Vol. IV, Bulletin No.1. January 8, 1999
Crisis or No Crisis
Making Sense Out of Globalization's Gyrations
One good thing (maybe the only one) about the impeachment controversy is its contribution to political education. The general public has grown much more aware not only of U.S. constitutional issues but also of the division among learned experts about those basic issues.
Meanwhile, a keen debate rages among economic and financial experts about how to cope with globalization. The general public, however, is in the dark as to the world-shaking issues involved and the sharp divisions among the learned experts.
Though far-reaching, the controversy is largely ignored by the media. It's not entirely the media's fault. The TV audience for such matters could fit into a telephone booth, if there still were any telephone booths around.
Updating Sovereignty and the Global Economy
Unlike most recent diagnoses of the world economy, a new book, "Global Public Policy" by Wolfgang Reinicke, is not crisis-driven. Well before U.S. Treasury Secretary Robert Rubin and other top policy-makers began to see an urgent need for a "new architecture" for global finance, Reinicke, an economist and political scientist, was busy at the Brookings Institution devising a model with a much broader scope--an "architecture" adapted to globalization as a whole.
In "Global Public Policy," Reinicke, now a senior economist in the corporate strategy group at the World Bank, seeks to come to grips with the "sweeping, radical transformation" of a large part of the international economy from interdependence into globalization. He differentiates carefully between the two.
Globalization Differs from Economic Interdependence
The growth of international commerce by leaps and bounds starting in the 1960s was an intensification of a long-term quantitative trend of economic interdependence, but the mid-1980s saw the beginning of qualitative development--globalization. It is marked not only by an explosive growth in trade and investment but also, more importantly, by a vast expansion of corporate business and structures across national boundaries."Globalization," Reinicke writes, "is for the most part a corporate-level phenomenon." One indicator: in 1994 about 40% of total U.S. trade was intra-firm trade across borders (and it's now around 50%).Unlike those who denounce globalization and the corporate expansion that energizes it, Reinicke sees globalization as a natural outcome of unsurpassed technological innovation, the widespread deregulation of domestic economies, and the liberalization of cross-border economic activities. For him, the only issue is how to adjust to this reality. The institutions and principles that have governed the international economy since the end of World War II are unable to do so, he argues, since they were devised for economic interdependence, not for globalization.
Contrary to those who hold that the world economy is basically self-regulating, Reinicke sees it as requiring a measure of "global governance." By that he doesn't mean global government, which he rejects as utopian and undesirable. Instead, he advocates a global system of "public-private partnerships" in which non-state actors (including business, foundations, and trade union representatives) share some responsibility with governments for writing, implementing, and enforcing the international rules and standards necessary for making globalization function without major disruptions.
For the benefit of skeptics, Reinicke points out that such governance is already haltingly and imperfectly underway. He illustrates that trend with case studies in three areas--banking and finance, the control of money-laundering, and the management of trade in dual-use (military and commercial) technology.
Borders Now Porous, and Old-Style Sovereignty Is Too
The persuasiveness of Reinicke's case partly depends on grasping some important points that are seldom discussed even on the most thoughtful talk shows. Take the idea of "sovereignty." Actually, it has two dimensions in today's world:
That distinction is not just theoretical. Properly understood, it greatly illuminates the evolving character of globalization. For enlightenment on such issues, read "Global Public Policy." Not an easy read, but it's worth the effort if you want to make sense out of globalization and the debate over its future.
- One, "external" (or legal) sovereignty, is marked off by national boundaries, based on the territorial integrity of the nation-state. Only other states challenge that sovereignty.
- The other dimension, "internal" sovereignty, is the power of a country's government to set public policy within those borders. Globalization doesn't challenge external sovereignty, but does reduce a government's power to make public policy within its own borders.Although Reinicke has transferred to the World Bank. he remains a non-resident senior fellow at the Brookings Institution. To get more information about his book, check the Brookings Website at http://www.brookings.edu.Providing People Shelter from Global Crises
The international economy lacks the social and political framework that helps a domestic market economy function smoothly. Expert opinion differs widely as to what to do about that. Some economists say not to worry, the market can cope, at least in the long run. Wolfgang Reinicke advocates a system of public-private global partnerships to fill the gap.
Dani Rodrik, professor of international political economy at Harvard University, stands out as someone very skeptical about even the direction of the present fragmentary system. He criticizes its implicit objective of trying to build a global capitalist system, when in fact nations have many different brands of capitalism, which can't be poured into a single mold.
In an article titled "The Global Fix" published in the November 2 issue of the New Republic, Rodrik writes that most policy proposals coming out of Washington assume "that an integrated world market will deliver the goods as long as we can contain some of its excesses and imbalances." Under that assumption, he says, the policy challenge is: "How do we make the world safe for free trade in goods, services, and capital?" Instead, "the real policy challenge is: How do we make the world safe for different brands of national capitalism to prosper side by side?"
How Pushing Free Markets Fosters Outside Intervention
In Rodrik's view, individual countries must be allowed (without their having to fudge) much more latitude to determine their own economic policies. Ironically, as he points out, free market theories have led to more and more outside intervention in the internal affairs of nations. For example:
Rodrik advocates a more modest international agenda, akin to the limited requirements of the General Agreement on Tariffs and Trade, rather than the ever more intrusive ones of the World Trade Organization. Most significantly:
- The United States government made the Japanese retail distribution system the subject of bilateral negotiation.
- The World Trade Organization struck down U.S. import provisions stemming from its Endangered Species Act.
- Mexico and South Korea were among the countries required to remove their controls on international capital flows."The rules of the game would allow countries to reimpose restrictions at the border [emphasis added] when not doing so would jeopardize a legitimate national objective. Concern for the environmental implications of certain kinds of trade, humanitarian objections to trading with a country that employs child labor, or adjustment difficulties in an industry faced with import competition might all constitute grounds for an 'opt-out' [from free trade rules]."International rules should leave "enough space for national development efforts to proceed along successful but divergent lines," Rodrik writes. He cautions that "there are no signs that the Europeans or the Japanese want to remake their societies in the image of the United States."
In his view, continuing to impose a wider and wider sent of rules and institutions "requires a degree of harmonization that [free-trade Economist Jagdish] Bhagwati and I both regard as undesirable. The alternative is to allow nations to shelter their social arrangements from the occasionally disruptive forces of trade."
That quote is from Rodrik's reply to a letter to the editor by Bhagwati published in the December 14 issue of the New Republic. Further insights into Rodrik's concerns are contained in his new book, "The New Global Economy and Developing Countries: Making Openness Work," to be published later in January by the Overseas Development Council.
Diary: Too Much Heavy Stuff? Maybe So
What a way to start the New Year!
You know what I mean if you've read the above articles. They're not exciting. It's more fascinating to read the latest report about how Nike, code of conduct and all, is putting the squeeze on some teen-agers in Honduras or wherever.
I admire very much those researchers and investigators who, despite all kinds of obstacles, dig up cases of exploitation. I also admire the Websites devoted to exposing the scandals. The horror stories continue aplenty, and they should be reported. Obviously, I can't handle them all in these pages. The best I can do here from time to time is to highlight a few, the ones illustrating that something fundamental is at stake--not just low wages but human dignity itself.
The Environment That Creates Far-Away Temps for Americans
Although not counted that way, millions of working women and men abroad are now members of the U.S. labor force--but only as temps. It is vital to know in detail about the problems that plague them. Generalizations don't convince. But it is also essential to have an understanding of the context, the environment, that nurtures exploitation and injustice.
One of the negatives of globalization, off setting many of its positives, is its impersonality. You might know an individual foreign child whom you're supporting through some charity. But can you ever know the name of a 14-year-old girl in (say) Thailand who is making Christmas toys for your children?
To make up for the coldly impersonal nature of the global economy, you've got to have meaningful rules that protect its most vulnerable people. Writing, implementing, and enforcing those rules is a not fun process, especially because they must fit into a larger context.
Worker Rights Rhetoric Useless in Flawed Agreements
I used to oversimplify that process. I overrated taking a sound set of worker rights and tacking them on to as many international agreements as possible. But it's not that simple.Having international agreements contain language about international labor standards may look like progress, but what's the use if the agreement as a whole is flawed? That was true of the ill-fated proposal of the Organization for Economic Cooperation and Development (OECD) last year to bestow super-protection on international investors.It's mandatory to look carefully at the larger context into which worker rights (and environmental rights) fit. That's what Wolfgang Reinicke, Dani Rodrik, and others are doing as part of a current debate on the future of the global economy. It's worth following. And worth your involvement too.
Human Rights for Workers: Bulletin No. IV-1, January 8, 1999
Robert A. Senser, editor
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