Describes what it would take to end the globalization crisis
Galbraith, James K.
THE GOVERNING systems of the world economy have failed—in their missions and in their propaganda. Protests in Seattle, at Davos, and lately in Washington have crystallized the spirit of...
...I remain skeptical...
...Or take a chance and send us your article...
...Let us acknowledge, by enacting a Tobin Tax on foreign-exchange transactions and other measures, that the passing of international monetary management into private hands in the early 1970s was a mistake...
...It was the failure of free international capital markets in the interwar period that led to the creation, at Bretton Woods in 1944, of the World Bank and the IMF...
...Their purpose was to finance the reconstruction of Europe and then to provide a framework for stable—but adjustable—exchange rates within which individual nations could pursue full employment without facing crises in their balance of payments...
...This has left the initiative to the free-market right...
...3) Type your ms double-spaced, with wide margins...
...Such institutions would need to be endowed with large financial resources, regulatory powers, and effective control over capital flows to and from their members...
...5) We're usually quick in giving editorial decisions...
...Let Japan organize an Asian Monetary Fund—as indeed the Japanese proposed in 1998 only to be vetoed by the United States, on the ground that it would compete with the IMF...
...As we're not an academic journal, we prefer that they, wherever possible, be dropped altogether or worked into the text...
...0 NE MAY safely infer that those who favor abolishing the IMF do not have the best interests of poor people in developing countries at heart...
...Beyond debt relief, a vital first step, the protesters have said little about the IMF...
...Lance Taylor and John Eatwell argue, in an important new book, Global Finance at Risk: The Case for International Regulation, for a global financial authority, and they present descriptions of how such a thing might work...
...Who needs the IMF— except for the occasional bailout loan—when Larry Summers and Alan Greenspan can, and will, deliver the message far more forcefully than a bureaucrat from Germany or a lapsed socialist from France...
...More precisely, it came up against the desire of the great American (and European) financial houses to reclaim their prewar world role...
...Europe and the United States enjoyed near full employment, exchange-rate stability, and unlimited capital market access...
...On the contrary, devaluation means that imports become radically more expensive...
...If there's a delay, it's because a few editors are reading your article...
...We will not consider manuscripts submitted simultaneously to several publications...
...The entire system must, rather, be rebuilt...
...Hong Kong offers a good example of a success6 n DISSENT / Summer 2000 ful currency board, and any other city that handles 70 percent of China's export trade could, no doubt, do equally well...
...As he left, Camdessus had the grace to acknowledge some of the failings of his institution...
...But even as we fret over high inequality in the United States, inequality increases in poor countries have been much worse...
...How can a single world authority not fall under the thumb of the dominant ideologues in the dominant countries...
...Roughly speaking, countries can only finance development sustainably so long as their growth rate of exports remains above the growth rate of debt service...
...And the worst crises—as in Russia, Mexico, and Indonesia— have fallen on those countries with the most fecklessly open attitudes toward free capital flow...
...And yet, as sometimes happens with protest movements, the anti-globalists have a weak agenda...
...Michel Camdessus, managing director of the International Monetary Fund (IMF), has resigned...
...Then, in 1981, Paul Volcker doubled U.S...
...From 1945 until 1970, the system worked— not perfectly—but well enough...
...interest rates and crashed the system...
...The difficulty of the IMF is not that it is too powerful, too large, too rich, or too strong...
...They would then set the terms on which loans and investments from private external parties might be sought and received...
...Check all your figures, dates, names, etc.—they're the author's responsibility...
...That there are hundreds of millions of hard-working poor and thousands of rich speculators tells us, all by itself, that we cannot rely on markets when worldwide economic development is at stake...
...Protests in Seattle, at Davos, and lately in Washington have crystallized the spirit of resentment, aimed at tiny elites with great power...
...The major developing countries built on strong primary export markets to develop their own industries behind walls of protection...
...IN THE EARLY 1970s, the system hit a wall...
...The consequence of forcing Brazil and Mexico and many other countries to fund themselves privately was to end the years of stable development...
...Rising inequality in developing countries has become pandemic since the early 1980s...
...In the general case, the loan is not enough to fund growth or development, but merely permits the most exposed foreign creditors to escape the worst and the country to escape the embarrassment of overt default or capital controls...
...So long as the United States and Europe were operating at full employment and driving global demand, many poor countries could grow at twice the rates of the developed world-8 percent annually as compared to 4 percent— and many did...
...A congressional advisory commission, chaired by old-line monetarist Allan Meltzer, has called for cutting all the international financial institutions...
...And for progressives, here is the rub...
...Private capitalism was never up to the job of government...
...For it to work, a country must have large and liquid reserves, and small development ambitions of its own...
...After debt relief, everyone else would face the "rigor," or the "discipline," of the market...
...Everyone else has gone through crisis after crisis...
...You cannot run a full-employment policy or an industrial development policy under a currency board...
...Their view is, merely, that the fig leaf of structural adjustment is not necessary any longer...
...JAMES K. GALBRAITH is the author of Created Unequal: The Crisis in American Pay and co-editor of Inequality and Industrial Change: A Global View, forthcoming from Cambridge University Press...
...Conservative economists argue that floating exchange rates are the right device for stabilizing a trade deficit, so who needs the IMF...
...And when the oil shocks hit in 1974, President Richard Nixon and then Gerald Ford took their side, allowing private banks the major role in "recycling petrodollars...
...A currency board is, however, nothing more than a colonial institution...
...The alternative is to break the problem of control into manageable pieces...
...Real reform and a return to financially sustainable growth must mean control of the private capital markets—not a BRAVE NEW GLOBE modest agenda...
...Look at our last few issues to see if your idea fits in...
...As a result, devaluation produces depression, along with sharply rising inequalities in the structure of pay...
...The success stories of the developing world in the years since 1979—China, Taiwan, and India above all—have in common insulation from the global capital markets and freedom from major private debt...
...The Meltzer Commission explicitly condemns the model of "fixed but adjustable" exchange rates on which the IMF was founded, and argues that developing countries should either float freely or tie their currencies through a currency board...
...As for purely floating exchange rates, their problem lies in the fact that trade balance adjustment does not occur, as conservatives suppose, through increased competitiveness of exports, so that a country need only devalue to return to full employment...
...THE EDITORS DISSENT / Summer 2000 n 7...
...Please use inclusive language so that we don't have to make adjustments during editing...
...The age of DISSENT / Summer 2000 n 5 BRAVE NEW GLOBE stabilized currencies came to an end...
...Under Reagan, the IMF returned to prominence, taking on its modern form as a front for global austerity programs...
...The structural adjustment plan is not a formula for reversing the damage to developing country institutions...
...The key architects of Bretton Woods, John Maynard Keynes and Harry Dexter White, were not under the illusion that markets could do the job...
...The World Trade Organization (WTO) and the World Bank loom large on these issues and have been the main targets...
...Under the Meltzer proposals, supported by several Democratic commissioners including Jeffrey Sachs—because the commission did support a one-time debt writedown— the IMF would lend only short term and only to support liquidity in crises...
...This role consists essentially of teams of staffers flying into crises to dictate "structural adjustment plans"— in return for which the IMF may offer a direct loan...
...And please remember that we can't consider articles unless they're accompanied by a stamped, self-addressed envelope...
...It is, rather, that it is too weak, too small, too poor— and much too obtuse, as Joseph Stiglitz's brilliant comment in the New Republic ("What I Learned at the Financial Revolution," April 17) makes clear—to make a material difference most of the time...
...Let the Latin Americans organize a similar fund, with our support...
...If you are submitting to Dissent electronically, our e-mail address is editors@dissentmagazine.org . (4) Notes and footnotes should also be typed double-spaced, on a separate sheet...
...It is, rather, a device for shifting over to the IMF the blame for measures that would be required in any event, once the fatal decision to attempt to develop on private commercial terms had been made...
...and development—a formula for apocalypse—but to make them work...
...A key figure in this pivotal decision was George Shultz, a Chicago economist, later secretary of state under Ronald Reagan, and still today a key adviser to presidential contender George W. Bush...
...Abolishing the IMF is not the answer, and preserving it is not the answer either...
...If the markets truly imposed discipline, hardworking people would not be poor, and speculators generally would not be rich...
...their emphasis has been on protesting losses of jobs and sovereignty and ecological damage...
...What then...
...They are a coalition led by labor, human rights, and environmental groups...
...This increasing inequality is, in fact, a powerful measure of the reversal of the development process...
...the period was known in Mexico, for instance, as the years of "stabilizing development...
...But "market discipline" is an oxymoron...
...And so, what the world needs is not to abandon the goals of coordination, stability...
...He is professor at the LBJ School of Public Affairs, the University of Texas at Austin, senior scholar of the Jerome Levy Economics Institute, and director of the University of Texas Inequality Project, whose work on global inequality can be found at http://utip.gov.utexas.edu . To Our Contributors A few suggestions: (1) Be sure to keep a copy of your manuscript...
...But with massive oil deficits, platoons of bankers offering seemingly favorable terms, and the opportunities for graft, corruption, and capital flight, national debts to private entities ballooned...
...2) Please don't write to ask whether we're interested in such and such an article—it makes for useless correspondence...
...In truth the IMF was never quite as central as its founders intended—in fact, once the framework had been set, the agency itself was a backwater—but it helped...
...In most developing countries, two things happen: businesses cut their orders for imported capital equipment and consumers, whose food may be imported, cut back on consumption of domestic manufactures...
Vol. 47 • July 2000 • No. 3
