Financial Times - November 27, 1999
The critics of capitalism [editorial]
Communism may be a dying political creed, but capitalism still has its enemies. Next week's Seattle meeting of the World Trade Organisation is set to be swamped by thousands of protesters.
Their aims are varied, but all agree on one thing: the new trade round must be stopped before it gets started. The backlash against global capitalism is gaining force and power, and politicians so far have done little but sit back and watch it happen.
In many cases, the non-governmental organisations converging on Seattle are engaging in special pleading. The NGOs are proving exceptionally good at organising themselves and using their influence to the full, through their use of marketing, lobbying and the internet (protesting, somewhat ironically, has become a truly global venture).
Warning signal
But the protests have real importance as a warning signal that public unease with capitalism and the forces of globalisation is reaching a worrying level. The Asian crisis showed the world how even the most successful countries could be brought to their knees by a sudden outflow of capital. People were outraged at how the whims of secretive hedge funds could apparently cause mass poverty on the other side of the world.
This increased concern about the social consequences of economic activities is mirrored in the return to power of centre-left governments in the leading European nations. The rhetoric of economic efficiency that dominated the 1980s has given way to Third Way politics, which is an attempt to combine economic growth with social justice.
The international community has already taken on board one of the main lessons of the Asian crisis. There is now a widespread consensus that short-term capital flows can be excessively destabilising in all but the best-run countries. Even the International Monetary Fund, a staunch supporter of capital account liberalisation prior to the Asian crisis, now accepts this.
But opposition to free capital flows has extended into a mistrust of all forms of globalisation, including trade.
It would be foolish to deny that free trade can cause enormous and painful upheavals. Whole industries can collapse under the strain of foreign competition - both in the developing and the developed world.
But the evidence that free trade eventually leads to greater prosperity is absolutely clear. Perhaps the strongest proof of this is the queue of developing countries wishing to join the WTO - China has been waiting for 13 years.
Environmentalists and human rights groups complain that free trade encourages the destruction of natural resources and the use of child labour in the pursuit of foreign markets. However, imposing a social agenda on the WTO would be a great mistake, and not only because of the risk that it would be used as an excuse for protectionism. Social aims would often conflict with the aims of free trade, confusing the WTO's purpose. Some social issues ought to be tackled at a global level, but specialist organisations should take up the causes.
Part of the reason why the NGOs' objections to free trade have acquired such force is that international organisations have lost much of their moral authority. The Cold War had given the US and Europe a natural leadership role over countries outside the Communist bloc; when the Berlin Wall came down, this role fell with it. Yet the IMF, the WTO and the World Bank remain, in the public eye at least, western institutions.
The IMF and the World Bank lost a great deal of credibility following the Asian crisis. The IMF, though, is starting to see the virtues of transparency. In choosing the successor to Michel Camdessus, it has a chance to prove that it is not in the hands of western Europe.
The WTO, despite the force of the protests against it, is probably the most inclusive of the three; its decisions are reached by consensus. The Uruguay round was weighted towards the west, but this was partly because the developing world did not do enough to push its own interests. Developing nations now have a much clearer agenda of what they want to gain from WTO talks.
Global dissatisfaction
A perception that these three international institutions are properly reflecting the desires of the developing world would do much to defuse the critics' arguments.
Dissatisfaction with elements of globalisation is growing into pressures for protectionism. Democratic governments must respond to these pressures, but not by giving in to them. For all the pain a more open and integrated global economy can cause, it is still of overwhelming benefit to the world economy. Attempts to reverse the trend of globalisation would be a serious threat to the prosperity of countries at all stages of development.