Last weekend’s World Economic Forum in New York was noticeably different from previous globalization conferences for several reasons. Held in the Swiss ski resort of Davos in its first 31 years, the sponsors of the forum decided to move this year’s forum to New York to show support for the city after the September 11 terror attacks. Remarkably, the total number arrested during the meeting was barely over 200, mostly for disorderly conduct, a far cry from previous WTO or other globalization meetings. Surprisingly, speaker after speaker at the World Economic Forum lambasted America as a smug superpower, too beholden to Israel at the expense of the Muslim world, and inattentive to the needs of poor countries or the advice of allies. In a curious convergence, the titans of business and politics at the meeting seized on many of the same socially liberal issues that they have been accused of ignoring at past gatherings.
Does this mean we now have globalization with a human face?
Nothing could be further from the truth.
Indeed, in the last year or so, globalization and market forces, the much hyped panacea of world economics, have gone awry. Bloodshed in the Middle East, terrorist attacks in New York, a worldwide recession and falling corporate profits for powerful multinationals have unsettled the stock markets and ordinary consumers on both sides of the Atlantic. The continuing influence of local circumstances and politics on the precarious global economy is stronger than ever.
In the 1990s globalization was shamelessly hyped for the good fortune it would bring. Ethnic hatreds would melt away as the internet and McDonald’s hamburger stalls spread worldwide. Expanding free markets would cure the world’s ills. Many, such as former U.S. President Bill Clinton, preached the doctrine of interdependence. In that Promised Land, it was not terribly important who was in charge. The markets were.
In retrospect, in some parts of the globe, the dominance of market forces has had unexpected results. For instance, globalization has integrated global capital markets and consequently this has increased the ease with which individuals in the rich developed countries of the north and poorer developing countries of the south can move their assets abroad. However, the rising scale of capital flight from developing countries is a matter of increasing concern.
When we think about the causes of poverty in the developing world, the International Debt Crisis, IMF, corruption, strife and civil wars readily come to mind. Capital flight as a blight on growth in developing countries and a major cause of poverty in these countries is often neglected.
Without capital flight and corruption the international debt crisis would not exist in its current form. More than half of developing countries’ debts are in the form of private capital deposited in the tax havens controlled by the banks of the north. The five leading countries that host this type of capital are Panama, Cayman Islands, Switzerland, Luxembourg and the United States.
Although many people living in developing countries are familiar with the incidence of capital flight from their countries, the actual measurement of this phenomenon reveals the staggering proportions of the depletion of resources from poor countries to affluent ones.
According to a background report prepared by Valpy Fitzgerald and Alex Cobham of the University of Oxford for the DFID (Department for International Development, UK), in sub-Saharan Africa and the Middle East 39 percent of domestic investors’ portfolios are held abroad. The total value of Sudanese assets held abroad exceeds the country’s GNP; Nigeria’s external assets are equal to the country’s GDP while Kenya’s is around 75 percent of the GNP.
Obviously, the effect of a return of such (relatively) huge investment flows would be dramatic. Furthermore the estimated average share of total national debt generated by despots in 22 countries that have, or had, entrenched dictatorships is 57 percent. “Trade-faking,” the deliberate under-invoicing of exports to, and over-invoicing of exports from associated companies to present false accounts and accrue balances overseas, has severely distorting effects for some African countries and India.
Not surprisingly, from the perspective of the developing world, globalization is not a bed of roses. Perhaps we need to think again.
Globalization needs to be replaced by localization – protecting and rebuilding local economies.
Long distance trade would be gradually reduced to supplying what could not come from within one country or a region. Trade would be conducted under rules that give preference to goods supplied in a way that benefits workers, the local community and the environment. The global flow of technology and information would be encouraged only when and where it could strengthen local economies.
This does not mean a return to overpowering state control. But new rules would have to be enacted to stop imported goods and services that could be produced locally. Industries would have to be put in the local community if they are to win permission to sell in it.
Today’s global casino consists of traders gambling on minute market fluctuations. In 1980, the daily average of foreign trading was $80 billion. Today, more than $1,500 billion flows daily across international borders. Up to 90% of transactions are speculative (based on movements in currency and interest rates) rather than productive.
Democratic control over such capital is the key to providing the money for governments and communities to rebuild. In addition to tax on international capital transactions to curb currency speculators, broader regulation of finance capital will be required. This would include controls on capital flows, taxes on short term speculative transactions, tightening of easy credit that allows speculators to multiply the size of their bets way beyond the cash required to cover them.
A widespread and co-ordinated attack on corporate tax evasion and capital flight including offshore banking centers is also essential. Naturally, the markets would immediately punish any country proposing such controls on its own. However, a regional grouping of powerful states such as the European Union would be a secure and lucrative enough market to ensure that those who control money would not dare leave the safety and security afforded by such a bloc. This pattern would then be attempted globally.
Politically, the 20th century was a battle between left and right. In the 21st century the contest will pit localists against those struggling to manage globalization. The former will seek control over the local economy; the latter will continue to see globalization as inevitable as gravity. Their role will be to attempt to make it a better balance for all of us.