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– 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, BEHIND-CLOSED 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 FinanceFAILURES 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 MEGA-

BAIL 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

• 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 abandonmentBut if there is not reform, there may be backslidingGlobalization 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