Globalisation's commandments

Lance Knobel lists today Martin Wolf's "ten commandments of globalisation," saying that "they make great good sense." I disagree:

1. The market economy is the only arrangement capable of generating sustained increases in prosperity, providing the underpinnings of liberal democracy and giving individual human beings the opportunity to strive for what they desire in life.

This sounds very grand, but on closer inspection turns out to be unfalsifiable, and therefore meaningless. Just think of what a counterexample would look like: clearly, you can't simply come up with a market economy which has not generated sustained increases in prosperity, since Wolf is simply saying it's a necessary, not a sufficient, condition. So you need to find a country which has generated sustained increases in prosperity and yet is not a market economy. My suspicion is that Wolf leaves "market economy" so vaguely defined that he can throw any potential counterexample (China, say) into that pot. Crucially, given the subject at hand, a "market economy" does not need to be particularly open to trade and foreign investment.

We can ignore the next three commandments, because they say nothing of substance whatsoever, and move on to

5. The World Trade Organisation has been enormously successful. But it has already strayed too far from its primary function of promoting trade liberalisation. The arguments for a single undertaking binding all members also need to be reconsidered, since that brings into the negotiations a large number of small countries with negligible impact on world trade.

Do you see how Wolf has shifted, here? He starts off talking about "generating sustained increases in prosperity", but halfway through his list he's already talking about creating a club of large, rich nations which can and should set all the rules of the game itself. If that were to happen, of course, the overwhelming temptation would be and is to rig the system so that the small, poor countries, which presently have "negligible impact on world trade", will remain that way.

Remember Cancun? It was an important rebellion about precisely this way of working. For too long, GATT/WTO negotiations have essentially comprised the US and the EU hammering something out behind closed doors, then emerging and telling the southern nations to sign on the dotted line, thank you very much. So countries like Brazil and Ghana are forced to sign on to stringent rules applying to intellectual property, pharmaceuticals, financial services and other things the north sells to the south, while the northern countries continue merrily doing whatever they like with respect to agriculture, steel, textiles or anything the south sells to the north. Wolf wants a return to precisely this way of doing things: let's hope he fails, for the poor countries' sake.

6. The case for regimes covering investment and global competition is strong. But such regimes do not need to be imposed on all the world’s countries. It would be better to create regimes that include fewer countries, but contain higher standards.

This is just a different way of getting to the same place. Once again, the rich northern countries will set the rules – now with added Higher Standards! – and the poor southern countries will be faced with a stark choice: join the northerners on their own terms, or be left out altogether.

7. It is in the long-term interest of countries to integrate into global financial markets. But they need to understand the need for an appropriate exchange rate regime, often a floating rate, and a sound and well-regulated financial system.

Translation: if you want to know what a country should do in terms of its financial system, first ask Citigroup what it wants you to do, and then just do that. Note what Wolf isn't saying here: that some countries (those with fixed exchange rates, say, or less-than-ironclad financial systems) shouldn't integrate into global financial markets. Argentina, for instance, has an extremely weak banking system, but I'm sure that Wolf would love to see it reintegrate itself into the international financial markets. Rather, Wolf is simply creating a list of what countries need to do in order to become good globalisationists: integrate this, float that, strengthen the other. That way, if and when the integration fails, he can simply point to some other weakness in the country's financial system, and tell them it's their fault for not doing everything he told them to do.

8. In the absence of a global lender of last resort, it is necessary to accept standstills and renegotiation of sovereign debt. A particularly strong case can be made for developing ways to write off ‘odious debt’ – debt contracted by politically illegitimate regimes.

This is hilarious, coming as it does after Wolf's mini-homage to financial markets and sound financial systems. Financial markets in general, and cross-border lending specifically, only work insofar as the lenders can be sure they're going to get their money back. What's more, it's the domestic financial sector which is inevitably the hardest hit if any country declares a standstill, which is a euphemism for a moratorium on any debt payments. This whole commandment would be a hell of a lot more convincing if Wolf could point to any country where a standstill and formal debt renegotiation actually worked. Most of the time, the market-based solutions seen in places like Ecuador and Uruguay have worked perfectly well – much better, indeed, than the interminable debt negotiations we saw in the 1980s, which were ended only with the intervention of the US government in the form of the Brady Plan.

As for odious debt, it seems to me to be a weird and somewhat invidious form of imposing an embargo ex post. If the US, say, wants to ban its companies from building hospitals in another country, then that's all well and good. But if those hospitals are built, then the company building them should be entitled to its money, even if the president of the country in question is an unpleasant person.

9. Official development assistance is very far indeed from a guarantee of successful development. But the sums now provided are so small, a mere 0.22 per cent of the gross domestic product of the donor countries in 2001, that more should help, if used wisely. Aid should go to countries with sound policy regimes, but it should never be large enough to free a government from the need to raise most of its money from its own people.

10. Countries should normally be allowed to learn from their own mistakes, even if that means that some make no progress. But the global community also needs the capacity and will to intervene effectively where states fail altogether.

So, we should help out countries who are on the right path – the ones with "sound policy regimes". What does that mean? Argentina, for instance, has admirable fiscal and monetary policies, but I doubt Wolf would consider it an example of a country with a sound policy regime. If countries fall off the One True Path, then aid should dry up, and they should "learn from their own mistakes", up until the point at which they "fail altogether", at which point "the global community" should "intervene effectively". What constitutes such failure? Just in my own Latin American beat, I can think that at various points over the past few years, Ecuador, Venezuela, Bolivia, Argentina, the Dominican Republic, and Haiti could all have been considered to have "failed altogether", with Paraguay permanently hovering on the cusp. Which of these should learn from their mistakes, and which should be intervened? Such decisions are necessarily and always political in nature, and it seems a bit disingenuous to lump them under the general theme of globalisation.

In aggregate, it seems that Wolf's idea of globalisation is basically a benign global dictatorship of the north, wherein developing countries, if they know what's good for them, nod and smile and do whatever they're told, in return for crumbs from the rich man's table, and a certain amount of (ahem) "protection". In other words, it's precisely the sort of thing which gave globalisation such a bad name to begin with. Surely we can do better than this.

Posted by Felix at 16:27 EST