Mulino, Bologna, 2018. With a foreword by Federica Mogherini and presentation by Vincenzo Camporini; Pasquale Preziosa and Dario Velo, La difesa dell'Europa. La nuova difesa europea per le grandi sfide europee, Cacucci Editore, Bari, 2019.