Transcripts
"One can be reasonably hopeful that something may happen at some point"
by Flemming Larsen
The International Monetary Fund
(Speech delivered 17 June 2000, at the Friends of Le Monde Diplomatique conference `Globalisation: In Whose Interest?' at Conway Hall in London.)
I think I will present the `other side' that Susan talked about. I do agree that globalisation needs to be changed, it needs to be guided, but I'd like to submit to you the need to be careful not to throw out the baby with the bath-water. Certainly there are many aspects of globalisation that one can disagree with, and many aspects that one can be absolutely appalled over. The growing gap between rich and poor in the world, for example. But because something unpleasant, something unacceptable, something morally outrageous may be going on, I think as serious discussants and observers of what is happening in the world today, we've also got to be careful not to draw conclusions from apparent correlations. It's not because globalisation has been happening during the past several decades, and will continue in the future, that that necessarily is responsible for all the evils in the world, which seems to be the implication of Susan's very impressive list of things she dislikes in the world, many of which I completely agree with.
But I think she is seriously wrong by implying that all of that is due to globalisation. I would also submit that, and here as an economic researcher for much of my professional life, I tend to put things in a longer perspective, perhaps, I would submit that economic progress in the twentieth century, particularly in the second half of the century, has been truly remarkable, and that for a very large proportion of humankind, hundreds and hundreds of millions of people, the world is a vastly better place to live today than it was a hundred years ago. This is due generally to much better economic policies. There have been a lot of trials and errors, but policies have been generally improving all over the world, not that there is not scope for further improvements. It has been due to a lot of technological progress. We are now experiencing the latest wave of that progress, the ITC revolution. And it has been due to the ability of countries to develop and benefit from their comparative advantages in the production of various totally different types of goods and services. And this has fostered increased competition worldwide, a process that is today often referred to as globalisation, but which is really as old as human economic interaction.
We had one episode, actually several episodes during the course of the past century, where globalisation was in retreat, we had undoubtedly the great recession, it happened as a result of the division of the world into essentially planned economies on the one hand, and the more market-oriented, mixed economies on the other hand, which also caused the retreat of globalisation, and which the world had to pay a very heavy price for, particularly the poor in the countries affected, both in industrial countries and in developing countries. When interactions among countries then increased substantially again after the Second World War, thanks largely to the institutions that were being put in place by the governments in the wake of the Second World War, wealth and prosperity increased again in many countries around the world, unfortunately of course not everywhere.
When these forces work together, good economic policies, technological process, the ability of countries to benefit from their comparative advantages, then they can be very powerful, and they can in fact lift countries out of relative poverty in just one generation, as we have seen in many of the countries in Southeast Asia, that are today among the most successful countries, notwithstanding their recent financial crisis. These countries remain extremely strong, their fundamentals are strong, and they will continue to do very well in the future, partly as a result of their ability to trade with each other, and with the rest of the world.
Now, recognising these benefits on the one hand, one also does need to recognise, and I would be the first to do so, that the world is not perfect, and that globalisation has many shortcomings and problems, and here I mention just three areas. One area, one problem, is the financial markets' volatility, and recurrent financial crises. The second problem is the perception that domestic policymakers have lost the power to influence the destiny of the countries they govern, and hence the allegation that globalisation is undermining democracy, against which of course one could also add the argument that perhaps globalisation is also sometimes restricting the ability of governments to pursue policies that are clearly not in the interests of their countries, so it is not that the constraints from the outside can only be a limitation on democracy; they can also be a guide to help countries, help governments pursue economic policies that really are in the interests of their population. And the most serious problem, which Brigitte and Susan have referred to, is that globalisation's benefits are distributed very unevenly, within, and especially among nations, and that many of the poorest nations have in fact been regressing during the past couple of decades.
All of these problems, many of which are real, some of which are perceived, have contributed, as I see it, to the backlash against globalisation, and the system that has been continue to promote and foster globalisation. And for lack of better targets, the backlash has been directed very much at the multilateral institutions, like the IMF, the WTO, the World Bank, and the OECD, that are perceived to be responsible for this process of globalisation. This backlash, I think, is both ironic and also extremely worrying, because a retreat from globalisation would undermine one of the pillars of economic progress that we have experienced in the twentieth century. It would also deprive the poorest countries from perhaps their best chance to buck the trend and to begin to alleviate poverty through stronger sustained growth in the future. At the same time, I do interpret the backlash, the protests against globalisation, as an expression of a lack of confidence in the system. And I think it is my conclusion that there is an urgent need for the official community to listen to the concerns being expressed, to acknowledge that there are problems, to agree on the measures that are needed to alleviate these problems, and ultimately to work to restore confidence in the system, hopefully a better and a stronger system in the future. In fact, I would argue that this confidence-building exercise is actually underway, even though it has not received as much publicity as I believe it deserves.
In the financial area, for example, it is now recognised, it is widely recognised in the financial community that there can be market failures, and efforts are underway to reduce the risk of such market failures through better and more timely data, through the establishment of international, recognised standards and codes of conduct, through better sequence liberalisation of capital flows, through a greater role for private creditors in crisis resolution situations, through the promotion worldwide of much more robust financial systems, and in the IMF through greater openness, through the establishment of an evaluation office, through a forthcoming review of quotas that will almost certainly increase the voting power of developing and emerging-market countries in the IMF, and through many other measures. In the area of trade, I would emphasise in particular that the OECD is finalising work on new guidelines for operations of multinational enterprises in developing countries, perhaps the type of measures, the type of guidelines that would be acceptable to Susan as measures that would address some of the concerns she expressed about the operation of multinational enterprises. You will get a chance for rebuttal, I'm sure, later on. There is also a recognition that much more needs to be done to promote market access for the developing countries in a new trade round. This is a recognition that is not universal yet, however, but I think the kind of statements you heard today from Brigitte, I think are becoming increasingly common among the international official community, and one can be reasonably hopeful that something may happen at some point.
And in the area of poverty alleviation, there has been a strengthening of the so-called `[?] Initiative', with much more substantial debt relief, in the context of a new strategy for the poorest countries, putting much more emphasis on country ownership, and on pro-poor policies, addressing, I think, some of the concerns Susan expressed in this area. And hopefully, on Monday, the industrial countries meeting at the OECD will reach an agreement on the absolutely necessary untying of development aid.
Is all of this enough? Should more be done? In my view, it is certainly still [not] enough, particularly with respect to the poorest countries. I argued earlier that globalisation offers the best opportunity the poorest countries have for raising growth and alleviating poverty. At the same time, I fear that the gap between rich and poor will continue to grow, and that the policy requirements for a poor country to buck the trend have become particularly demanding. And they may, in fact, become even more demanding as the gap continues to increase. To help the poorest countries meet these more demanding requirements, they need to have in place strong incentives that offer real hope for meaningful progress. And there I would list, in terms of the order of priority, actually I think all of these are equally important, but I would mention first substantially better market access for the exports of the poorest countries. I believe there is a very important role for the NGOs in pushing for a new trade round that would stress as its main point greater market access for the poor. Second, I think there is a very strong case for a substantially higher level of foreign aid, and much better-quality foreign aid. It is really a scandal that the targets that had been agreed on foreign aid have not been met, and in fact the foreign-aid performance has been deteriorating for many countries in recent years. That clearly needs to be reversed. And third, I would also very much stress the need for general debt reduction, where I would argue that, given the experience of the past, it is clearly better to err on the side of generosity.
One of the questions posed in the guidelines for the conference was, `In whose interest: the global marketplace?' Is it primarily or only in the interest of transnational corporations, or is it also in the interest of developing countries? And there I would like to read a very small piece written by one of my staff in the Paris office of the IMF. This member of the staff is of Indian origin, and she writes here about her home town in India, Kochin.
`It comprises about 2 million people. It is in one of the most literate states in India, where education has always had a high priority in public expenditure. As a port town, it has always been open to globalisation. Trading and fishing are the main activities. To the common man, 30 years ago, globalisation in this town meant Norwegian joint ventures for shrimp fishing, processing and exports. A decade or so later, globalisation meant remittances from a large number of people working abroad in semi-skilled jobs. In addition to Internet signs everywhere, today globalisation means the export of services. Networking with the earlier wave of immigrants, who work in highly specialised IT-based firms in the United States and Europe, a host of small service-oriented firms has sprung up. Taking advantage of the high literacy rate and competitive wages, these firms export IT services back to the United States and to Europe. Spill-over effects are high, for both the literate and for the poorest, because this industry is very labour-intensive. These firms indeed specialised in labour-intensive areas, such as recording and billing for overseas corporations, specialised data entry for classical music, and the latest excitement is over medical transcription. This is a process where medical records dictated by doctors in Europe and the United States, lab reports, etc., are transcribed into files using specialised word-processing systems.'
I think it is striking that many of the concerns about globalisation have been expressed by advocates for the developing countries, living highly protected lives in the industrial countries, in the wealthy North. And I would think that most of the people of Kochin are perfectly happy about the process of globalisation. In fact, they probably would prefer more rather than less of it. Thank you.
Flemming Larsen, Director of IMF Europe, and the Fund's permanent representative in Europe. Previously Deputy Director of Research, and from 1992-2000 was responsible for World Economic Outlook, the Fund's flagship publication, featuring surveys of global economic trends and policy issues. On leave from the IMF, he was Division Chief in the European Commission from 1990-92, responsible for international monetary affairs. In 1985 he was director of Forecasting at Wharton Econometrics in Philadelphia, and Senior Economist at the OECD in Paris.
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