Introduction
In April 2010 the International Monetary Fund (IMF) estimated the total cost of
the global financial crisis to $2.3 trillion.1 The costs are even more staggering
when sharp rise in public debt and unemployment figures are included into the
calculus. National deficits of the 30 members of the OECD have grown almost
sevenfold since 2007, to about $3.4 trillion in mid-2010.2 Their total debt burden
has also grown dramatically, to a record-setting $43 trillion.3 The official global
unemployment stood at 205 million in 2010, essentially unchanged from 2009,
and 27.6 million more than on the eve of the global financial crisis that erupted
2007.4 Economic wreckage of that proportion had been deemed impossible,
almost as an event that occurs once in a lifetime of an universe. Therefore, it
quickly prompted a lively debate what are its fundamental causes, most of which
has been centered around ideologically structured continuity: free marketers
(government failure) and market discipliners (market failure). One side claims
that the origin of the problem lies in the US government's effort to increase home
ownership through the Community Reinvestment Act and the 'affordable' housing
mission of the government-sponsored enterprises Fannie Mae and Freddie Mac.5
Following this observation they argue that more regulatory power could not have
offered any insurance against perverse effects of regulation.6 On the other hand,
market discipliners see the problem not in overly but rather inadequately regulated
markets. One of their frequent claims reveals that financial globalization has
considerably bolstered the position of private actors, rendered regulators more
dependent on market interests and strengthened the power of private agents to
shape and set rules.7 This line of argument suggests that regulators were too
myopic while nobody was paying attention to the broad overall financial system.
In the midst of this heated debate it is important to glimpse deeper into the very
nature of this complex socio-economic-political event. Unless we point out to the
political economy, especially international political economy literature and its
approach, our understanding remains confined to its margins. We identify
artificial divide between free marketers and market discipliners and point to the
1
http://news.bbc.co.uk/2/hi/8632855.stm
http://www.spiegel.de/international/europe/0,1518,693317,00.html
3
Ibid.
4
http://www.un-ngls.org/spip.php?article3216
5
Wallison, P.J. (2009). Cause and effect: government policies and the financial crisis, Critical
Review, 21(2–3), pp. 356–376
6
Jablecki, J and Machaj, M. (2009). The regulated meltdown of 2008. Critical Review, 21(2–3),
pp. 301–328
7
Underhill, G. R. D. and Zhang, X (2008). Setting the rules: private power, political
underpinnings, and legitimacy in global monetary and financial governance, International Affairs,
84(3), pp. 535–554
2
1
international arena which has become so essential in tackling compex issues via
global governance. The article is structured in four parts. In the first part How do
we define government failure and market failure? we define what constitutes
government failure respectively market failure as a component of popular
discourse. The second part explores dichotomy between economics and politics
from a critical perspective. In The role of institutions in establishing modern
markets, which constitutes the third part, we basically continue with our
argumentation from the previous one in claming the importance of institutional
aspects for well-functioning markets. The fourth part Global governance failure
deals with fundamental question regarding world order which underlines the
necessity of a more coherent global governance and insufficiencies of the current
one. Its significance transcends simplistic debate between free marketers and
market discipliners and points out to the need of a more holistic view on the
global economic and political crisis and institutional efforts to alleviate its impact.
Hence, a debate between free marketers and market discipliners is futile as well as
one-dimensional because it neglects the context of evolving global structures and
institutions.
1. How do we define government failure and market failure?
For several decades a debate has been raging in development economics on the
relative virtues of the free market as opposed to state intervention. With the help
of analytical models of a market economy, the interventionists demonstrate what
they consider serious instances of market failure. The protagonists of free
markets, on the other hand, compile impressive lists of ill-conceived and
counterproductive policy measures implemented by the governments of different
countries at various times, leading to wasteful use of resources in their economies.
Neo-liberal economics, a more ideological and anti-state version of neoclassical
economics, has dominated academic curricula and public discourse in the last 30
years so it is appropriate to start with what constitutes a government failure. It is
frequently touted: Government failure is worse than market failure as though it is
just commnon sense. According to this vision, government failure arises when
government has created inefficiencies because it should not have intervened in the
first place or when it could have solved a given problem or set of problems more
efficiently, that is, by generating greater net benefits. In other words, the
theoretical benchmark of Pareto optimality could be used to assess government
performance just as it is used to assess market performance.8 While political
compulsions are important determinants of state action, it is not always easy to
recognize the true nature of those compulsions and this represents the core of free
8
Clifford, W. (2006). Government failure versus Market failure: Microeconomics Policy Research
and Government Performance, Washington D.C. : AEI-Brookings Joint Center for Regulatory
Studies, p. 3
2
marketers' assault on government actions. Actions of a government are never
solely dictated by economic considerations, although economic arguments are
often employed to legitimize actions which have different intents.9
Correspondingly, government failure should call a government intervention into
question when economic welfare is actually reduced or when resources are
allocated in a manner that significantly deviates from an appropriate efficiency
benchmark. There is a vast array of malpractices that fit nicely in what majority of
economic community understands as government failure: rent-seeking, pork
barrel spending, crowding out, horse trading and regulatory risk. Free marketers
argue that in order to avoid bad incentives and retain market efficiency everything
what is required is a non-interventionist, laissez-faire approach. The idealized
model of a perfectly efficient market is expected to have optimal use of resources
by individuals and firms (microeconomic efficiency) and full-employment
equilibrium (macroeconomic efficiency). Of course, the ideal of a completely
efficient market is rarely, if ever, observed in practice. Market inefficiency can
result from several conditions:
(1) failure of existence – no price or price-like constants exist
(2) failure by signal – extra normal producers’ profits
(3) failure by incentive – existence of negative externalities and principal-agent
interaction
(4) failure by structure – lack of self-policing perfect competition in all markets
(5) failure by enforcement – presence of arbitrary legal and organizational
imperfections or feasibility limitations of input and output accounting.10
The economy was efficient in the Pareto's sense only under very restrictive
conditions. Markets had to be more than just competitive: there had to be a full set
of insurance markets, capital markets had to be perfect, there must not be any
informational asymmetries, there could be no externalities or public goods.11 The
framework assumes that technological learning is exogenous, thereby excluding
the real-world market failures in technological learning in developing countries,
especially when the learning is discontinuous rather than incremental. It assumes
that the willingness of individuals to supply services to the market constitutes a
reciprocal demand, precluding a more than temporary gap between aggregate
supply and aggregate demand. Then there is the optimistic assumption that trade
liberalization changes only the allocation of resources, not the overall utilization
of resources which ignores possible unemployment, deindustrialization, erosion of
9
Datta-Chaudhuri, M. (1990). Market failure and government failure, Journal of Economic
Perspectives, Volume 4, Number 3, Summer 1990, p 25-39
10
Rice, M. and Arekere, D. (2001). Reconciling the false dichotomy between public
administration and market efficiency, www.iij.derecho.ucr.ac.cr/archivos/documentacion/rice.doc
11
Stiglitz, J. (2010). Freefall, New York: Norton
3
skills and firm-level capacities. The circumstances under which markets failed to
produce efficient outcomes were referred to as market failures. Neo-liberal antistate bias is consistently deduced from a framework that conveniently excludes
some of the main sources of market failure which originate from an attempt to
deduce actions by simple belief in the original assumptions. In spite of all what is
said regarding market failure, it is ineluctable in organizing socio-economic life of
all modern societies.
Although the market operates inadequately in many spheres, it performs an
important function in disciplining producers against wasteful use of resources.
Secondly, in a changing world, the required institutional changes in markets do
not always take place automatically. The state can play an important role in
promoting and supporting the right kind of market institutions.12
The main purpose of a market organization is to link rewards and penalities with
certain economic activities to guard against wasteful use of resources. This
argument advocates government's role in strengthening the market institutions in
those spheres where market signals alone are not effective guides to desirable
action. Thus, the market-versus-government dichotomy is a fake one which is
extensively elaborated in the next part of this article.
2. Debunking the myth of dichotomy between economics and politics
Political economy approach attempts to bundle the quest for power with the
production of plenty. Nevertheless, this goal is an uneasy one because the
distinction between power and well-being is a fundamental landmark of modern
social thinking. This duality dates back to the emergence of industrial capitalism
during the second half of the eighteenth century. At this point in time classical
political economists, siding with the rising bourgeoisie against the ancien regime,
promoted a novel idea: the free market. The genuine intention was to separate
civil society from the institutions of family, community and state in which it was
previously embedded.13 The basic idea that free markets operated as an invisible
hand or as a mechanism which automatically allocates resources to their most
efficient use has captured modern economic thought ever since then. An often
purported claim, that the invisible hand had to be left alone to be effective, has
been constantly upheld in contrary to the historical evidence that centrally
organized and controlled interventionism has been pathbreaking for the ascendant
free-market doctrine.14 The call for laissez-faire was therefore a call for the
depoliticization of production and well-being. Adam Smith's classic The Wealth of
12
Datta-Chaudhuri, M. (1990). Market failure and government failure, Journal of Economic
Perspectives, Volume 4, Number 3, Summer 1990, p. 28
13
Polanyi, K. (1944). The Great Transformation: The Political and Economic Origins of Our
Time, Boston: Beacon Press
14
Gray, J. (2002). Lažna zora: iluzije globalnog kapitalizma, Zagreb: Masmedia
4
Nations marked a watershed because it opened in its subsequent interpretation the
door for separation of human actions in horizontal and vertical sphere. The
vertical dimension centers around notions such as power, authority, command,
and manipulation. Academically, it resides in the realm of political science. On
the contrary, horizontal dimension revolves around well-being, free choice,
exchange and equilibrium which is the subject of academically taught
economics.15 The aforementioned separation has made modern political economy
an almost impossible patchwork in light of this artificially constructed dichotomy.
As political economist Robert Cox stated: Theory is always for someone and for
some purpose.16 Unfortunately, the consequence of this early separation had
consisted in compartmentalization of academic thought into distinct realms of
politics and economics which enabled for both sides of academic debate to be
controlled by emerging banking interest of the time.17
A principal casualty of this separation is the theory of capital. Academic
departmentalization placed it firmly in the hands of economists, leaving political
scientists, sociologists and anthropologists with practically no say. This did, not
clear the water, though, for despite having monopolized the concept of capital,
economists were still unable to decide what it meant. While all agreed that capital
was monetary wealth, figuring out what made it grow proved much harder. In
general, economists tried to make the accumulation of monetary wealth a
consequence of production, but as the latter grew in complexity the link became
difficult to pin down.18
From an institutionalist point of view capital can be perceived as a strategic
concept whose principal attribute is not production but power over production.
Therefore, ignoring the study of power leads economists into inability to portray a
more holistic picture. International political economy has a dual task of
integrating politics and economics and linking the international with the
domestic. Nowdays, both axes converge in the state because it represents the
principal theatre where the collision of human agency and social structure produce
historical change. Instead of associating states with 'politics' and capital with
15
Classical liberal theorists believe that the political and economic realms are separate, and that
they should be separated, so that political elements interact separately and without influence over
the economic realm, which itself acts independently and separately of the political.
16
Cox, R. (1981). Social Forces, States and World Orders: Beyond International Relations Theory
Millennium - Journal of International Studies, 10, pp. 126-155
17
That separation continues to this day, as even the field of political economy is subordinated to
political science, whereas it would make more sense that political science and economics would be
under the umbrella of Political Economy.
18
Nitzan, J and Bichler, S. (2000). Capital accumulation: Breaking the dualism of 'economics' and
'politics'. In: Ronen Palan The Global Political Economy: Contemporary theories. London:
Routledge. p67.
5
'economics', it allows us to recognize both state and capital as power structures
towering over the organization of societal production.19 Economic and political
institutions do not oppose each other, but are rather interconnected in an evolving
symbiosis. In line with this statement Abba Lerner warned economists against the
dangers of assuming that market institutions sprang up automatically in every
place. In this development process, societies progressively created appropriate
institutions so that interpersonal conflicts could be resolved through economic
transactions.20 This leads us to the conclusion that the central question of political
economy should focus not on the state per se, but specifically on the development
of capital as an increasingly central moment of the state. Accordingly,
institutional background is detailed in the next part The role of institutions in
establishing modern markets.
3. The role of institutions in establishing modern markets
Institutional economists have made some compelling arguments about the
institutional connections between markets and governments such as John K.
Galbraith in his seminal work The Age of Uncertainty but they have been
marginalized by the popular press and outspoken free-market economists in the
new era of market dogmatism of the 1980s.21 Even Adam Smith understood that
markets are not natural entities but the result of political decisions, as is the
political system that creates the allocation of risk that allows markets to
function.22 The risk is reallocated away from the owners of companies to the
companies’ creditors and customers by allowing corporations to declare
bankrupcy. Its precise distribution within an economic system is a political matter
expressed through the law and it differs from nation to nation and over time.
Given that risk takers in modern societies are typically small and cohesive interest
groups that once rescued have a powerful incentive, as well as the resources, to
buy the political influence needed to ensure a return to the status quo ante,
curbing their influence requires institutions that rest on solid foundation. For
instance, if risk takers are allowed to face more serious losses, they would have
fewer resources to fight political attempts to constrain their risky activities.23
When that system of risk allocation fails due to under-performing institutions the
consequences go well above the particular financial and economic turbulence.
19
Ibid. p 85.
Lerner, A.P. (1972). The Economics and Politics of Consumer Sovereignty, American Economic
Review, May, 62, p.258-266
21
Galbraith, J.K. (1977). The Age of Uncertainty, Boston: Houghton Mifflin
22
Ravenhill, J. (2007). Global Political Economy, New York: Oxford University Press
23
http://www.project-syndicate.org/commentary/rajan15/English
20
6
The greatest systemic risk, therefore, is not an economic concept but a political
one. Systemic risk emerges when it appears that the political and legal protections
given to economic actors, and particularly to members of the economic elite, have
been used to subvert the intent of the system. Put another way, the crisis occurs
when it appears that the financial elite used the politico-legal structure to enrich
themselves through systematically imprudent behavior while those engaged in
prudent behavior were harmed, with the political elite apparently taking no action
to protect the victims.24
It means that the global financial crisis of 2007-2011 is a political crisis as well.
The political elite has the responsibility for the corporate elite which derives from
the fact that the corporation was a political invention whose behavior depends on
the political system. Crisis ramifications extend to engulf both political and
corporate elites because of the perception that by omission or commission they
acted together, knowingly engineering the outcome.
In the past 20 years, with former Soviet apparatchiks who turned themselves into
oligarchs and Chinese bosses who hold office in the Communist Party, with
European members of the parliament, ministers and executives who go through a
US-style revolving door to the private sector, and with the Iranian clergy and
Pakistani military intoxicated by the world of business – the slide towards
corruption has become systemic. It inflects the political life of the planet. 25
All previously mentioned arguments provide support for the importance of
institutional architecture and good governance for well-functioning market. Good
governace can be defined as the traditions and institutions by which a government
organizes and exercises its powers and duties.26 Three important components of
good governance are identified by Kaufmann et al.:
1.
2.
3.
the process by which governments are selected, monitored and replaced,
the capacity of the government to effectively formulate and implement sound
policies
the respect of citizens and the state for the institutions that govern economic
and social interactions among them 27
24
http://www.stratfor.com/weekly/20100503_global_crisis_legitimacy
Behrouz, A. and Behrouz F. (2010), Iran’s unelected power, Le Monde diplomatique, English
Edition, March
26
Kaufmann, D., Kray, A. and Zoido-Lobatón, P. (1999). Governance Matters. Policy Research
Working Paper 2196. Washington, DC: The World Bank Development Research GroupMacroeconomics and Growth, and The World Bank Institute-Governance, Regulation and Finance
27
Ibid. p.1
25
7
Kaufmann et al. examined three hundred indicators categorized into six aggregate
groups. In a cross-section of over 150 countries, they find a strong causal
relationship that good governance leads to better economic development results.28
At the micro level, the necessary conditions for an efficient and competitive
market are not fulfilled without well-functioning institutions. When lacking
adequate monetary, fiscal, or trade policies, countries and businesses within each
country have essentially no direction or signals to develop plans or strategies of
any kind. The conditions that may result in the face of poor governance and poorperforming institutions may in fact lead to sub-optimal competition. All points out
to the complementary relationship between governments and markets that has
been further reinforced by the internationalization of policies and which will be
discussed in the fourth part under the title Global governance failure.
4. Global governance failure
While the world has become highly integrated economically, the mechanisms for
managing the system in a stable and sustainable way have lagged behind. We are
all witness of the 21st century paradox: as the world grows together, it is also
growing apart. It is sheer speed, especially of financial flows, that has so
transformed economic-geographical and power relations. Institutions of global
governance as a guarantor of coherent world economy represent the outcome of a
series of negotiations among coporations, states and non-state actors. They cover
three important issues such as global trade, global finance and transnational
corporations.29 From this point of view global governance can be considered a
multitude of associative forms between global, regional, national or local partners.
Nevertheless, for global governance to be effective it does not suffice multiplying
actors or power organizations, but it is also defined by the way they interact in the
face of new complexity.30 Susan Strange argued that:
1. Power has shifted upwards, from weak states to stronger states with global or
regional reach beyond their frontiers.
2. Power has moved sideways from states to markets and, hence, to non-state
authorities which derive their power from their market shares.
3. Some power has 'evaporated' in so far as no one excercises it.31
28
Ibid.
Dicken, P. (2007). Global Shift: Mapping the Changing Contours of the World Economy, New
York: The Guilford Press
30
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1570503
31
Strange, S. (1996). The Retreat of the State: The Diffusion of Power in the World Economy,
Cambridge: Cambridge University Press, p.189
29
8
Interpreting this changing world-political landscape, global governance as a new
paradigm highlights the spontaneous appearance of a multiplicity of spheres of
authority or control mechanisms: together they govern the world, sometimes
complementarily, sometimes at cross purposes. Under this new paradigm it is hard
to achieve coherence or hierarchy because of differing views on structures,
institutions and actors that serve as prerequisites for a more coherent and stable
world. The idea of a global governance became increasingly popular in the last
decade despite the fact that its importance is a variable of the geographic area or
the issue discussed.32
Looking for a middle road between anarchy and the daunting idea of a world
government, it is necessary to sketch few scenarios of how essential public goods
that cannot be delivered either by national governments or by global markets,
could somehow be provided via global governance. Robert Gilpin distinguished
three major currents.33 Neoliberal institutionalism starts from the continuing
importance of the state and deems forms of governance to be possible only on the
basis of formal international regimes and institutions like the WTO. R. Keohane
and J.Nye argue that improved coordination creates safety valves for political and
economic pressures which is consistent with existence the of nation-states as the
fundamental form of political organization.34 A second current, which Gilpin calls
the new medievalism, starts from the assumption that states and the international
system established after Treaty of Westphalia, are gradually being undermined by
economic, technological and cultural developments. Proliferation of nongovernmental actors, overlapping identities and rising international civil society
constitute its major feature. Neo-medievalists want to transcend the classical
framework provided by nation state and complement the classic political
legitimacy provided by parliamentary majorities or to replace it altogether by
alternatives such as horizontal, deliberative networks. Transgovernmentalism as a
third current perceives transnational cooperation developing between members of
certain government institutions (e.g. ministries of finance) in specific areas as
essential in establishing horizontal networks that govern the world economy ever
more independently from governments. 35 As we can see, defining how global
governance ought to be structured presents a key challenge to policy-makers and
business community all over the world. Many instances of global governance
failure amplify the need for a more coherent approach on the issue and should
32
Kustermans, J. (2011). Global Governance: Parsimony and the Strictures of Complexity,
European Review, Vol. 19, No. 1, pp. 19–29
33
Gilpin, R. (2001). Global Political Economy: Understanding the International Order, Princeton,
NJ: Princeton University Press, p. 377–403.
34
Keohane, R.O., Nye, J. (2000). Introduction. In: J. Nye and R. O. Keohane (eds) Governance in
a Globalizing World (Washington, DC: Brookings Institution Press), pp. 1–41
35
Slaughter, A.-M. (1997). The real new world order, Foreign Affairs, 76(5, September/October),
pp. 183–197
9
simultaneously get over free marketers and market discipliners quagmire. World
Economic Forum (WEF) in its Global Risks 2011 report states that combined with
economic disparity global governance failure represents key challenge ahead for
global economy:
Global governance failures create and exacerbate systemic global risks. Survey
results showed strong interconnections between global governance failures and
regulatory failures, corruption and economic disparity, with retrenchment from
globalization and global
governance failures being seen as mutually
reinforcing.36
Therefore, global governance failure which represents inadequate global
institutions, agreements and networks both influence the evolution of many other
global risks and inhibit our capacity to respond effectively to them. There are
many tought-provoking visions regarding directions in which global governance
should evolve and they range from loose government networks approach to new
multilateral renaissance. According to the latter vision by George Soros, the
choice is between two fundamentally different forms of organization:
international capitalism and state capitalism.37 He claims that following the path
of least resistance will lead to the gradual disintegration of the international
financial system and that the cure rests with new multilateral system based on
sounder principles. In line with this argument he advocates a grand bargain that
rearranges the entire financial order, a new Bretton Woods conference to establish
new international rules. Similar line of thinking can be found in a recent article
published in Foreign Affairs by N. Roubini and I. Bremmer which emphasizes
that we are now living in a G-Zero world, one in which no single country or bloc
of countries has the political and economic leverage, or the will, to drive a truly
international agenda.38 Its corollary will be intensified conflict on the international
stage over vitally important issues, such as international macroeconomic
coordination, financial regulatory reform, trade policy, and climate change.
The conditions that make improved global governance so crucial – divergent
interests, conflicting incentives and differing norms and values – are also the ones
that make its realization so difficult, complex and messy. As a result, we see
failures such as the Doha Development Round of the World Trade Organization
(WTO) and the lack of international agreement at the Copenhagen Conference on
climate change. The G20 is seen as the most hopeful development in global
governance but its efficiency in this regard has not been proven.39
36
http://riskreport.weforum.org/
http://www.project-syndicate.org/commentary/soros52/English
38
http://www.foreignaffairs.com/articles/67339/ian-bremmer-and-nouriel-roubini/a-g-zero-world
39
http://riskreport.weforum.org/
37
10
On the other hand, a more loose approach to global governance with emphasis on
the structure of the nation state can be found with authors such as D. Rodrik and
R. Rajan. Rodrik urges to find appropriate balance between various levels of
increasingly global economy:
Certainly, the global economy needs some traffic rules where there are clear
cross-border spillovers. But the balance between national prerogatives and
international rules must make a virtue of political reality. If we veer too far
toward global governance, we will end up with meaningless rules that beg to be
flouted. 40
The success requires reforms and efforts at all levels: responsibility is not only for
the international organizations to bear and must not be used by states to shed
responsibility. R. Rajan offers similar conslusion that policy makers must not
over-rely on attempts to broker grand agreements among countries because there
is no guarantee that the timing of the reforms and their effects on global demand
could be synchronized (uncertain lags). Moreover, it can be counterproductive to
raise hopes before every international meeting that there is an agreement that
could magically bring down trade imbalances, so the best thing is to initiate
reforms on your own and reap their full benefits.41
In the end, global governance should not be confused with world government. Its
essence does not revolve exclusively around creating stronger institutions. It is
about raising coherence, efficiency and legitimacy of the existing ones, about
identifying and filling the gaps of multilateral institutions and in the law.
Therefore, good global governance implies creation of institutions only where
needed. Although the development of international regimes and global
governance institutions is still partial and fragmented, the WB, the IMF, the
WTO, the BIS, the G7/8, the G20, the ILO and many more are not only rooted in
a neoliberal rationale but also inherently bound up in a trial and error evolutionary
process. Unfortunately, global risks do not limit themselves to borders and
therefore they ask for global solutions that are beyond the power of any
government. Obviously, this further strengthens the argument for a more coherent
approach toward institutional capacity-building and the incorporation of
demographic and economic changes into it. So the order does not emerge by luck,
by the working of an elusive Great Watchmaker, or by inter-societal selfregulation; order is created and provided, and the question is what happens when
losses of influence through faltering and screeching global governance are not
40
http://www.project-syndicate.org/commentary/rodrik50/English
Rajan, R. (2011). Currencies Aren't the Problem, Foreign Affairs; Mar/Apr2011, Vol. 90 Issue
2, pp.104-116
41
11
compensated by structures at local, regional, national and global level. This short
overview intends to stimulate a new line of thinking which amalgamates
economics and politics on the one hand, and domestic and international
enironment on the other hand, together with prompting further researh in the
field.
Conclusion
Unfortunately, there have been few attempts to recognize the complementary
roles of markets and governments. Indeed, it is the case that markets and
governments are generally viewed to comprise of substitutable goals and
functions with very little complementarity. This article tried to dispense with this
fallacy in its second and third part. The most important question for each society
is how to develop a mutually supportive structure of market and non-market
institutions, which is well-suited to promote economic development. According to
McKinney and Howard, public institutions subsume activities that require one or
more of the following activities: mobilize private and public organizations and
human resources, translate public policy into programs and projects, permit
managers to translate ideas into actions and improve the quality of citizens’
lives.42 The second and third part reveal indivisibility of politics and economics
when it comes to risk allocation. It enables us to link frequent occurence of
financial crises which privatize profit and socialize losses to our political
institutions with incentive structures that encourage excess risk-taking and
subsequent opposition to their reform. The last, fourth part, seeks to shed some
light on the issue of global governance failure in order to stimulate a more
productive debate which overcomes constant warring between free marketers and
market discipliners over a single and indivisible symbiosis of economics and
politics. In order to tackle current problems that plague the world economy and
link domestic with international dimension we need a more coherent multi-level
approach. Because of its limited size this paper does not aim at giving solutions in
this respect but stimulates research and debate with a broader outlook and calls for
an interdisciplinary approach.
42
McKinney, J. B., and Howard, L.C. (1998). Public Administration: Balancing Power and
Accountability. Westport, CT: Praeger
12
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3. Clifford, W. (2006). Government failure versus Market failure:
Microeconomics Policy Research and Government Performance, Washington
D.C. : AEI-Brookings Joint Center for Regulatory Studies
4. Datta-Chaudhuri, M. (1990). Market failure and government failure, Journal of
Economic Perspectives, Volume 4, Number 3, Summer 1990, pp. 25-39.
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Economy, New York: The Guilford Press
6. Galbraith, J.K. (1977). The Age of Uncertainty, Boston: Houghton Mifflin
7. Gilpin, R. (2001). Global Political Economy: Understanding the International
Order, Princeton, NJ: Princeton University Press, pp. 377–403.
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