Finanical Times - December 8, 1999
IN DEFENCE OF GLOBAL CAPITALISM
Policymakers need to find a constructive response to the anti-market prejudice displayed on the streets of Seattle, writes Martin Wolf
President Bill Clinton personally offered to host the ministerial meeting of the World Trade Organisation. But then, in Seattle, he killed all hope of agreement on a new round of multilateral trade negotiations by telling a journalist that he would favour imposing sanctions against violations of labour standards included in trade agreements. The chances of agreement, always slender, then disappeared.
Mr Clinton's opportunism is not news. Far more significant was his realisation that currying favour with the forces arrayed against the WTO was good politics. For the president is responding to a powerful backlash against globalisation - one felt not just in the US, but throughout the west.
This backlash is not surprising. The passions that have marked this century have not vanished. Among these have been hostility to the market, fear of modern science and technology, anxiety over social and economic change and nostalgia for a simpler and more spiritual world. These attitudes would never let the triumph of the market endure unchallenged.
What the protestors against globalisation share is dislike of the market economy. This passion brought the cranks, bullies and hypocrites to Seattle: "anarchists" who want governments to use force to stop international trade; "consumer activists" who want to prevent people from buying cheap imports; and "altruists" who want to prevent the exploitation of the poor, particularly when they produce goods for export competitively.
What is more, the protesters are, by their lights, right. The WTO is at once a set of agreements to open markets and an institution able to determine whether these have been violated. The opposition to it thus throws into relief two fundamental fault-lines in 21st century politics: between supporters and opponents of the global market, and between supporters and opponents of potent international institutions.
The rise of the international market is not entirely new. Something similar happened in the late-19th century. But, as Vincent Cable, a member of the British parliament, argues in an excellent new analysis, "with all the necessary qualifications to the hyperbole about globalisation, something important is happening."* This, he argues, is the speeding up of communications, and the "liberalisation revolution" - a global freeing of markets.
Among the countries that have embraced liberalisation - including unilateral trade liberalisation - over the past decade are China, India, virtually all the former communist states of central and eastern Europe and the former Soviet Union, Argentina, Brazil and Mexico. This spread of the market will do far more to lift hundreds of millions of people from mass destitution than an army of aid workers.
Global economic integration has been assisted by agreements within the WTO. On this Lori Wallach of Public Citizen, a consumer organisation dedicated to curbing trade, made a particularly revealing comment after the Seattle meeting's failure. "We have succeeded," she said, "in turning back the invasion of the WTO into domestic policy decisions."
Indeed, the WTO is the only global institution that even the US and the EU are supposed to obey. Other institutions - the World Bank and the International Monetary Fund - have influence only over weak developing countries. That, the activists believe, is as it should always be. They wish to protect US or EU environmental law from question, but be able to impose sanctions on imports from developing countries that are produced by allegedly exploited labour, or in supposedly environmentally damaging ways. Any organisation that limits their ability to do so is anathema.
The question is how best to respond to the backlash. This is a task President Clinton is well equipped to undertake. After all, he knows that Americans are better off in an internationally-integrated economy. But he apparently also believes that the US is threatened by a "race to the bottom" over environmental regulations. In addition, he wants to "humanise" trade, by introducing labour standards.
This stance legitimises the domestic enemies of both trade and the WTO. Equally inevitably, the developing countries view it as inimical to their interests. They see the US pushing environmental and labour standards, on the one hand. and refusing to change its protectionist anti-dumping policies on the other.
There is another approach.
First, policy-makers should state that a dynamic international economy already has a human face. Its humanity derives from the economic opportunities it gives to ordinary people.
Second, they should argue that there need be no race to the bottom, because they have no intention of entering one. Similarly, the best response to the pressure on labour markets in high income countries is improved domestic policies on education, training and social welfare.
Third, they should insist the WTO poses no threat to sound environmental policies. It merely requires countries neither to discriminate among imports nor to use domestic measures as a disguised form of protectionism.
Fourth, they should accept that countries will sometimes be unable to abide by WTO rulings. The accepted outcome should be compensation, ideally through trade liberalisation.
Fifth, they should seek to persuade environmentalists that the WTO can solve no global environmental problem, but, happily, causes none either. More important, if such challenges as global warming are to be tackled, this can only be by strong, legitimate and fair international organisations. Sensible environmentalists should see the WTO as a model to be copied, not an enemy to be destroyed.
Sixth, they need similarly to persuade trade unionists that labour standards are a function of economic development, and cannot be durably improved via trade sanctions under the WTO.
Finally, they need to find ways of reforming the WTO. Decision-making needs to be streamlined. Dispute settlement procedures also need to be more transparent, but without compromising their efficiency.
The backlash against globalisation is more a howl of pain than a rational call for change. Today's need is to respond to those who can be assuaged by reforms, while resisting those who prefer national self- sufficiency, zero growth and freedom to impose the environmental and labour policies they want. Half a century of effort went into creating the opportunities the world enjoys. These must not be thrown away.
* Globalisation and Global Governance. By Vincent Cable. Royal Institute of International Affairs, London 1999
Contact Martin Wolf by e-mail: <mailto:martin.wolf at ft.com>