Ten years ago, Supachai Panitchpakdi was in charge of the World Trade Organization as it led a global push for the liberalization of trade, investment and just about everything else in the early days of the Doha Round. The talks ran aground (they still aren’t concluded) amid a big pushback from many developing countries (backed by organizations like Oxfam) against the free market fundamentalists. Now Supachai is in charge of UNCTAD and has just written (or at least put his name to) one of the most comprehensive critiques of the WTO model of globalization that I’ve seen from an official body. ‘The World Turned Upside Down’ is his report to UNCTAD’s upcoming meeting in April (UNCTAD XIII – they’re held every four years) and it’s a punchy, outspoken and well written document. From the UN. That’s correct. Some highlights:
On the role of the state: “When things fall apart, the state remains the only institution capable of mobilizing the resources needed to confront large and systemic threats. The idea that the nation state had somehow outlived its usefulness in a borderless world was never very serious. Since the state is pivotal to establishing an inclusive social contract and strengthening participatory politics, it is both imprudent and unrealistic to reduce or bypass its role in managing economic development and change. The more worrying trend in recent years has been the growing influence of financial markets in bending public policy and resources to their own needs and interests – leading a former IMF chief economist to warn of a “quiet coup” – including in the post-crisis period.” Further down Supachai “stresses the critical role of the developmental state”.
A sideswipe at the Washington-based institutions: “Neither IMF nor the World Bank, having abandoned their original raison d’être to the siren calls of unregulated financial markets, have been able to forge a vision of a postcrisis world economy consistent with changed economic and political realities.”
What’s the problem? “I have chosen the term finance-driven globalization (FDG) to characterize the dominant pattern of international economic relations during the past three decades. This is intended to convey the idea that financial deregulation, concerted moves to open up the capital account, and rapidly rising international capital flows have been the main forces shaping global economic integration since the breakdown of the Bretton Woods system. Financial markets and institutions have become the masters rather than the servants of the real economy, distorting trade and investment, heightening levels of inequality, and posing a systemic threat to economic stability. The latest crisis has served as a further reminder that FDG is a political project and is, therefore, the subject of legitimate discussion and debate. To date, the response has largely been one of muddling through, with ad hoc measures to mitigate the damage from economic shocks, informal partnerships to tackle global imbalances, and impromptu alliances to push for greater market transparency.”
And the solution? “Finding the appropriate mixture of reflation, redistribution and regulatory measures to achieve these goals is now the urgent task of policymakers, at the international as much as the national level. I have chosen the term development-led globalization (DLG) to describe the principles, priorities and policies that need to be pursued to turn tentative recovery into an inclusive and sustainable future. Reforming the financial system is the place to begin. Even before the crisis, it was clear that stable and inclusive development was incompatible with speculative market behaviour, boom-and-bust cycles, and the austerity programmes to which they invariably lead. It is telling that the emerging success stories from the South have, in large part, pursued policies that have avoided these dangers. Finance needs to get back to the business of providing security for people’s savings and mobilizing resources for productive investment.”
But solutions go beyond economic policy: “An inclusive development agenda cannot depend on economic policies alone. Under FDG, the stresses and burdens of unregulated markets have, all too often, been shifted to individuals and households and, in countries where social welfare systems exist, to government budgets. In many cases, unprecedented increases in income inequality have gone hand in hand with underfunded public services and rising levels of household indebtedness. The resulting cost to economic security and social cohesion has been enormous. Even when growth has accelerated, as it did in many developing countries between 2002 and 2008, too many people were left behind. A balanced economy depends on a strong social compact which, in turn, requires a range of universal and targeted social policies, tailored to specific circumstances, to ensure that the benefits of growth are widely enjoyed and its risks are shared fairly. The crisis has confirmed UNCTAD’s long-standing insistence on the importance of policy space…. Each country must be able to experiment and discover what configuration of institutions and governance works best in its circumstances and in line with the expectations of its population.”
Conclusion? “Rebalancing is not a narrow technocratic challenge. A true break with the fundamentalist thinking underlying FDG will involve a change of attitudes, morals and values.”
Stirring stuff. The only shame is that these days UNCTAD, which in the 1970s and 80s led calls for a ‘New International Economic Order’, often seems such a marginal voice in the international scene. Yet in an era of FDG crisis, perhaps its hour has come again?