| Ethos Issue 2, April 2007
The Globalisation Game
Interview with Martin Wolf
The award-winning financial journalist
and author of Why Globalization Works discusses the
role of government in a globalised world, and the impact of
China’s rapid growth.
In your book Why Globalization
Works, you argue that the world needs more global markets.
What do you think is the proper role of governments in pursuing
economic integration on the one hand and, on the other, ameliorating
the negative effects of economic liberalisation?
There are tremendous economic gains to be had from integration
with the world economy. In the post-Second World War period,
every successful economy has had, as part of its success,
the exploitation of international economic opportunities.
This has been dramatically true of the Asian success stories,
including Singapore.
First, it is quite clear that the
necessary condition for successful exploitation of these opportunities
is a supportive government. Government support is required
in a whole range of dimensions. Success clearly requires a
sensible policy; it requires the provision of basic rule of
law and property rights, security, infrastructure, education,
as well as support for the productive and investment sectors.
There is a whole range of things that governments have to
do.
Second, the ability of governments
to do these things is very variable. One of the reasons is
because many governments try to do more than possible and
things become worse as a result.
Third, it really does depend very
much on the opportunity a country has. In an export-led growth
pattern which starts with labour-intensive manufacturers,
the involvement of government does not need to be very extensive.
Trade only has to be allowed to proceed and it will, to some
extent, evolve naturally. When you start thinking about financial
integration or the successful exploitation of mineral wealth,
much more is demanded of government. Financial integration
demands a high quality regulatory regime or the ability to
import such a regime from abroad through foreign direct investment
(FDI) in the sector. In the case of minerals, there are huge
dangers of corruption, waste and so forth. So again, a very
high quality of government is required.
Finally, it is obvious that globalisation
creates great opportunities for some in society and not for
others. Yet there is a need to preserve a degree of social
harmony. You want people to feel they are all potentially
part of the economic project of society. That means that governments
do have to think about the education and training of the young,
so that they can participate. They have to find ways to compensate
the losers in the system. That means raising taxes for that
purpose, which becomes more difficult as tax revenue itself
comes under competition. However, a well-run country can still
raise enough money to do this if its policies are targeted.
The underlying point is that markets
need governments and governments need markets. There is a
very profound relationship between the two and the argument
for globalisation is certainly not an argument against government.
It is an argument for sensible and good government.
In the post-Cold War era, the US
has been the most forceful advocate of trade liberalisation
and the globalisation agenda. But now there is pressure in
the US to become protectionist, with more inward-looking measures.
How do you see the role of the US evolving over time as the
chief advocate of globalisation?
In a very deep sense, modern globalisation was ultimately
a US project that goes back to the years after the Second
World War. It is a logical consequence, if not an intended
one, of the post-war system. Throughout the 1960s and 1970s,
they pushed the idea that developing countries should liberalise
and integrate into the world system. So eventually everybody
did, including the Chinese, the Russians, and the Indians.
In my view, this was incomparably the most successful foreign
policy project of the US and, indeed, of any great power.
There are many, many American winners
from globalisation. The United States continues to possess
and is likely to continue to possess for quite some time the
world’s most innovative companies, the world’s centres for
innovation. For this reason, it attracts many of the brightest
people from all over the world, and it has many of the world’s
most successful multinational companies, financial centres
and businesses. All these winners have a huge interest in
making globalisation work in the US, and they are very influential
in politics.
Of course, there are also some losers.
Those who used to work in relatively high-waged unionised
basic industries, such as steel and auto-production, are relative
losers in the current situation. The trade unions mostly represent
them. They are only about 7% to 8% of the labour force but
they are very important for the Democratic Party.
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