Who's really in charge of globalization
Levinson, Mark
LAST SUMMER, J. Brian Atwood, the head of the U.S. Agency for International Development (AID), the government agency responsible for foreign aid, announced he was stepping down. Freed...
...But the U.S...
...The AMF never got off the ground...
...Globalization is thus far leaving out about two-thirds of the world...
...Is that influencing even the mainstream economics profession...
...Treasury and the IMF opposed the idea on the grounds that it would weaken the ability of the IMF to "extract reforms...
...Why do their public statements differ from their private comments...
...These rules determine whose interests are served and whose are not...
...But that does not mean that no one is in charge...
...Most economists believe that markets are self-adjusting.* It follows that after the occasional speculative overshoot or "bubble" things will in due course return to normal...
...Despite the striking evidence that freer capital movements bring about financial crises, the view that dominates policy circles is that a world of full capital mobility continues to be inevitable and desirable...
...A. I'm not sure that that is what drives the mainstream economics profession...
...But you are pointing out a very interesting phenomenon...
...About the same time that Atwood spoke out, the World Bank released a report on global poverty estimating that the number of people living on less than a dollar a day had increased by two hundred million people in the 1990s...
...corporations had brought meager results...
...agenda for East Asia opened up with the financial crisis...
...I think part of it has to do with the fact that free trade is such a sacrosanct subject among economists and among trade economists in particular...
...M]any trade economists have been a little more definite [about the benefits of free trade] than the range of estimates or the range of uncertainty we have warrants on this issue...
...Of course not all states have an equal say in such matters...
...A. I do not have a good answer...
...officials had long considered the East and Southeast Asian system of protectionism, industrial policy, and activist state intervention in the economy as an arrangement that handicapped U.S...
...Deregulation supposedly will lead to a more efficient allocation of capital, a greater availability of capital for productive investment and hence result in higher levels of investment and growth and enhanced stability...
...Nation-states, or at least most of them, are less powerful in the face of growing international markets...
...When economists actually try to measure them, gains from trade turn out to be very small...
...Thus, a golden opportunity to push the U.S...
...Jeff Garten, under-secretary of commerce during Clinton's first term, said, "Most of these countries are going to go through a deep and dark tunnel . . . . But on the other end there is going to be a significantly different Asia in which Americans have achieved much deeper market penetration, much greater access...
...The consensus, however, is starting to crack...
...trade representative, Charlene Barshevsky, told the U.S...
...One might expect that two years after the outbreak of the Asian financial crisis, there would be institutions in place to prevent a repeat of the massive and rapid exit of $100 billion that triggered the collapse of the region's economies...
...firms...
...As I write, Asia's stockmarkets are soaring again...
...market while closing their economies to U.S...
...The more important reason for the dominance of the belief in capital mobility is that powerful interests benefit from it...
...The same report showed that more than eighty countries have per capita incomes lower than those of a decade or more ago...
...It's surprising how much of the agenda of trade negotiations has been driven by business and how much of the existing trade rules reflect the interest of business as opposed to labor or consumer or environmental interests...
...Freed from the Clinton administration's Panglossian view of the world, he delivered a warning: It is time to end the hypocrisy...
...DISSENT / Fall 1999 23...
...If economic growth is limited to an already educated elite, then it has limited development benefit and it is a poor indicator of sustainability...
...If we've learned anything in the last two years it is that money flowing in now can just as easily move out tomorrow...
...economic interests...
...exports and U.S...
...Globalization has been driven by the enormous political power of business and financial interests, acting through states...
...and William Cline's Trade and Income Distribution...
...If this is so, it is irrational to regulate capital flows...
...The power of the United States can be seen in the aftermath of the Asian economic crisis...
...This, of course, was after "open and integrated capital markets" caused the financial crisis in Asia, the biggest financial crisis in the last half century...
...Quite the contrary...
...Faith," Jeff Faux concluded in a review of Rodrik (Dissent, Fall 1997), is the best word to describe economists' attachment to the principles of free trade...
...The financial press is full of stories about Asia's economic recovery...
...Early last year the Financial Times stated that "U.S...
...Congress that the International Monetary Fund's program for Thailand, consisting of "commitments to restructure public enterprises and accelerate privatization of certain key sectors—including energy, transportation, utilities, and communication —which will enhance market-driven 22 DISSENT / Fall 1999 competition and deregulation [are expected] to create new business opportunities for U.S...
...Yet most economists do believe that expanding trade was very important to this progress...
...T]here is an interesting paradox in that the whole GAITWTO system is built on the notion that we have to avoid regulatory capture by special interest groups so that we do not slide down the slippery slope toward protectionism...
...The AMF was conceived as a facility from which governments whose currencies were under attack could have drawn cash to counter the speculators...
...That is not because no one is in charge...
...For it lies behind the education and habitual modes of thought, not only of economists, but of bankers and businessmen and civil servants and politicians of all parties...
...According to economist Jagdish Bhagwati, an advocate of free trade, this powerful network is unable to look beyond the interest of Wall Street—which supports a world of free capital mobility because it only enlarges the arena in which to make money—which it equates with the good of the world...
...The "constituency for instability" consists of the key personnel who rotate between Wall Street, the U.S...
...And even in the United States, although employment is up, working people are laboring longer and harder for less reward than they did two decades ago...
...The interview goes on: Q. Now, that opens a Pandora's box...
...Even Paul Volcker, Alan Greenspan's predecessor, recently warned, "The biggest concern today is the growing constituency for instability...
...The U.S...
...This is a formidable power...
...officials hinted to their domestic audience that they will use the opportunity provided by the crisis to force radical structural reform on other countries that would amount to what some critics see as an 'Americanization' of the world economy...
...Of course, deregulation has done none of these things...
...It has vast prestige and a more far-reaching influence than is obvious...
...According to the United Nations the ratio of total global income going to the world's richest 20 percent compared to the world's poorest 20 percent had increased from thirty to one in 1960, to sixty to one in 1990, to seventy-four to one in 1997...
...ownership...
...Keynes, who opposed this idea, explained: "The strength of the self-adjusting school depends on its having behind it almost the whole body of organized economic thinking and doctrine of the last hundred years...
...In the last several years the staunchly pro-globalization Institute for International Economics published Dani Rodrik's Has Globalization Gone Too Far...
...Several months into the Asian crisis, in what practically all Asian countries then saw as an innovative response to the currency crisis, Tokyo proposed the establishment of the Asian Monetary Fund (AMF...
...IN THE LAST two decades the world economy has endured at least three major crises— the debt crisis of the 1980s, the crisis in Mexico in 1994-1995, and most recently the East Asia crisis...
...Speaking of hypocrisy, someday, not soon, the economics profession will answer for its unqualified and near universal support for globalization...
...Global capitalism has not escaped politics or the state...
...But for all the talk about creating "a new global financial architecture," very little has changed...
...Prior to the crisis, however, U.S...
...It would have been capitalized with $100 billion from the reserves of Japan, China, Taiwan, and Hong Kong...
...What accounts for the force of this idea...
...Reform without equity investments may satisfy the IMF, but it cannot be a recipe for long-term stability...
...In Has Globalization Gone Too Far?, Rodrik concedes as much: "[Nick widely accepted model attributes to postwar trade liberalization more than a very tiny fraction of the increased prosperity of the advanced industrial countries...
...MARK LEVINSON is the chief economist at the Union of Needletrades, Industrial and Textile Employees (UNITE...
...But it is eerily reminiscent of what caused the crisis in the first place: foreign money is pouring in, buying promising stocks and high-interest bonds...
...And I think there is a tremendous amount of concern in the profession in general, and among DISSENT / Fa111999• 21 trade economists in particular, that statements that are okay in the seminar setting might be misinterpreted by the public and essentially provide ammunition to the "barbarians . . ." Q. What bothers me a little bit is that much of the source of support for free trade seems to me to be coming from business interests that will benefit from the free trade...
...Treasury and the international financial institutions (the IMF and the World Bank...
...The United States is the dominant player and has put its interest, or more precisely, the interest of its financial community, first...
...The governments in Asia assisted Asian firms in penetrating the U.S...
...officials did not conceal their designs...
...RODRIK MAKES an obvious point, but one that is missed by many commentators on globalization...
...Last March, in a statement that only someone with advanced training in economics could make, IMF managing director Michel Camdessus told the Institute of International Bankers: "To optimize the opportunities and reduce the risks of globalization, we must head towards a world with open and integrated capital markets...
...According to Thomas Friedman (a barometer of fashionable thinking on globalization), not only has globalization caused politics to lag behind economics, but, as he put it in The Lexus and the Olive Tree, "the most basic truth about globalization [is that] no one is in charge...
...I'm really quite struck by why many things that are often said and repeated and rationally discussed in the seminar room among economists are often taboo in the public arena...
...Cline's study, for example, estimated that a substantial part of the increase in wage inequality in the United States over the last twenty years has resulted from trade...
...Yet in practice it turns out that the agenda of trade globalization, trade expansion, and trade pacts has been captured largely by business interests...
...efforts to move the Asian economies in the free-market direction desired by U.S...
...In an interview (Challenge, March-April 1998) Rodrik returned to this theme...
...It is the product of acute minds and has persuaded and convinced the great majority of intelligent and disinterested persons who have studied it...
...The form that globalization takes, the rules of the global economy—embodied in trade agreements like the North American Free Trade Agreement and in global institutions like the World Trade Organization, the World Bank, and the International Monetary Fund (IMF)—are determined by states...
...It is fashionable today to proclaim that although politicians go through the motions of national elections— offering chimerical programs and slogans— world markets, the Internet, and the furious pace of trade involve people in a global game in which elected representatives are little more than bit players...
...One reason is ideology...
...Although Rodrik and Cline are supporters of globalization, they stand out among economists for their honesty in assessing its costs and benefits...
Vol. 46 • September 1999 • No. 4
