"The UN as a Global Financial Regulator"?!

This was one of more contentious proposals raised by Joseph Stiglitz today.  He was giving the May Day Public lecture in Oxford today. Details are here. The talk was entitled Meeting the Challenges of Global Governance in the 21st Century: Lessons from the Global Financial Market Debacle but it ranged right across a number of Stiglitz's favourite topics. I'll just focus on this particular proposal which came out of his diagnosis of the current financial crisis.

As far as I can recall, the claim for making the UN responsible for financial regulation ran along the following lines:

• financial crises cross borders and therefore that regulation must exist at a global rather than on a national or local scale.
• Regulation needs to see the big picture. Current regulatory bodies have limited remits and therefore miss the systemic nature of financial crisies.
• The IMF, G8, and WTO are captured by the interests of Wall Street and global financial capital. Current policy currently hurts and is in fact aimed at hurting the periphery. Since these institutions are flawed and undemocratic we need another institutional body which is more democratic and less captured by financial interests.
• Therefore let the UN be responsible for global financial regulation.

As someone who is big fan of Stiglitz's technical work but can't really stomach his recent popular books such as Globalization and its Discontents and Making Globalization Work, I had the following reaction.

• Coordinated policy is clearly required since as Stiglitz observes, in an age of relatively open borders financial crises are invariably almost never confined to a single economy. But . . .
• Regulation always seems like a great idea with hindsight. Ex post we can design policies and institutions that will make sure that the last crisis never repeats itself.  But this does not mean that ex ante we can design regulations that will prevent the next crisis (unless perhaps all regulators were as smart as Stiglitz).
• If the IMF, G8 and WTO are flawed, the UN is much worse.
• The problems Stiglitz identifies with these institutions are problems that plague all bureaucracies - particularly international bureaucracies which far removed from the problems they are supposed to be addressing. Creating an additional layer of international bureaucracy will not solve any problems and it is likely to create new ones.
• Stiglitz should know all of this since his excellent work on assymetric information and moral hazard applies as much or more so, to governments and international bodies as it does to markets.

As perhaps was to be expected, Stiglitz at times, pandered to the crowd many of whom seemed rather hostile to both markets and to the US (judging from some of the questioners). That said, he was good on some of his responses to these questions. When one person wanted to know whether or not global finance was responsible for the food crisis he correctly pointed out that terrible government policies on biofuels were to blame rather than bankers. 

The oddest thing he said was that the UN is more democratic and representative than any other international organization because these other institutions are dominated by the US. And it is true that the UN is not. But it seems bizarre to argue that the UN is more democratic just because it gives more weight to the views of China and Russia - two non-democracies.  This statement was compounded when he then went on to defend the UN by saying they could regulate financial markets because they got it right on Iraq - a complete non-sequitur.

Comments

[Ben]

Also, his critique of the WTO as 'undemocratic'.. another view is that developing countries are helped by the presence of the WTO, as it provides a forum for discourse and rule setting (to which in theory all countries are subject), without which their power would be diminished in 'geopolitical' terms. Perhaps equally, if not more, problematic, is a lack of accountability at the domestic level, especially in US politics, where trade representatives don't reflect the median voter's preferences (as he pointed out)? There seemed to be some conflation between the issues of governance at the WTO, and national policy formation at the domestic level. The latter is a problem with domestic governance, which has a negative global by-product with its source in the US, not the WTO per se.