January 23, 2007

Two Good (Unrelated to Iraq) Articles

Posted in Politics at 6:37 pm by ndsmith

The first by a UC Berkeley Poli-Sci professor and a grad student on who’s really to blame for the ill effects of globalization (increased terrorism, drug and sex trafficking). They argue that it’s not the job of the IMF or the Wold Bank or even big bad corporations to police the effects of globalization, it’s the job of national governments. More to the point, it falls on the shoulders of the most wealthy and powerful national governments to provide the kind of environmental and criminal enforcement that’s needed.

The second appears in The New Republic and highlights one senior Cato Institute member’s attack on the “fuzzy research” that demonstrates income inequality. Jonathan Chait not only clearly debunks the skeptical logic of this argument, but he demonstrates the pattern that clearly emerges from attacks on evolution and global warming to income inequality. He shows that what all these attacks have in common is a vested interest in confusing the issue rather than in determining what is actually the case. In fact, they happily admit that their position is ideologically driven just so that they can claim that so are the academics and the scientists with whom they disagree.

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8 Comments »

  1. Dave On Fire said,

    The article you linked to (the first one) had no room for feedback, so allow me to reply here. I feel this article grossly misrepresents the nature of globalization and its main players.
    It’s on shaky ground from the very start:

    The World Social Forum — and the anti-globalization movement that it represents…

    The WSF is not supposed to represent anyone. It’s a forum, a place for openly discussing problems and possibilities, not a mouthpiece for any one point of view. Furthermore, the movement most closely associated with it, usually referred to as the global justice or altermondialisation movement is not, as this article repeatedly claims, an anti-globalization movement. If globalization means anything, it is the trend for commercial and cultural activity to transcend the boundaries of nations and take place more in a global setting.
    The WSF is not in opposition to this trend, rather the opposite – it actively fcilitates and encourages communication and activism at a global level.

    Rather than capitalists and corporate power, national governments are to blame. The World Bank and the International Monetary Fund are creations of national governments and are ruled by them.

    The IMF is heavily influenced by certain national governments, and certain vested interests within those nations’ financial sectors, but that’s not how its supposed to be. And outside the nations that own its shares, the IMF does not respond to national governments as dictate to them. Its meddling consistently undermines the economic policies of governments around the world and, by taking policy decisions out of the hands of the elected government, seriously erodes national democracy.

    Corporations … are born of and depend on the laws that governments make to empower them. Globalization’s reputed villains respond to the incentives and constraints that national governments create for them.

    To say that corporations depend on the laws of national governments is to deny that globalization is even happening. Globalization does not make corporations more evil or more ruthless, but it does make them more mobile. Corporations respond to laws that don’t suit them by moving to another country. The result of this is that, in order to attract corporate investment, countries must compete for the most corporate-friendly (ie., the most regressive) social, labour and environmental laws – the famous race to the bottom. If there is to be any control over corporate mischief, it must therefore come in at a global level, beyond the national borders that corporations can so easily jump over.

    Much of the world looks to powerful states to provide such public goods … that would tilt globalization toward more positive results.

    Really? All the evidence is to the opposite. The actions of powerful states like the US and Russia seem to inspire nothing but criticism and fear abroad. Their respective gungho military and economic policies undermine the power of other states to react to the negative trends mentioned in the article – and indeed, often actively make those trends worse. The war in Iraq has created tens of millions of refugees and an violently anarchic failed-state, which ultimately makes the illicit trade of guns, drugs and people easier.
    I think most people see the role of powerful states meddling in their affairs as part of the problem, not part of the solution.

    If China and the U.S. work together to develop rules for the next phase of globalization, the world 10 years from now could be not only a richer but also a safer, cleaner, more just and hopeful place to live.

    If China and the U.S. work together to develop rules for the next phase of globalization, they will develop rules that primarily benefit China and the U.S. Replace “China” with “Europe” and that’s pretty much how the 20th century happened. The people of Africa and elsewhere can only be sure of getting the best deal if they themselves or those they choose to represent them can take an active role in the decision-making process. The rich and the powerful DO NOT look out for the interests of the poor and the vulnerable, and to say otherwise is the height of naivety.

    If members of the World Social Forum want to become relevant and curb the dark sides of globalization, they will have to face up to the reality of great-power politics. This means turning their focus away from capitalists and corporations and toward Washington and Beijing.

    Reformers and activitists have to focus on Washington and Beijing in exactly the same way as they focus on capitalists and corporations – to reduce their power and make them accountable to supernational institutions, globalised in the truest sense of the term.

  2. ndsmith said,

    Dave,

    Thanks for the lengthy comment on my site. I do feel a little strange moderating a discussion ostensibly between you and Weber and Ratner, but I will give it a shot.

    First of all, as I read the article and the reasons for which I highlighted it on my site, I do not see your fundamental concerns–if I understand them correctly–to be at odds with the authors of the article. You may have some good points relative to a few minor issues of how to frame the discussion, but as I understand the issue, there is no fundamental disagreement.

    What I think is important about the article is that it points out that entities like the IMF, World Bank and multinational corporations are not free-standing political entities, they represent a constellation of forces. The prime movers of those forces are national governments, the laws and the execution of the laws that they create. I’m not sure I agree with your claim that the IMF, for instance, “ought” to be a free-standing entity that directs national governments rather than reporting to them. As I read the by-laws of the IMF (http://www.imf.org/external/pubs/ft/aa/index.htm), I understand them to designate the IMF as a political organization of independent states, an “institution that provides the machinery for consultation” between those independent states. Thus, the IMF depends essential on the cooperation and investment of national governments, and principally the senior members and especially those with the largest share in the fund, i.e., the US, Japan, Germany, the UK, France, China, Saudi Arabia, etc. Now, one of the express purposes of the IMF is to promote monetary exchange stability and growth across national boarders, so it ought to level the playing field between these large shareholders and the much smaller ones, but that depends on policies enacted by the largest members.

    The case of the World Bank is similar but the case of multinational corporations is slightly different. Corporations have their own personal interest (profit) that can be effectively challenged by activism. Witness the case of large corporations, like Walmart and Tesco, going green (see George Monbiot’s http://www.monbiot.com/ recent article). Thus, in the face of consumer demand, corporations can make choices about production that help to create positive effects of globalization (improved economic well-being for the poorest, good stewardship of the environment, etc.). Nonetheless, as Monbiot points out, it is highly unlikely and perhaps inconceivable that corporations will entirely reform their own behavior to align with good social practice; we still need good laws and good regulation of environmental and labor practices.

    So, what the article points out is that in many ways the real agents of some of the most fundamental change that needs to take place in the process of globalization must come from national governments. In the end, I would agree with you that reformers and activists must focus on Washington and Beijing in addition to corporations and the “symbolic” governing bodies of globalization, not “in exactly the same way,” but in an effort to buttress incentives brought about by changes in consumption with incentives brought about by stricter laws and regulations regarding production.

    I think that these laws must come from the most powerful and most wealthy countries because they are the ones that have the resources to implement regulation and they direct the monetary flows. So issues such as trade policies that focus on environmental and labor standards are essential to this issue. And of course we should ask our representatives to the World Bank, for instance, to look carefully at whether “meddling” in the affairs autonomous governments is really serving the interests of that organization. The deterimental effects of this kind of action has been well publicized, but at least one way to change them is to make it a political issue domestically, in the US, Japan, the UK, France or Germany for instance.

  3. ndsmith said,

    Dave,

    Thanks for the comment. I posted a reply yesterday (1/24), but somehow the bits got lost in WordPress cyberspace. I will do my best to reconstruct it here.

    Basically, I do not think that there is a fundamental disagreement between you and the authors of the article I highlighted. While you have some subtle differences of emphasis, I do not think there is any real disagreement. Let me explain.

    As far as I understand the article, the point is to demonstrate that the IMF, World Bank and multinational coorporations are not free-standing political entities, but are basically dependent upon national governments for their existence and the nature of their practices. Therefore, if activists are unhappy with the way that these organizations function, they should appeal to those national governments that sponsor their activities.

    I think this thesis is basically right. For instance, you could look to the IMF by-laws, where you will find that the basic purpose of the IMF is to provide the machinery for international dialogue concerning monetary practices, with the aim of stabilizing and equalizing monetary exchange rates across the world. However, this only happens by virtue of the members of the IMF, and especially those senior partners and principal shareholders (i.e., overwhelmingly the US, then Germany, the UK, France, China, Saudi Arabia, etc.).

    While the IMF and the World Bank have become “symbols” of the regulatory structures (and failure in many cases, e.g., Argentina, of the efforts of those structures), they are not independent political entities; they depend on nation-states to support them and carry out their mission. On the other hand, corporations are somewhat free-standing. In this sense, activists can effect change by pressuring the vested interest (profit) of corporations by changing habits of consumption (witness the “greening” of Walmart and Tesco). However, as George Monbiot points out in his recent article, it is highly unlikely that changes in consumption will be sufficient to bring about the kinds of changes in corporate practices (environmental stewardship, fair labor practices, etc.) that are desired. This needs to be supplemented by regulation, in the form of trade barriers, taxation, for those who don’t conform to the desired standards.

    Now this latter effort can only be carried out by national governments, and ultimately by the richest and most powerful nations (since developing countries have no leverage and too few resources to prohibit and police the activities of large corporations in their boarders). I think that this is the point of the article. And I think that it ultimately supports your claim that Beijing and Washington need to be pressured along with, though certainly not “in the same way as,” supernational institutions.

  4. Dave On Fire said,

    Thankyou for replying.

    the point is to demonstrate that the IMF, World Bank and multinational coorporations are not free-standing political entities, but are basically dependent upon national governments for their existence and the nature of their practices.

    Very few national governments assisted in the creation of the IMF, and most of them have no say in how they are run. In fact, as I pointed out, it is very common for national governments to be in conflict with the IMF. And indeed, though its shareholders are nation-states, in practise it is only finance ministers and, through them, the vested interests of the financial sector, that make the decisions (usually behind closed doors). If America’s influence at the IMF was a matter voted upon by Congress then you could say that it is worth putting pressure on Washington to influence the IMF.

    the basic purpose of the IMF is to provide the machinery for international dialogue concerning monetary practices, with the aim of stabilizing and equalizing monetary exchange rates across the world.

    That is indeed the IMF’s stated purpose. In practise, it usually acheives the opposite (eg. South Asia, Russia), because those who wield the most influence over it are those that stand the most to gain from instability and lack of dialogue.

    they depend on nation-states to support them and carry out their mission.

    That’s true, but unless nation states have a choice in the matter, it’s irrelevant. And the vast majority of nation states do indeed endorse the IMF, it is because the latter coerces them through what’s essentially blackmail and bribery. For however unfounded it may be, the IMF’s verdict on a country is a self-fulfilling prophecy, either way, as it determines the confidence investors have in a country.
    Nation-states are essentially the IMF’s clients, and clients have no real influence unless they have a choice. If there were two or more IMF-like institutions, then nation-states could hold them to account through competition. However, when, after the events of 1997, Japan announced its intention to start an “Asian IMF” it met with huge resistance from the IMF, and when what became the Chang Mai Initiative eventually began to come together it was on a far smaller scale and with a far narrower remit.
    This lack of choice, combined with the secrecy that surrounds most IMF decisions, means that even the ntion-states that officially own the IMF has little say in how it is run.
    As for corporations …

    it is highly unlikely that changes in consumption will be sufficient to bring about the kinds of changes in corporate practices that are desired. This needs to be supplemented by regulation, in the form of trade barriers, taxation, for those who don’t conform to the desired standards.

    The limits of consumer action are well-documented, but I was thinking about other, more active ways of putting pressure on companies. Ultimately, though, you’re absolutely right that regulatory structures are of vital importance. But where should these regulatory structures come from? You said…

    this latter effort can only be carried out by … the richest and most powerful nations (since developing countries have no leverage and too few resources to prohibit and police the activities of large corporations in their borders).

    Exactly! No matter what how sound and progressive the laws and taxation schemes practised in China and America, corporations can simply move to another country. This is frequently the case in real life; many products sold in the US and Europe are manufactured in conditions that would be against those countries’ labour laws. Corporations are mobile, national laws are not.
    There are some things national governments can do better (which I never denied), but ultimately the problems of our time and the corporate behaviour that causes them are fundamentally global. Any solution which is not also global in scope is doomed at best, of falling well short of the mark. I’m not advocating an obsession with the IMF and activists should (and do) put as much pressure on their governments as possible – but ultimately, problems that transcend nation-states need solutions that transcend nation-states.

  5. Tapestry « said,

    […] Who screwed up globalisation […]

  6. ndsmith said,

    Dave,

    I’m not sure I follow everything that you propose, e.g., the idea of having multiple IMFs or comments relative to the transparency of the organization. Also, when you say that “few national governments assisted in the creation of the IMF, and most of them have no say in how they are run. In fact, as I pointed out, it is very common for national governments to be in conflict with the IMF.” It seems to me that you use the term “national government” to refer to all nations, including the poorest and smallest. Of course, these didn’t go into forming the IMF, the latter is a product of wealthy states in a effort to stabilize the global markets for their own interest, assuredly, but also to bring a measure of equality to those poorer states.

    As far as I understand it, the purpose of the IMF is simply to stabilize currency exchange around the world. They can do this by forcing countries that would otherwise like to have a tight hold on their currency to become more open to international markets, or they can lend countries currency in the short term to offset a potential crisis. I’m no economist, but as I understand relatively stable currencies are a good thing for the international market (because everybody is pretty interrelated as you point out). If I have my widgets produced in Indonesia and suddenly the financial markets collapse there, then the product that incorporates my widgets could become too expensive for me to make a profit.

    Now as I understand it the idea of the World Bank is to organize money to lend to countries in exchange for certain trade standards being imposed. On the whole, this process is good. Sometimes countries may protest, feeling bullied by these policies, and it may seem that some sinister capatalists are working behind the scenes just to make a buck, but the fact is that I think on the whole globalization has shown that freedom in markets across national lines is a good thing (it raises the standard of living of everyone).

    That said, I think we agree that there have been some real problems with globalization, which is what I think must be addressed by nation-states. I don’t really understand what you mean by “solutions that transcend nation-states.” As we have seen in the UN, or the World Bank and IMF as you complain, these entities that are supposedly global are actually dependent on national interests. By what power would you enforce a solution that transcends nation-states?

  7. Dave On Fire said,

    You are absloutely right about the stated purpose of the IMF. Of course stability is good for all concerned. However, in practice, this is simply not what the IMF acheives. The reforms the IMF pushes on countries very often lead to increased instability – again, the SE Asian crisis of the late 1990s is the perfect example.
    This is why the transparency and accountability of the organisation are of tantamount importance. When the IMF makes its decisions behind closed doors, and needs no justification beyond “the IMF knows best”, there is nothing to ensure that it will make decisions to promote stability. Indeed, those who have most influence on the IMF are wealthy financial traders – who can make a huge profit from destabilizing a small economy – and its policies reflect that.

    globalization has shown that freedom in markets across national lines is a good thing

    It’s too complex to sum up as good or bad, though in many ways I agree with you. But surely, once the market goes across national lines so too must any regulatory system. Otherwise, companies can dodge any law.

    I don’t really understand what you mean by “solutions that transcend nation-states.” As we have seen in the UN, or the World Bank and IMF as you complain, these entities that are supposedly global are actually dependent on national interests. By what power would you enforce a solution that transcends nation-states?

    That these bodies are answerable to national interests rather than global ones is part of why they work so badly. To quickly open up and deregulate the currency markets of a weak, developing economy is in the interest of certain influential groups (eg Wall Street) within certain influential countries. It is often not in the interest of the country in question, as it makes the currency extremely volotile. It is also not in the interest of the countries who trade with that country, as economic crises can be very contagious (as 1997 showed).
    That’s why we need to go beyond national interest and create truly global institutions. How is a far trickier question. Rich and powerful nation states will undoubtedly have to be part of this process, but ultimately it is necessary to limit their role in global economics – their near-monopoly, if you will – rather than, as the article advocates, reinforcing it.

  8. Dave On Fire said,

    By the way, this …

    the idea of the World Bank is to organize money to lend to countries in exchange for certain trade standards being imposed.

    … is not true. This (sometimes harmful, but often useful) activity is part of the role of the IMF. Unlike the IMF, the World Bank’s remit is not primarily about trade and markets, but about development and poverty. In may act on trade, but only as one of many means to the end of reducing poverty.
    However, the main criticisms of the IMF also apply (to a lesser degree) to the World Bank: namely, its goals are undoubtedly laudable and necessary, but its unaccountability often leads it to make decisions that undermine those goals.
    For example, the World Bank has drawn heavy criticism for funding – in the face of protests – hydroelectric dams that ultimately did more harm than good. Still, at least the Bank admits when it has done wrong, and has become more open and responsive since the debacle. The IMF, on the other hand, all too often tries to cover up its errors through scape-goating and name-calling.


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