Fifty years of Davos mirrors waning support for multilateral governance

Despite not making any lead headlines in 2019, global governance and globalization has been undergoing some seismic shifts. The multilateral governance system that has prevailed since Bretton Woods was further undermined by both nations, as the US under President Trump drifts towards unilateralism, and corporations, as they search for more effective multi-stakeholder alternatives such as the World Economic Forum.

Late last year WEF signed an MOU with the UN, bringing it further into the realm of global governance while the UN itself faced a cash crisis as members reneged on their fees (the US alone owes over $1b in arrears). Also, in November, the US vetoed the World Trade Organization (another multilateral body) budget for 2020, casting a shadow over its existence beyond 2020. Since the WTO was created in 1995 to replace the GATT, the appellate body has underpinned 96% of global trade volumes.

The trend towards multi-stakeholderism is perhaps best embodied by the success and celebrity of the 50th edition of the Davos conference. We should expect this shift to continue in the coming decade as it has 21st century appeal to businesses, bringing with it several apparent advantages, efficiency, agility and plurality (Public-Private-Partnerships are also very lucrative) .

However, it has also been argued that multi-stakeholderism moves beyond corporate personhood and in effect endorses the concept of stakeholder personhood, bringing with it a corporate right to global governance.

Innovations in multi-stakeholder governance

New technology is also enabling new forms of governance, with blockchain in particular being used by multinational corporations (MNCs) to create a consortium model whereby supply chains and industry verticals are governed by the largest companies using permissioned ledgers to share data. Facebook’s Libra is the most unique proposal that comprises NGOs alongside corporations (a multi-stakeholder hybrid), but now many the world’s largest companies in their industry have either started or are in a blockchain-related consortium, Boeing, IBM, JP Morgan, Maersk, Microsoft are some among the hundreds.

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This has been dubbed by proponents as ‘blockchain as a team sport’, or ‘co-opetition’ among rival companies, but the trend should be closely watched as it has the potential to create a new form of self-regulation.

In her debut speech as the ECB President at the European Banking Conference in Frankfurt in November, Christine Lagarde spoke of the structural changes happening in the global economy due to these new forms of corporate organization and governance:

Lagarde added, “Ongoing trade tensions and geopolitical uncertainties are contributing to a slowdown in world trade growth, which has more than halved since last year. This has in turn depressed global growth to its lowest level since the great financial crisis.”

Acknowledging the breakdown of multilateral trade agreements, she said that Europe must adapt to this new reality and focus on creating domestic demand by imploring those European countries with surpluses to spend more.

The globalization of money itself

Since the end of the gold standard and the introduction of free-floating exchange rates foreign exchange (FX) volumes have grown from an average of $15 billion per day in 1973 to $6.5 trillion in 2019. FX infrastructure, however, has not kept up with this pace and what we are witnessing now with digital currencies — particularly stablecoins — is the globalization of money itself, enabling cheap, instant transactions.

In December, Ms Lagarde announced stablecoins are an area of focus for her tenure, addressing them in a message that covered other systemic issues as climate change. “There is clearly demand out there that we have to respond to”, and “stay ahead of the curve” on them, she said. This elevated the status of digital currencies to a global priority.

Unsurprisingly then, at Davos this week, the ECB alongside the central banks of Britain, Japan, Sweden and Switzerland announced a partnership to assess potential use cases for central bank digital currencies (CBDC).

The Financial Stability Board, chaired by the Group of 20 nations (G20), also taking very seriously the potential of “global stablecoins” (GSCs) such as Facebook’s Libra and in October sent an urgent letter to G20 leaders about their threat to stability. Since then, the G20 has also asked the IMF to assess the macroeconomic implications of global stablecoins.

Regardless of what emerges, digital currencies will give central banks a more comprehensive and real-time view of the risks in countries, peer into the reserves of retail banks, visibility to its offshore markets and even discern legal tender from bank-credited debt in the economy.

So far the most accurate data on national and global debt is only available in retrospective snapshots by bodies such as the IMF or the Bank of International Settlements whose surveys provide a holistic view of the money markets every few years. According to the latest IMF report, global debt has reached an all-time high of $184 trillion in nominal terms, the equivalent of 225 percent of GDP in 2017. On average, the world’s debt now exceeds $86,000 in per capita terms, which is more than 2½ times the average income per-capita.

WEF is shaping the future

This 50th WEF conference at Davos is perhaps the most critical yet as we enter a new decade of unprecedented financial, social and economic uncertainty with limited runway to change direction.

Whether or not corporations end up superseding nation states in importance or influence in global governance as the WEF encroaches on UN turf, the next ten years should give us a good indication. Either way the World Economic Forum appears to be going the right way about raising systemic issues to fore of the public’s attention as it has done with climate change this year.

We should however keep a more watchful eye on the intersection of corporate governance with technology.

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