Transcript GLOBALIZATION AND ITS DISCONTENTS

GLOBALIZATION AND ITS
DISCONTENTS
WHEATON COLLEGE
SEPTEMBER 18, 2003
WHAT IS GLOBALIZATION?
Globalization—the closer integration of the
countries of the world as a result of the
lowering of transportation and
communication costs and the reduction in
man-made barriers—has become one of
the central issues of the day
GLOBALIZATION HAS MANY
DIMENSIONS
• Globalization of ideas—democracy and
human rights
• Globalization of knowledge—
improvements in health
• Globalization of civil society
• Economic Globalization
ECONOMIC GLOBALIZATION HAS
WORKED FOR SOME COUNTRIES
When it has been managed well—as in East
Asia—globalization has been at the center of
marked improvements in standards of living
and the reduction in poverty
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Taking advantage of global trade (exports)
Taking advantage of international investment
Taking advantage of advanced technology
But not opening up to speculative capital flows
And pacing and sequencing changes
IN MUCH OF THE WORLD IT HAS
NOT BEEN MANAGED WELL—LATIN
AMERICA
• Growth half of what it was in earlier
decades
• Benefits of growth accruing
disproportionately to the top
• Unemployment up
• Percentage of labor force in informal
sector up
ISSUE IS NOT WHETHER
GLOBALIZATION IS GOOD OR BAD
QUESTION IS:
• How to make globalization “work,”
especially for the poor
• How to make global system more fair
• And represent broader range of values
Problems
• “Rules of game” and Institutions governing
globalization have been created by advanced
industrial countries for their own interests—
or for special interests within those countries
• International institutions failed to address
major “market” failures
• International institutions attempted to force a
particular version of “market” economy,
unlike that in any country (including U.S.)
• Insufficient attention given to other values,
like democracy, environment, cultural
diversity
THE INTERNATIONAL
ECONOMIC INSTITUTIONS
• WORLD TRADE ORGANIZATION (WTO)
– RULES GOVERNING INTERNATIONAL TRADE
• WORLD BANK
– RESPONSIBLE FOR DEVELOPMENT
ASSISTANCE
• INTERNATIONAL MONETARY FUND (IMF)
– SUPPOSED TO ENSURE STABILITY OF GLOBAL
FINANCIAL SYSTEM
– AND PROVIDE FUNDS TO COUNTRIES FACING
ECONOMIC DOWNTURN
WHO RUNS THE INTERNATIONAL
ECONOMIC INSTITUTIONS?
IMF AND WORLD BANK
• VOTING BASED ON ECONOMIC POWER AT
END OF WORLD WAR II, WITH SOME
ADJUSTMENTS
• AT IMF, U.S. ONLY COUNTRY WITH VETO
POWER
• PROBLEM NOT JUST VOTES, BUT WHO
REPRESENTS EACH COUNTRY
– AT IMF—CENTRAL BANKS AND FINANCE
MINISTRIES
– EVEN THOUGH DECISIONS AFFECT EVERY
ASPECT OF ECONOMIC
WHO RUNS THE INTERNATIONAL
ECONOMIC INSTITUTIONS?
WTO
• AGREEMENTS ARE SUPPOSED TO BE
BY CONSENSUS: ONE COUNTRY ONE
VOTE
• BUT IN PAST DEVELOPED COUNTRIES
RUN SHOW
• USED ARM TWISTING, BEHINDCLOSED DOOR MEETINGS, TO GET
WAY
WHO RUNS THE INTERNATIONAL
ECONOMIC INSTITUTIONS?
TRADE MINISTERS REPRESENT EACH
COUNTRY
• THEY REPRESENT COMMERCIAL AND
FINANCIAL INTERESTS, RATHER THAN
GENERAL INTERESTS
• OTHERS HAVE LITTLE VOICE
GLOBAL GOVERNANCE WITHOUT
GLOBAL GOVERNMENT
WITH GLOBALIZATION, GREATER NEED
FOR “COLLECTIVE ACTION”
INTERNATIONAL INSTITUTIONS ARE THE
MEANS WITH WHICH WE ACT
BUT THEY ARE FLAWED
• Undemocratic, non-transparent
• Smokestack structure—WTO run by trade
ministers, IMF by Finance
FAILURES NOT A SURPRISE
TRADE: Unfair Rules of the Game
• Developing countries actually hurt
– Asymmetrical liberalization
– Intellectual property regime—deprived developing
countries of access to vital medicines
• Western countries hypocritical
– Tell developing countries to quickly get rid of
subsidies, liberalize
– But they maintain huge agriculture subsidies
– And increasingly use non-tariff barriers
• Trade agenda used to promote wider
agenda—interfering with national
sovereignty
DISSATISFACTION WITH WTO
• BROKE OUT IN SEATTLE, DECEMBER 2000
• NEW ROUND OF TRADE NEGOTIATIONS
BEGUN IN DOHA IN 2001 MEANT TO
RECTIFY IMBALANCES OF PAST, CALLED
DEVELOPMENT ROUND
• BUT PROMISES WERE BROKEN, REAL
FEAR THAT NEW AGREEMENTS WOULD
WORSEN IMBALANCES
FAILURE AT CANCUN
• U.S. AND EUROPE REFUSED TO MAKE
SIGNIFICANT CONCESSIONS IN
AGRICULTURE
– LACK OF COMMITMENT
– SUBSIDIES DOUBLED SINCE URUGUAY
ROUNDE
– THOUGH THEY WERE SUPPOSED TO BE
FROZEN
– GENERAL FEAR: “GOOD OUTCOME”
WOULD ONLY GO BACK TO 1994
FAILURE AT CANCUN:
EXPLANATIONS
• NEW RESOLVE BY DEVELOPING COUNTRIES NOT
TO BE TAKEN ADVANTAGE OF AGAIN
• STRONGER DEMOCRACIES
– GOVERNMENTS THAT SIGN BAD AGREEMENT WILL BE
PUNISHED
– “NO AGREEMENT IS BETTER THAN A BAD AGREEMENT”
• FAILURE OF LIBERALIZATION AGENDA
– GENERAL VIEW: TRADE LIBERALIZATION LEADS TO
MORE UNEMPLOYMENT, NOT MORE GROWTH
• TRUE IN MANY CASES
• CONTRARY TO ASSERTIONS BY U.S., ON AVERAGE, TRADE
LIBERALIZATION NOT ASSOCIATED WITH FASTER GROWTH
FAILURE AT CANCUN:
CONSEQUENCES
• U.S. WILL TRY TO PUSH BI-LATERAL AGREEMENTS
– U.S. MAY HAVE EVEN MORE IMBALANCED BARGAINING
POWER
– WILL IT BE SUCCESSFUL? DEVELOPING COUNTRIES
INCREASINGLY WARY
• ENERGIZING DEVELOPING COUNTRIES TO BE
MORE ASSERTIVE OF RIGHTS
• MAYBE: U.S. AND EUROPE WILL GET MESSAGE
– CANNOT CONTINUE WITH IMBALANCES OF PAST
– INCREASING CONCERN EVEN IN DEVELOPED COUNTRIES
IMF FAILURES
IN MAIN MISSION—STABILITY
• 100 CRISES IN LAST 30 YEARS
• MISMANAGED CRISES—FAILURE OF MEGABAIL OUTS, TURNED DOWNTURNS INTO
RECESSIONS AND DEPRESSIONS
– Insisted on contractionary fiscal and monetary
policy
– Contrary to original mission
– Contrary to what is taught in every economic
course in world
IMF FAILURES
• LARGELY RESPONSIBLE FOR
CRISES—PUSHED CAPITAL MARKET
LIBERALIZATION
– Even though there was no evidence that it
was good for growth
– Even though there was ample evidence
that it lead to instability
IMF FAILURES
• In development
– Countries that have IMF programs not done
particularly well
– “Experienced pain, still waiting for gain”
• In transition from Communism to market
– Most have seen GDP fall dramatically
– And poverty increased
• There were alternatives
– Countries that have followed alternatives (China)
done better
– Clear link between IMF policies and failures
INTERNATIONAL INSTITUTIONS
FAILED TO ADDRESS MAJOR
“MARKET” FAILURES
• Developing countries forced to bear
interest and exchange rate risk
• Global reserve system forces
developing countries to lend to U.S. at
low interest rates, enabling U.S. to live
well beyond its means, while
contributing to continuing global
instability
FORCING PECULIAR VERSION
OF MARKET ECONOMY
• Privatization of social security
• Pro-cyclical fiscal policy
• Monetary policies focusing exclusively
on inflation, ignoring jobs and growth
• Precluding industrial policies
ALL POLICIES WHICH ARE REJECTED IN
US
WHERE ARE WE TODAY IN THE
GLOBALIZATION DEBATE?
• Widespread recognition of problems
• But continuing gap between rhetoric and
reality
WIDESPREAD RECOGNITION OF
PROBLEMS
• New round of trade negotiations called
development round
• World Bank taken a more comprehensive
approach to development
– Recognized failures of some of strategies of
past
– More emphasis on education, health
EVEN IMF HAS RECOGNIZED
MANY OF ITS MISTAKES
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Excessive conditionality
Need for ownership and participation
Excessive fiscal austerity
Failure of bail-outs, movement towards
bankruptcy
• Finally recognized that capital market
liberalization does not promote growth
BUT CONTINUING GAP BETWEEN
RHETORIC AND REALITY
• IMF continues to impose excessive fiscal and
monetary austerity
• IMF doesn’t understand central issues of
bankruptcy
• IMF continues to impose excessive
conditionality
• U.S. continues to use trade policy to pursue
non-trade agenda
• U.S. , Europe continues to subsidize
agriculture, use dumping duties
• Failure of Cancun no surprise
ECONOMIC GLOBALIZATION HAS
OUTPACED POLITICAL
GLOBALIZATION
• Most evident in U.S. unilateralism
• Absence of commitment to global
democracy
• Social justice and solidarity stops at the
borders
REFORMING GLOBALIZATION
Need for reform of globalization—not
abandonment
But if there is not reform, there may be backsliding
Globalization reversal after World War I
Only through reform will globalization be able
to be transformed, to live up to its potential
of improving lives of those around the world
Reform is possible, but it will not be easy