This article takes up the ideas developed by Joseph Stiglitz in the lecture he gave to the IEP (Political Sciences Institute) in Paris on May 12th 2003 and the press review the same day.
Supporters and opponents of globalisation hold up two contradictory visions of the effects of opening up the goods and capital markets to international competition. According to its supporters, commercial and financial globalisation is a source of efficiency and prosperity for the entire economy. Its opponents, on the other hand, fear the advent of a less just and open world where the distance between rich and poor is widened. Its supporters cite the example of the economic miracle of the four Asian tigers (Korea, Singapore, Hong Kong and Taiwan) who experienced a long period of sustained growth whose fruits were shared by everyone. Its opponents remember, in contrast, the Latin American countries who, having been encouraged to lower their customs barriers and to embrace privatisation by a consensus reached in Washington, saw their growth halve in the 1990s while inequality widened and unemployment increased. Moreover, the 'top pupils', like Argentina, who applied the recommendations of the consensus to the letter, have been the hardest hit by the debt crisis of 1997-98, while Chilli, who was slower at applying these principles - notably in opening up to international capital - has been less affected by the crises.
The idea that globalisation benefits the entire global economy seems, therefore, contestable and all the more so because the empirical data is markedly moving away from this naive dogma. Why is this so? Let's examine Stiglitz's arguments.
The North is taking world wide credit
First of all, globalisation of trade, as it is promoted today, is fundamentally asymmetric which is to the advantage of northern countries. The example of agriculture is striking: while they advocate greater liberalisation of trade and an increasingly competitive market, the US and Europe continue to subsidise their agricultural production in the face of international competition, with disastrous results for developing countries whose economies rely on agricultural exports. Artificially supported production by rich countries increases global supply and lowers prices. The West protects its agricultural job market at an exorbitant price for the national community (who finances the subsidies) and for the international community (who bears the consequences).
In the same way, when they wanted to spread the opening of markets into the service sector negotiations concentrated on sectors where developing countries are exporters, such as the finance sector for example, instead of sectors such as construction that require little qualified labour and in which developing countries are, thus, more competitive.
A last example was discussed in depth at the WTO summit in Doha: the rights of intellectual property. The debate focused on the protection of patents for new medicines in an atmosphere marked by the ravages of AIDS in Africa, whereas it should have concerned the protection of innovation in general, not only pharmaceutical. Developing countries have been committed to arming themselves with a legal framework that protects innovation. Such a framework risks reducing their access to new technologies and the necessary transfer of these technologies from the North to the South. In the health sphere this could have serious consequences if a holder of a pharmaceutical patent refused to grant a production licence to a country because of insufficient guarantees of a return on the investment.
Financial globalisation: a double-edged sword
A second factor in the failure of current globalisation is the permanent contradiction between budgetary austerity, imposed by the IMF, and the cost of reforms required by advocating opening up trade. This is encouraged since it allows better division of production resources between countries according to the assets of each one. But transferring resources from one sector to another means creating jobs and borrowing capital on the market. This in turn necessitates important investment which is incompatible with strict budgetary balance and interest rates that are too high. Moreover, it would be naive to think that these rates will lead to a massive entry of foreign capital attracted by raised outputs since the probability of failure accrued by local businesses, strangled by the cost of their debt, must be taken into account.
This is why the financial opening up of emerging countries has been revealed as a double-edged sword. If it allowed a flood of foreign capital at first, it also cannot avoid the ebb of this same capital when its profitability decreases because - in a supreme piece of irony - of the weight of its debt. These ebbs and flows bleed the local economy dry. It is incapable of honouring its agreements and increases the ebb of the capital. It is a vicious circle. The most circumspect countries, such as Chilli, faced with financial globalisation were, therefore, spared more than Argentina and Brazil in the debt crisis.
A fall of 75% of Moldavian GDP
Contestable too is the all-powerful paradigm of market efficiency. The market allows better division of risk among the agents that set it up. This is true in developed countries: financial innovation has allowed the development of sophisticated products that allow the client - a business or the State - to protect itself from fluctuations of rates, currencies, and actions on the market that are capable of penalising it. Specialised and well-informed agents take responsibility for the risk in return for financial compensation. But the reality is entirely different in a developing country which supports all the risk associated with financial fluctuation. In this way, Moldavia did not resist financial liberation and in 10 years its GDP has dropped by 70% and poverty has multiplied by 10, a consequence of the enormous weight of repayment of debt on national revenues (almost 75%). Contracted borrowing in euros or dollars has been fatal for the economy when Moldavian money has been devalued. Opening up to foreign capital must, as this example shows, be matched by financial guarantees against fluctuation of currency or rates. The market alone does not offer these guarantees.
The ideological dogma of the IMF
Finally, international institutions, and notably the IMF, because of their dogma, carry an important part of the responsibility for the failures of globalisation. The liberal doctrine has taken almost a century to be applied to the countries that today advocate privatisation and opening up without delay of trade and capital. Developed economies have had recourse for a long time to the protectionism that today they are destroying. The recommendations currently being made in developing countries are based more on ideological considerations than on empirical observations of the effects of macroeconomic policies. Add to this the fact that the time taken to observe that a measurement is harmful, to correct it and benefit from this change of direction, extends over many years. A drop in interest rates that comes too late will not compensate the businesses made bankrupt during this period, and it is the microeconomic web that will be affected by this error of estimation.
For all these reasons, globalisation has not kept its promises by not allowing an equal distribution of its benefits. If the neo-liberal dogma is declining faced with the realities of the economy, we are still a long way from making globalisation more just. Globalisation must bring mutual benefit; this is a principle that must not be rejected. We will in this way improve the methods of globalisation so that the benefit is shared by everyone.