Will Globalization Survive?
Globalization is not inevitable. It depends on politics. Today, it depends above all on US politics. Without successful US leadership, the present globalization may founder, just as the last one did. In this article Martin Wolf, associate editor and chief economics commentator at the Financial Times, starts by analysing the driving forces behind globalization. He then looks at its impact, before examining the risks that lie ahead. He concludes with a few ways to minimise those risks.
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A Global Compact to End Poverty Author: An interview with introduction by Brian Snowdon, December 2005
Brian Snowdon presents the text of a two-hour interview conducted with Jeffrey D. Sachs of Columbia University—a wide-ranging discussion relating to Professor Sachs’s work over the past thirty years on macroeconomic stabilisation, the economics of transition, and several important issues in the field of international economic development. First, Snowdon provides some background to the debate relating to Professor Sachs’s most recent work that has helped focus international attention on the growth tragedy of sub-Saharan Africa. This key humanitarian issue has received enormous coverage in the media throughout 2005 and has been highlighted in particular at the G8 meetings in Gleneagles and worldwide Live 8 Concerts in July 2005, and the UN World Summit in September.
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“Pity the Finance Minister”Substantial scaling up of aid flows will require development partners to address many issues, including the impact of higher aid flows on the competitiveness of aid recipients, the management of fiscal and monetary policy, the delivery of public services, behavioral incentives, and the rate of growth of the economy. Other issues will include the appropriate sequencing of aid-financed investments, balancing alternative expenditure priorities, the implications for fiscal and budget sustainability, and exit strategies from donor funding. Donors will need to ensure greater long-term predictability and reduced short-term volatility of aid. The international financial institutions can play a critical role in helping countries address these scaling-up issues.
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Measuring Global Poverty RightThe international community is committed to millennium development goals which postulate a vision of global development that makes eliminating poverty and sustaining development the overriding objective of global development efforts. In the hierarchy of the MDGs, the first and foremost goal is to reduce by half, between 1990–2015, the proportion of people whose income is less than a dollar a day (a widely used yardstick to measure extreme poverty). However, estimating such poverty across developing countries and globally is by no means a simple exercise nor has it yielded unambiguous results. This article provides a brief summary of the state of the art in global poverty estimates, including the problems as well as the possible solutions.
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Monetary Policy, Macro-stability and GrowthThere is greater appreciation now amongst economists of the negative effect of uncertainty on investment, growth and equality, especially when credit constraints are widespread. This implies an important linkage between the transparency and predictability of the policy environment, and growth and equality. The paper begins with a literature survey on the inflation and inflation volatility link, the uncertainty and investment link and the inflation volatility and growth link. This framework is used to examine the experience of South Africa’s new monetary policy regime (inflation targeting, IT) in achieving greater macrostability. South Africa is an interesting case study, being one of the more advanced of the emerging markets with its deep and sophisticated financial system, and yet with around 35 percent unemployment and a legacy of developmental problems from the Apartheid era. The authors demonstrate using evidence from three sources of micro-data that the new monetary regime is more credible, transparent and predictable. They examine the performance of monetary policy and argue IT has not resulted in real interest rate levels that are a hindrance to growth. They explore the better response under IT to big external shocks like exchange rate depreciation, as compared with the monetary regime prior to IT. The paradox is examined of success in achieving macro-stability, where greater household acquisition of debt and increased demand is both inflationary and limits saving, hence constraining corporate investment. The paper concludes with lessons from South Africa’s recent successful monetary policy experience for other emerging market countries and for less developed countries’ central banks e.g., in Africa.
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Brazil’s Economy Under LulaIn this article Edmund Amann analyses the recent performance of the Brazilian economy, the largest in South America. For a number of years it has been clear that Brazil, despite substantial natural resource endowments and a talented and entrepreneurial population, has failed to match the growth performance of other emerging market economies, notably those of East and South East Asia. This article examines the structural impediments to accelerated growth which will need to be overcome if Brazil’s economic performance is to improve significantly. While the government of President Lula is well aware of the need for structural reform, it is argued that progress in this field has been slower than desirable. As a result, growth remains constrained and the scope for reducing poverty and inequality restricted.
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Corporate China Goes GlobalRecent high-profile international acquisitions and take-over bids by Chinese companies have attracted much media limelight and raised intense interest in China’s rising outward foreign direct investment (FDI). This paper delineates the macro trends of China’s outward FDI based on the most currently available data. It analyzes the size, geographical distribution and motivations of China’s outward investment. It identifies an emerging trend-shift in the globalization strategy of Chinese firms, moving from organic growth to strategic alliance and outright acquisition. The paper weighs the balance between obstacles to, and supporting factors for, the internationalization of Chinese enterprises. Finally, it spells out the mutually-beneficial effects of China’s outward FDI on home and host countries.
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The ‘Death of Distance’This paper considers the implications of falling transport and communications costs for the spread of economic activity around the world. The evidence suggests that location has been and continues to be an important determinant of income levels. The Information and Communications Technologies (ICT) Revolution has not eliminated the benefits of agglomeration. It has permitted a significant increase in international trade in services but has not made all locations equally attractive. The ‘death of distance’ has been greatly exaggerated and the European welfare state is not being undermined by a ‘race to the bottom’ as capital seeks tax havens in distant locations.
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The Value of VaccinationDespite advances during the twentieth century, immunization coverage is far from universal and faces significant obstacles in both developing and developed countries. Weak policy emphasis on vaccination may be the result of the narrow view of its benefits in scientific and policy-making communities, which focus mainly on the averted costs of medical treatment. An investigation of the broader impacts of immunization shows that the benefits of vaccine programs—in particular, their economic effects via improved health—have been underestimated, thereby causing the rate of return to be underestimated.
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The Economics of HappinessThe economics of happiness is an approach to assessing welfare that combines economists’ techniques with those of psychologists, and relies on more expansive notions of utility than does conventional economics. Research based on this approach highlights the factors—in addition to income—that affect well-being. It is well suited to informing questions in areas where revealed preferences provide limited information, such as the welfare effects of inequality and of macroeconomic policies such as inflation and unemployment. One such question is the gap between economists’ assessments of the aggregate benefits of the globalization process and the more pessimistic assessments that are typical of the general public. The paper summarizes research on some of these questions, and in particular on those relevant to globalization, poverty, and inequality.
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Paradoxes in Biodiversity ConservationBiodiversity is important for human wellbeing, but it is declining. Measures to
conserve biodiversity are essential but may be a waste of effort if several
paradoxes are not addressed. The highest levels of diversity are in nations least
able to practise effective conservation. The flow of funds to international
biodiversity conservation appears trivial when compared to the scale of
biodiversity loss. International agreements may not actually protect or conserve
more than what would have been conserved anyway. Protected Areas may be
‘paper parks’, protected in name but not in practice. The very act of protection
may contain self-destructive features because local communities can easily suffer
loss of income and assets, making them unwilling partners in the act of
protection. In turn, this places the protected area at risk and may also divert
unsustainable harvesting activities to non-protected but equally diverse
ecosystems. In tackling these issues the real biodiversity challenge is redesigning
conservation effort, making it truly additional and making it compatible with
poverty reduction.
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The Costs of Mitigating Climate ChangeThe paper reviews analyses of the costs of mitigating climate change and discusses the implications for policy. The estimated effects of reducing carbon emissions by 40%–60% over the next half century range from –1.0% to 4.5% of world product, averaging 2½%. This would be small in relation to the growth of economic output over the period, which is likely to be several hundred percent higher than it is today. The main reason why the estimated effect is small is innovation: a large number of carbon-neutral technologies and practices is available or emerging that are capable of significant further development. An initiative focussed on encouraging innovation and the diffusion of new energy technologies and practices across countries would provide a new direction for international cooperation based on already significant national policies in many countries.
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Should Fuel Taxes Be Scrapped in Favor of Pay-by-the-Mile Charges?This paper discusses the appropriate balance between traditional gasoline taxes and charging by the mile, focusing on economic efficiency considerations. It begins with a brief discussion of the five major passenger vehicle issues of concern—local pollution, greenhouse warming, oil dependency, traffic congestion, and traffic accidents—and summarizes evidence on the dollar value costs of these problems for passenger vehicles in the United States. It then discusses how much fuel taxation might be justified to account for them, as well as how much taxation might be appropriate on fiscal grounds, assuming per mile charges are unavailable. Finally, it discusses to what extent fuel taxation should be replaced with per mile taxes.
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Natural Resource-Based Economic Development in HistoryThe role of natural resources in fostering economic development is examined for key historical epochs, from the agricultural revolution in 8,000 BC to the present. Natural resource exploitation has been important to development for most of global history. Depending on which epoch is examined, resource-based development could be viewed as “successful” and sometimes not. Simply because a developing economy or region was endowed with abundant natural resources does not guarantee that its natural wealth is exploited efficiently and generates productive investments. Institutional factors also matter, and environmental conditions may also determine whether or not countries develop “good” institutions.
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The Economics of CopyrightThe copyright industries—such as music, film, software and publishing—occupy a significant and growing share of economic activity. Current copyright law protects the creator for up to 70 years after their death, significantly longer than patent protection (20 years after invention). Copyright law aims to balance the incentive to create new work against the costs associated with high prices and restricted access to this work. This paper reviews the economic issues behind copyright and how these are challenged by changes in technology and market structure. While economics provides a powerful conceptual framework for understanding the trade-offs involved, the paper argues that our empirical knowledge base is very weak. Much more empirical analysis is needed to understand the impacts of changes to copyright legislation. Without such analysis, policy and legal debates will continue to be based largely on anecdote and rhetoric.
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To What Extent Should Less-Developed Countries Enforce Intellectual Property Rights?This paper discusses a number of issues in the context of the debate on intellectual property in less developed countries (LDCs). It starts by discussing the consequences of IP enforcement in LDCs for global innovation and welfare in poorer countries. It then considers the costs and benefits of IP enforcement for a small, open LDC, abstracting from global issues. Finally, it discusses the potential merits of an industrial policy based on open-source software. The analysis suggests that the view that it is best for LDCs to free ride on the global IP regime is overblown.
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The Nature of Corruption in Forest ManagementCorruption is a well-documented and common feature of natural resource management in the developing world. This article investigates the nature of corruption and whether or not there is such a thing as a ‘tolerable’ level of corruption, particularly where there is an established culture of patronage. Using the log trade in Indonesia as a study in rent-seeking transactions, this article shows that a failure to account for the incentives underlying rent-seeking undermines forest policy. Also, attempts to eliminate corruption are doomed to failure. Instead, policymakers should seek to understand the nature of corruption in seeking to move from rent creation to wealth creation.
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Anticipating Artistic SuccessThe recent history of modern art provides clues as to how important artists can be identified before their work becomes generally known. Advanced art has been dominated by young conceptual innovators since the late 1950s, and theimportance of formal art education in the training of leading artists has also increased during this period. In the United States, a few schools have been particularly prominent. Auction market records reveal that during the past five decades the Yale School of Art has produced a series of graduates who have achieved great success commercially as well as critically. Recognizing Yale’s role can allow collectors to identify important artists before they become widely recognized, and therefore before their early innovative work rises in value.
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Does the World Need a Universal Financial Institution?All financial institutions specialize, in dimensions that may include categories of assets and liabilities, types of services offered, customer demographics, and geographic coverage. The International Monetary Fund is the only international financial institution that is truly universal in its geographic scope, prepared to lend on request to virtually any country in the world. Why has this status come about? What are its costs and benefits? Is it an appropriate model for a world where macroeconomic imbalances, financial crises, and disparities in economic development must compete for attention and resources?
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Tensions in the Role of the IMF and Directions for ReformWhile the International Monetary Fund (IMF) has evolved considerably since its foundation 60 years ago, the past few years have brought fresh challenges. This paper discusses four key areas in which developments have led to a rethinking of the institution’s role: the emerging market financial crises, the changing role of conditionality, the phenomenon of prolonged use, and the search for a clearer role in low-income countries. In response to these challenges, important reforms have been undertaken to strengthen the institution’s effectiveness, but important tensions remain unresolved. The paper discusses the implications for the governance of the institution.
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The IMF and Low-Income CountriesThere is a wide-ranging debate about possible redefinitions of the role and structure of the IMF itself, and of the Bretton Woods Institutions more generally. This paper has a more restricted focus, on the way in which the IMF interacts with the low-income countries amongst its constituents. It addresses four related topics. The first two are concerned with whether the Fund could remain fully engaged with these countries without actually making loans, and what would be required for it to deliver on its commitment to a more flexible macroeconomic approach. The others examine the Fund’s approach to the debt sustainability issue and the nature of its technical assistance, and how well tailored these are to the circumstances of low-income countries. There is a strong case for strengthening the underpinnings of the Fund’s technical assistance, to develop a more focused low-income analytic perspective, to build its own capacity to assist countries to explore their macroeconomic options, and more systematically to evaluate its technical advice in the light of the outcomes it has helped induce.
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Measures of Progress and Other Tall StoriesHow should progress be measured? Today, economists and economic historians have available a rich array of data for a large number of countries on which to base their response to this important question. The need for alternative measures of the standard of living is particularly important for economic historians exploring the distant past where conventional estimates cannot be calculated. In this paper John Komlos and Brian Snowdon review several alternative measures of ‘progress’, both orthodox and unorthodox, including recent findings from ‘anthropometric’ history. The field of Anthropometrics blends history, economics, biology, medical science and physical anthropology and is now well established having helped to clarify ‘several questions important to economic historians’ including those related to slavery, mortality, inequality, and living standards during industrialisation. While malnutrition is the scourge of poor countries, obesity has become a major problem in many developed countries, particularly during the last quarter century. Research into the economics of obesity is now a burgeoning research area and the authors briefly review some of the major findings. Finally, Komlos and Snowdon comment on the recent literature on ‘happiness’. The achievement of a higher GDP per capita is, after all, not an end in itself, but a means to an end, that is, human happiness.
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The New Economics of the Brain DrainFor nearly four decades now, the conventional wisdom has been that the migration of human capital (skilled workers) from a developing country to a developed country is detrimental to the developing country. However, this perception need not hold. A well-designed migration policy can result in a “brain gain” to the developing country rather than in just a “brain drain” from it, as well as in a welfare increase for all of its workers—migrants and non-migrants alike—as the new research reported here suggests.
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Migration and DevelopmentThere is growing interest in the impacts of international migration on economic development. Yet, despite a burgeoning literature, some of the most fundamental questions in this area remain unanswered. This article suggests five priorities for devising better methodologies for understanding the impact of migration and for generating fresh, workable policy interventions that can optimise the impacts of greater mobility on development.
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Trade in the Chinese 21st CenturyIn this article Sir Howard Davies, Director of the London School of Economics
and Political Science, offers some thoughts, first, on the political framework
within which trade policy is determined, then about the way in which the
globalization debate has developed, and finally some suggestions on the way in
which the growing significance of China as a global trader will affect us in the
future.
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Keynes, Globalisation and the Bretton Woods Institutions in the Light of Changing Ideas about MarketsFor most of the twentieth century, pessimism about, and hostility to, markets was
prevalent and this pulled in an anti-globalist direction. Indeed, the global
institutions set up in 1944 were constructed by two market pessimists, John
Maynard Keynes, on whom this article concentrates, and Harry Dexter White.
The main shift in thinking in our own day has been towards a renewal of the
market optimism of the nineteenth century, providing the necessary intellectual
condition for the emergence of globalisation as a policy project. Anti-globalism
has switched from poor to rich countries. Globalisation offers the best hope for
poor countries to catch up with the rich. But growth has become less important
for rich countries which could probably abandon the globalist project without
much damage to their material standards, and with possible gain to their quality
of life. And they may be tempted to do so if the political costs of maintaining a
global economy become too high. The implications of such a shift are profound.
But Keynes would at least demand that we start thinking about them.
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Monetary Policy in an Uncertain WorldIn this article, Charles Bean, Bank of England Chief Economist and member of
the Monetary Policy Committee, reviews and assesses the three types of
uncertainty which affect monetary policymakers: uncertainty about the data;
uncertainty about the nature and persistence of shocks; and uncertainty about the
structure of the economy. Focusing on uncertainty about the structure of the
economy, he notes the unusual stability of inflation and output growth in the past
decade or so. There are a number of possible explanations, including plain good
luck, structural changes in the economy and improved policymaking. The author
goes on to note that the short-run trade-off between inflation and activity seems
to have flattened as inflation has stabilised at low levels and he attributes this in
part to improved monetary policymaking. He goes on to consider some of the
policy implications of this change.
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International Comparisons of GDPWhen it comes to making international comparisons of real GDP, different views,
conventions and practices are still in evidence. The authors set out the case for
using purchasing power parity (PPP) converters for this purpose, rather than
conversions based on exchange rates, and give reasons for rejecting various
arguments that are still widely made to the contrary. In doing so, they provide
instances of the differing current practices of international agencies, and argue
the case for greater uniformity and consistency on their part. They make a
number of suggestions, general and specific, for improving the quality and
presentation of cross-country comparative data.
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Reserve Accumulation in AsiaIn the aftermath of the 1997/1998 crisis, Asian economies have built up large
holdings of international reserves. Although initially encouraged to do so by the
IMF, more recently they have been criticised for maintaining undervalued
currencies, running large current account balance of payments surpluses and
accumulating excessive reserves, policies that have been blamed in part for
causing global economic imbalances. This paper examines two related issues.
The first is the role of closer international macroeconomic policy co-ordination in
rectifying the imbalances and the institutional mechanisms through which this
may be achieved. The second is the alternative ways in which the liquidity needs
of Asian economies may be met without them having to acquire large reserve
holdings. There may be an inconsistency in opposing reserve accumulation in
Asia and at the same time blocking reform that would provide additional security
against subsequent economic and financial crises.
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Rethinking Development EffectivenessThis article reviews some recent research on aid effectiveness. An important
finding of this research is that foreign aid has been much more effective than is
generally presumed. It also suggests that the current aid allocation policy of
development agencies, based on selectivity, has a fragile empirical foundation and
discriminates against capacity-constrained/geographically disadvantaged
countries. To achieve international development objectives, the fundamental
basis for foreign aid allocation should be the Millennium Development Goals and
national poverty reduction strategies—a bottom-up approach, as contrasted from
the top-down method currently being practiced.
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The Anomalous Case of HIV/AIDSIn a recent issue of World Economics (Vol. 5, No. 4, 2004) Bell and Lewis discuss
‘The Economic Implications of Epidemics Old and New’. In their article those
authors examine several historic and recent epidemics including HIV/AIDS,
currently regarded as the greatest threat to economic and human survival in the
affected countries. Craven et al. are responding to the authors’ views about
HIV/AIDS because they think that they have misinterpreted the record, and
accepted conventional but questionable assumptions about the epidemiology,
morbidity and mortality of this syndrome which varies in distribution
geographically and statistically, and therefore in economic impact. Craven et al.
suggest reasons for this misinterpretation and offer an alternative analysis of the
epidemic, with very different human and economic implications.
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