Coherent action or crystal gazing?

Given the euphoria of Diwali celebrations, any suggestions to focus on risks would be a melancholic pursuit. The current economic buoyancy, with optimistic expectations about the future, augurs well for the average Indian. Nonetheless, the world in general is concerned as much with risks as with opportunities. The Evian XI Plenary 2006 conference, held in Montreux, Switzerland last week, addressed the broad theme of ?the grave crisis of globalisation?how can we regenerate the momentum?. I participated as a keynote speaker on the broad theme.

The Evian Group, founded in 1995, is a coalition of corporate, government and opinion leaders committed to ?fostering an open, inclusive, equitable and sustainable global market economy in a rules-based multilateral framework as well as act a bridge between the North and the South to reduce the trust deficit that has been a prominent feature of the early 21st century between developed and developing countries.? Their recent annual plenary represented a wide cross-section of participation from reputed academics, success stories from a new generation of entrepreneurs, policy makers and Ambassadors to the WTO.

The failure of the Doha round (many view it as mere suspension, others, as active suspension and a few, as a creative pause) has reopened the issue of multilateral versus preferential trading agreements. There is no finality to the debate on whether preferential pacts are a stepping stone or a stumbling block to more generalised liberalisation, and on the extent to which such sub-optimal activities create vested interests that mitigate against the multilateral framework.

The concerns were that many preferential agreements would lock in trading patterns so that broader groups of countries could not form. They might have already specialised to cater to narrow groups, or they might develop complex administrative apparatus to oversee preferential trade and be unwilling to open these up.

In practice, preferential pacts are on the rise. This is not necessarily sad, since such pacts among smaller, possibly more similar, or more mutually trusting groups of countries, may allow deeper integration. But it does remain to be seen whether this ends up in a more fragmented global economy.

The question of ?top global risks? evoked mixed response from all participants. These, as perceived by insurance or reinsurance companies, were, per se, not as contentious as forging a consensus for meaningful responses. We do accept the need to address climate chaos, radical poverty, organised crime, terrorist activity, disruptive innovations particularly in informatics, genetics, artificial intelligence and nano-technology, and integration of financial markets testing our ingenuity in optimising resource allocations. The elusive question is their interrelationship, because, say, alleviation of extreme poverty may need development initiatives that significantly raise the utilisation of fossil fuel energy.

The emerging innovations in genetics, informatics and nano-technology could sharply raise longevity, creating a new demographic challenge, even as differentials in ageing patterns need more imaginative immigration policies that are not disruptive to social cohesiveness.

Contradiction in policies to address these risks entails prioritisation and sequencing of action on which there are no easy answers.

Discussions on regenerating the faltering momentum of globalisation exaggerate the consequences of the stalled Doha efforts. Globalisation is a continuing process prompted by changing technology paradigms and the ability to disaggregate economic activity into micro but optimal divisible entities. These?along with seamless transfer of technology, know-how and capital, but not yet of natural persons?have given an irreversible momentum to the interdependence of economies. Nonetheless, the institutions for global governance remain ill equipped to deal with new challenges.

This is no surprise. Why should we expect goodwill, and solidarity when we have no institutional or cultural basis for securing it? Economic historians and modern economists are reasonably clear that these institutions must provide a credible basis for cooperation, particularly to sustain a functioning cooperative market; resolve disputes in a fair and equitable manner; set norms that spell out obligations between nations (allowing expectations about the interactions to be formed); secure mutually recognised property rights; create empathy to redress the development deficit of the more unfortunate nations and create suitable governance structures.

Unfortunately, very few global organisations have the credibility to resolve dispute, be it the UN, International Court of Justice or the WTO. These are frequently undercut by individual countries. Their reforms are not radical enough while even half-hearted measures lie in limbo. Others, designed for management of the financial system or redressing the development deficit, such as the World Bank and the IMF have yet to seriously restructure to mirror the new configurations of economic power, address problems in a non-discriminatory way, and, above all, secure teeth to enforce agreed decisions.

Analysts generally agree that the current cycle of global prosperity can?t last. While emerging opportunities look boundless, failure to address risks can lead to large unintended consequences. Coherent action to address global risks can?t be left to crystal gazing of mere re-insurance companies who, no doubt, evaluate actuarial risks for 250 years. Collective political will remains elusive. So does our ability to manage global risks.