This year
had towering global challenges. Human made
climate change, officially recognized since
at least 1989, has become a climate
emergency requiring a more speedy global
response. An election in Canada revealed
deep divisions. Alberta has a dying oil
industry but a doctrinaire love of the oil
industry and pipelines. BC is concerned
about protecting coastal waters. Quebec has
hydro-electric power to sell. Conservatives
have an ideological stand against taxing
gasoline. There is a network of Canadians
linked to websites ridiculing scientists and
telling them climate change is not man-made.
The Trump one-man reality show remains
centre stage in the US and the Brexit drama
segued into an election in the UK. Books
have appeared to explain the social
pathologies and collapsing democracies that
allowed Trump and Brexit to succeed. The
writers point to swathes of society not
sharing in the growth of the economy who
face stagnant income and who struggle to get
by. They are easy victims for simplistic
fables of populist politicians. Nobel
Prizewinner Joseph Stiglitz adds his name to
the list of writers with his book Globalization
and its Discontents Revisited, Norton,
2018.
This is a
curious book. The entire Stiglitz best
seller from 2002 is sandwiched between two
new sections: Trump-era introduction
chapters and an “afterword” chapter to
close. The new introductory chapters examine
new discontents, globalization failures,
dimensions of globalization, the new
protectionism and whether globalization can
be saved. The writing is classic Stiglitz -
progressive, analytical and academic.
Globalization and free trade can improve the
economies involved. Economies – and of
course the countries behind them – that have
greater levels of equality will do better.
The middle of the book, written around 2002,
was aware that poorer smaller countries at
the losing end of globalization were
discontent. Today’s discontent extends to
middle and lower classes in advanced
countries.
Trump
exploited the discontent. He blamed the
plight of US rust belt workers on the US’s
signing what he claimed were the worst trade
deals ever. When the developing world
complained of globalization around 2000, it
was because advanced countries had written
the rules and controlled the international
organizations. However, in almost all
countries there has been growing inequality.
In the US poverty has been increasing as
middle income earners are eviscerated. The
richest 1%, and especially the top 0.1%,
have been doing well. Globally, it is the
1%, millionaires and billionaires, and the
new middle classes in India and China that
have done well. Was globalization to blame?
Yes, but only because it was mismanaged. It
could have been managed to benefit all.
Trump’s
claims about trade deals are called
laughable. The problem with those trade
deals was that they were negotiated for the
benefit of US corporations, not for the US
as a whole. Globalization was good in the
sense that the US national income rose. But
working men and women did not do well. And
there were tax cuts over the years aimed at
the top. Historically, workers and
executives prospered together, and their
shared communities benefitted from
philanthropy. But increasingly, economic
disparities have separated executives from
workers and from shared communities.
The chapter
on the failures reminds us that a trade
deficit is determined by the balance of
domestic savings and investment. There is
little to do with the exchange rate that
Trump complains about with China. Exporting
is done not for its own sake, but to allow
importing. There are unfairnesses. Trade is
with some countries that ignore
environmental costs and pay cheap wages, or
that subsidize some, just like the US
subsidizes cotton farmers and steel.
Globalization has indeed impacted low wage
jobs, but the use of alternatives and new
technologies had a significant impact on
jobs as well. Trade agreements are said to
involve a loss of sovereignty. But what has
a sovereign state that agrees to do
something by treaty lost?
Globalization
was oversold. Globalization required reform
of global governance. Governance issues run
deep. The positions taken by negotiators
reflect the interests and ideology of big
corporations and the financial institutions
in large advanced nations. Ideological
positions around deregulation and
liberalization of markets were harmful in
many situations. Local alternatives would
have been better for all. Globalization put
a burden on governments to offset the
adverse effects on those at the bottom in
their societies. It also set off a race to
the bottom offering lower taxes to entice
corporations. It made it easier for some to
find ways to avoid paying taxes.
The
dimensions of globalization include foreign
investment and with that, dangers of
short-term capital flows. Investment
agreements can pit a government’s action for
health or environment against a company’s
loss of profit. True there is often a
tribunal to adjudicate. But the cost of the
tribunal process is huge for the government
of a small country. This situation gives a
company an incentive to locate abroad rather
than remain in the US or UK. Fiscal
paradises offer firms a way to steal our tax
dollars! Another dimension is intellectual
property. Royalties tend to go to rich
countries from poorer. And there are
problems around drugs when a population’s
health care can be pitted against corporate
profit. This can affect the ordinary citizen
with astronomic drug costs or by government
taxes disappearing into a health care
program financing new drug or equipment
costs.
The attacks
on science by Trump, and the new
protectionism, undermine the enlightenment
and science that brought the world the 20th
century with a middle class and an increase
in standard of living. Trump’s protectionist
measures are doomed to fail by basic
economic theories and America will pay a
high price. The tax cut for the rich and
increased infrastructure spending will make
the US trade deficit worse and standards of
living will go down. Those who designed US
globalization designed it to win for them.
Corporations won but many in the US lost.
Turning back the clock doesn’t solve this.
The days of manufacturing have gone and
global manufacturing employment is falling.
The model that worked for East Asia is
reaching the end of usefulness. The advice
for a smaller country is diversify, don’t
get tied to just one country, redo the
global architecture without the US, with
other trade agreements and work more on
economic growth through internal demand.
The first
section of his “book sandwich” ends asking
whether globalization can be saved. Ever
optimistic, Stiglitz calls for equitable
globalization with shared prosperity. The
failures of globalization are not
inevitable. The economic theory is sound. In
a world where countries can take economic
measures for their benefit, the is a need
for good reformed international tools that
can give greater justice and fairness to
smaller less powerful countries. Stiglitz
offers principles. First, globalization is
to be seen only as a means for improving
living standards of all peoples across the
world. Global standards need to be adopted
whenever economic matters spill across
borders – as in the race to the bottom in
corporate taxes or in wages, and in fiscal
paradises and short-term capital flows.
There must be more global action on global
issues like climate change. Governance of
the system – who makes the rules - matters.
Governance must be legitimate,
representative, transparent and accountable.
More than finance ministers and corporations
of rich countries must be at the negotiating
table. Governments and civil society must be
part of governance. It must take into
account that big economies differ from small
ones - greater sensitivity is needed about
overseas impact of domestic economic
decisions. One size fits all policies do not
work for all. Moreover, changes in rules
always create some winners and losers so
that those countries at the bottom may need
assistance to make the changes that
governments will have to provide. Care must
be taken to avoid social impacts like
denying life-saving generic drugs. Finally,
the evaluation of changes must involve real
life economic models and not theoretical
ones as previously used. For example, a
market is seldom competitive, efficient and
stable in real life and information in the
market is seldom even and perfect.
Principles are, of course, fine but long
term.
Right now,
what can be done to help those affected by
stalling income or no job or no pension? The
failures of globalization require a change
in the rules of the economy of the magnitude
of those taken in the Reagan/Thatcher era
when financial regulations were weakened,
corporate taxes were cut and weakened
anti-trust law allowed market power to grow
in big corporations like Microsoft and
Google. Market power and corporate abuse
must be curbed. The financial sector must be
refocussed onto its core job and unions and
worker bargaining rights need to be
improved. Tackling inter-generational
inequality calls for universal daycare and
college education, and more sizeable estate
taxes. The economy can be run more tightly
to favour job creation rather than to resist
any inflation. Taxation can be adjusted so
it is truly progressive. At the top, capital
gains should be taxed at least at the same
rate as income so that high income earners
do not end up taxed at a lower rate than the
poor. And the poor should benefit from an
earned income tax credit to ensure they get
a living income. For aging workers in
transition from job loss there must be
social securities like annuities for the
aged, unemployment insurance and health
insurance. Beyond this, there must be
protection programs for workers and their
communities that go through economic shock
whether from globalization or technology -
programs bigger than just retraining. And
Stiglitz adds a list of policy moves to
improve the fiscal and trade deficits.
The middle
of the book is, verbatim, the 2002 Book, Globalization
and its Discontents. In it Stiglitz
gives a stinging critique of early
globalization. He documents the hurt
inflicted on many populations by the
doctrinaire “one-size for all” prescriptions
of the IMF. These were conditions for
lending funds to developing countries in
trouble or countries emerging from the
Soviet era. The East Asia Crisis brought
some terrible impacts on the peoples of the
region. It was best weathered by China and
Malaysia, which chose not to have IMF help!
“Who lost Russia” tells the tragedy of the
Russian move to a market system during the
1990s at the hands of IMF loans and advice.
It is a horror story that hurt Russia,
enriched cronies of the government, and
delivered to the world the Russia of today.
Better ways to a market were followed by
Poland and China. They did not bow to IMF
demands. The IMF brought its own doctrinaire
wisdom from the financial world rather than
keeping to the original vision of Keynes
that inspired its formation. Stiglitz
proposed reforms for the IMF in 2002 and
went on to propose reforms for the World
Bank and for the World Trade Organization. I
was pleased to read that the inclusion of
intellectual property rights in the Uruguay
meeting of the Doha round of negotiations
caused public outrage around the price of
AIDS drugs for South Africa. As a person in
a Canadian NGO at that time, I was part of
the outrage that made a difference.
As is often
the case, the “afterword” is largely a
useful recapitulation of the ideas,
principles and policies. This afterword also
looks at what has changed since the 2002
book. The fears expressed in the 2002 book
were more than realized. But the 2008
financial collapse was not expected. It
originated in the US from excessive
financial deregulation. The event did more
to discredit the “Washington Consensus”
policies that the IMF had imposed with its
loans on the developing world than all the
good research evidence and the arguments
made by the likes of Stiglitz.
Stiglitz’
relates his experiences of policy battles
since 2002 - like the need for capital
controls. The 2008 financial crisis revealed
a hypocrisy - the advanced countries did the
opposite of the policies the IMF had imposed
on the developing world. The developed world
lowered interest rates and they bailed out
banks. As the doctrinaire Washington
Consensus package became weakened,
sub-Saharan African countries like Ethiopia
began to grow economically under more
sensible loan conditions. Then
there was the policy issue around how
rapidly economic prescriptions would be
implemented. The IMF said changes should be
implemented quickly whilst the evidence
showed that a slow transition works best.
The battle around improving
global governance has got as far as a
gathering of a few more of the countries
that are now developed - the G20 - with
India, South Africa and Brazil involved.
There is a
review of needed change to the IMF, the
World Bank and the WTO. The US has been a
block on international trade evolution by
refusing give up things like its subsidy of
US cotton production! And Stiglitz favours
further international development banks and
new trading arrangements.
On the
changed global scene, Stiglitz points to
China’s new more dominant role and the
attractiveness of its rhetoric. The world
may not be worse for that, but the US needs
to remember that who writes the rules
matters. Stiglitz hopes that global issues
like addressing climate change become part
of trade agreements and that the current
excessive benefits granted to foreign
corporations change so that at least they no
longer exceed those enjoyed by domestic
corporations. As for changes in the global
economy, there are changes from the shift of
economies to service-based economies.
Services tend to be provided locally and can
be dominated by one or two firms. Economic
growth is likely to slow. Finally, we are
reminded of two big issues in the discontent
with globalization: inequality within
societies and market power where the few
powerful corporations are able to dominate
and exploit an economy.
All of this
analysis and I am left somewhat bewildered.
There are a lot of useful accounts and
analyses of financial crises. The book is
full of economic insights put well. However,
I don’t see how any of the many principles
and policy changes are to actually come to
pass amongst the wildly different thinking
of even Canadian political parties. I fall
back onto giving my own old answer to others
who posed that question to me - by
beginning.