-Ashraf Ghani is Chairman of the Institute for State Effectiveness and co-author with Clare Lockhart of "Fixing Failed States: a Framework for Rebuilding a Fractured World". His opinions are his own. -
The current financial crisis has called into question our trust in globalization as a spontaneously generated order. Such orders, while of human making, are not of human design. The market can be seen as a force capable of generating solutions to the most difficult of economic problems.
We should not forget, however, that the visible hand of the state is necessary to set the appropriate regulatory mechanisms that keep the market functioning according to a set of rules, and to put in place the risk management systems to deal with market failures. The return of the state to the center stage of economic management in the current global economy highlights the shift in values that will guide economic policy for the next decade, or possibly even the rest of the century. All business models operate with assumptions regarding the enabling regulatory environment. With the return of the state to active management of the financial sector in the short-term, and the emerging consensus on a more assertive role by the state in the regulation of the market over the longer-term, business models now require major revisions.
The crisis is global in nature, yet the response mechanisms have been predominantly national in character. The resumption of prosperity is going to require concerted global action, and the most powerful nations will have to agree to give up some of their powers in the national arena in return for collaborative powers within a more predictable global arena. Agreeing on such rules requires a shift in values to highlight the need for cooperative solutions and rule based behavior, rather than unilateral actions based on individual interests. While the state is "back in", the market that it needs to regulate is fundamentally different from the national markets after World War II.
The market operates with speed, while bureaucracies are bound by rules and procedures. We must now arrive at regulatory instruments that can satisfy public demand for accountability while having the speed to keep up with the market. Failure to establish alignment between the pace of the market and government will be extremely dangerous.