Columbia International Affairs Online: Working Papers

CIAO DATE: 12/2012

The Irony of Global Economic Governance: The System Worked

Daniel W. Drezner

October 2012

Council on Foreign Relations


The 2008 financial crisis posed the biggest challenge to the global economy since the Great Depression and provided a severe “stress test” for global economic governance. A review of economic outcomes, policy outputs, and institutional resilience reveals that these regimes performed well during the acute phase of the crisis, ensuring the continuation of an open global economy. Even though some policy outcomes have been less than optimal, international institutions and frameworks performed contrary to expectations. Simply put, the system worked. During the first ten months of the Great Recession, global stock market capitalization plummeted lower as a percentage of its precrisis level than during the first ten months of the Great Depression. Housing prices in the United States declined more than twice as much as they did during the Great Depression. The global decline in asset values led to aggregate losses of $27 trillion in 2008—a halfyear’s worth of global economic output. Global unemployment increased by an estimated fourteen million people in 2008 alone. Nearly four years after the crisis, concerns about systemic risk still continue.