Globalisation, States and Markets. Economics Commentator, Financial Times, London

Transcription

1 Globalisation, States and Markets Martin Wolf, Associate Editor & Chief Economics Commentator, Financial Times, London Braudel Institute Sao Paolo 4 th October 2010

2 Globalisation, states and markets 1. Towards a global economy 2. Globalisation and the state 3. The financial crisis and the state 4. Global governance and the state 2

3 1. Towards a global economy Globalisation is integration of economies through markets across frontiers. It is driven by technological change; economic liberalisation; and Entry of billions into the world economy. In the 1980s and 1990s there was a worldwide liberalisation revolution, as communism, socialism, planning and import substitution were abandoned Globalisation followed 3

4 1. Towards a global economy THE INTERNET BECOMES ASIAN 4

5 1. Towards a global economy RISE OF THE MOBILE INTERNET 5

6 Towards a global economy TRENDS IN OPENNESS Source: IMF 100 MINUS THE TARIFF RATE Latin America and the Caribbean Developing Asia Newly industrialized Asian economies Advanced economies 6

7 Towards a global economy PATTERNS OF CATCH-UP GROWTH GDP PER HEAD RELATIVE TO US (2009 EK $s) 100.0% 10.0% 1.0% Japan South Korea China India

8 1. Towards a global economy We are in the midst of a huge global upheaval, driven by technology, liberalisation and the entry of countries with huge labour resources into the world economy. It is a labour shock, as opposed to the land shock of the 19 th century. It changes everything about our world: economics and politics 8

9 2. Globalisation and the state Markets need supportive states States must provide a range of essential public goods, particularly security Thus, states need to be both strong and constrained The creation of such a state is obviously difficult and the achievement rare More common have been predatory, weak or failing states 9

10 2. Globalisation and the state The difference in size among states is not a problem, except to the extent that big states have to provide global public goods and so must accept free-riding by small states But the difference in quality of states is a huge challenge for the world This not only creates great global inequality, but black holes of disorder 10

11 2. Globalisation and the state The late Mancur Olson in Power and Prosperity, defined the state as a stationary bandit. This was superior to a roving bandit. But it was still a bandit. He argued that democracy would bring the stationary bandit under control. But it changes the nature of the banditry rather than its existence. The function and operation of the state always reflect the interests of those who control it. 11

12 2. Globalisation and the state In considering contemporary states, we need to assess: their historical roots and their nature. As far as history is concerned, two factors are dominant: Level of development, with richer societies more likely to be democratic; and Source of wealth, with resource-rich countries less likely to be democratic. As far as the nature of the state is concerned, two forms are particularly important: Welfare states and developmental states 12

13 2. Globalisation and the state Welfare states: In the course of the 19 th and 20 th centuries, western states became democratic. Since property and income are more unevenly distributed than votes, the welfare state is an almost inevitable result. It is pointless to complain unless one believes one can (and should) return to a limited franchise. Over time, spending in contemporary advanced welfare states rose from about 10 per cent of GDP in the early 20 th century (predominantly on defense) to per cent of GDP, mostly on transfers and social consumption. 13

14 2. Globalisation and the state Welfare states have proved compatible with economic success and globalisation. But they face constraints: Tax rates have reached politically acceptable limits; Demographic change makes public spending increasingly unaffordable; and income from capital and highly skilled people is increasingly mobile and so decreasingly taxable. We are moving into an era of great pressure on welfare states. At the same time, economic changes within the advanced welfare states is creating growing inequality and insecurity. The financial crisis has exacerbated these tensions, but did not cause them. 14

15 2. Globalisation and the state Developmental states: 15 Catch-up states have always been developmental states, to some degree. This was true of the US and Germany in the 19 th century and Japan in the 20th East Asian states have been particularly successful developmental states. Why? Cultural traditions of strong bureaucratic states; Sense of national purpose; Extreme pragmatism; Freedom of manoeuvre for the technocracy; and High savings in the population.

16 2. Globalisation and the state Latin American states are welfare-developmental hybrids Brazil is an obvious example Is this a sustainable hybrid? Despite Low savings; and High public spending; Or are these premature welfare states? 16

17 3. The financial crisis and the state Ronald Reagan famously said that "The nine most terrifying words in the English language are: 'I'm from the government and I'm here to help. For the world and the advanced economies in particular, the last thirty years have been a period of growing confidence in markets and diminishing confidence in states. How much of this is now left after the financial system the heart of the market economy had to be rescued by governments? So how did this happen and what does it mean? 17

18 3. The financial crisis and the state So why did we have this huge financial crisis? 1. Ideas: belief in efficient markets, inflation targeting and the great moderation ; 2. Economics: emergence of huge global imbalances and extraordinary reserve accumulations, low real and nominal interest rates and the reach for yield ; 3. Finance: innovation in the financial sector, to provide notionally safe, high-yielding assets and failure of commission (risk-weighted capital ratios and reliance on ratings) and omission (deregulation of securities and housing markets) in financial regulation. Success bred excess and excess bred collapse 18

19 3. The financial crisis and the state THE RISE OF THE IMBALANCES GLOBAL CURRENT ACCOUNT IMBALANCES (as share of global gross domestic product) 3 2 Source: IMF, WEO April US OIL DEU+JPN OCADC CHN+EMA ROW 19

20 3. The financial crisis and the state RISE OF FOREIGN CURRENCY RESERVES RISE OF FOREIGN CURRENCY RESERVES ($m) 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000, Other developing Mexico Brazil Algeria Saudi Arabia Russia Other industrial Australia UK Eurozone US Other Asia Thailand Malaysia Hong Kong Singapore Korea Taiwan India Japan China 31/01/ /07/ /01/ /07/ /01/ /07/ /01/ /07/ /01/ /07/ /01/ /07/ /01/ /07/ /01/ /07/ /01/ /07/ /01/ /07/ /01/ /07/ /01/2010

21 3. The financial crisis and the state FINANCIAL SECTOR DEBT EXPLOSION SECTORAL RATIOS OF US DEBT TO GDP 140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% Households Non-financial Business All Government Financial Sectors 21

22 3. The financial crisis and the state The economic collapse has been large. The rescue has been extremely expensive unprecedented fiscal and monetary action and comprehensive socialisation of financial sector liabilities: It has worked. But it has also changed the entire policy game. 22

23 3. The financial crisis and the state FISCAL FIREPOWER USED FISCAL BALANCES OVER GDP Advanced economies Emerging and developing economies World 23

24 3. The financial crisis and the state FISCAL FIREPOWER LARGELY USED UP PUBLIC DEBT OVER GDP 140 Source: IMF WEO April Advanced economies Emerging and developing economies World G7

25 3. The financial crisis and the state What, then, does this crisis mean for the future of the state? I would propose four points: It has revealed the contradictions in a global economy shared by market states and east Asian developmental state, especially when one of the latter is as huge as China It has brought forward the fiscal crisis of the welfare states; It has destroyed the legitimacy of the laissez faire approach to finance; and It has destroyed the prestige of the US and the west. 25

26 4. Global governance and the state The state is the basis of national order It is also the only foundation of global order Global governance is provided by co-operation among states We need to provide global public goods, internalise global externalities (climate change, for example) and provide machinery for managing the world economy This can be done via a combination of informal cooperation and formal specialised institutions 26

27 4. Global governance and the state The rise of the emerging countries and the financial crisis has altered the context for global governance in fundamental ways: It has shifted the balance of power; It has undermined confidence in markets; and It has increased resistance to globalisation, particularly in advanced countries. Results already include the rise of the group of 20, the semi-decoupling of emerging economies and fundamental questions about the durability of the USbased global political and economic system 27

28 4. Global governance and the state In economic policy, some of the big challenges ahead include: Rebalancing the world economy; Adjusting exchange rates; and Restructuring the global monetary system. All this needs to be done at a time of transition not just between superpowers but between civilisations. The West declines and Asia rises. The chances of a breakdown have to be very high. 28

29 5. Concluding points I would like to leave you with four points: Globalisation continues to transform the world in which we live in often surprising ways. The rise of Asia is the most important feature of this age of globalisation. Markets demand government. But what kind of government is best? We are watching another round in the long debate between welfare states and developmental states. The financial crisis has dramatically increased the role of states, while also accelerating the fiscal stresses upon them. 29

30 5. Concluding points The financial crisis has also discredited the intellectual domination of the West. Global governance requires a very high level of co-operation among states. The rise of Asia, particularly China, is going to make this much more challenging than before. 30