Barry Herman spent almost 30 years working for the UN Secretariat, where he led a small team of economists who undertook research and supported negotiations on international economic and financial issues, including the summit on Financing for Development in Mexico in 2002. Mr. Herman has subsequently worked on international financial cooperation and regulation issues for the UN, the Commonwealth Secretariat, the German Development Ministry, and the World Council of Churches. He has recently co-produced and co-edited two books on developing country sovereign debt issues: Overcoming Developing Country Debt Crises with José Antonio Ocampo and Shari Spiegel (Oxford University Press, 2010) and Dealing Fairly with Developing Country Debt with Christian Barry and Lydia Tomitova (Blackwell, 2007). He is currently a visiting faculty member in the Graduate Program in International Affairs at The New School in New York."
TGCI: How did you become interested in the field of international economics?
Barry Herman: I came to study economics after realizing I did not have the “right stuff” to become a mathematician and discovering that I was seriously interested in economic policy issues. I received a Ph.D. from the University of Michigan in 1974, specializing in international policy problems affecting developing countries. My first job after university was as an assistant professor at Dickinson College---a small liberal arts college in rural Pennsylvania, founded by a signer of the US Declaration of Independence. I was drawn back to New York, which is where I grew up and was fortunate enough to land a teaching position at Lehman College of the City University system. It was a very diverse and vibrant campus and being in New York again was exciting.
TGCI: Sounds like an interesting job.
Barry Herman: It was for a short time, but soon after I started working there New York City ran into financial problems, and funding for the City University was substantially cut back.
TGCI: Then what did you do?
Barry Herman: Before leaving Dickinson, I had applied for a position at the UN, at its newly formed Center on Transnational Corporations, which focused in part on developing guidelines for transnational corporation behavior. As fate would have it someone else got that position; but the UN hired me anyway. They had me focus on other financial issues. One of my first assignments was to help draft a report for the General Assembly on sovereignty over natural resources, which was mainly about governments receiving a fair share of the revenues from mining in their countries. I also helped support an international group of experts that had been working for a decade to develop a model treaty on how to fairly split tax revenue on foreign investment income between home and host countries when the hosts were developing countries, and I supported discussions among African banking and policy experts on ways to better mobilize personal savings. While we mainly focused on the savings side of the business, some of the banks also made small-scale loans and were a sort of pre-cursor to today’s micro-finance institutions.
TGCI: Did you like working at the UN?
Barry Herman: Several of my friends used to ask me the same question differently. Barry, why didn’t you go work in Washington where the levers of power are located? My response is that I did not have enough hubris to want to tell developing country officials how to do their work (and force them to listen because loans were at stake). I wanted to work for an organization, like the UN, where I could conduct research and present information for international debate and discussion, and contribute to the process of international cooperation.
TGCI: Can you share with our readers how the system for international economic governance has evolved since the seventies when you started working for the UN?
Barry Herman: Sure; when I first got to the UN in 1976, the General Assembly was a major forum for debate and discussion about the world economy, both in its East-West and North-South dimensions. It was not a decision-making forum on most issues, but a place to build political momentum around ideas, agree to negotiate treaties (like the Law of the Sea) and so on. The major industrialized countries made most of the actual economic policy decisions for the world in the sense that if they agreed to undertake a policy, they could force it through whatever specialized forum was responsible, whether it was in trade or finance.
However, the mid-seventies had witnessed the rise of OPEC (Organization of the Petroleum Exporting Countries) as an economic powerhouse and this was quickly reflected in the General Assembly, where countries agreed in 1974 to build a “New International Economic Order” (NIEO). There was hope for a grand bargain that would stabilize oil prices in exchange for greater aid flows and developed-country concessions on imports from developing countries. There were some accomplishments under the NIEO, like agreements negotiated in the UN Conference on Trade and Development (UNCTAD) to stabilize some individual commodity prices, like for cocoa, coffee and natural rubber, but that and other efforts fell by the wayside with the election of Ronald Reagan in the US and Margaret Thatcher in Great Britain.
TGCI: What did the election of Reagan and Thatcher do to world economics?
Barry Herman: They made market fundamentalism respectable, not only in the US and UK but also internationally. Thus, instead of trying to reduce volatility of commodity prices by buying for a buffer stock when prices fell low and selling from the buffer stock when prices got high, the prices were left to whatever the market determined, as they still are today. Reagan and Thatcher also made fighting inflation the priority, even at the expense of causing a huge recession in the early 1980s, which pushed a number of developing countries with fragile policies over the edge into government debt crises.
The major powers worried mostly about their banks and less about the people in debt crisis countries, similar to the virtual indifference to households in debt crisis today, as in the US. Overall, the new approach led to a broad-based international effort to shrink state control of the economic sector, privatize state-run enterprises, and trust that the freeing-up of markets would result in greater worldwide economic growth (the “Washington Consensus”). The extreme manifestation of this trend in policy was the deregulation of financial markets, which, as we know, led to worldwide financial crises in the 1990s and 2008.
TGCI: What was the difference between the financial crisis of the 90s and the more recent 2008 crisis?
Barry Herman: In the 1990s we were up against a crisis caused by local banks and other financial institutions, mostly in Asia, borrowing short-term and lending long-term, for example in the construction industry. Global investors were happy to fund the banks until they panicked and began to withdraw their money. The governments of the countries where the banks were speculating needed support from the International Monetary Fund (IMF) and major economy governments to weather the storm.
The hard times were also used by the biggest countries to force pro-market policy changes on the crisis countries, especially in East and South-east Asia. Russia also faced a financial crisis in this period and afterwards swore off ever seeking assistance again from IMF. The 2008 crisis also originated in the banking sector, this time as a result of the mortgage lending and shoddy investment practices of US commercial and investment banks. Also by 2008 the world’s financial markets had become more closely integrated, so that what began as a mortgage crisis in the US ended up in a worldwide financial meltdown.
The major economy governments that made the international rescue policies in the 1990s had joined together in 1976 as the Group of 7 (later 8 when Russia was invited in after the collapse of the Soviet Union). In 2008 the original 7 no longer so dominated the global economy as before and thus they broadened their policy-making committee to become the Group of 20 (G-20), bringing in China, India, Brazil and other large emerging economies. They adopted a two-prong approach to the new crisis. First was to rescue the banks, other financial institutions and the global economy by funding the banks and stimulating global economic growth. Second was to strengthen global financial regulation so it would not happen again. The financial rescue worked, although the stimulus was not continued long enough in the US and Europe, where “austerity” became the fashion, and thus we still have outrageously high unemployment. International regulatory committees started off strongly on designing reforms but were everywhere fought by the global financial industry. The banks argued that the proposed new rules would reduce their lending power, which was exactly the intention. The net result is we remain vulnerable to a renewed crisis.
TGCI: Were new international institutions added in either crisis?
Barry Herman: Yes, at the end of the 1990s, it was clear that stronger and more internationally coherent financial regulation of banks, stock markets, insurance companies and other parts of the financial sector was needed, even though the idea of “light touch” regulation still held sway. So a new forum was created for the chief regulators, finance ministers and central bank governors of the major economies, called the Financial Stability Forum. In addition, a precursor of the G-20 was created as a discussion forum for finance ministers from developed and emerging economies. When the 2008 crisis struck, the G-20 was upgraded to heads of state and it quickly introduced the policies I just noted. It also broadened some of the international regulatory committees to include G-20 members that were not already sitting at the table.
TGCI: It seems as if, while politicians and economists are focusing on recovery from the financial crisis, other issues are going unresolved.
Barry Herman: That’s true. The issue of climate change, which is going to have an increasing impact on the world economy, is not getting near the attention that it deserves. Global poverty is another important and troublesome issue. On the surface it seems as if the world is on track to meet the Millennium Development Goal of halving the poverty rate by 2015; but that’s mainly because of the enormous economic growth in India and China. If you look country-by-country you’ll find that most of the poverty targets are not being met, particularly in Africa.
TGCI: What is the G-20 going to do about these issues?
Barry Herman: I’m not sure, but I think not much for two reasons. One is that the 20 no longer agree about much among themselves. The fear that brought them together has eased. The other reason is that the G-20 cannot force the non-members to implement their decisions (except for those countries desperate for financial assistance from them or the institutions they control). There is a lot of controversy regarding the authority of the G-20. For example, a number of countries, including Singapore, Chile and Switzerland, have set up an alternative caucus to the G-20 at the UN called the Global Governance Group. They argue in effect that all the world’s wisdom does not reside only in 20 countries. The G-20 also draws criticism for not allowing civil society to make inputs into discussions, table position papers and the like, as they do at the UN. Successive rotating chairs of the G-20 have sought to change this somewhat by establishing mechanisms for consultations with NGOs, labor, the business community, and academics. I’m not so sure G-20 governments pay serious attention to the information that is collected at these forums.
TGCI: So what do you think about enlarging the G-20
Barry Herman: Size is not the most egregious problem. It’s the self-appointed nature of the club. Even in the IMF, where 24 executive directors sit around a table, at least some of the directors represent constituencies of countries and need to reflect their interests at least to some extent. So, yes, the G-20 might be a little larger, but to me it all depends in the way in which a larger group would be structured, as well as whether it answers to some universal body, which even the UN Security Council has to do.
TGCI: Have you ever worked on a successful large-scale international economic negotiation effort?
Barry Herman: Yes I was part of the Secretariat team that helped governments organize the 2002 International Conference on Financing for Development in Monterrey, Mexico. We helped them create a forum where heads of state, civil society, and the private sector from countries around the world interacted around a number of issues. The forum was attended by leaders as diverse as Bush, Castro, Chirac, and Jimmy Carter, who came as a representative of an NGO (The Carter Center). Major positive outcomes of that conference included an agreement among participants to increase foreign aid (which had been on a downward trend); giving a political impulse to ongoing negotiations on an international treaty to curb public sector corruption; and agreeing to improve the participation of developing countries in governance of IMF and other international financial institutions. The conference outcomes came to be known as the Monterrey Consensus. In all, it contained a number of good promises, only some of which have been realized.
TGCI: If the UN were to organize a similar forum today, what would its focus be?
Barry Herman: I can answer at the level of the big picture and more detailed needs. Right now, the world has to address global warming, or more generally, provide for global “sustainability”. Most people think of sustainability in environmental terms, but we must also have a world that is economically and socially sustainable. These seem preconditions for a world at peace. We have international forums and institutions where these problems can be addressed, but the political desire to forge agreements just is not there. That is the big picture as I see it.
In terms of a missing detail in the international institutional structure, I see a need for an international forum to help address sovereign debt crises, that is, situations in which governments cannot pay their bills (think Greece today or Argentina a decade ago) and need some form of bankruptcy regime to guide a workout. There are bankruptcy laws for individuals, households, and corporations, so why not enact one for nation states? The principles for sovereign workouts would not be hard to conceive. The sticking point is how to enforce them. There is no world government. And yet governments do create mechanisms that can work in most cases, such as mediation and if that does not resolve the issue arbitration. At the moment there is no effective coordination mechanism for debtor governments and their private and official creditors; so each time a country is in a financial crisis, it needs to negotiate separately with bankers, bondholders, other governments that lent them money, IMF, etc.
TGCI: Can you share with us your views on the topic of global citizenship?
Barry Herman: In a sense, for a period of time, I was a global citizen. When you go to work for the United Nations, as I did, you take an oath to put the interest of the UN above the interest of your own government in relation to the work that you do. When I visit Washington and talk to people in government their first question is naturally, what is the US interest in any policy initiative? If they think at all about a global interest, it has a much lower priority. Coming from the UN, this took me back when I first heard it after leaving the UN. However, the “global citizen” perspective is most unnatural, when you stop and think about it. Just look at how hard it has been to create a European perspective in the European Union (EU). People still after all these decades see themselves as French, German, Irish, and so on and as national members of the EU, even when using a common currency. But I think the Europeans are working towards a European identity and will get there eventually, indeed well before most people see themselves as global citizens. Still, wouldn’t it be great if we had a world of global citizens?