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


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


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.

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