THE CAR COLUMN
In Today's Newspaper
A Changed Global Economy in Search of Rule-Setters
By William Pfaff - International Herald Tribune
PARIS - The need to reform the international financial architecture is now generally conceded. Those who believe that the market unaided can produce the needed changes are a minority outside the United States, and on the defensive even in the United States and Britain, where market fundamentalism originated.
The economy has been globalized, but economic regulation has not. There is now a fundamental discrepancy between economic power and regulatory power. The latter has no international political foundation.
The meetings in Washington last week of the World Bank and the IMF saw James Wolfensohn, president of the World Bank, once again implicitly criticize the market orthodoxy of his bank's sister organization, the IMF, by drawing attention to the rise, in absolute terms, of the number of poor people in today's world.
While globalization has produced large gains in wealth, as measured in GNP and corporate profits, it has also contributed to a polarization of wealth and poverty by destruction of the economic and productive structure in deregulated countries.
''Creative destruction'' is an intellectually attractive conception, but it does not take account of the political damage done to Thailand and Indonesia by unregulated financial flows, and to other countries since, or of the devastation produced in Russia by a utopian doctrinal ''privatization'' that ignored the social and institutional realities of that country.
Questions now are being asked about the social obligations of governments that benefit from the assistance of the World Bank and the IMF. The IMF is being asked to take account of the noneconomic dimensions of the situations in which it intervenes.
Gordon Brown, Britain's chancellor of the Exchequer, is one of those who have pressed for this shift in emphasis, which would have the IMF question its beneficiaries' respect for workers' rights and provision of minimal social security guarantees, in addition to asking for financial transparency and banking reform, as it does now.
The intention is to prevent IMF restructuring programs from making workers and the poor pay for abuses that are actually the responsibility of governments and the managers of the economy.
These new demands arise from a wide series of moral, as well as functional, criticisms of globalization, which has been carried out mainly as the result of pressures from the U.S. government and the U.S. financial community. These demands come from conservative and otherwise orthodox circles, as well as from left-wing critics of deregulation.
They were heard in March at a conference on the effects of financial market globalization on emerging economies, held in Santiago, Chile, and sponsored by the UN Economic Commission for Latin America and the Caribbean, in collaboration with the International Jacques Maritain Institute in Rome. (Maritain was perhaps the most important Roman Catholic philosopher of the first half of this century.) The meeting's patrons included Chile's Ministry of Finance and the Italian and Swiss governments.
An argument made at the conference was that while the most important social question of this century concerned the worker's place in the capitalist system (giving us the Bolshevik Revolution and all that followed, as well as the New Deal, the European Socialist and Christian Democratic movements, and the welfare state), the 21st-century question is likely to be that of social justice in the internationalized and integrated capitalist economy.
The new internationalized capitalism is a challenge to the sovereignty of states. Its tendency is to withdraw the mechanisms and operations of corporate business from national regulation by elected governments, and move them instead into a nebulous international dimension where they have no direct political supervision by any elected body.
Sovereignty was the issue earlier this year when an effort was made at the OECD to get agreement on a new international investment standard to allow companies to sue governments when national legal, social or environmental standards put them at a competitive disadvantage. The effect would have been to force all standards down to the level of the least regulated nation. When the devastating political implications of this were understood, the proposal was rejected.
The problem will recur, since the dynamic of the market seeks emancipation from all regulation. It would reverse the process by which, since the excesses of the early industrial revolution, capitalism has gradually been brought under the control of law and society.
We are seeing today a struggle to re-civilize capitalism in its globalized dimensions, a very difficult thing to do when there are no effective international political institutions to enforce new rules.
Since the time of Bretton Woods, it has been possible to consider the international capitalist economy as apolitical, functioning on its own terms, within the framework set by national governments in 1945. Now the economy has been transformed in nature and scale, but the old framework has not changed. The responsibilities of the actors in this new economy have not been defined, or redefined. The effort to do that, however, has now begun.