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US Perspective on Globalization The US Perspective on Globalization
By Stuart Eizenstat
Overseas Development Council
April 1999The Overseas Development Council was prescient in calling for an international dialogue on globalization last year. It is a particularly important time for a dialogue on the relationship between globalization and development, given new concerns raised by the global financial crisis. ODC has been one of the leading voices on the central issue likely to define how future generations view our era: harnessing the forces of globalization for the benefit of all people in all nations. President Clinton has made this challenge one of our central foreign policy priorities. Putting the global economy to work for all people will guide the work of U.S. policymakers during the first half of the twenty-first century in much the same way as our effort to contain communism dominated the last half of the twentieth century.
By any measure, globalization-the unprecedented rapid flow of private capital, ideas, technology, goods, and services-is a net benefit to all countries. The opening of once-sheltered states and untapped markets has helped nations and peoples across the globe. Despite the current crisis, real incomes in developing countries are still 50 percent higher than they were 15 years ago. Over the past 20 years in Asia, the poverty rate has been cut in half. However, the same global forces also pose and uncover real challenges-the outflow of domestic and foreign capital, excessive short-term borrowing in foreign currencies, cronyism, corruption, and a lack of financial transparency and necessary legal and regulatory frameworks. The political consequences of the crisis has toppled leaders in Indonesia, Thailand, Japan and Russia.
In Latin America the gains made after "the lost decade" of the 1980s are under threat. After 5 percent growth in 1997, regional growth fell to 2 percent in 1998 and is expected to be at zero this year. Africa too has been hit as prices for most of its key export commodities have fallen, just as several reform-minded African countries were showing signs of growth. Events in Asia have been also felt in the United States where agricultural exports have been badly hit and our trade deficit has reached record levels. Europe too confronts a slow-down. Certainly, while we must press for more progress on economic liberalization and open markets, we must do so in ways that build consistent domestic support.
In short, the financial crisis has the potential to fuel backlashes against globalization. In developing nations, one of our greatest concern is that emerging middle classes not be submerged by the crisis. These middle classes have served as the backbone for democratic movements and economic reforms. Unlocking the potential of developing nations is crucial to the future of the global economy. They offer enormous, untapped markets for our goods and services and they must be our partners in combating global problems from arms proliferation to climate change. We must also help the poor in these nations escape marginalization. By some accounts, the income ratio inequality between the world's richest 20 percent and the poorest 20 percent roughly doubled between 1960 and 1990.
In coming months, difficult economic conditions in many developing nations will only heighten concerns about globalization. In this situation, we must guard against protectionism; it will not work. Today's question is how to put globalization to work to maximize shared benefits. The Clinton Administration is devising and implementing a new paradigm-namely supporting economic openness and liberalization, which are decades-old principles of U.S. policy, while working to minimize the costs of change and volatility. There are five key elements of this strategy.
First, we must restore faith in the global financial system. This means helping countries hurt by the economic crisis to restore strong and sustainable growth. Countries will clearly be more receptive to embracing the benefits of globalization in a climate of growth and opportunity. Sound macroeconomic policies and salutary structural reforms must be the starting point. It is imperative that we look at new ways of reforming the global economic financial architecture, particularly at this year's G-8 Summit in Cologne.
As we develop these reforms, it will also be critical that we reach out to key emerging markets. This is why in March in Germany and April in Washington, 33 countries met to share ideas on a new global architecture. They must feel an equity interest in the reforms that could be made and must be reassured that globalization will continue to be in their economic interest. We must also ensure that the poorest countries do not fall further behind in the rapidly changing global economy. We welcome G-8 proposals for an expansion of the International Monetary Fund's program for highly indebted poor countries. Likewise, the President's own proposals provide more relief, more quickly to a broader range of highly indebted poor countries that have strong reform programs.
Second, we must support developing nations' efforts to invest in their peoples and institutions, so that they can more broadly share the fruits of economic growth and maintain open and accountable political systems. Young democracies and markets face tough odds. To be willing to continue supporting liberalization, citizens must have some confidence that a social safety net exists to help them weather the economic disruptions caused by global change. The absence of such a net exacerbated the Asian financial crisis and reduced purchasing power even more. The difficult economic transition that reform often engenders cannot succeed if the most vulnerable people in a society are forced to bear the brunt of change. But more than a safety net is needed. For developing countries to be able to compete in the global marketplace, they must invest in human capital development. This means promoting universal primary education, broader public access to information about global markets, cost-effective public transportation and utilities sectors, high labor and environmental standards.
Third, developing nations need help to strengthen their institutional capacity to benefit from the enormous flows of international capital. Together with appropriate fiscal and monetary policies, the key is to improve regulation and supervision of financial institutions, increase transparency and disclosure, and improve corporate governance. They will need the help of industrialized nations, international financial institutions, and the private sector.
Fourth, we must launch a global campaign for compliance with internationally accepted standards of good governance. Corruption undermines support for government institutions, democracy, and broad-based economic reform. The OECD Anti-bribery Convention-patterned on our own Foreign Corrupt Practices Act-has established important, new, enforceable standards for criminalizing bribes paid in order to obtain international business, i.e., the "supply side" of transnational bribery. We hope the Senate will ratify the OAS Anti-Corruption Convention which seeks to limit corruption opportunities on the "demand" side. Ending corruption in the developing world and transition societies is not easy. Government officials are often poorly trained and paid; independent regulators are lacking, open and transparent governments ultimately require firm commitment from these nations' leaders. We are encouraged by the recognition of African officials at the U.S.-Africa Ministerial that corruption is the enemy of development and must be tackled.
Finally, all nations-developed and developing-must maintain a solidly pro-growth, open-market orientation which supports trade liberalization. The free flow of goods and services and market-oriented policies remains the wisest course to promoting future economic growth and development. The U.S. trade deficit in 1999 will almost certainly well exceed the $170 billion of 1998. Yet, we must and we will show the world that we will not bow to protectionism, nor will we fail to oppose it wherever it arises internationally. That is the signal President Clinton sent in calling for the launching of a comprehensive new trade round for the Seattle World Trade Organization (WTO) Ministerial. Further liberalization and market access for agriculture, services, and industrial goods, and greater protection for intellectual property remain our top goals. But, if we are to succeed in continuing to open markets for U.S. exports then we must have all the tools necessary-such as fast track authority.
Globalization is here to stay. At the same time, we must demonstrate that open markets and high standards go hand-in-hand. Opening the global economy is not an end; it is a means to increased opportunity and prosperity. The evidence is clear: as nations reap the benefits of improved economic performance, their peoples demand increased and sustained environmental protection, higher labor standards, decent wages, and greater democracy. We would ignore at our peril the economic and political disruptions as well as popular backlashes caused by financial crises and rapid integration. As we work our way out of the current global financial crisis, mitigating such hardships, while ensuring that all peoples share in globalization's benefits, must be our abiding and motivating goal.
The views expressed are those of the author and do not necessarily represent those of the ODC as an organization or its individual officers, Board, Council, or staff members.
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