Global Policy Forum

The Development Numbers Say Economic Globalism Has Failed


By William Pfaff

July 4, 2000

The time has come to write the obituary of globalism as an economic doctrine that purports to bring progress and development to international society. It has failed.

The special UN General Assembly session in Geneva last week concluded that poverty, inequality and insecurity have increased in the world since globalism was launched. The number of people living in absolute poverty has increased from a billion five years ago to 1.2 billion today.

Word of this rise in poverty is not a claim put forward by globalism's critics. It is the conclusion of a collaborative report prepared by the World Bank, the International Monetary Fund, the Organization for Economic Cooperation and Development and the United Nations itself.

For more than 30 of the poorest national economies, real per capita incomes have been falling for the past 35 years. Asia is the only region in which poverty rates decreased during the past five years.

Economic progress in Latin America was vitiated by the increase in inequality - a global phenomenon. People in the industrial countries now are 74 times richer than those in the poorest. The wealth of the three richest men in the world is greater than the combined GNP of all of the least developed countries - 600 million people. This impoverishment has occurred at a time when globalization was supposed to have launched the poor into sustained economic growth. It has done nothing of the kind.

Globalism as a phenomenon is the product of technological developments that allow integrated global communications and the possibility of real-time financial transactions and globalized manufacturing. These are politically and socially neutral. How they are used is what matters.

Globalism as ideology demanded that these resources be placed at the service of deregulated markets, and asserted that the action of the marketplace would bring large social and political benefits.

The experience of the last few years has not been the result of objective forces arising from the nature of the economy itself, or of irresistible technological forces. It has resulted from deliberate policy choices made by the governments of the advanced economies - chiefly, the U.S. government - acting in good faith, but also according to what they considered their national interests and the particular interests of influential political constituencies in their financial and corporate communities.

The belief that market forces would naturally enforce the general interest originated as the sectarian enthusiasm of a minority of writers and theorists in Britain and the United States beginning in the 1970s, and it derives more from their political hostility to so-called big government than from economic analysis.

The movement's principal intellectual progenitor was Friedrich von Hayek, whose arguments concerning free markets included the contention that government regulation in the economic sphere is connected in a fundamental way to political tyranny - that it is, as in the title of his best-known book, the road to serfdom.

This conviction was rooted in a specific Austrian political experience, and in Hayek's hatred of the totalitarian politics that emerged in his native Central Europe and in the Soviet Union during the 1920s and 1930s.

While the centrally directed economy was integrally connected to political tyranny in Soviet Russia and Nazi Germany, no such connection existed in the Scandinavian social democracies of the same period, or in the New Deal of Franklin Roosevelt, or later in the centralized and planned economic structures of postwar Western Europe.

Hayek's arguments had a particular resonance in the decaying British welfare state that Margaret Thatcher took over in 1979, at a moment when the Keynesian model for international finance was also foundering.

Inflation had accelerated under the impact of U.S. economic policy during the Vietnam War and the abandonment of the Bretton Woods system. His arguments against the Keynesian consensus found a natural response in business circles in Britain and the United States, and particularly in the financial community; and they inspired the political, as well as economic, policies of the Thatcher government and its successors in Britain.

In the United States, with its long native tradition of hostility to big government, these arguments and precedents from Britain provided a respectable rationale for the business-inspired policies of the Reagan, Bush and Clinton governments.

The Clinton administration, which had given little thought to economic policy before taking office, was persuaded by friends in the financial world to make free trade and international deregulation its priorities. This coincided with the technological revolution in communications.

The rest, as they say, is history. It is time to re-examine that history and try to undo its wretched excesses.


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