They may disagree on the methods, but the world’s financial gurus are unanimous that the forces of globalisation must be reined in, writes Larry Elliot
Like a new car that unexpectedly develops life-threatening faults, the 1997 model of globalisation has been recalled by the makers. The havoc wreaked in the Far East by the crisis of the past nine months has led to a significant change of heart. At Davos last weekend the talk was not of whether free market fundamentalism should be reined in, but how.
Up in the Swiss Alps it was almost impossible to find anybody who professed to be a true believer in undiluted laissez- faire. As one critic of globalisation put it, if the masters of the universe are worried, something must have gone seriously wrong.
Something has. To use a timely cricketing metaphor, the pitch is under-prepared and batsmen are being felled by unpredictable deliveries. For Atherton, Butcher and Hussein, read Thailand, Indonesia and Korea.
Abandoning a game of cricket is one thing; reshaping the global economy is another. The corporate elite sat in stony silence as John Sweeney, president of the American trade union movement, let rip last Saturday.
Asked whether labour had a role in the new world order, he replied: “Let us be clear. If labour has no role, democracy has no future.
“Social justice does not ‘compromise the future of the model’. It is essential to its survival. If this global economy cannot be made to work for working people, it will reap a reaction that may make the 20th century tranquil by comparison.
“This global system broadcasts its stark contrasts — of untold wealth for the few and growing insecurity for the many; of laws that protect property and expose people; of liberated capital and repressed workers. The inequities are indefensible ethically, but they are also unsustainable economically.”
It was glorious stuff, made all the better because it is now clear, even to the world’s business elite, that globalisation does not just mean surfing the Net and leaner production, but unemployment, poverty, crime and social exclusion.
Bob Kuttner, editor of American Prospect, put it another way. There is no longer just a fault line between those who believe in laissez-faire and those who believe in a mixed economy, there is also one between those who think that all laissez-faire needs to make it work properly is a minimal safety-net and those who argue direct action is needed to slow the casino economy.
Some people, of course, feel that any attempt to reform the current system is doomed. A coalition of sorts has emerged between those “ultras” on the free-market right who believe that capitalism is red in tooth and claw or is nothing, and those on the far left who believe that there is nothing that can be done by inveterate reformers to prevent global capitalism destroying itself.
Intellectually, both these philosophies have merit. Attempts to regulate capitalism can end up in stifling stagnation. Similarly unsustainable is global capitalism’s blindness to anything but the bottom line and an apparent indifference to inequalities.
But sitting back and doing nothing has been tried before. That was what happened between 1929 and 1932. Capitalism did not collapse although, as President Ernesto Zedillo of Mexico pointed out at the weekend, the decision to allow large chunks of the United States banking system to go to the wall meant that it came close. What the crisis did produce was untold misery for the very poorest, just as it will be the poorest Asians suffering from the events of 1997.
Apart from the fact that they never explain how nirvana is to built from the ashes of the current system, the “let capitalism destroy itself” people tend to overlook that a rerun of the 1930s would cause added hardship for those who can least bear it. In any case, the Depression did not lead to a storming of the barricades; it led to Adolf Hitler.
In the end it also led to a serious attempt at reform which helped give the global economy sustained growth and prosperity.
Now the world economy is less dominated by one country, has bigger public sectors, institutions which step in with help when times are rough — and history to learn from.
On the other hand, as Sweeney pointed out: “Look around the world. Japan mired in recession, Asia in a crisis China still faces. Russia plagued by primitive, gangster capitalism, Europe stagnant, Africa largely written off by global investors, Latin America adrift.”
This may be over the top, but the danger of contagion is there, and some of the key figures associated with globalisation know it. That is why they have come up with their own reform agenda.
Take George Soros. He said in Davos that those who claimed global financial markets were self-correcting were plain wrong. There was no natural swing of the pendulum back to equilibrium, but a tendency towards self-fulfilling prophecies and persistent instability. The world needed to rediscover the spirit of Bretton Woods, the 1944 conference which established post-war global financial institutions and the system of fixed exchange rates with capital controls.
Or take Peter Sutherland, the director general of Gatt, the General Agreement on Tariffs and Trade, who was one of the architects of the new world order. Sutherland, now chairman of Goldman Sachs International and BP, is calling for a globalisation summit to ensure that the poorest countries are not marginalised and that living standards in the developed world are not jeopardised in a “race to the bottom”.
Or James Wolfensohn, the president of the World Bank, who wrote in the Financial Times last week: “Just as there is a need to soothe markets, so there is an urgent need to address human travail.” The World Bank has provided $16-billion to Korea, Indonesia and Thailand in order to help fund unemployment insurance schemes and programmes to safeguard “spending for basic education and services for the poor”.
Joseph Stiglitz, the World Bank’s chief economist, has also told the International Monetary Fund (IMF) that forcing Asian countries into steep recessions is not helpful at this juncture, a view shared by Harvard’s Jeffrey Sachs, who has been unstinting in his condemnation of the IMF’s handling of Asia’s turmoil.
Those of us who have warned of globalisation’s perils may disagree with some suggested reforms or say they do not go far enough, but the change in mood is welcome.
The imperative now is to reshape the global economy by rethinking what constitutes progress. John Elkington in his recent book, Cannibals with Forks, wrote that the challenge was to construct a model for the 21st century built on the pillars of strong economy, social justice and environmental sustainability.
Elkington is right, but there is much to do. The more progressive business people come to Davos, but the emphasis is still on competitiveness. It was depressing to hear European leaders denigrating their continent’s traditions of social democracy.
This is the time for social democrats to keep their nerve — to talk of building up welfare states, not knocking them down. The assumption in Silicon Valley is that the US’s economic hegemony will last for ever and that California will be the centre of the post-modern world, just as the Catholic church was of the pre-modern world.
But the pre-modern glue was faith and the pope. The glue that holds the post-modern world together is money and Disney, and there is a difference.