THE HIGH PRICE OF IGNORING LABOR IMMOBILITY
The International Herald Tribune's global economics columnist, Daniel Altman, recently moderated an online discussion between readers and Joseph Stiglitz, a recipient of the Nobel in economic science, professor at Columbia University and author of numerous articles and books on globalization.
What is the future of globalization where there is an increasingly greater disproportion between movements of capital and goods and that of people? Nabil El-Aid El-Othmani, Morocco
This disparity in the liberalization of capital and labor is a major problem. Enormous energy has been focused on facilitating the flows of investment and capital, while movements of labor remain highly restricted. This is so even though the gains to global economic efficiency from liberalizing labor flows are an order of magnitude greater than the gains from liberalizing capital flows. Liberalizing movement of short-term speculative capital has been associated with increased instability but does not bring enhanced economic growth. Premature capital market liberalization, for instance, was the basic cause of the East Asian crisis of 1997.
This disparity has large distributional consequences. Because capital can move easily, it threatens to leave a country if it is taxed, or if wages are not tamed, or worker benefits are not cut. The disparity in liberalization is one of the reasons for the growing inequality in incomes that has marked most countries around the world. It is one of the reasons that even when globalization has brought increases in gross domestic product, it has led to the lowering of incomes of many workers.
There is a risk that unless globalization can be made more fair - so that there are more winners and fewer losers - there may well be backlash. We should remember that globalization is not inevitable. The degree of global integration, as measured, for instance, by the ratio of trade or capital flows to GDP, was higher before World War I than during the interwar period.
Poverty continues to remain a big problem in the emerging economies. Poverty alleviation programs have failed to lift millions from the grip of hunger and disease. How can we marry the goals of globalization with reducing poverty as the rich are getting richer with globalization while the poor remain where they are for centuries? Dev Chatterjee, India
Globalization can be made to work, and work in a way that the number of people in poverty is reduced. But it has not been working that way. These are among the central messages in my book "Making Globalization Work," where I spell out a wide agenda of what needs to be done. For instance, there is a rich trade agenda - going well beyond agriculture, on which the current set of global trade talks, known as the development round, seems to have become bogged down - that would help the poorest countries grow; but that agenda is a far cry from the trade agenda that America and Europe tried to sell as the development round.
We have the knowledge to deal with many of the diseases confronting the developing countries; but the trade-related intellectual property rights agreement, or TRIP, which was part of the Uruguay round, was designed to make generic medicines less accessible. The result was that thousands are dying unnecessarily because they cannot afford the brand-name medicines.
But the current system also provides little incentive for drug companies to do research on the diseases, like malaria, that are largely found in developing countries, simply because even if a cure or vaccine were found, those suffering from the disease would not have the money to pay the prices the drug companies would demand.
The current system clearly is not working. Again, there are alternative ways of financing research and the delivery of drugs, alternatives which are both more efficient and more equitable.
Has the World Bank changed since you were there, and if so, is it for better or for worse? Michel Monette, Canada
During my time there, the World Bank began to take on an advocacy role - advocating policies that are needed for the successful development of poor countries, even when they were opposed by some of the advanced industrial countries. It has continued to do that, notably in its opposition to agricultural subsidies by the United States and the European Union, which depress agricultural prices and so hurt the developing countries that depend on agriculture.
But a central achievement of this period was the recognition that successful development requires a comprehensive approach - there is no magic bullet. For instance, trade liberalization unaccompanied by policies that lead to new jobs replacing the old jobs that are lost may simply lead to growth in unemployment, not growth in GDP. We took a comprehensive approach to poverty as well, recognizing that the poor also lacked security and voice.
Today, it often seems that the only issue that the bank talks about is corruption. It sermonizes but does not have a comprehensive set of policies and approaches to attack it.
For instance, secrecy in Western banks facilitates this corruption. The Bush administration vetoed an effort by the Organization for Economic Cooperation and Development to circumscribe bank secrecy in August 2001; it then found that these secret bank accounts were also used by terrorists.
Since then, it has shown that bank secrecy can be effectively attacked, but the United States has only been willing to do so to curtail terrorism, not to curtail corruption. The World Bank should add its voice in criticism of the Bush administration's policies.
But even were it to succeed in addressing the corruption, that would not be sufficient to address poverty in the third world. Money can be spent honestly but incompetently; and even when money is well spent, unless there are appropriate institutions and policies in place, success will be limited.