Managing Globalization Doha, Qatar November, 2005 Joseph E. Stiglitz Columbia University New York.

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<ul><li><p>Managing Globalization </p><p>Doha, QatarNovember, 2005Joseph E. StiglitzColumbia UniversityNew York</p></li><li><p>OutlineWhat is globalization?Why has it become such a topic of concern?The mixed record of globalizationThe changing landscape of globalizationThe problems of natural resourcesExplaining puzzle of oil pricesThe natural resource curse</p></li><li><p>What is Globalization?The closer integration of the countries of the world as a result of lowering of communication and transportation costs and the elimination of man-made barriers</p><p>Expansion of the size of the market holds out prospects for increasing standards of living, gains for all</p></li><li><p>But Globalization, As It Has Been Managed, Has Not Benefited AllLosers in developed countriesCompetition from low wage workers abroadAnd increasing threat up the skill ladderOutsourcingEven if only small fraction of jobs can be outsourced, there can be large effects on wagesUndermined traditional response to the threat of globalizationWe dont want those low-skilled jobs anyway.We just need to up-skill</p></li><li><p>Mixed Record in Developing CountriesEast Asia, the most successful region in the world, has grown as a result of globalizationGlobalization of technologyGlobalization of marketsSome have benefited enormously from foreign direct investmentBut they managed globalization on their own termsSlow to open up their marketsMany still have not fully liberalized capital marketsDid not follow prescriptions of the Washington Consensus</p></li><li><p>Elsewhere, Globalization Has Not Gone So WellDecline in real incomes in AfricaStagnation in Middle EastFailures in Latin AmericaUnemployment roseFraction of population in informal sector upGrowth rates half of what it was prior to 1980Poverty persistsGap with the advanced industrial countries increasedEven true for Mexico, with free access to the U.S. market</p></li><li><p>The LessonsThe Washington Consensus has failedEmphasis on liberalization, privatization, macro-stability (emphasis on price stability) is neither necessary nor sufficient conditions for growthBut since the core of Washington Consensus was opening up markets for globalization, in many quarters, its failure has led to opposition to globalization</p></li><li><p>The Real ProblemA particular view of the market economy was pushedWhich did not even describe U.S. economyU.S. has strong industrial policyLarge role of government in financial marketsSafety netsocial securityMacro-policy with emphasis on employment, growth, not just inflationQuestion: Role of ideology, bad economics, and special interestsPolicies were those which advantaged particular interests in U.S. and other advanced industrial countries</p></li><li><p>Globalization and the End of the Cold WarThe end of the Cold war provided an opportunity for redefining international economic policyCould now be based on principlesOr it could be based on interests, unchecked by threat of competition from RussiaU.S., West chose the latter courseWith adverse effects for many in Third World</p></li><li><p>The Uruguay RoundUnfair to developing countriesPoorest countries were actually worse offAllowed advanced industrial countries to continue levying tariffs four times higher on imports from developing countries than on imports from fellow developed countriesTRIPs agreement may stifle future economic growth (kicking away the ladder)Even the worst, deprives developing countries of life-saving drugs</p><p>U.S. , Europe reneging on commitments made in Doha for a Development Round of trade talksU.S. meanwhile increased agriculture subsidiesEurope now refuses to open up its marketsBut agriculture just one of many issuesEven if an agreement emerges, it would not deserve the epithet of a development round</p></li><li><p>Capitalism: An Efficient SystemBut capitalism has inevitable winners and losersAnd in modern democracy, capitalism is often temperedBut internationally, this tempering does not occurDisproportionate role of special interests in international institutionsIntellectual property in TRIPsAt the IMF, capital market liberalizationWhich finally IMF has recognized is not necessarily good for the developing countries </p></li><li><p>The Changing Global Landscape: Rise of China and IndiaEnormously rapid growthTheir integration into the global economy is ushering change of historic proportions2.5 billion peopleWith different factor ratiosEnormous adjustments may be requiredTheory predicts enormously strong downward pressures on unskilled labor in North, growing inequalityPotential source of backlash</p></li><li><p>Competition from China and IndiaFor the first time, there has been such combination of technology, unskilled labor, skilled labor, and access to international markets by a developing countryEven developing own global entrepreneurs (Infosys)Chinas success in textiles not based just on low wagesChinese apparel exporters have been able to reduce unit cost by more than 40% between 2000 and 2004Although labor cost is higher in China than in Bangladesh, Kenya, Cambodia or Madagascar, China is still the least cost producer of clothing - cost saving mostly came from automation of processes, especially from effective sourcing and supply chain management</p></li><li><p>Increasing Role of Asia in the Global EconomyAs source of manufactured goodsAsia, especially the East Asian miracle countries and India, likely to continue to be the bright stars in the global economyAs a source of technologyAnd as source of savingsChina far larger source of global savings than the U.S.Increasing influence in global geo-politics</p></li><li><p>Increasing Role of Asia in theGlobal EconomyHuge savingsAbility to buy technology, corporationsAnd access to needed resourcesNew globalization provides them legal framework to do thisUnocal case expose U.S.s uneaseU.S. cannot stop them in most of the rest of the worldGrowth of China may provide new check on U.S.But unfortunately, will also provide limits on its ability to push democracy, human rights policies (Sudan)Weak economic performance in the U.S. and Europe, however, is likely to lead to rise in protectionist sentiment Though, as in Europe, protectionism will meet resistanceAs retailers and consumers will be hurtAnd even jobs</p></li><li><p>China-U.S. Inter-dependenceBoth countries gain from the economic relationshipArgument that China needs the U.S. to buy its goods and the U.S. needs china to buy its treasuries is not fully persuasiveChina could expand domestic consumption, investment it has great needsWould other countries be as willing to hold U.S. dollars as China has been? What are consequences of shift of deficit from China to others?Easier to increase consumption than to decrease itU.S. made a major mistake in dealing with the Chinese bid for UnocalEven if some of the arguments about lack of full symmetry are correctU.S. cannot stop China from buying energy assets elsewhereU.S. has shown that it believes ownership/control matters</p></li><li><p>China Being Blamed for U.S. Trade DeficitBut problem lies in the U.S. macro-economic policyMuch larger revaluation would put China in a difficult positionLower prices in rural sectorsRural-urban income inequality will grow already a major source of concernWill require costly use of government revenues to offset impact on farmersMove to peg RMB to a basket of currencies and the increased flexibility in exchange rate management make sense for China</p></li><li><p>Global Economic ImbalancesHuge U.S. trade deficitsUS$ 617.7 billion in 2004 a 24% increase since 2003; trade deficit in 2004 stands at record 5.8 % of U.S. GDPTwin deficit problemLargely a result of huge fiscal deficitBut related to deeper problem, global reserve systemLeading to huge financial instabilityHigh level of global uncertaintyRelated to political uncertainties Middle East instability (Iraq)High and volatile price of oilEroding confidence in dollar as a reserve currencyMoving away from dollar reservesNo longer good store of valueExchange rate fluctuations undermine its role as much as inflation would</p></li><li><p>Why American Economists Are Worried About the U.S. EconomyGrowth has been sustained by consumptionConsumption has been sustained by borrowing against housing</p><p>Major source of economic growth:Home building increased from 4.25% GDP 1980-2000 to 5.98%Difference equals $200 billion yearGenerating approximately 2 million jobsIncrease in housing prices added $7 trillion ($ 3 trillion if re-mortgage and inflation is taken into account) in wealth during the past five yearsAdding $150 billion in spendingGenerating 1.5 million jobs</p><p>But:</p><p>High level of household indebtednessLarge debt serviceIf primary residence excluded, net worth of median U.S. households declined by 13% during 2002-2004 from $40,000 to $35,000If interest rates rise, can consumption be sustained?</p></li><li><p>Greater Interdependence Means..Problems in one part of global economic system impact othersThat which is unsustainable will not be sustainedThe U.S. Deficits not sustainableA Downturnor even stagnationin U.S. will have global ramifications</p></li><li><p>The Puzzle of High Oil PriceOil prices soarYet investments in alternative energies, conservation have not</p></li><li><p>Rising Oil Price Since 2003</p></li><li><p>Long Term Trends in Oil PriceSource: U.S. Energy Information Administration</p><p>Chart1</p><p>3.3516.3002270664</p><p>3.5616.5956391985</p><p>3.5617.9407761749</p><p>4.3118.3740286777</p><p>11.1642.7391758214</p><p>11.1639.1648673331</p><p>13.946.1230748949</p><p>14.8546.2671657523</p><p>14.8543.0002846447</p><p>32.584.5159038615</p><p>3784.7773823678</p><p>3572.6930404272</p><p>31.7262.0592009877</p><p>29.2455.4275419178</p><p>25.4346.2292221782</p><p>27.2347.7790175574</p><p>16.0827.6735585761</p><p>17.2428.6624529283</p><p>16.2725.9672226977</p><p>21.0932.1117290186</p><p>27.3439.4939171409</p><p>19.5227.0584185263</p><p>19.4126.120493402</p><p>14.5119.0082885776</p><p>17.1621.8438566131</p><p>19.0423.566993007</p><p>25.3930.5424147818</p><p>18.3221.5457807309</p><p>11.2813.0574126303</p><p>26.0829.5375164967</p><p>28.4631.2035307782</p><p>19.3320.6070242801</p><p>29.4230.8754641467</p><p>32.1532.9886956522</p><p>51.1751.17</p><p>62.8164.8</p><p>1st Oil Shock</p><p>2nd Oil Shock</p><p>1st Gulf War</p><p>2nd Gulf War</p><p>Nominal Price</p><p>Real Price</p><p>WTI Crude Oil Price: 1970-Sept 2005</p><p>Sheet1</p><p>Apr 04, 198329.44</p><p>Jan 03, 198429.4</p><p>Jan 02, 198525.92</p><p>Jan 02, 198625.56</p><p>Jan 02, 198718.13</p><p>Jan 04, 198817.69</p><p>Jan 03, 198917.36</p><p>Jan 02, 199022.89</p><p>Jan 02, 199126.49</p><p>Jan 02, 199219.49</p><p>Jan 04, 199319.04</p><p>Jan 03, 199414.56</p><p>Jan 03, 199517.44</p><p>Jan 02, 199619.81</p><p>Jan 02, 199725.69</p><p>Jan 02, 199817.43</p><p>Jan 04, 199912.34</p><p>Jan 04, 200025.55</p><p>Jan 02, 200127.21</p><p>Jan 02, 200221.01</p><p>Jan 02, 200331.85</p><p>Jan 05, 200433.78</p><p>Oct 13, 200453.64</p><p>Sheet2</p><p>Nominal PriceReal Price</p><p>19703.350.3888.63359484450.20616.30</p><p>19713.560.4058.79006313480.21516.60</p><p>19723.560.3759.50252975370.19817.94</p><p>19734.310.4439.73200671490.23518.37</p><p>197411.160.49322.63727532910.26142.74</p><p>197511.160.53820.74410346030.28539.16</p><p>197613.90.56924.42959475370.30146.12</p><p>197714.850.60624.50591406370.32146.27</p><p>197814.850.65222.7755744940.34543.00</p><p>197932.50.72644.76477958770.38584.52</p><p>1980370.82444.90327455920.43684.78</p><p>1981350.90938.50266971780.48172.69</p><p>198231.720.96532.87033950620.51162.06</p><p>198329.240.99629.35780821920.52855.43</p><p>198425.431.03924.48581683170.55046.23</p><p>198527.231.07625.30668302830.57047.78</p><p>198616.081.09714.6576051780.58127.67</p><p>198717.241.13615.18138396620.60128.66</p><p>198816.271.18313.75382558140.62725.97</p><p>198921.091.24017.0083310480.65732.11</p><p>199027.341.30720.91838831620.69239.49</p><p>199119.521.36214.33178947370.72127.06</p><p>199219.411.40313.83500709850.74326.12</p><p>199314.511.44110.06794945850.76319.01</p><p>199417.161.48311.56983930780.78621.84</p><p>199519.041.52512.48251748250.80823.57</p><p>199625.391.57016.17712647340.83130.54</p><p>199718.321.60511.41196013290.85021.55</p><p>199811.281.6316.91600245250.86413.06</p><p>199926.081.66715.64487102580.88329.54</p><p>200028.461.72216.52729384440.91231.20</p><p>200119.331.77110.91473743650.93820.61</p><p>200229.421.79916.35352973870.95330.88</p><p>200332.151.84017.4728260870.97532.99</p><p>200451.171.88827.10275423731.00051.17</p><p>200562.811.92732.594706798164.8</p><p>Sheet2</p><p>1st Oil Shock</p><p>2nd Oil Shock</p><p>1st Gulf War</p><p>2nd Gulf War</p><p>Nominal Price</p><p>Real Price</p><p>WTI Crude Oil Price: 1970-Sept 2005</p><p>Sheet5</p><p>Average Fuel Economy</p><p>MPG</p><p>197513.1</p><p>197614.2</p><p>197715.1</p><p>197815.8</p><p>197915.9</p><p>198019.2</p><p>198120.5</p><p>198221.1</p><p>198321</p><p>198421</p><p>198521.3</p><p>198621.9</p><p>198722.1</p><p>198822.1</p><p>198921.7</p><p>199021.5</p><p>199121.7</p><p>199221.3</p><p>199321.4</p><p>199421</p><p>199521.1</p><p>199621.2</p><p>199720.9</p><p>199820.9</p><p>199920.6</p><p>200020.7</p><p>200120.7</p><p>200220.6</p><p>200320.7</p><p>200420.8</p><p>Sheet5</p><p>MPG</p><p>Fuel Efficiency (MPG) of U.S. Vehicles: 1975-2004</p><p>Sheet4</p><p>Cars (million)Light Truck and SUV (million)Gasoline Price ($/Gallon)Share of SUV and Light TruckTotalSUV Market Share</p><p>19769.9942.97581.970.00012969.82975.822.94%</p><p>197711.0463.43591.930.00014481.93435.923.73%</p><p>197811.1643.8171.820.00014981381725.48%</p><p>197910.55883.19962.240.00013758.43199.623.26%</p><p>19808.98182.21572.850.00011197.52215.719.79%</p><p>19818.53432.02932.860.00010563.62029.319.21%</p><p>19827.97942.37792.460.00010357.32377.922.96%</p><p>19839.17862.92852.280.00012107.12928.524.19%</p><p>198410.39023.81492.140.00014205.13814.926.86%</p><p>198510.97844.44672.040.00015425.14446.728.83%</p><p>198611.40574.63861.530.00016044.34638.628.91%</p><p>198710.17094.70421.510.00014875.14704.231.62%</p><p>198810.54564.89761.450.00015443.24897.631.71%</p><p>19899.77684.74391.500.00014520.74743.932.67%</p><p>19909.30024.55951.630.00013859.74559.532.90%</p><p>19918.1754.13441.530.00012309.44134.433.59%</p><p>19928.21444.64291.460.00012857.34642.936.11%</p><p>19938.51775.3651.400.00013882.7536538.65%</p><p>19948.99046.05451.370.00015044.96054.540.24%</p><p>19958.63626.08141.370.00014717.66081.441.32%</p><p>19968.52686.56271.440.00015089.56562.743.49%</p><p>19978.27256.84161.410.00015114.16841.645.27%</p><p>19988.14217.39151.190.00015533.67391.547.58%</p><p>19998.69658.18291.290.00016879.48182.948.48%</p><p>20008.85218.49161.630.00017343.78491.648.96%</p><p>20018.42218.69621.520.00117118.38696.250.80%</p><p>20028.10248.70781.410.00116810.28707.851.80%</p><p>20037.61459.02531.600.00116639.89025.354.24%</p><p>20047.79.41.840.00117064.59398.355.07%</p><p>5902.76747.712650.4</p><p>5749.77048.712798.4</p><p>7666.26666666679398.266666666717064.5333333333</p><p>Sheet4</p><p>Oil Shock</p><p>1st Gulf War</p><p>2ndGulf War</p><p>Cars (million)</p><p>Light Truck and SUV (million)</p><p>Gasoline Price ($/Gallon)</p><p>Real Gasoline Price and Automobile Sale in the U.S.</p><p>Sheet6</p><p>SUV Market Share</p><p>SUV Market Share in the U.S.</p><p>Sheet9</p><p>ReferenceLow PriceHigh Price</p><p>197011.26</p><p>197111.51</p><p>197211.21</p><p>197313.44</p><p>197437.87</p><p>197538.55</p><p>197635.28</p><p>197735.74</p><p>197833.46</p><p>197945.96</p><p>198065.7</p><p>198165.73</p><p>198256.02</p><p>198347.08</p><p>198444.78</p><p>198540.54</p><p>198620.58</p><p>198725.86</p><p>198820.1</p><p>198924.03</p><p>199027.85</p><p>199123.08</p><p>199221.95</p><p>199318.99</p><p>199417.88</p><p>199519.34</p><p>199622.85</p><p>199720.13</p><p>199812.92</p><p>199918.25</p><p>200028.71</p><p>200122.26</p><p>200223.71</p><p>200327.2927.2927.29</p><p>200426.8816.8730.81</p><p>200524.716.9931.18</p><p>200623.4816.9931.62</p><p>200723.6616.9932.04</p><p>200823.8316.9932.44</p><p>200924.0116.9932.92</p><p>201024.1816.9933.28</p><p>201124.3716.9933.62</p><p>201224.5416.9933.83</p><p>201324.7316.9934.02</p><p>201424.916.9934.17</p><p>201525.0816.9934.24</p><p>201625.2716.9934.32</p><p>201725.4616.9934.4</p><p>201825.6516.9934.48</p><p>201925.8416.9934.56</p><p>202026.0316.9934.64</p><p>202126.2216.9934.72</p><p>202226.4116.9934.8</p><p>202326.6116.9934.88</p><p>202426.816.9934.96</p><p>202527.0116.9935.04</p><p>Sheet9</p><p>World Oil Price (Refiners Acquisition Cost): Projection</p><p>Sheet8</p><p>20041,144,6871,004,5221,669,4741,236,6491,203,3151,369,1951,195,833745,446</p><p>20031,165,360987,7051,565,6641,187,7221,191,0241,295,5761,259,890755,2251,333,2681,144,9381,013,438942,23413,842,044-1.2%</p><p>2,0021,249,7141,024,3371,526,0301,264,9671,245,9831,240,6881,243,631796,2591,276,3931,149,8151,...</p></li></ul>