Monday , June 16, 2008 at 2307 hrs Larry Summers, Pascal Lamy and Prakash Karat would make a most unusual set of bedfellows at the best of times. Strangely enough, just recently, they did find themselves in the same intellectual boat, (even if not in the cozy comfort of the same intellectual bed), on the subject of globalisation. Karat is, of course, a communist ideologue from central casting. Summers seems a recent convert, purportedly for the cause of the American worker impoverished by globalisation. But, many suggest personal motives as well—-a pitch for a job in a forthcoming Democratic administration. Lamy joined the chorus against ‘unfettered’ globalization, particularly in global finance, last week. There is a bit of the personal here as well—-the ambitious Frenchman is already through with more than half his tenure as the boss of the WTO, with little to show in terms of a result.
Motives aside, all three men do have formidable intellect, and if the three of them form an anti-globalisation team it will be taken more seriously than motley groups of street protestors, who have been the face of the anti-globalisation movement thus far. One hopes, of course, that these three gentlemen see reason in why they are wrong.
Let us analyse the extraordinary volte-face of Summers first—-caught in a premature autumn of his soaring career after his exit from Harvard the eminent ‘liberal’ economist is now pitching for a return to government. Hillary Clinton’s exit has hurt his cause and he is now trying to hop on to Barack Obama’s protectionist bandwagon. Trade, says Summers now, is responsible for the ills of American workers. As an economist, he surely knows how much the US has benefited from globalisation and free trade. He would also know that not everyone can always be a winner—some workers would have indeed lost out. The policy solution, however, is not to shut out globalisation—that would create a bigger number of losers—but to rehabilitate the minority who do lose out by offering them retraining, education and social security. It’s a real pity, then, that Summers has chosen globalisation as the strawman to be demolished.
Pascal Lamy’s problem isn’t free trade. In fact, as WTO chief, it is his responsibility to help break barriers down. However, he too was caught, recently, lamenting unfettered globalisation, training his guns on global finance in particular. His argument—the US subprime crisis, which signals a genuine crisis in financial globalisation has eroded people’s faith in globalisation at large; shut out finance and focus on trade. Sadly, this logic is flawed as well. The spread of global finance has been critically important for both the developed and developing countries. There is admittedly a problem in the Western banking system which was caught out rewarding—and then paying dearly for— excess risk. But the solution lies in better domestic regulation, and initiatives on the part of the industry itself to correct the flawed incentive structures. To shun financial globalisation altogether is akin to throwing out the baby with the bathwater.
Prakash Karat, the last of the unlikely trio, is perhaps the most trenchant critic of globalisation. Unlike Summers and Lamy, he sees no merit in any aspect of it—trade, investment or finance. His fundamental argument is that economically, it does not benefit the people of India or other poor countries and politically, it perpetuates western (American) imperialism. His argument is, of course, incorrect. Most developing countries, including India and China, have grown faster in the last 15-20 years of globalisation than they did at any earlier time. The number of people in poverty has declined but perhaps not enough. Still, it is less than it was under a more closed international system. Obviously, much more needs to be done to make the process of globalisation more inclusive—state support of infrastructure, education and health and social security nets has never been more critical—-but again, the policy solutions lie in the domain of domestic policy. Autarky is unlikely to solve anything.
If Karat remains unconvinced about the economics of globalisation, there is the politics as well. Developing countries, including India, have never had greater leverage in the international economic system than they do now. A lot of this has to do with their recently acquired economic might, courtesy global engagement. It should warm the cockles of Karat’s heart to see India, Brazil, South Africa, et al reject repeatedly, admittedly lopsided US proposals at the WTO. This was not the case during the Uruguay Round of the 1980s and early 1990s where poor countries including India were simply not able to put up a fight at all. The IMF, too, is mulling an increase in the voting powers of developing countries. Something is clearly changing and it is tilting some balance of power towards India and other developing countries. So why despise the globalisation that is finally bringing power to the previous have-nots?
It is time for Messrs Summers, Lamy and Karat to rise above the personal and ideological and get realistic. Like much else in the world, globalisation has its limitations. Domestic policies can do a lot to help diversify its gains and minimise its losses. Focus the rhetoric and policy on those and let globalisation run its admirable course.