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Whither global economic system?

Wahiduddix Mahmud
***Even if major disruptions do not occur, globalisation can still be reversed by a failure to tackle its rough edges. Market outcomes do cause distress in both rich and developing countries, and that distress must be mitigated by appropriate policy interventions. Perhaps an even bigger challenge is that of inclusion in the global economic system. Masses of people, nearly two billion of them, are estimated to live in abject conditions on the fringes of the globalised world. The real strength of the globalisation process will be tested by how this challenge is met.***
NOT long ago the emerging conventional wisdom among opinion leaders was that contemporary globalisation is an irreversible process, whether you like it or not. This belief was based partly on the > notion that the forces of information technology cannot be undone by government intervention, and partly on confidence that the multinational institutions were sufficiently mature to manage the political and social stresses caused by the integration of global markets. If globalisation was inexorable, the only remaining question was how to have its benefits enhanced, sustained, and fairly spread.
Recent events have called this view into question. The end of economic expansion of the 1990s, the 9/11 tragedy, and the war in Iraq have shocked the international system to an extent not seen in years. Not only there have been discontents about the fairness and
the adequacy of globalisation for some time now, but also there has been an erosion of confidence in the capability of international institutions in handling global crises and in mitigating some of the downsides of globalisation. While globalisation has certainly been accelerated by technological change, it is also crucially the result of deliberate political decisions. Globalisation can be, therefore, slowed down, even reversed, at the discretion of political leaders.
Unfortunately, the multi-lateral system is in a crisis now. The international community has failed to prevent regional wars and other violent conflicts; the inequities of globalisation are manifest in increasing marginalisation and exclusion; the promised support from the rich countries towards the realisation of the Millennium Development Goals has not been realised; a serious attempt to reform the United Nations failed at the World Summit of 2005; the Doha Round has been close to total failure; little has been done to
seriously reform the international financial architecture; sufficient preparation for pandemic disease is lacking; and the disagreements on whether and how to tackle climate change continue to remain unresolved.
Collective action is needed to solve global problems. For good reasons, there is no such thing as a global government, and consequently progress depends on voluntary action by individual countries. Countries resist taking voluntary actions either because the do not want to limit their sovereignty through international agreements or because there is the temptation to "free-ride" on other countries' initiatives and efforts.
As Carl Sagan, famous for his popular television series Cosmos, once remarked: unlike politicians, the particles of greenhouse gases do not have brains to distinguish between national borders. And there arc powerful vested interests influencing political decisions: the tagging of patent rights of multinationals to trade agreements has raised the costs of
healthcare in poor countries, and agreements on greenhouse gases are resisted by huge, interlocking economic and political establishments all beholden to fossil fuels.
The responsibility for taking initiatives lies with the leadership of rich countries, who have benefited the most from the rule-based multi-lateral system. For example, insistence by rich countries on mercantilist arguments of reciprocal concessions will lead us nowhere in breaking the Doha Round deadlock; it will require a much broader vision regarding the future of the global trading system and the possible benefits that it can yield to both rich and poor countries.
Unfortunately, the current mood of the US leadership is not in favour of multi-latcralism. Since the end of the USSR, the US has been preparing itself to function as the world's only superpower. The problem is that its situation has no historical precedent, its political system is geared to the ambitions and reactions of, say, the New Hampshire primaries
or the provincial protectionist lobbies, and its leadership does not quite seem to know what it wants to do or can do with its power, or its limits. As the eminent historian Eric Habsbawm notes in his memoirs. Interesting Times, megalomania is an occupational disease of global victors, and unless there are moderating influences, the enormous power of the US today can destabilise (he global order.
A related problem is that many proponents of globalisation see it as an entirely benign process through which capitalism and democracy as practised in the industrialised West will become the universal norm. An early announcement to this effect came from Francis Fukuyama, the author of the End of History.
Yet, the vast majority of people in today's industrialised countries, no matter whether they are social democrats or conservatives, will agree that inequalities in their societies are unacceptably large.
As Amartya Sen once pointed out, the rates of child mortality in parts of New York city are higher than those in Bangladesh. Why does the US resist reducing the high tariffs on the labour-intensive imports like textiles from the developing world? Because, in spite of its enormous wealth, the US has a large population of low-wage labour. This not exactly an ideal model of an equitable society that the developing world will want to copy.
In developing countries, the primary responsibility for achieving growth and beneficial integration into the global economy lies with their leaders, who must have vision and will to put in place the institutions and policies conducive to equitable development. Economic reforms in many of these countries have been largely guided by the neo-liberal agenda, sometimes referred to as the so-called "Washington consensus."
The consensus has subsequently undergone many modifications as its initial formulation was found deficient in several important respects as a development framework. The problem is less what the consensus contains that what it leaves out -- the issues of governance and institutions, the role of empowerment and social mobilisation, the need for giving more attention to poverty reduction, and an appropriate state-market mix based on the context-specific evidence on what works and what does not. These issues needs to be examined in the specific circumstances of the individual developing countries in order to resolve the debates surrounding the effectiveness of economic reforms towards attaining sustainable economic development.
Coming back to the future risks to globalisation, a few examples will suffice. The recurring crises in the global financial markets remain a threat to the global economic system. Consider the con-
sequences if the world were to adjust in a disruptive way to the persistent and huge current account deficit in the US (that is matched by foreigners having an increasing accumulated share of IJS assets). A benign adjustment is possible, but a sudden decline in the foreign demand for US assets can start a chain reaction that can play havoc to the global economic system.
A global public health crisis — such as a flu pandemic -- can have dramatic consequences for international trade and travel, apart from the serious human costs that it will inflict. Other imaginable catastrophes like war and conflict or even materialization of a nuclear threat could have even worse consequences. In the long-run perspective, the risk of severe climate change should also be recognised as a threat to global stability and prosperity. Coping with the explosive growth of demand for fuel oil and other commodities triggered by rapid growth of China, India and other emerging economies will also need innovative solutions and a lot of accommodation from all sides.
Even if major disruptions do not occur, globalisation can still be reversed by a failure to tackle its rough edges. Market outcomes do cause distress in both rich and developing countries, and that distress must be mitigated by appropriate policy interventions. Perhaps an even bigger challenge is that of inclusion in the global eco-
nomic system. Masses of people, nearly two billion of them, are estimated to live in abject conditions on the fringes of the globalised world. The real strength of the globalisation process will be tested by how this challenge is met.
In spite of its downsides and uneven results, contemporary globalisation is a powerful force that can still do much for the progress of humanity. The world, and the poor countries in particular, have an enormous amount to gain from a successful end to the Doha Round. In this respect, the critics and backers of globalisation have a lot in common. A careful reading of Globalization and its Discontents by Joseph Stiglitz and In Defence of Globalization by Jagadish Bhagawati will bear this out.
As for those street agitations against globalisation, their usefulness lies in drawing our attention to the inequities and unfairness of the global economic system, although their agenda may sometimes be incoherent and based on flawed logic. Surely, we need a deeper understanding of the forces that propel or resist globalisation and the reasons why the global economic system remains structurally vulnerable to serious erosion.
Waheeduddin Mahmud is an emmenet economist The above is an extract from the address made by him at the inauguration of the International Conference on Issues in Public Policy and Sustainable Development, organised by the Indra Gandhi National Open University held in New Delhi during March 26-28