An Economist's View
Rachel E. Golden November 2002

Abstract: Anger at America and a proliferation of violence is spreading faster than we are able to root out terrorists. What are the underlying causes for the rage? Growing gaps between haves and have-nots and between insiders and outsiders have produced a perception that we now live in world where “winners take all, losers take only crumbs”. So far, globalization has been too focused on market access and too little focused on development and equality. Without some modifications in the path we are taking, globalization could be sabotaged by its own inequities. However, the fact that a sizeable chunk of civil society has chosen to broaden the debate about the shape of the global economy and entered into the policy arena with counterproposals and actual initiatives is a sign of hope.

Prologue: At the time of the fall of communism, capitalism was supreme. The US, the surviving superpower, would help others prosper. Countries believed that by adopting the American economic and political model and basing economic policies on the Washington Consensus, they, too, would enjoy democracy and an American life style. (The Washington Consensus consists of ten basic principles for economic development that, in the l980s and l990s, were generally accepted by leading economists, think tanks, and policy maker as the basic principles for economic development. Included in the list were privatization, liberalization, and deregulation.)

But democracy and globalization have not delivered as expected. In many places, market-friendly reforms have produced declining growth, rising unemployment and alarming crime rates. Faith in representative politics and established politicians has been undermined, politics has become fragmented, and traditional politicians have been linked in the public mind with corruption. Excluding China, the average annual growth rate of poor countries was 2 percentage points or 98% of the l970s rate, when import substitution was popular. In Latin America, where the Washington Consensus was widely implemented, only three countries grew faster in the l990s. One of those countries was Argentina, which is now in serious trouble. Today, real output stands below the l990 levels in all but four of the countries in transition. And poverty rates are higher than in 1990, even in Poland, the most successful of the former socialist countries. In sub-Saharan Africa, results are disappointing and far worse than those obtained prior to the late 1970s.

Income inequality has soared in the last 15 years. Meanwhile, frequent and painful financial crises have ravaged Mexico, East Asia, Brazil, Russia, Argentina, and Turkey. The success stories, like China, India, and Viet Nam, did not get to where they currently are by pursuing the Washington Consensus. Moreover, inequality in these countries has also increased. In China, the fastest growing economy in the world, the sixth largest trading nation, and the leading destination for foreign direct investment, inequality is back to what it was when Mao came to power, according to D. Gale Johnson of the University of Chicago. Widespread corruption and rising unemployment threaten social stability. According to Deepak Nayyar, an eminent economist and currently Vice-Chancellor of the University of Delhi, since the l980s:

Countries like China, Korea, Mauritius, Taiwan, Madagascar, and Chile have opportunities never dreamed of thirty years ago. However, in too many cases there have been overestimates of benefits and underestimates of risks of opening markets quickly. For example, Asian countries that followed Washington’s advice on financial liberalization before appropriate infrastructure had been put in place, were rewarded with a financial crisis. At the urging of the IMF, Haiti slashed its tariffs on rice. Prices paid to rice farmers fell by 25 percent, which devastated Haiti’s rural poor. NAFTA has largely destroyed the small family farmer in Mexico. Industrial restructuring in the former Soviet Union, without adequate safety nets, has produced massive lay-offs. Small businesses, that could have employed the released labor, did not because they faced superfluous administrative barriers and high taxes. And Wal-Mart, the largest company in the world, has destroyed small retail establishments in Mexico, as well as in America.

Globalization has produced some winners, but many losers. Large transnational corporations, especially international banks, have been big winners, as countries have competed vigorously to attract foreign direct investment and maintain market confidence. In l997, the richest 20 percent of the world’s population, living in high-income countries, accounted for 86% of world GNP, while that of the poorest 20 percent of the world’s people, living in low-income countries, was only 1 percent. The income gap worldwide between the richest 20 percent and lowest 20 percent has widened from 32:1 in 1970 to 45:1 in 1980, 60:1 in 1990, and 74:1 in l997.

Gaps between participating countries have also grown. For example, only about a dozen countries in the developing world have played an integral part in the globalization process. Those countries, primarily in Asia, have accounted for about 70% of exports to the developed world, have absorbed almost 80% of the direct foreign investment flows, and have received more than 90% of portfolio investment flows. The disappointing results of globalization abroad need to be contrasted with the results achieved in this country. In 1960, the US share of world output was 30%. By 1980, it had shrunk to 23%. Today it is 29%. Moreover, since 1995, America accounted for more than 40% of the world’s real growth. The US has been one of globalization's winners.

Present: Unfulfilled expectations have shattered the hope and optimism that existed at the Cold War’s end. Increasingly, people around the world view with cynicism the economic ideas we have been trying to export. They believe that our corporate and financial interests guide our push for liberalization and privatization and that they can do little to change our behavior and the organizations that we control, like the IMF and the World Bank. However, they are not waiting for a new and improved Washington Consensus – one that results in growth, equity, and environmental protection.

Instead, a global civil society movement has emerged, thanks largely to the internet and to the people who gather at the increasing number of international conferences like the UN NGO Conference on Women in Beijing and the Rio Earth Summit. Jubilee South recently published an “African Consensus” on sustainable development, to replace the Washington Consensus. Other groups include Oxfam, which recently produced a report, “Rigged Rules and Double Standards,” Friends of the Earth (Netherlands), and ATTAC, a French organization active in promoting a currency tax on short term capital flows. This new global movement includes people from developed and developing countries; workers, trade unionists, farmers, environmentalists, students, women, religious activists, indigenous groups, consumer groups, small businesses and artisan groups. It also includes others who believe that economic efficiency has been overemphasized at the expense of equity. The balance, they say, must be changed: the current situation, by creating political and social fragmentation and accentuating social tensions, makes governing more difficult and is detrimental to peace and democracy.

This movement addresses a broad range of issues, some from a globalist perspective, others from a local roots perspective, but all recognizing that their interests are best achieved within a global economy. Some organizations are working to insure that international agreements address social and environmental issues. Others are trying to change corporate behavior through the use of codes of conduct, certification programs, and alternative (fair) trade organizations. Still others focus on third world debt, living wages, sweatshop conditions, intellectual property rights for peasants and indigenous groups, invigorating local economies, public health and safety, civil rights, sustainable development, education, women’s issues, and human rights.

Already some groups with a globalist perspective have had major success. For example, not long ago only the radical fringe protested that the IMF, World Bank and WTO needed reform. Today, Joseph Stiglitz, a winner of the Nobel Prize in Economics, as well as many other world-renowned economists, agrees. No longer is it accepted that development can occur only when governments get out of the way of the private sector. Likewise, the concept that corporations have responsibility only to their stockholders is no longer universally accepted. Major corporations, like Shell and Nike, are changing business practices. Economic growth is no longer the overriding factor that the World Bank considers when deciding whether to make a loan.

Reducing poverty and environmental concerns are beginning to matter. The IMF is speeding up debt relief, in part as a result of the efforts of global civil society groups. There has been an intellectual about-face on “hot money”. The biotechnology industry recognizes that changes in intellectual property rights must be made. A recent British report commissioned by the government called for widespread reform of intellectual property laws, saying they unfairly favored developed economies. And we probably will never return to the days when government trade experts could meet in relative obscurity to negotiate trade and investment agreements that focused solely on a free trade agenda.

A second set of groups who approach globalization from a local perspective believe they must influence the rules of global conduct if they are to be successful in protecting their constituency. Rugmark, an anti-child labor labeling initiative that came out of India, the Forest Stewardship Council, an environmental certification scheme for wood, based in Mexico, and Transfair, the only nonprofit third party fair trade certification organization in the US, are three examples.

The movement’s two sub-groups – global and local – are like a married couple seeing things sometimes similarly, other times differently. For example, some groups advocate rules and restraints (e.g., the harmonization of environmental and labor laws with strong protections), while other groups want freedom of action (e.g., governments should be free to use whatever polices they deem will promote development, including tariffs, subsidies, and special preferences for local producers.). They stay together because, generally, their visions and values, their concepts of the promises held by an evolved form of globalization are in sync. But they reach these goals by different paths. For example, some groups want to halt particular practices, such as the privatization of water and the sale of genetically modified seed. Some others want to roll back other particular practices, and advocate the cancellation of third world debt,and reduction of the flow of short term and volatile speculative financial capital flows. Still others want to reform globalization, that is, to reshape the rules and institutions of the global economy to benefit workers, communities, and the environment.

Regardless of the path a group chooses, the power of the global civil society movement is that by working to transform globalization, people’s thinking and behavior change. By becoming aware of how everything is interrelated, participants realize that local is not all that matters and begin to think in terms of a globalization of community.

Future: New ideas and initiatives on how the global economy should work are emerging from global civil society groups. Will they succeed in making globalization more inclusive, democratic, and sustainable? Most of these organizations are young, small, inadequately financed, and lack experienced management. They mushroomed in the 1990s because of technologies like the Internet, as well as funding from individuals and foundations, like Turner, Soros, Gates, Ford, and Rockefeller. But much of the wealth that underwrote and supported them has been adversely affected by the slowdown in the world economy and sharp declines in stock markets. Will the global civil society disintegrate as financial support shrinks? And if so, what is likely to be the impact if globalization continues down its current path of slow/no growth and rising poverty, inequality, and environmental degradation?

No one knows. However, in a world without walls, where television is ubiquitous and everyone knows what the other has or how s/he lives, expectations and feelings of entitlement are running strong. Opportunities must expand to keep up with expectations and perceived rights. Without some modifications in the path we are taking, globalization could be sabotaged by its own inequities. However, the fact that a sizeable chunk of civil society has chosen to broaden the debate about the shape of the global economy and entered into the policy arena with counterproposals and actual initiatives is a sign of hope.

Rachel E. Golden holds a Ph.D. in Economics from Columbia University. Currently, she serves as Deputy Chairperson on the Entrepreneurship and Poverty Alleviation Committee of UN ECE (UN's Economic Commission of Europe), and on the Editorial and Advisory Committees of the National Strategy Forum in Chicago. She is also a member of the China Roundtable of the Council on Foreign Relations, Chicago. Rachel Golden is a member of the Board of Directors of ECOLOGIA.