We live in a world of “overlapping communities of fate.” Everyday life—work, money, beliefs, as well as trade, communications, finance, and the environment—connects us all with increasing intensity.

The word for this phenomenon is “globalization,” and since 1945 we have sought to build international institutions that regulate and govern aspects of it based on universal principles of the equality of all human beings.

Half a century later, the international community has reached its next moment of decisive choice. As an optimist, I believe that it is still possible to build on the achievements of the post-World War II era. But we have to be clear about the dangers and difficulties. A combination of developments points towards a very disturbing combination of negative factors. We are at a turning point—choices are now being made that will determine the fate of the globe for decades to come.

There are four major ongoing developments in the world that reinforce each other and point in a negative direction. The first is the failure in many countries and regions to move toward the UN Millennium Development Goals, which set the minimum humanitarian levels for large sections of the world population. Additionally, there is the emergence of serious questions about the regulation of world trade and the clear danger that trade negotiations could worsen global inequality. Third is the complete failure of the world community to address the immense consequences of global warming. Last is the disturbing erosion of the multilateral world order symbolized by the United Nations, and extending through a whole series of international agreements and agencies.

The post-WWII multilateral order is threatened by the intersection and combination of these humanitarian, economic, environmental, and political crises. More serious still, there is a driving force taking them from bad to worse. This force is willed, even though it often presents itself in the form of inevitability, and it can be summed up in two phrases: the “Washington economic consensus” and the “Washington security strategy.”

These policy packages are, of course, not the sole cause of globalization in its current form. But together they have promulgated the view that a positive role for government is to be fundamentally distrusted and that regulation creating common rules and duties threatens freedom, impedes development, and restrains the common good.

Both of these policy packages need to be replaced by a progressive framework that sustains the enormous enhancement of productivity and wealth that the market and contemporary technology make possible, while ensuring that the benefits are fairly shared. That is, the new strategy must addresses the extremes of poverty and wealth as part of a commitment to overall security which engages everything from terrorism and war to failed states. The approaches that address this two-fold task I call social democratic globalization and a human security agenda.

The Washington Consensus

The Washington Consensus is an economic agenda that advocates, among other things, free trade, capital market liberalization, secure property rights, deregulation, and the transfer of assets from the public to the private sectors. For most of the last 20 years, its neo-liberal economic orthodoxy guided Organization for Economic Cooperation and Development (OECD) countries and was prescribed, until recently without qualification, by the International Monetary Fund and World Bank as the policy basis for developing countries.

Some of the proposals and advice of the Washington Consensus may be reasonable in their own terms. Others are not. Taken together, however, they represent too narrow a set of policies to help create sustained growth and equitable development. The evidence is now in, and it is clear that it does not work well enough. The dominant economic orthodoxies have failed to generate sustained economic growth, poverty reduction, and fair outcomes in many parts of the developing world.

In particular, one of the key global factors limiting the capacity of the poorest countries to develop is the free movement of capital. While tariff liberalization can be broadly beneficial for low-income countries, rapid capital liberalization can be a recipe, in the absence of prudential regulation and sound domestic capital markets, “for volatility, unpredictability, and booms and busts in capital flows.” As UCLA Professor Geoffrey Garrett has shown, countries that have rapidly opened their capital accounts have performed significantly less well in terms of economic growth and income inequality than countries that have maintained tight control on capital movements while cutting tariffs.

Furthermore, the experiences of China and India—along with Japan, South Korea, and Taiwan in earlier times—show that countries do not have to adopt liberal trade or capital market policies in order to benefit from enhanced trade and grow faster. All of these countries have grown relatively fast behind protective barriers—growth that fuelled rapid trade expansion. And as each of these countries has become richer, it has tended to liberalize its trade policy. But as Harvard economist Dani Rodrik has emphasized, the only thing that can be said with certainty is that countries tend to become more open as they become richer; it is not a matter of simple cause and effect.

For a country to benefit from growth, its priority should be internal economic integration—the development of its human capital, economic infrastructure, and robust national market institutions. Initially, this needs to be stimulated by state-led economic and industrial policy. The alternative to the Washington Consensus is not a simple endorsement of state-centric development; state intervention is not always progressive and beneficial.

Public objectives can be delivered by a diversity of actors, public and private. In the development of civil society, trade unions, citizen groups, non-governmental organizations, and so on are indispensable participants. Although there can, of course, be conflicts between economic development and the strengthening of civil society, all societies need significant measures of autonomy to work out their own ways of managing this conflict.

Developing states need policy space to exercise institutional innovations that depart from the orthodoxy of global market integration first and foremost. Similarly, organizations like the World Trade Organization need to move their agenda away from a narrow set of policies concerned with market creation and supervision to a broader range of policies that encourage different national economic systems to flourish within a fair and equitable rule-based global market order.