ECONOMICS: by Colin TeeseNews Weekly
What future for globalism?
, September 10, 2005
Economic globalism, despite the best efforts of its defenders, is not in very good odour with the public, argues former deputy secretary of the Department of Trade, Colin Teese.There's so much to write about for this issue of News Weekly, that a footloose correspondent hardly knows where to start.
Globalism is in the news and, generally speaking, not in very good odour. Despite the efforts of the ideologues, scepticism is taking a firmer hold.
American writer Thomas L. Friedman has written a book entitled, somewhat curiously, The World is Flat: A Brief History of the Twenty-first Century
We can assume that Mr Friedman has not suspended belief in the proposition that the world is round: instead, he is trying to convince us that the notion of the level playing-field - once so dear to the heart of Treasurer Keating - is alive and well. Not surprisingly, the Australian Financial Review
has grasped at this lifebelt with all the enthusiasm of a drowning man.Collapsing
The Canadian writer, John Ralston Saul, has another view. His book The Collapse of Globalism: and the Rebirth of Nationalism
insists that the free market nonsense surrounding globalism is collapsing. He's not talking about the technological advantages of electronic communication. That he accepts as a benefit of globalised life. Quite obviously, it helps influence - sometimes for better, sometimes not - how human beings relate to each other.
It's the other side of the globalism coin that Saul is so keen to put under the microscope, in particular, what has been - and still is being - claimed as benefits flowing from the application of deregulation and free-market arrangements to domestic economies in a globalised world.
Two characteristic features - technology advances and market deregulation - were never necessarily connected, though strenuous efforts were made by proponents of deregulation to claim otherwise.
At that time, the most extravagant claims were made for the economic advantages which could be gained by embracing what were then called "economic reforms". New efficiencies were simply assumed to flow from freeing up markets in production, transport and financial transactions. Even better, some said, market power would hasten the spread of democracy throughout the world.
One US writer, Francis Fukuyama, went so far as to claim - associating the new developments with the implosion of the Soviet system - that political conflict was at an end. Liberal economics was poised to deliver unending peace and prosperity to a waiting world.
Even more extravagantly, some boldly predicted the end of the nation-state. Understandably, the same enthusiasts ignored those who were unkind enough to point out that communism had anticipated precisely the same outcome.
An important US economist, Lester Thurow, more soberly predicted that the new arrangements, comfortably accepted as they were in the English-speaking world, had by now means captured other minds. Thurow suggested that a struggle was taking place in the wider world between the ideologies of regulated and unregulated capitalism.
Thirty years on, it seems all of them were wrong - perhaps Lester Thurow less than the others. Full-blooded unregulated market policies did not take hold in Japan, Europe and Asia in the way they did in the English-speaking countries. But in Europe and Japan they did have some influence.
The interesting thing is that their impact on economic growth and development in Europe, in particular, and, to a lesser extent in Japan, was not beneficial.
As for the withering away of the nation-state, the rise of terrorism has apparently killed off that possibility. Nation-states today are at least as strong as at any time since World War II. Politics is once more king.
The reasons behind the collapse of globalism, complex and numerous as they are, cannot be examined here. It is enough to say that globalism does not work because, far from producing universal gains, its benefits are conferred unevenly and in ways which generate political problems for governments.
To the extent that Europe - i.e., the European Union - has followed the new economic orthodoxy, it has done badly, though not as badly as free marketers have encouraged us to believe.Falling growth
Growth and employment in Europe are said to have fallen because the EU has not followed the example of the pure free-market economies. All of this ignores the fact that unemployment and growth are calculated differently in Europe, and therefore strict comparisons with other economies are not possible.
What is often overlooked is that Europe, along with Japan and China, is funding the debt binge which is said to sustain the health of the US economy.
Let it not be forgotten, in the manufacture of commercial aircraft, the European consortium Airbus, is applying a competitive blow-torch of such intensity to the US manufacturer Boeing, that the United States is crying "unfair competition" to the World Trade Organization (WTO). Europe, it would seem, can't be doing everything wrong.
Nevertheless, there are signs that the European Union is messing up, but not because of ignoring economic reform prescriptions of the free marketeers; rather, because of taking too much notice of them.
Generally, Europe's history and culture have left it with no more than a qualified acceptance about the virtues of unregulated markets - and with good reason.
They have been down the track of market-driven policies 90 years ago, and it wasn't pleasant. Two world wars later, they are entitled to be suspicious. But apparently the technocrats in the European Commission (the EU's bureaucracy) in Brussels have shorter - or more selective - memories. At any rate, for whatever reasons, they have been pushing member-states firmly in the direction of deregulation - and, as it happens, so far as the future health of the EU is concerned, at entirely the wrong moment.
When the globalism movement was at its most influential, the Commission bureaucrats managed to impose the Maastricht Treaty on its member-states. Among other things, Maastricht committed the EU member-states to achieve balanced budgets. This was supposed to compel EU members contain inflation.Political sovereignty
What the Brussels technocrats did not seem to understand was that budget control of that kind was not necessarily a good thing for all member countries at all times - most particularly, while the membership still retained most of its political sovereignty.
There is little doubt that the bureaucracy believed what was said about the new economic liberalism - that it was signalling the end of the nation-state.
In taking this line, the Commission seems to have forgotten a basic philosophy of the EU. From the outset, the aim of European unity was always to achieve balanced development within the member countries in the interests of long-term peace and security.
As a Spanish-born Australian journalist recently informed this writer, the village from which her parents came had been bone-poor since the 13th-century - that is, until Spain joined the EU. Now it was as prosperous as Australia.
That kind of wealth redistribution simply cannot happen under a form of economic organisation where the unrestrained operation of the market is alone left to decide outcomes. Obviously, it can only come if the better-off member-states are prepared to sacrifice some of their wealth for the benefit of others.
There was another unanticipated incident which helped slow the apparent pace of European growth. When the Soviet empire collapsed, the Federal Republic of Germany decided to absorb the former East Germany as if the two regions had never been separated. It immediately equated the worthless East German currency with the German mark.
The entire economic cost of that gesture had to be borne by the Germany economy - while it was still making its full contributions to the EU's general regional development program. Is it any wonder that the strength of the German economy and the standard of living of Germans were affected?
Nevertheless, the Commission, unwisely - and perhaps in pursuit of a mainly bureaucratic agenda - managed to convince the member-states to push on with an over-ambitious plan of enlargement. Previously, enlargements had been carefully planned, in order to ensure that poorer joining members could be accommodated and developed to overall European standards without putting too much pressure on existing standards of living within the EU.
Trying to swallow in one gulp the entire Eastern European basket of the defunct Soviet satellites was unwise, even irresponsible. This was all the more so because, at the same time, the bureaucracy was trying to limit the size of agricultural subsidies - apparently ignoring the fact that the incoming countries were large agricultural producers in a position to threaten the agricultural interests of traditional members like France and the Netherlands, to name just two.
Even more incredibly, at this same moment the Brussels bureaucracy chose to put before the member-states a so-called constitution which combined the idea of a large-scale transfer of more and more political power from member-countries to Brussels, alongside proposals for a further enlargement which would include Turkey.
No wonder the voters in France and the Netherlands jacked up. The bureaucracy worked out its own political spin and say that voters were worried about bringing a strongly Muslim country (Turkey) into the Union.
But it was more about economics. Member-states worried about whether the Union could afford the high cost of dragging a country the size of Turkey out of poverty, especially given what had to be spent in Eastern Europe - and all the more so when the free marketeers and their own bureaucrats kept telling the Europeans that they were bad economic managers.
John Ralston Saul is telling us that globalism is collapsing and that the world will have to be re-invented. "Reinvent" may be the word that should apply to Europe.Destabilising
It is not going too far to suggest that globalism and free market pressures, including those emanating from the EU's bureaucracy, have combined to destabilise the EU at a time when the need for a strong, united Europe - one capable of contributing to world stability - has never been greater.
Instead, what we have recently witnessed is a Europe divided about its aims and its future in a way we have not seen since the end of World War II.
If this were to be the only legacy of a collapsing globalism, it is one we can ill afford. And we can certainly assume that the free market philosophy will play no part in the reinvention of Europe.
- Colin Teese is a former deputy secretary of the Department of Trade.