Speech

Opening Remarks by Anne Krueger, First Deputy Managing Director, at the IMF Institute Seminar on "Globalization in Historical Perspective"

August 12, 2002

Good morning. I am very pleased to be here at the opening of this 3-day seminar on "Globalization in Historical Perspective" organized by the IMF Institute. I would like to begin by thanking the senior officials of 30 countries for coming to Washington to participate in this seminar. I am glad to see a number of Fund staff here as well. It demonstrates just how important the topic of globalization is to all of us.

Modern globalization has been a recognized force around the world for at least three decades. Academic journals, newspapers, TV specials, and political discourse are dominated by globalization events, and their impact seems to be ubiquitous. For most it is a good force, but for a very angry minority it appears to be very harmful.

Generally speaking, globalization can be defined as the increasingly close international integration of markets for goods, services, and factors of production: labor and capital. Economists, including myself, have long touted the advantages of free trade, open capital markets and international migration in producing an optimal allocation of the world's resources. But while the long-run economic benefits of globalization are generally agreed upon, many fear the changes it brings in the structure of national economies and in reducing the living standards of some groups in society. Some critics of globalization also resent the fact that decisions made in other countries impact on their lives.

The debate over globalization is focused on the three aspects of integration: goods, labor and capital. Let me raise some broad questions on each of these, which I hope will be addressed in your discussions.

For goods markets the debate is over the causes of trade, the impact of trade, and the political determinants of trade policy. As for causes, what determines how much is traded between partners? What are the political, geographic, language and institutional barriers to trade? What have been the relative contributions of more liberal trade policies and transport revolutions to lowering the barriers to trade? How much of the ongoing trade boom is simply due to fast world economic growth since 1950? As for impact, the questions revolve around specialization, structural adjustment, and distribution. Since the whole point of trade is specialization, the key question here is which industries advance and which retreat in the face of foreign competition. Are the trade gains big or small, and how are they manifested by cheaper and better goods for consumers? And how do economies make the supply-side adjustment? Who gains and who loses? What happens to workers thrown out of work by the collapse of a domestic industry that cannot stand the winds of foreign competition, and do they find alternative employment quickly? Do institutions and government policies tend to minimize the losses by transferring some of the gains from the winners to the losers? Finally, what about the political determinants of trade policy? How do constituents communicate to their political representatives? How do politicians interpret that information, and how do they act on it? Under what conditions would one expect a political backlash to globalization?

For labor markets we can ask: when migration is open and free, who does the migrating and why? What are the economic and demographic conditions that matter most in source and destination? What impact does the migration have on the sending and receiving economies? Which residents gain and which lose with a rise of foreign immigration and domestic emigration? What happens to migration flows when restricted by policy; and what is the source of the policy restriction? It should be clear that many of the questions raised about trade and commodity market integration apply here to migration and labor market integration. Indeed, how do the two interact? Is trade a substitute for or a complement to migration?

For capital markets not only do we have the same questions that applied to labor markets, but global capital market integration raises additional questions. For example, what causes global capital market crises? Does integration cause contagion between markets, so that one country's irresponsible policies spread more easily to another country, no matter how responsible the latter has been? Does a globally integrated world economy ensure that capital flows to poor countries? And do borrowing countries then lose their ability to control their economies? Alternatively, is there a "race to the bottom" as countries try to attract more capital by offering tax advantages and eliminating social welfare programs? Do foreign investors then extract all the gains, or do the host countries get their fair share as well?

The presentations in this seminar focus on the issues of globalization from a historical perspective. We all know that globalization is not a new phenomenon. It pays to seek explanations that can account for more than just global events since 1950; we should also explain global events between 1820 and 1914, and even during the three centuries after Columbus and da Gama started their voyages from the Mediterranean. The long view has another value: the impact of globalization simply cannot be assessed over a year or over a decade or even two. Furthermore, if we fear that the violent political reaction to globalization seen recently in Seattle, Ottawa, Gothenberg, and Genoa might cause a political retreat from liberal policy, then it would pay to look carefully at the 20 years or so before World War I. Then, under popular pressure, immigration restrictions were passed eventually by both Houses of the United States Congress and tariffs were on the rise almost everywhere in the economies of the periphery and also in parts of the core. It would also pay to look carefully at the inter-war years when the world moved sharply away from openness and towards self-sufficient autarky, with expanded trade protection everywhere, increased barriers to labor and capital mobility, and widespread monetary and financial dysfunction. Presumably, these experiences might speak to the future possibility of another globalization backlash.

I think you will find the next 3 days both interesting and productive. The speakers are all leading authorities in their subject. I wish I could stay for the entire seminar, but the press of other work pulls me away. Nonetheless, I will try to sit in on some of the sessions.

Let me end by thanking Mohsin Khan and his colleagues in the IMF Institute for organizing this seminar, as well as Professor Michael Bordo for arranging the topics and the speakers. I wish you all a rewarding 3 days of discussions. Thank you.