Global Policy Forum

By Walden Bello

The alternative to the present global economic disorder is for Asia to adopt a model of limited deglobalisation in its domestic economy, writes Walden Bello in the second of a two-part series.

The ''Back to Bretton Woods'' school of thought puts tougher controls at the global level, in the form the Tobin tax or variants of it. The Tobin tax is a transactions tax on capital inflows and outflows at all key points of the world economy that would ''throw sand in the wheels'' of global capital movements. Controls at the international level may be supplemented A model of such a measure is the Chilean inflow measure that requires portfolio investors to deposit up to 30 per cent in an interest-free account at the Central Bank for a year, which has been said to be successful in discouraging massive capital portfolio inflows. Among some writers, there is an ill-concealed admiration for Prime Minister Mohamad Mahathir's tough set of outflow measures, which included the fixing of the exchange rate, the withdrawal of the local currency from international circulation, and a one-year lock-in period for capital already in the country. In addition to controls at the national and international level, regional controls are also seen by proponents of this view as desirable and feasible. The Asian Monetary Fund is regarded as an attractive, workable proposal that must be revived. The AMF was proposed by Japan at the height of the Asian financial crisis to serve as a pool for the foreign exchange reserves of the reserve-rich Asian countries that would repel speculative attacks on Asian currencies. It was, not surprisingly, vetoed by Washington. The thrust of these international, national, and regional controls is partly to prevent destabilising waves of capital entry and exit and to move investment inflow from short-term portfolio investment and short-term loans to long-term direct investment and long-term loans. For some, capital controls are not simply stabilising measures but are, like tariffs and quotas, strategic tools that may justifiably be employed to influence a country's degree and mode of integration into the global economy. In other words, capital and trade controls are legitimate instruments for the pursuit of trade and industrial policies aimed at national industrial development.

When it comes to the World Bank, the IMF, and the WTO, the thrust of this school is to reform these institutions along the lines of greater accountability, less doctrinal push for free trade and capital account liberalisation, and greater voting power for developing countries. Like the G-7, advocates of this approach view the IMF as a mechanism to infuse greater liquidity into economies in crisis, but unlike the G-7, they would have the Fund do this without the tight conditionalities that now accompany its emergency lending. Some people in this school accompany their proposals to reform the Bank and the Fund with a recommendation to establish a ''World Financial Authority'', whose main task, in one formulation, would be to develop and impose regulations on global capital flows and serve as ''a forum within which the rules of international financial cooperation are developed and implemented . . . by effective coordination of the activities of national monetary authorities''. In other words, the Fund, World Bank and WTO continue to be seen as central institutions of a world regulatory regime, but they must be made to move away from imposing one common model of trade and investment on all countries.Instead, they must provide a framework for more discriminate global integration, that would allow greater trade and investment flows but also allow some space for national differences in the organisation of global capitalism.

As formulated by Dani Rodrik, the current chief economic adviser to the G-22, a grouping of developing countries, the ideal multilateral system appears to be substantially a throwback to the original Bretton Woods system devised by Keynes that reigned from 1945 to the mid-70s, where ''rules left enough space for national development efforts to proceed along successful but divergent paths''. In other words, a ''regime of peaceful co-existence among national capitalisms''. Not surprisingly, this ''Global Keynesian'' perspective has resonated well with economists and technocrats from developing countries, the devastated Asian economies, and the UN system -- which is well known as a refuge of Keynesians who fled the neoliberal revolution at the World Bank and academic institutions.

Third school

Let us proceed to the third perspective, the one that I call ''It's the development model, stupid!'' school. Those that we classify as belonging to this school regard the IMF and WTO, in particular, as Jurassic institutions that would be impossible to reform owing to both their deep neoliberal indoctrination and the hegemonic influence within them of the US. Indeed, the world would be better off without them since they serve as the lynchpin of a hegemonic international system that systematically marginalises the South. The same skepticism marks their view on the possibility of imposing global capital controls or prudential regulations on hedge funds and other big casino players, again because of the strength of neoliberal ideology and financial interests. National capital controls are seen as much more promising, and the experiences of China and India in avoiding the financial crisis, of Chile in regulating capital flows, and Malaysia in stabilising its economy have convinced proponents of this view that this is the way to go. Like the Global Keynesians, this school would also see regional arrangements such as the Asian Monetary Fund as feasible and workable. Where the proponents of this view differ from the Global Keynesians is the fact that their advocacy of capital controls is accompanied by a more fundamental and thorough critique of the process of globalisation that goes beyond its blasting away legitimate differences among national capitalisms.

Buffering an economy from the volatility of speculative capital is an important rationale for capital controls, but even more critical is the consideration that such measures would be a sine qua non for a fundamental reorientation of an economy toward a more inner-directed pattern of growth that would entail, in many ways, a reversal -- though limited -- of the globalisation process. The main problem, from this viewpoint, lies not in the volatility of speculative capital, but in the way that the export sector and foreign capital have been institutionalised as the engines of these economies. The problem is the indiscriminate integration of the developing world into the global economy and the over-reliance on foreign investment, whether direct investment or portfolio investment, for development. Thus while the current crisis is wreaking havoc on peoples' lives throughout the South, it also gives us the best opportunity in years to fundamentally revise our model and strategy of development.In this process, it would, of course, be ideal to have a more congenial international financial architecture, but since that is not going to happen in the short and medium term, there are two overriding tasks in the area of international finance.

The first is preventing the current efforts to reform the global financial architecture from becoming a project to more thoroughly survey, penetrate and integrate the financial sectors of developing country economies into the global financial system controlled by the North. The second is to devise a set of effective capital controls, trade controls and regional cooperative arrangements that would ''hold the ring'' as it were to allow a process of internal economic transformation to take place with minimal disruption from external forces. Reverse globalisation What are some of the priorities of what me might call a model of limited de-globalisation of the domestic economy? What makes it different not only from the neoliberal economy but also from the national capitalisms whose ''peaceful co-existence'' would be ensured by Dani Rodrik's proposed Keynesian international architecture? Allow me to focus my observations on the East Asian region, the area that I am most familiar with.

Comprehensive blueprints are few in our region today, and perhaps that is good. Nevertheless, there are some ideas or proposals being actively discussed throughout East Asia today that are increasingly attractive to peoples in crisis. An inventory would place the following at the top: ROUND BULLETS While foreign investment of the right kind is important, growth must be financed principally from domestic savings and investment. This means good, progressive taxation systems. One of the key reasons for the reliance on foreign credit and foreign investment was the elites of East Asia did not want to tax themselves to produce the needed investment capital to pursue their fast-track development strategies. Even in the depths of today's crisis, conspicuous consumption continues to mark the behaviour of Asia's elites, who also send so much of their wealth abroad to safe havens in Geneva, Tokyo, or New York.Regressive taxation systems are the norm in the region, where income taxpayers are but a handful and indirect taxes that cut into the resources of lower-income groups are the principal source of government expenditures.

While export markets are important, they are too volatile to serve as reliable engines of growth. Development must be re-oriented around the domestic market as the principal locomotive of growth. Along with the pitfalls of excessive reliance on foreign capital, the lessons of the crisis include the consequences of tremendous dependence of the region's economies on export markets. This has led to extreme vulnerability to the vagaries of the global market and sparked the current self-defeating race to ''export one's way out of the crisis'' through competitive devaluation of the currency. This move is but the latest and most desperate manifestation of the panacea of export-oriented development. Making the domestic market the engine of development, to use a distinctlyunfashionable but unavoidable term, brings up the linkage between sustained growth and equity, for a ''Keynesian'' strategy of enlarging the local market to stimulate growth means increasing effective demand or bringing more consumers (hopefully discriminating ones, that is) into the market via a comprehensive programme of asset and income distribution, including land reform.

There is in this, of course, the unfinished social justice agenda of the progressive movement in the Asian agenda that was marginalised by the pregnant ideology of growth during the ''miracle years''. Vast numbers of people remain marginalised because of grinding poverty, particularly in the countryside. Land and asset reform would simultaneously bring them into the market, empower them economically and politically, and create the conditions for social and political stability. Achieving economic sustainability based on a dynamic domestic market can no longer be divorced from issues of equity. Regionalism can become an invaluable adjunct to such a process of domestic market-driven growth, but only if both processes are guided not by a perspective of neoliberal integration that will only serve to swamp the region's industries and agriculture by so-called ''more efficient'' third- party producers, but by a vision of regional import-substitution and protected market-integration that gives the region's producers the first opportunity to serving the region's consumers.

While there are other elements in the alternative development thinking taking place in the region, one universal theme is ''sustainable development''. The centrality of ecological sustainability is said to be one of the hard lessons of the crisis. For the model of foreign-capital fuelled high-speed growth for foreign markets is leaving behind little that is of positive value.In the case of Thailand, at least, it is hard to dispute this contention. Thirteen years of fast-track capitalism is leaving behind few traces except industrial plants that will be antiquated in a few years, hundreds of unoccupied high-rises, a horrendous traffic problem that is only slightly mitigated by the repossession of thousands of late-model cars from bankrupt owners, a rapid rundown of the country's natural capital and an environment that has been irreversibly, if not mortally, impaired, to the detriment of future generations. In place of 8-10 per cent growth rates, many environmentalists are now talking of rates of 3-4 per cent or even lower.

This links the social agenda with the environmental agenda, for one reason for the push for high growth rates was so that the elites could corner a significant part of the growth while still allowing some growth to trickle down to the lower classes for the sake of social peace. The alternative -- redistribution of social wealth -- is clearly less acceptable to the ruling groups, but it is the key to a pattern of development that will eventually combine economic growth, political stability, and ecological sustainability.These and similar ideas are already being discussed actively throughout the region. What is still unclear, though, is how these elements will hang together. The new political economy may be embedded in religious or secular discourse and language. And its ultimate coherence is likely to rest less on considerations of narrow efficiency than on a stated ethical priority given to community solidarity and security. Moreover, the new economic order is unlikely to be imposed from above in Keynesian technocratic style, but is likely to be forged in social and political struggles. This fire down below, to borrow a line from William Golding, is one that is likely to upset the best laid plans of the tiny global elite, which is currently seeking to salvage an increasingly unstable free-market order reform''.

Let me end by reiterating a point I made earlier: if this project of limited de-globalisation of national financial structures is one that we find desirable, then the relevant task for those of us who are grappling with issues of international financial reform is twofold. The first is a defensive one of repelling attempts to more fully subjugate and integrate domestic financial systems into the global system under the guise of improving the global financial architecture. The other is devising a set of capital and border trade controls at both the regional and national level that would allow this process of domestic economic re- orientation to take place with minimum disruption from the forces that will be always waiting in the wings to suffocate such a project.

WALDEN BELLO is professor of sociology and public administration at the University of Philippines and co-director of Focus on Global South, a programme of Chulalongkorn University Social Research Institute. This article is abridged from a paper prepared for the ''Conference on Economic Sovereignty in a Globalised World'' (March 23-26, Chulalongkorn Univerity). The meeting, sponsored by Focus on the Global South, has been called to provide civil society input into the discussions on global financial architecture. Part one appeared yesterday.

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