Corporations Are Losing the Globalization Debate

28 Aug 2001

August 17, 2001, Friday London Edition - Financial Times

A poor case for globalisation: The world's leaders are failing to address legitimate questions raised by protesters about the effects of global capitalism

by PHILIP STEPHENS <philip.stephens@ft.com>

The protesters are winning. They are winning on the streets. Before too long they will be winning the argument. Globalisation is fast becoming a cause without credible champions.

This week we saw the Washington consensus make way for Washington's retreat. The International Monetary Fund and the World Bank are scaling back the annual jamboree at their headquarters in the US capital. It seems that the US has had its fill of angry protests a few blocks from the White House.

It's a nice irony. The US can count itself author, architect and principal beneficiary of globalisation. Guided by the US Treasury, the IMF sets the rules of the multilateral game. Now both are bowing before the critics of liberal capitalism.

Sure, no great harm will come of the IMF's decision to meet over two days rather than a week. The opulence of the event has always jarred. Happily, a tight timetable should deflate a few egos and shorten the speeches. We shall not miss the save-the-world rhetoric of all those finance ministers.

Who cares if the champagne stays corked, the canapes uneaten?

It is, though, more serious than that. The organised uproar and violence that the anti-globalisation protests brought to Seattle back in the autumn of 1999 have now become a permanent backdrop. The numbers of protesters have swollen. Italy has still to recover from the - albeit mostly self-inflicted - wounds of the Group of Eight summit in Genoa. Belgium, the current president of the European Union, fears similar chaos at December's Laaken summit of EU leaders. The political kudos that once came with playing host to such gatherings has been replaced by the fear that all they bring now is a bad press.

Yet the response to the protests has been largely one of spluttering indignation. Instead of listening, even learning, the politicians have lectured.

The knee-jerk response has been to tar all the critics with the brush of thuggery. The tone is hectoring. Liberal markets are good for us, all of us.

Anyone who says otherwise is a subversive or a fool. Free trade is an unalloyed blessing, for poor countries as well as rich. The multinational behemoths bring precious investment to developing nations.

There are important truths in all these propositions. It is obvious, too, that the counter case is often shot through with confusions and contradictions.

These are people, after all, who are waging a global war against globalisation. The anarchists have no need of consistency. But the broader coalition often seems just as inchoate.

Non-governmental organisations want the multinationals tamed. Governments must reclaim the sovereignty lost to unaccountable and unscrupulous business executives. The IMF, the World Trade Organisation and the rest are agents of a new imperialism. And yet then we hear the protesters call for new global rules to protect the environment and prevent exploitation of labour. Self-interested trade unions stand with self-proclaimed idealists in demanding that rich nations protect jobs by imposing their own labour standards on poor ones.

Somewhere in all this there is a cry for a different set of values. It is often hard to find.

(sic) constituency stretches well beyond the mostly young activists we see on the streets. Many who abhor their tactics share their unease. Globalisation is unsettling, for the comfortable middle classes as much as for the politically disaffected. The threats, real and imagined, to national and local cultures are widely felt.

So, too, are the unnerving shifts in the boundaries between governments, business and multilateral institutions. As consumers we are stronger; as citizens, weaker. International economic integration does generate wealth. It also redistributes it. There are losers as well as winners. In good times, unfettered capital markets funnel rich-nation finance to the poor countries that need it. In bad times they carry the curse of contagion. Shareholder value is a fineconcept for those who own those giant corporations.

But what of those who merely toil for them? As Stanley Fischer, the thoughtful, though soon-to-depart, deputy managing director of the IMF, has said, free trade can indeed make everyone better off. But that does not mean that everyone is made better off.

What it does mean is that it is not enough for political leaders to dust off the economic textbooks, recite a few mantras about comparative advantage and the division of labour and expect the rest of us to applaud. The case for liberal markets is not self-evident.

What is required from advanced nations is a mixture of humility and leadership. (These two, incidentally, are not mutually exclusive.) A starting-point would be an admission that they have often got it wrong. The afore-mentioned Washington consensus imposed on developing nations the liberal economic orthodoxy of the times. These one-size-fits-all adjustment programmes ruined more fragile economies than they repaired. But they bailed out the west's banks.

Governments caught up in the financial brush fires of the 1990s were told to slash spending on health and education. Such policies were as economically foolish as they were socially destabilising. But US banks got their money back.

Western politicians may also admit that trade liberalisation has been skewed to their advantage. Developing nations have been pressured to open their markets.

Rich ones have kept the doors slammed shut to their agricultural products and textiles.

There is only one ground on which these politicians can successfully engage with the protesters. Globalisation, they should shout from every rooftop, is a means. There is no intrinsic merit in capitalism without frontiers. The purpose is to raise everyone's living standards.

Global capitalism, they should then proclaim, requires civilising rules. It must be seen to be fairer. Poor countries cannot pay rich nations' wages - but the weakest must be helped and multinational corporations must observe basic standards of human decency.

Advanced economies must lead by example and open up their markets. And yes, we all benefit from strong international institutions - as long as they represent a mutual not a single interest.

The champions of liberal markets are in full retreat. There is only one way they can make themselves heard again over the angry shouts of the protesters.

They must stop making the case for globalisation - and start fighting the cause of better globalisation.