Shadow
of Doubt: Those who staged uproars against globalization have in fact helped to
kick-start a profound rethinking about globalization among governments, mainstream
economists, and corporations.
This reassessment is badly overdue. In the late 20th century, global
capitalism was pushed by leaps in technology, the failure of socialism, and East
Asia’s seemingly miraculous success. Now, it’s time to get realistic. The plain
truth is that market liberalization by itself does not lift all boats, and in some cases,
it has caused severe damage to poor nations. What’s more, there’s no point
denying that multinationals have contributed to labor, environmental, and human-rights
abuses as they pursue profit around the globe.
For global capitalism to move into the next stage will require a much more sophisticated
look at the costs and benefits of open markets. The real question isn’t whether free
markets are good or bad. It is why they are producing such wildly different results in
different countries. Figuring out that answer is essential if businesses, government
leaders, and workers are all to realize the benefits of global markets.
The extremes of global capitalism are astonishing. While the economies of East Asia have
achieved rapid growth, there has been little overall progress in much of the rest of the
developing world. The World Bank figures show the number of people living on $1 a day has
increased to 1.3 billion, over the past decade.
The downside of global capitalism is the disruption of whole
societies, from financial meltdowns to practices by multinationals that would never be
tolerated in the West. Industrialized countries have enacted all sorts of worker,
consumer, and environmental safeguards since the turn of the century, and civil rights
have a strong tradition. But the global economy is pretty much still in the old age.
If global capitalism’s flaws aren’t addressed, the backlash could grow more
severe. Already, the once impressive forward momentum for new international free-trade
deals has been stopped cold. An ambitious Multilateral Agreement on Investment, which
would have removed all remaining restrictions on cross-border investment by corporations,
fizzled last year.
The longer-term danger is that if the world’s poor see no benefits from free trade
and IMF austerity programs, political support for reform could erode.
A more realistic view is now gaining hold. It begins with a similar premise: that trade
and inflows of private capital are still essential to achieving strong, sustainable growth
and to reduce poverty. But it acknowledges that multinationals—which account for the
bulk of direct cross-border investment and one-third of trade—have social
responsibilities in nations where the rule of law is weak. Even the IMF now warns that a
high degree of openness to global capital can be dangerous for some development. “The
IMF push for capital-market liberalization for all nations was driven by financial-market
ideology,’’ says former World Bank chief economist Joseph E. Stiglitz, now a
vocal IMF critic. “They have conceded defeat, but only after the damage was
done.’’
An Intelligent
Approach: The search for a more intelligent approach to globalization is most
evident within the developing nations themselves. Some countries face such immense
challenges that it could take a decade before they benefit from lifting trade and
financial barriers. Just as there are no one-size-fits-all policies for economic
development, there also are no clear roadmaps for corporate behavior. Balancing growth
with environmental and labor regulations is wrenchingly complex in countries where people
live on the margin. Many poor nations fiercely resist discussion of labor or environmental
issues in the WTO because they fear the process will be hijacked by Western
protectionists: The feeling is that Western unions will shield jobs at home by imposing
standards that drive up labor costs in emerging markets to levels where developing nations
can’t compete. “It’s hypocrisy of the first sort for the West to talk about
opening borders and then hide behind barriers,’’ says Indian economist Surjit
Bhalla.
The result, however, is confusion. At a time when image is paramount, corporations are
besieged with activists who harangue executives at shareholder meetings, organize consumer
boycotts, smear their brand names on the Web, and pressure creditors and shareholders
alike.
People’s expectations of the social and environmental role of businesses have
absolutely changed in the past five years. If there’s a problem in a company’s
global supply chain, all it takes is one modem to alert the world about it. But altering
business practices to appease pressure groups can also hurt more than help the
impoverished if they are done hastily.
Partly to avoid having extremists set the agenda, efforts are now under way to clarify the
rules. In May, the United Nations kicked off a program called Global Compact. The idea is
to get multinationals to endorse a set of basic human rights, environmental, and labor
principles, and allow private groups to monitor their compliance.
Sanctions:
Because industry self-regulation schemes lack real teeth, critics dismiss them as
merely public relations. But such pacts are beginning to form the basis of a kind of
global capitalism with rules. There already are international agreements on
intellectual-property rights, prison labor, and trade in endangered species that allow
countries to bar imports from violators.
As the costs of consumer boycotts and monitoring rise, companies and their investors are
likely to look toward more uniform standards of behavior. But make no mistake: It’s
unlikely that anyone would agree to an international central bank policing the capital
markets or world legislatures and regulatory agencies enforcing good corporate behavior.
The new rules of global capitalism will evolve slowly, in pieces, and with varying degrees
of success.
A serious discussion on globalization has begun. Until now, it has been dominated by
extremists on both sides—anti-globalism radicals and dogmatic free-marketers. At each
end of the spectrum are ideologues who are pushing agendas unrelated to reality.
A decade ago, when much of the world was still clinging to various brands of
wealth-destroying socialism, it may have made sense to push rigid doctrines. But the
battle for market-driven economics has been largely won. And the flaws of trying to force
every country into the same template have become clear. To take globalization to the next
level, it is time to forge a more enlightened consensus.
