Paper prepared for IDS/INEF project ‘The Impact of Global and Local Governance’
Why are we talking about governance? Or rather, why are we not talking about rule, like in “the rule of law” or “the rule of the state”? The answer is straightforward: because this would be a far too narrow view. It is obvious that it is not just governments who are ruling the world. And if we are looking specifically at the economic sphere, i.e. the world of firms and their environment, it is even more obvious that we have to deal with all sorts of “rulers”, not just government.
In the good old days, things were reasonably straightforward. There was government, sometimes democratic, sometimes not, which ruled, and there was the rest of the society which was being ruled. The latter included the private sector. Even though there has been freedom of entrepreneurship in many places for quite some time, the rules of what an entrepreneur could and could not do were defined, often unilaterally, by government. For instance, Germany’s constitution, which was drafted in 1949, determines that the use of private capital has to serve the common good, and it can be disappropriated if it does not.
It is sometimes argued that in the industrialized countries the power of government reached its peak in the 1960s, when it seemed to extend to successful macroeconomic management. From this perspective, the phenomenon of stagflation, which in the 1970s shattered the belief in the latitude of macroeconomic management, shattered the trust in the capacity of government to steer the fate of society.