World's Economic Structure Shifts Market Globalization Leaves Agenda Involving Capital Flows, Social Costs
Mark Clayton, writer of The Christian Science Monitor, The Christian Science Monitor
HOW many economists does it take to screw in a light bulb? None. Open markets will do it for them.
Harvard-trained economist Jeffrey Sachs has told this old war horse before but still laughs when he trots it out during a recent speech. As with all enduring jokes, it contains a kernel of truth that many may doubt, but is popular among economists: Open markets are a virtual panacea for the economic ills of nations.
"We are living in an unprecedented global revolution" of expanding democracy, trade, and technology, says Mr. Sachs. "It gives more fundamental hopes to the prospects of economic development than anything seen in the world in the past 200 years."
Swiftly developing international trade rules and technological changes are ripping down economic barriers and shaping a single, global free-trade zone favoring nations that are lowest-cost, highest-quality producers, Sachs and others say. On average, the result is a rising standard of living around the world.
But are governments and citizens prepared to embrace the social costs of becoming lean, mean competitors to fit the vision of a globalized economy?
"If you live in Montreal and compete with someone in Seoul or Bucharest who has the same technology and education you do - but a lower salary - then your salary isn't sustainable," says Kenneth Courtis, a senior economist with Deutsche Bank Capital Markets/Asia. "It's as simple as that."
What happens when this sort of personal-yet-global competition causes standards of living for some less-educated citizens to fall noticeably in countries such as the United States and Canada even as they rise in such countries as Thailand, India, and China? Computer programmers in India will work for $800 a month, for example, Mr. Courtis says.
Confronted by these growing questions, the leaders of the Group of Seven (G-7) industrialized nations, who met June 15-17 in Halifax, only tinkered around the edges of the problems, economists say.
Surface progress toward a globalized open market has been steady. The emergence of the European Union, the North American Free Trade Agreement (NAFTA), and the new World Trade Organization (WTO) all seem to indicate a growing sense of cooperation in line with international law.
Yet, the fish war between Canada and the EU (mainly Spain) this spring and the row today between Japan and the US over cars - both driven by domestic politics - suggest that globalization of the world's economies has reached a fragile stage.
"There are obvious, very critical, and unresolved issues staring us in the face in all the important areas of international economic policy," says Paul Volcker, former chairman of the US Federal Reserve. "Let there be no mistake. There is a large unfinished agenda if we are to make the promise of the recent economic revolution a reality," he told a recent conference of economists and business leaders in Montreal. That unfinished agenda includes finding ways to:
*Confine international trade disputes to multilateral forums like the WTO instead of fighting nation-to-nation with sanctions that could run out of control.
*Address the "social dimension" of globalization by better preparing populations for intensifying competition as world markets open wider - helping them learn to retrain and reeducate themselves - to be "resilient," in the words of one economist.
*Avoid a protectionist backlash against economic globalization and open markets when living standards drop, unemployment rises, and social safety nets are inevitably chopped.
*Limit violent foreign-exchange-rate swings caused by quick inflows and outflows of short-term capital.
Capital flow was one issue the G-7 did address in Halifax. Short-term capital sloshing around the globe in search of the highest return causes volatile, potentially dangerous exchange-rate swings. A trillion dollars changes hands each 24 hours on foreign-exchange and stock markets around the world. …