Monday, October 11, 2004

10 8

Dilip 10 8

While Lexus and Olive Tree has a broad focus, and globalization appears to be a natural force that can’t be controlled, e.g. the electronic herd, Stiglitz focuses on the economic issues of globalization…something has gone wrong with the economic policies of developed nations and financial institutions like the IMF with relation to developing countries. According to Stiglitz, globalization, or the reduction of barriers to international trade and greater integration of national economies can be potentially good for developing countries and the poor, but we have to manage globalization. A market-driven economy must be managed, but how to manage it? Who will manage it? The governments of countries and economic organizations, IMF, the World Bank, and the WTO, whose policies effect developing countries, and who are influenced by the U.S. and G-7. In the last 20 years, policies of the economic organizations have been counterproductive, have hurt rather than helped the world’s poor.

According to Lou Dobbs, Indian workers are not loyal and will change companies…Vietnamese workers are loyal, perhaps because of cultural factors…Argentina is becoming an outsourcing destination, we get beef and agricultural products from this big country, and Buenos Aires has the second-most psychoanalysts in the world, after Paris…Argentina is far more European, many British settled there…historical speculation suggested that Argentina would become the wealthiest country of the New World. Squalor and poverty are not apparent. In India, an IT worker makes $12,000, while an Argentine makes $6,000. Why? A simple comparison does not tell the story, a graph will not explain where next to outsource. Is there a cultural explanation for Argentina’s desirability as a country to which to outsource? The explanation is not a simple one.

What is the underlying idea behind the Golden Arches Theory of Conflict Management? A country with a clientele that can afford to eat at McDonalds has a lot to lose if it goes to war, whereas a country that has the same condition in peace as war will be more inclined to go to war. McDonald’s is a sign of something to lose…what is it? A middle class. In developing countries, the middle class eats at McDonalds, i.e. a country with a McDonalds has a middle class whose consumer behavior/tax base it doesn’t want to lose. Any country with a vibrant middle class will think twice before going to war. (Security Moms are new swing in this election in U.S.) How to create a middle class? India and China have 200 million in their middle class, can buy American goods and do business with American companies in their countries…they are more stable and less likely to succumb to religious fundamentalism, and will be ready for democracy if it hasn’t already been attained. (Dilip isn’t concerned about the rise of the BJP because India has a middle class that won’t want a major conflict) Why hasn’t a middle class developed in the Middle East, Africa, other poor countries? Immigrants who come to the United States and do well were middle class in their countries of origin…refugees from poor countries do poorly…a socialization leads to success and a middle class…immigrants from upper class origins do even better, are even more confident than Americans when operating in the U.S.

Stiglitz suggests that economic growth is good, but it must be measured by two criteria:
1) efficiency
2) the quality of goods and services available to consumers

If the GNP of Ghana goes up 10%, but goods and services are not cheaper and better than before, and the efficiency of production isn’t better, the 10% increase isn’t important to development…it may benefit only a small portion of the population, and jobs may be lost…equity is important, the policies of the international economic organizations do not necessarily bring growth with equity. Market Liberalization, Privatization (Deregulation), and Fiscal Austerity are the constraints of the IMF…all of these things have merit, but nationalized industries maintain employment, privatization would reduce employment in some countries…a sudden change has a great social and economic impact. The union ranks of apprentice, journeyman, and master stabilize the job market for plumbers (since training of 6 weeks to 6 months makes someone an adequate plumber). Economies are like boats…they can handle slow rates of change…Stiglitz suggests that countries should open capital markets and deregulate slowly. The electronic herd will not stampede slowly through a market, so policy management is needed. The policy of the IMF have been counterproductive and ideological, they’ve taken policies that run counter to the principles upon which they were established, i.e. abolishing poverty. John Maynard Keynes was influential in the Bretton Woods agreement, established guidelines for government intervention management of the economy to stabilize demand…Regan Thatcher monetarism is now the rule of the IMF, markets should be left unregulated.

By what criteria do we say that globalization is a serious proposition?

Economically – under conditions of globalization, are national economies as autonomous as ever? If globalization is true, though there are separate national economies, they are more open to outside influence than before…we can’t talk about autonomous economies in the era of globalization. Skeptics say that national economies are still autonomous. What is the balance of exports/imports/internal consumption of GNP. Japan is a net importer, poor in natural resources…are they more dependent on a global economy?

Politics – Do governments control their own destinies and economies? The active role of American government in world politics has increased.

Culture – National cultural identity – not created by conquest, military might, a culture, almost a propaganda creates a national identity, unity, patriotism. Does the sense of being a part of a nation-state, cultural loyalty, beginning to erode? Cultural imperialism, American popular culture is displacing local popular culture disconnects youth from national culture, some think this must be controlled…Japan plays a similar role in the far East. In the U.S., 9/11 led people to patriotism, but are American values less important than ever? According to some, multinational companies have turned culture into a commodity, culture is contrived and manufactured. Are the cultures whose proponents feel threatened violently retaliating to preserve their culture?

Stiglitz – At Bretton Woods, Keynes said that economies go into crisis when aggregate spending decreases, and governments should intervene with demand management policies (deficit spending, tax cuts). Monetarists suggest that the market is self-correcting, Keynes thought that the government should intervene because economies are too complex, people can’t wait for the market to correct itself. In some developing countries, the government took too active a role, but the IMF is full of Regan/Thatcher monetarists, and took management to the opposite extreme…in the last 20 years, governments were forced to liberalize their capital markets. A country capable of producing steel can start a government run steel company and create jobs, but it might not be competitive with other countries’ steel immediately. The IMF forced countries to open their markets right away to promote growth, but unemployment resulted because the country needed more time to become competitive, no one bought the steel at home or abroad. Russia and China had different transitions from communism to free market capitalism; Russia’s transition happened quickly, China did it at its own pace on its own terms, and foreign capital came to it. Deregulation is not an unmitigated blessing, but the ideology of the IMF promotes it when it shouldn’t be applied.

Most countries know that they can’t open their markets completely, but the IMF’s “conditionals” force them to, withhold money if they don’t. Countries accept because they need the money. China could turn them down because they are big and have leverage; Ethiopia is small and has no leverage.
Two other things about IMF: the imbalance of prices of developing countries exports and what they import from big countries…agricultural subsidies in the U.S. force the price/desirability of foreign agricultural products down. This happens because finance ministers are not accountable to their un-organized farmers or impoverished citizens, they don’t threaten to elect another administration. The IMF doesn’t have the same influence over governments who are accountable to a well-organized farm industry to get them to remove subsidies, and countries like the U.S. can pressure the IMF not to fight them on farm subsidies. South America was the model for these policies, but they didn’t work elsewhere in the world, they were not sensitive to the needs of individual countries. For some countries, the barrier to the Lexus is not the olive tree, but that the Lexus is too much too soon. Is it prudent to expect a growth that in the U.S. took 50 years to happen in 5? What rate of change can a country absorb?


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