politics of globalization political economy of the global south prof. tyson roberts
TRANSCRIPT
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Politics of Globalization
Political Economy of the Global SouthProf. Tyson Roberts
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Does Globalization Promote Democracy?
Bhagwati: Yes
• Directly: Rural farmers can bypass dominant classes and take produce directly to market thanks to modern information technology
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State-run marketing boards enabled the state to exploit farmers in the 1960s-70s
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Today, farmers & fishermen in India use computers & cell phones to bypass middleman, get higher prices
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Does Globalization Promote Democracy?
Bhagwati: Yes
• Directly: Rural farmers can bypass dominant classes and take produce directly to market thanks to modern information technology
• Indirectly: Globalization => Economic Development => Social Development => Democratization
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Source: PWT & Polity IV via QoG; Year: 2007
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Does economic development really lead to democratization?
• Most countries with high income level and a large middle class are democratic
• But authoritarian regimes that deliver economic growth are supported by middle class– Brazil in 1970s, China today
• More on economic growth and democracy next week!
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“democracy is constrained by globalization, even as globalization promotes it” (Bhagwati p. 96)
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Why might globalization constrain democracy?
Clues from “Our Brand is Crisis”?
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Why might globalization constrain democracy?
• The majority of most countries in the Global South are poor
• Poor people, given political power, may want to expropriate/redistribute property from the rich
• This can lean to capital (physical and human) outflow
• In order to prevent capital from fleeing, democracy may be sacrificed
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The political trilemma of the global economy (Rodrik 2011)
Democratic politics
Hyperglobalization Nation state
Bretton Woods com
promise
Global
gove
rnan
ce
“Golden Straitjacket”
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Hyperglobalization
• Elimination of all trade barriers– Tariffs, quotas, subsidies, standards favoring local
labor• Elimination of all capital controls– Currency exchange, FDI, financial securities
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In Global North countries, increased exposure trade leads to higher social spending to address disruption
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However, many Global South countries do not have the capacity to do this
• How did globalization affect the masses in Bolivia?
• Was Bolivia unable to use government social spending to address disruptions?
• If not, why?
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Argentina’s attempt to harness (hyper)globalization for
economic growth
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Argentina introduced convertibility (including currency board) to kill inflation
Domingo Cavallo“a man of action”
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Out with the old, in with the new
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One source of foreign exchange was rapid privatization to foreign firms, sometimes using unconstitutional emergency decrees
(Saba and Manzetti 1997)
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Many firms repatriated profits, continuing pressure on the peso.International crises & strong dollar forced Argentina to raise
interest rates to maintain peg, raising the cost of capital
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The high cost of capital made borrowing expensiveThe overvalued exchange rate made exports expensive
The economy shrank, the government adopted austerity budgetDepositors got nervous, began to pull money from banks
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Government limited withdrawalsArgentinians were not pleased
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Dollarization abandoned, peso lost 75% of its valueSavings and purchasing power decimated
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Argentinians were not pleased
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Over time, lower borrowing costs & cheaper exports helped the economy (in spite of default reputation costs) until the start of
the global financial crisis
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ISI policies and commodity prices enabled growth for some time but it was unsustainable. Inflation, capital
flight, followed by new capital controls
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Where did Argentina go wrong?
• Pegging to the dollar, with full convertibility, was a risky strategy– Stronger dollar => stronger peso => lower exports
=> lower growth– Full convertibility doesn’t allow for capital controls
• Capital controls were a successful part of Bretton Woods that the IMF now agrees can be useful
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The political trilemma of the global economy (Rodrik 2011)
Democratic politics
Hyperglobalization Nation state
Bretton Woods com
promise
Global
gove
rnan
ce
“Golden Straitjacket”
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How hyperglobalization impinges on democratic choices
• Labor standards• Corporate tax competition• Health and safety standards• “Regulatory takings” – regulations that favor
domestic over foreign producers• Industrial policies in developing nations
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Morales thus far has been successful in compromising globalization in favor of redistribution
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The economy in Bolivia has been growing under Morales …
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Mostly because of gas revenues
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Despite Morales’s nationalization policies, investors are happy to invest in gas opportunities – and Morales is
happy to accept the FDI
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Morales’s government uses the funds to invest in public spending
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Just as Global North countries do
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Resulting in income growth, reduced poverty rates, etc.
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WTO and Democracy
• WTO agreements can trump democratically passed laws
• For example, WTO ruled against US in meat-labeling case
• In developing countries, WTO restrictions can block developmental strategies such as infant industry protection
• However, the WTO can also promote economic development – e.g., Brazil won coffee subsidy case against US; China won tire case against US
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Conclusions
• Globalization brings economic benefits:– Increased trade, increased access to capital or
investment opportunities• However, globalization can also be disruptive – Cheap imports destroy some jobs
• And globalalization constrains governments– To attract and retain capital, the government has
less discretion to meet voter demands for redistribution, etc.
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Conclusions
• Wealthy democracies with strong state capacity (often in Global North) can address disruptive effects of globalization with social spending
• Some Global South countries can afford such social spending, but not all => tradeoff between globalization and democracy
• Globalization is necessary for strong long-term economic growth, but hyperglobalization often undermines democracy; instability harms growth – Argentina: convertibility law => voter revolt– Bolivia: Gas capitalization => voter revolt