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Governing Globalization- Globalization - Global Policy Forum Governing Globalization
By Caspar Henderson
openDemocracy
November 29, 2001
Caspar Henderson – openDemocracy has opened a debate on globalisation. It has held two openInterviews, first with Maria Cattaui, who heads the International Chamber of Commerce, and then a discussion between Peter Sutherland, who founded the World Trade Organisation (WTO) and is now Chairman of BP and heads Goldman Sachs International, and the British politician and scholar, Shirley Williams. They share a vision of globalisation which sees institutions like the WTO as part of a global, rules-based system. One that helps rich and poor alike through economic growth. What do you understand by ‘globalisation’?
George Monbiot – Globalisation is a problematic term which has come to mean whatever people want it to mean. This vagueness creates a special problem for what is called the ‘anti-globalisation’ movement, which is often perceived as something it isn’t. It is portrayed, quite wrongly, as being in favour of autarchy and separation, rather than the sort of internationalism which has always been a feature of progressive politics.
I was struck when reading both Peter Sutherland’s and Maria Cattaui’s interviews by the extent to which they remain trapped within current models and definitions – of how the world is rather than how it could be. They appear to expect miracles from institutions which have an extremely limited mandate.
Take the WTO, for example. In 1944, the original intention of the Bretton Woods conference was to create an International Trade Organisation. Its purposes would have been to assist free trade, but also to help poor countries towards economic prosperity, through technology transfer, defending labour standards and improving their trade balance. In the event, all these functions except one – free trade – were effectively ruled out by US business objections. As a result, we ended up with a General Agreement on Tariffs and Trade (GATT), which was meant to be an interim solution, pending a much wider agreement.
At the time, it was widely recognised that simply implementing free trade measures without also acting to generate prosperity in the poor world was not going to deliver economic justice. This fundamental problem has yet to be resolved. GATT turned into the World Trade Organisation, and the ITO’s original objectives have been forgotten. The WTO is a flawed mechanism for delivering prosperity to the poorest countries – flawed because it discharges only one of the important functions envisaged at the beginning.
The stages of development
CH – But aren’t parts of your analysis shared by Cattaui and Sutherland? For example, Sutherland talks about a driving need for advanced countries to achieve a minimum target of 0.7 per cent GDP in development aid as a starting-point. The UK chancellor, Gordon Brown, is calling for a big increase in aid transfers from the rich industrial countries. Isn’t this a broadly similar recognition to yours, that we need to move towards a more progressive, rules-based global system?
GM – I am certainly in favour of increasing the aid budget, if only in order to plug part of the massive gap left by the failure of the Bretton Woods institutions. The original vision for an ITO was to regulate the international economy so that poor countries could survive and prosper, rather than relying on handouts from the first world. The fact that now, fifty seven years later, we are still talking about having to increase aid for the poor world, demonstrates the terrible failure of the reliance on free trade to create wealth. Regulatory failure always leads to public expenditure.
CH – Against this, Sutherland would say that poor governance (including the colonial inheritance) in areas like Africa has contributed to their current problems; while open systems and effective regulation in areas like south-east Asia have helped to deliver substantial prosperity. These are both negative and positive reasons for participating in an open system of international trade.
GM – Well, it would be extraordinary to put the Asian economic miracle down to free trade alone. The countries which prospered most, up until the 1997-98 crash, had followed a three-step process to development. The first was massive land reform and distribution. Japan, Taiwan and Korea experienced the effective dismantling of feudal landed power by war, and instituted a systematic program of land reform, leading to a great redistribution of wealth. Second, this was accompanied by protectionist help for local and national businesses. Third, only after those two factors precipitated very strong internal growth were their economies exposed to the free market which Peter proposes.
The problem today is that we are requiring poor countries to cut out stages one and two and go straight to stage three. But unless you first build up the wealth of local communities and business, people simply cannot compete with multinational capital. When the latter moves in, they have no basis for competition. So in Russia for example, with the blessing of the International Monetary Fund (IMF), virtually all effective business and financial regulation was removed and the economy fell into the hands of either foreign capital or indigenous Mafiosi.
The future is Keynesian
CH – Doesn’t Maria Cattaui agree on this point? She says: “All over south-east Asia countries are stronger than they were in the 1960’s despite the ’97-98 financial crisis, but we forget that the policies were not laissez-faire policies. They were strongly government inspired. More recently they have become less government oriented. Why? Because we know that the kind of subsidies they used eventually didn’t work and they made industries uncompetitive. We know now that Korea has moved on, but the developed world did exactly the same thing. One must always understand the purpose of a subsidy.” In other words, there are stages in economic development. Isn’t this a shared acceptance that this a multi-step process and that countries need to come into this globalised economy on their own terms?
GM – I find it extraordinary that Maria accepts that this is how those once poor nations achieved fabulous wealth, but then rules this out as a prescription for the many countries which remain poor today.
But perhaps more importantly, both she and Peter are putting the burden of change onto the host governments whose economies are failing. While there’s no question that many such governments have managed their economies poorly, to say that all the failings of poor countries are down to poor governance at the domestic level is a grotesque insult to the people of those countries.
First, many of the countries we chastise for incompetent economic management are effectively run by the IMF. Economic management has little to do with the government itself – it has been reduced to having to implement IMF policies. If those policies have failed, it’s hard to see why we should lay responsibility for this at the door of the impoverished national governments.
Second, there is really nowhere for many poor countries to go. To develop they need basic infrastructure. But they are trapped in a cycle of under-investment. Because they don’t have good roads, schools and hospitals, their economic position continues to deteriorate, which then makes it in turn impossible to generate the money to build those things. Their only option is to increase public spending. Yet they’re not allowed to increase public spending because the IMF and World Bank prevent them from doing so. Their whole economy is effectively re-oriented, by those two institutions, towards the extraction of resources and wealth in order to pay grotesque levels of debt for which the lenders should be blamed and which were often obtained in the first place by corruption. By all means criticise corrupt governments in poor countries but shouldn’t we also blame the corruptors?
We have to re-examine not just the WTO as an institution but also the World Bank and IMF. They are the wrong set of institutions to bring about positive, global economic change. There are two reasons for this. First, they are entirely controlled by the creditor nations. The countries in which they operate have no control over their operations. That is extremely unfair; it’s a glaring democratic deficit. Second, their role is in effect to police debt. They are the bailiffs of world economy. They are not there to restore a balance of trade, but to enforce the imbalance of trade.
What we need instead is something like the international clearing union that John Maynard Keynes proposed during the Second World War, which puts an equal onus on creditors and debtors to clear debt: a self-correcting global economic system, as opposed to a system run by the creditor nations in their own interests.
CH – How would that work?
GM – Keynes’ idea was simple. He devised a self-correcting world trade system, which irons out its own imbalances. The idea was that international transactions be conducted not in national currencies like the dollar, but in an international currency, which he called the bancor.
That currency would be held by a central bank called the International Clearing Union. It would impose the same rate of interest on creditors as it imposed on debtors
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