Capital markets and the financial sector must come under uniform regulatory control, both within countries and internationally. A common set of regulatory standards must be imposed so that a global market is subjected to global requirements. Global standards favour the creation of world enforcement authorities, a much needed form of international governance. The IMF has been such an authority but only for weak countries and not strong countries like the U.S. that over-borrow.
Existing world organisations must be politically realigned: their charters must empower developing countries and their mandates should focus on recovery under a regime that encourages development with reduction of inequality. Why not tax international capital gains in favor of a world stability fund? Why not agree internationally that interest on corporate debt not be “tax-expensed” after a certain limit? Taxing financial profits to build stability reserves could be the road to a stable new global order.
The crisis imposes fiscal expansion, as only states are the able to create demand. Fiscal expansion will increase world public debt but this could lead to inflation as recovery takes off, thus crippling it. Fiscal expansion must therefore be geared to investment that fuels growth. National investment is not enough, so international public goods should become a priority. International infrastructures have a network aspect: environmental protection, global health care, global education, energy management and distribution, security of transport and data transfers are examples.
Recovery and stability are not just economic goals but underlie an urgent social agenda. Regulation should be oriented towards maintaining stability and the decreasing inequality. If states, along with the private sector, are again to become important managers of social surplus, they must reform themselves, with transparency, democratic accountability and codes of conduct for public management of social goods making up the elements of a “reform for recovery”.