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ArchiveOctober 1 2001

Globalisation is not a win-win equation

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After the terrorist attacks on the US and the subsequent postponement of the IMF's annual meeting in Washington, anti-globalisation campaigners have suspended their protests but will not be giving up their cause. Suzanne Miller reports on growing criticism of the World Bank and the IMF.

As the world struggles to absorb the enormity of the terrorist attacks on the US and the broader ramifications, a pall has fallen over those heatedly involved in the globalisation debate. By all accounts, this month was going to be a clamorous culmination of anti-globalisation protesters facing off with those who utter the globalisation mantra - the World Bank and IMF. Now that the two institutions have cancelled this month's annual meeting in light of the intense security risks, the question arises: will the scope of current events impact on the parameters of the broader debate?

Yes and no. Some in the World Bank say most longer-term issues remain the same, although one official believes there are two new challenges to confront: the heightened risks of international violence and the greater risk of a world recession.

"Violence is a development issue that rises up more prominently in the agenda with the risk of global recession; what we can do with countries that face a decline in commodity prices, for instance," the official says.

Street protests on hold

That brings those people who have challenged the World Bank and IMF's track record of promoting growth in the developing world full circle. At a time when the US is mourning, some protesters have lost their appetite for taking their fight on to the streets. For now, anyway.

Robert Weissman, a key organiser in the anti-globalisation movement and co-director of the activist group Essential Action, says: "We are in the mode of suspending our organisation and forward-looking discussions. People are mourning." But there is, inevitably, the future and, looking in that direction, Mr Weissman says nothing much will change. "I don't think these events are fundamentally going to change the IMF and World Bank policies or our views of them."

Those views have been plain. The painfully slow process of redressing core issues such as poverty, economic inequities, environmental destruction and the third-world HIV/Aids pandemic has spurred a backlash from thousands of people who feel such issues have been lost in bureaucratic tape and bad policy. So, when protesters watch limousines delivering well-coiffed government dignitaries to the IMF and World Bank doorsteps, they find a ready target for their wrath.

Kevin Danahar, a co-founder of Global Exchange and one of the people behind the mass anti-globalisation demonstrations since the Seattle World Trade Organisation meeting two years ago, claims such officials are out of touch and have only made problems in the developing world worse. "You have third-world economies being controlled by first-world economies - guys who never ride the bus. They don't live in these places."

His answer? "Shut the IMF and World Bank down." This is extreme talk, yet it is rhetoric that is being embraced by a growing number of people. Before the annual meeting was postponed this month, an estimated 100,000 people were due to converge on the Washington DC headquarters of the IMF. Many will have to wait. But it is safe to assume that they will not be giving up.

For many people who have assumed the complicated job of addressing such problems, even the word globalisation is fraught with difficulties. Take Jeffrey Sachs, global economist and director of the Center for International Development at Harvard University. He looks strained when asked to produce an assessment of globalisation. "It is so much more complicated than thinking it is a scorecard. I keep telling people that a pathology textbook doesn't have one page - there are many diseases that afflict societies," he says.

IMF and World Bank answer critics

After two years of intensifying protests, the latest culminating in the death of a protester who was shot in Genoa this summer, the IMF and World Bank are feeling pressed.

Eager to stem criticism that it is a secretive, elitist institution that is out of touch with the countries it is chartered to assist, the IMF recently posted an open letter inviting protest leaders to debate the issues, provided they renounce violence.

The World Bank is launching a website on globalisation, examining the issues and opening a dialogue with the public. David Dollar, a senior World Bank economist who is posting a lengthy paper on that site, has recently published a book defending the track record of globalisation and offering evidence that millions of people in developing countries are now better off. And that is where the debate begins.

Where has growth gone?

In a report called The Emperor has no growth, the Center for Economic and Policy Research (CEPR) - a Washington-based non-governmental (NGO) group of economists - gives a scathing assessment of the World Bank's and IMF's globalisation track record that revolves around the question: "Growth is good for the poor but are World Bank and IMF policies good for growth?"

In the report, it criticises the IMF and World Bank tendencies to apply universal economic laws concerning trade, capital flows, privatisation and the size and scope of government to the problems of economic government. Two decades of such policies, the CEPR economists say, has set the living standards of millions of people back 10 or more years and plunged as many into poverty. The GDP figures that the CEPR quotes look bleak.

When considering the rate of growth of GDP for the various regions of the developing world, comparing results since 1980 with the previous two decades, every region except east Asia shows much slower growth. In Latin America, for example, GDP per capita grew by 75% from 1960 to 1980, while it rose just 6% from 1980 to 1998. For Sub-Saharan Africa, GDP per capita grew by 36% in the first period and has since fallen by 15%.

Looking at growth rates for high income countries, it becomes clear that developing countries have shared some pain - although the degree of pain has arguably been far less acute. High income countries grew by 99% from 1960 to 1980 then dropped to a 51% growth from 1980 to 2000, while developing countries grew 87% and 37% for the two respective periods.

The big gap between these two periods does not necessarily tell the whole story, though. The two decades of GDP per capita growth until the early 1970s was a record time, triggered by a rebound from World War II and led by countries like the US. In the early 1970s, that rebound began to lose steam. Some people believe policies of "beggar thy neighbour" were responsible - US and Western European policies that involved raising tariffs and protecting home markets to raise domestic living standards.

No shoulder for blame

Nobody has a clear answer. But the IMF and World Bank refuse to take the heat. "The IMF and World Bank plausibly didn't have any role in this," says the IMF's outgoing chief economist Michael Mussa. "If you go back to the birth of Christ and divide the time into 20-year intervals, 1950 to 1970 was the strongest growth period in 2000 years. So, to assume it can be sustained is a bit much."

Robert Naiman, senior policy analyst at the CEPR, says his group is not blaming the IMF and World Bank for the slowdown but is criticising them for imposing policies that impeded growth in the developing world and thus implicitly contributed to a slowdown. "The point is these institutions claim constantly that they promote economic growth. So if they don't, they have no right to exist," says Mr Naiman, one of the authors of The Emperor has no growth.

Such comments do not win Mr Naiman many friends in high places. Also, some in the IMF are quick to dismiss him because he infamously threw a pie in the face of the departing IMF chief Michel Cameduss in Thailand early last year. What was he thinking? "I didn't plan it. It's just that nobody else would do it," he says. "There was some notion that after Seattle there would be reform. The fact that Mr Cameduss was the UN Conference on Trade and Development's (UNCTAD) valedictory speaker was a slap in the face. The IMF didn't get religion."

"Rubbish", says the World Bank, which has taken pains to spread its message more clearly to the public in recent months. Ironically, those efforts have now started drawing criticism, too, from the likes of former US Treasury secretary Larry Summers to a smattering of academics, economists and some in the financial press who are accusing the World Bank and IMF of going soft on analysis and listening too much to NGO critics.

Nicholas Stern, who joined the Bank as chief economist a year ago, defends his employer, saying: "My view is that the work we've been doing over these past few years is hardheaded and serious economics, which is deeper and tougher than the kind of superficial stuff that some of our critics are producing."

Penchant for change?

However, he says the Bank is listening to critics more carefully than in the past. "Open discussion is not only right for democratic reasons - it is also about development effectiveness. We have to engage with our critics; many of them have something to bring to the table," he says.

Others are cynical about the World Bank's penchant for change, though. "There's a saying that whenever you criticise the World Bank, it expands," one NGO half-jokes.

Some of the criticism is bubbling from within, to the chagrin of the Bank. William Easterly, a senior economist who has worked on anti-poverty strategies for 16 years at the Bank, is the subject of a disciplinary investigation for writing a scathing criticism of his employer's record on combating poverty in a recent book and newspaper opinion article - primarily because he did not receive the necessary permission to write the article in a general interest publication.

Weighing up the evidence

As critics line up on either side, the World Bank is putting on a brave face and continuing to publish evidence that globalisation works, with the implicit message that it is doing its job just fine, thank you. In David Dollar's latest report on globalisation, published to coincide with the annual meeting in Washington, he says 3 billion people living in the globalising countries - those that are integrating their economies and are involved in international trade - have enjoyed a better growth rate than the non-globalisers and higher-income countries.

Some 24 developing countries with 3 billion people have doubled their ratio of trade to income in the past two decades. But the rest of the developing world trades less today than it did 20 years ago. During the 1990s, the globalisers grew at 5% per capita compared with 2% for the rich countries, suggesting there is greater scope for growth in the economies that reform.

The other part of the story is the 2 billion people who have sunk into poverty or seen their living standards fall in the 49 developing countries that are not embracing globalisation. They are countries that have failed, for various reasons, to seize on international trade opportunities. During the 1990s these economies in aggregate had negative growth.

The scorecard on poverty has been spotty at best. The good news is that poverty has ebbed. Between 1987 and 1998, the number of people living in extreme poverty, on less than $1 a day, slipped slightly from 1.18 billion to 1.174 billion, according to World Bank figures. In China, the world's most populous country with 1.3 billion people, the number of rural poor declined from 250 million in 1978 to 34 million in 1999.

"If you were to point to one overwhelming success story of globalisation, it is clearly China. This is the most important development phenomena over the past half-century," says Mr Sachs. China's GDP as a percentage of world GDP, at 12%, is second only to the US at 24%. It has also advanced rapidly in the United Nation's Human Development Index.

When countries such as China and India improve, it looks great in aggregate - and for the people in those countries. The World Bank is pleased. "We have seen in the past 20 years a reduction in poverty for the first time in 200 years," says Mr Stern. "That has been clearly associated with a number of big countries and clearly related to policy moves in those countries where trade has been central."

NGO groups such as the CEPR, on the one hand, and the World Bank and IMF, on the other, are not disputing one another's numbers but are disputing data significance. It is something like the conundrum in Alice Through the Looking Glass, the children's story in which reality varies depending on which side of the mirror you look. It is a conundrum that has engulfed a growing number of people across the spectrum - from politicians to economists to people on the street. Part of the puzzle has been determining the right recipe of policy, action and financing. Beyond that, there are issues of geographic advantage, the impact of disease and environmental problems, good governance and - perhaps the biggest intangibles of all - honesty and goodwill.

Russian globalisation gets an 'F'

As far as well-known IMF critic Joseph Stiglitz, Columbia University professor and former World Bank chief economist, is concerned, some issues are clear cut and relate directly to poor policy. "The big negative is the capital market liberalisation story. In Russia, the move from communism to integrating them to the global economy - well, that gets an 'F' by anyone's standards," he says. Russia's GDP is 60% of what it was before liberalisation and poverty has soared from 2% to 40%. One out of every two children now lives in poverty.

This is the other side of the poverty scorecard. Countries such as China, India, Uganda and Vietnam are on the winning side but the majority of developing countries remain in the losing camp. Between 1987 and 1998 the number of people living on less than $1 a day in eastern Europe and central Asia rose from 1.1 million to 17.6 million; in south Asia the number has risen from 474.4 million to 521.8 million; and in Sub-Saharan Africa the number has risen from 217.2 million to 301.6 million.

Mr Stiglitz lays much of the blame for Russia's fall at the doorstep of the IMF, which he says forced privatisation too soon on a country that was handicapped by government corruption. "Rather than leading to wealth creation, this led to massive asset stripping. People estimate something like $200bn went out of the country. Privatisation was an important part of the failure," he says.

He believes the IMF should establish a fund to forgive the debt of countries like Russia, which do not qualify for the Highly Indebted Poor Country (HIPC) programme, because of its "moral responsibility" in making poorly advised loans in the first place. According to activist groups such as Jubilee 2000, such loans are sapping the life-blood from dozens of economies.

Charade or stranglehold?

In Latin America, debt service consumes more than half of the government budget in several countries. The region's overall foreign debt stands at $706bn. That is $646bn higher than it was 40 years ago. According to World Bank statistics, the region spent $739bn on debt servicing - $33bn more than it owes today - between 1982 and 1996 alone.

Then there is Africa. At the end of 1998, according to Jubilee 2000, annual debt service payments from the world's poorest region - Sub-Saharan Africa - were $15.2bn (15% of exports). The total debt stands at about $230bn. United Nations secretary-general Kofi Annan has publicly said that in some countries up to 40% of government revenue is being allocated to servicing foreign debts; revenue that could otherwise be spent on public education and health. If Russia gets an "F" for globalisation, Africa is not even on the globalisation map. According to the July 2000 United Nations' Human Development Index, 24 of the lowest 25 ranked countries are in Africa.

Mr Mussa, at the IMF, says critics have distorted the debt relief problem and many of the poor countries are receiving other forms of assistance to service their debts. Add it all up and then look at a recent three-to-five-year period for how much assistance was provided compared with money spent on servicing debt and, in many cases, that assistance exceeded net payments, he says. On the one hand, countries would be better off having the extra assistance without the debt. On the other, as the reasoning goes, countries might have less incentive to clean up governance problems if debt was written off too soon.

Mr Mussa admits there are problems and calls the debt relief conundrum "an elaborate charade". Others call it a stranglehold on millions of poor people.

What debt relief can buy

For many of the poor countries, the extra money from debt relief would go some distance to fighting another critical problem: the ravages of the HIV/Aids pandemic and the alarming spread of malaria and tuberculosis.

Mr Sachs says disease is the single biggest problem facing the developing world. "We have the world's worst pandemic in history. It's tearing Africa apart and hopes of economic development in that continent until it gets under control," he adds.

There are 36.1 million people living with HIV/Aids, the vast majority of them in Sub-Saharan Africa, where 3.8 million people became infected last year alone. There are more than 10.4 million orphans from Aids around the world and more than 90% of them live in Sub-Saharan Africa.

To tackle the crisis effectively, some big bucks are needed. Mr Sachs, who is heading a World Health Organisation commission that is addressing the issue, says the commission has determined it would cost $25bn from the donor world to enable the low-income countries to fight their diseases. "That's one-tenth of 1% of GNP. That would save millions of lives every year and help impoverished countries to get back on their feet so they have a chance of economic development," he says. That would mean billions rather than hundreds of millions of dollars in contributions from the US - a sum that does not seem forthcoming at this juncture.

As one of the IMF and World Bank's more vocal critics, Mr Sachs, agrees that both institutions must face up to change. But change also has to go beyond IMF and World Bank policy, which he says is only a "modest" part of the story. "I don't know, in the end, whether the world can hold together but what I do know is that globalisation won't solve itself," he says. Addressing himself more broadly to the G-8 countries, he says: "We need honesty. But honesty would cost money - not the kind of money that would bankrupt us - probably not even the type of money we would notice. But we don't seem up to that."

It is still far too early to say how the US and other nations of the world will emerge from the current crisis - and what the economic and political ramifications will be. But some people sense change in the air. Cal Cohen, president the Emergency Committee for American Trade, says: "I would say the events that are still so fresh and ongoing have added to the resolve of those responsible in the US and overseas for international affairs - that they need to be more involved internationally. They have to get on with it and make improvements in the world trading system."

It is unclear if greater international resolve will lead to more money for the poor. That may take time. Protesters, meanwhile, will be watching warily and probably will not wait long to act again.

However, one thing is for sure - as street politics and boardroom politics collide, the globalisation debate is shifting to include what critics say has long been missing: more honesty in addressing the deep inequalities that have come to characterise globalisation.

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