Globalization: Valid Concerns? -- Comments by Stanley Fischer
IMF News, August 26, 2000
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- Published: August 26, 2000
The Nature of Globalization
- Globalization defined as "the ongoing trend to greater economic integration among nations," evident in:
- growth of trade relative to GDP
- "startling growth of cross-border trade in financial assets"
- declining costs of international travel and improvements in international communications
- In daily life globalization increases the likelihood that residents:
- consume products of another country
- invest in another country
- earn income from other countries
- talk on the telephone to people in other countries
- visit other countries
- know more about other countries than 50 years ago
- Cultural dimension: globalization often perceived as growth of an international (often American) culture at the expense of national and local cultures; an important source of opposition
- Communications technologies as drivers:
- television and international programming have expanded average knowledge of foreign countries, even in poor villages
- the Internet amplifies these effects; emerging technologies can extend Internet access (example cited: an Australian invention that for $13,000 will put a solar- or wind-powered generator attached to a computer with a wireless device that will beam signals up to a satellite)
- Political impact: opening of communications played a critical role in the collapse of the Iron Curtain
The Critics
- Multiple sources of criticism:
- Advanced-country demonstrators: concerns about trade's effects on jobs and the environment; support for protectionism; criticism of international financial institutions (IFIs)
- Developing-country leaders: risk of further marginalization; globalization seen as securing access to developing world for developed-country products
- Examples from Southern Africa International Dialogue (Maputo):
- President Yoweri Museveni: globalization "the same old order with new means of control, new means of oppression, new means of marginalisation" — Museveni nevertheless has led Uganda through "more than ten years of very high growth and integration into the world economy"
- Prime Minister Mahathir Mohamad: warned that blind acceptance of globalization ideology is "unacceptable, naïve, and downright dangerous"; pointed to glaring income gaps and benefits of trade liberalization "still far from reaching developing countries"
- President Robert Mugabe: Africa lacks capacity to enter the global village due to unmet basic necessities (roads, railways, transport)
The Concerns of Critics — Distinctions and Valid Points
- Distinguish among critics:
- Isolationists versus those who want "a better globalization"
- Some labor and environmental advocates may mask protectionism; others seek genuine improvements in standards
- Many critics of IFIs seek reform (more transparency, faster debt relief, larger say for developing countries), not an end to globalization
- Valid concerns highlighted:
- short-run losers from trade and technological change; need for social safety nets, education, retraining
- labor standards: ILO labor standards "are reasonable" and not necessarily protectionist; equalizing real wages globally would be protectionist
- environmental standards can affect trade and raise legitimate worries, though sometimes used as protectionist cover
- volatility of international capital flows exposed by 1990s crises; international financial architecture reforms underway
- advanced-country barriers to agricultural and textile trade are especially problematic for developing-country credibility in opening their economies
- unequal distribution of power and influence in the world economy; responses include discussion of IMF voting shares, Board seats, and creation of forums like the G-20
- respect for local and national cultures: an international public good requiring sympathy and protection
What Should Be Done — Policy Responses and Measures
- General principle: listen and respond constructively to valid concerns while defending benefits of globalization
- Address short-run adjustment:
- strengthen social safety nets
- invest in education
- provide retraining programs
- Labor and environment:
- support reasonable ILO labor standards without using standards as a pretext for protectionism
- improve environmental standards where genuinely needed, avoiding protectionist misuse
- Financial stability and crisis prevention:
- move from fixed-but-adjustable pegs toward floats or very hard pegs (currency boards) to reduce vulnerability to capital account crises
- develop frameworks for private sector involvement in crisis resolution to make crises less likely and less damaging
- Trade policy fairness:
- advanced countries should reduce barriers to agricultural products and textiles to allow developing countries market access
- Governance and representation:
- consider revisiting IMF voting shares or Board representation; recognize role of new forums (e.g., G-20) to increase developing-country voice
- Cultural preservation: respect and nurture cultural diversity as an international public good
The Future — Trends, Forecasts, and Conditional Outlook
- Two encouraging observations:
- Most developing countries continue to liberalize trade; IMF index of trade barriers shows barriers have been declining in developing countries
- Capital accounts in almost all emerging market countries have remained open despite recent crises; India and China are preparing to further liberalize their capital accounts cautiously and gradually
- Two forecasts offered:
- Conditional forecast: if advanced-country policymakers and international institutions "manage the process well and bring the developing countries into the process of globalization," it "will continue, to the potential benefit of all and to the likely benefit of almost all."
- Unconditional forecast: "there will be surprises along the way."
Stanley Fischer — Comments to Closing Panel Discussion, Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming, August 26, 2000.