Financial Times February 25, 2004
The Social Costs of Globalisation
By Joseph Stiglitz
The report of the global commission on the social dimensions of
globalisation*, issued this week, shows dramatically how the debate on
globalisation has changed in recent years. The commission was established
two years ago by the International Labour Organisation and its 24 members
(of which I was one) were drawn from diverse interest groups, intellectual
persuasions and nationalities. Its mission was to look carefully at the
social dimensions of globalisation, which had too often been given short
shrift in policy discussions.
Some of the commission's messages - such as the need for better ways of
restructuring debt - might have seemed controversial a short while ago.
Today they are either in the mainstream or are gradually being accepted.
But the central theme, that we need to look at the social consequences of
globalisation, can never be overstressed.
It is now generally agreed that the state has a role to play in cushioning
individuals and society from the impact of rapid economic change. But the
way globalisation has been managed has eroded the ability of the state to
play its proper role; and the root of this problem lies in the global
political system - if such it can be called. Institutions such as the
International Monetary Fund and World Bank must become more transparent and
their voting structures must be changed to reflect the current - as opposed
to 1945 - distribution of economic power, let alone basic democratic
principles.
The report recognises that social progress, particularly for the poorest
countries, cannot be separated from economic development. But it differs
from the conventional wisdom on globalisation in arguing, first, that
economic progress by itself may not entail social progress and, second,
that the policies pushed by the international economic institutions -
especially capital market liberalisation and an unbalanced trade
liberalisation agenda - may not lead to economic growth and stability in
developing countries.
The report also recognises that, while developing countries are responsible
for their own actions, the international community has responsibilities
too. Many poor countries have no hope of competing in the globalised world
- even assuming there is a level playing field - without help to get them
to a point of self-sustaining development. The commission thus underlines
the importance of the rich nations fulfilling their promise of increasing
overseas development assistance to 0.7 per cent of gross domestic product
(compared with an actual average of 0.23 per cent of GDP), of relieving
debt and of introducing other measures to speed the flow of capital and
technology. Given the political will, these could be achieved almost
overnight. So too could ending the outrageous discrimination - against
products in which the poor are competitive - by rich countries that preach
free trade.
Yet more money and fairer trade are just part of the answer. Much of the
damage done by globalisation has been a result of institutional and policy
failures. In many cases, globalisation has been managed in a way that has
eroded the state's ability to provide macroeconomic stability and social
protection. Tax competition for businesses has weakened the tax base and
put more of the burden of taxation on workers. Competition for investment
has eroded the will of the state to protect the environment from pollution
and workers from exploitation.
Today, in the advanced industrial countries, displaced workers - those who
have lost their jobs because of outsourcing or competitive imports - call
for more protection and it is natural that democratic governments should
respond. But if those in developed countries - where unemployment is low,
strong social safety nets are in place and there are high levels of
education - turn to government for help, how much more necessary is
assistance in developing countries?
The economic and financial volatility - and hence insecurity - associated
with globalisation is the result of an agenda driven by interests and
ideology. We all know how much damage it has done, especially to middle-
income countries in Asia and Latin America - how it has contributed not
only to poverty but also, in many countries, to the devastation of the
middle class. Even the IMF now agrees that capital market liberalisation
has contributed neither to growth nor to stability.
If globalisation is managed better, the world can come closer together and
become more prosperous. If it continues to be poorly managed, discontent
with globalisation will grow. The commission's report provides concrete
suggestions on how it can be better managed. But, whatever one thinks of
these suggestions, this much is clear: we need a more inclusive debate
about globalisation, in which its social dimensions are given their proper
emphasis.
Joseph E. Stiglitz is professor of economics at Columbia University. He was
awarded the Nobel Prize for economics in 2001
Copyright 2004 The Financial Times
http://news.ft.com/home/us
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