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Making globalisation work for world's poor

Larry Elliott
Monday June 26, 2000

It takes the death of 58 men and women in an airtight trailer in Dover to bring home the reality of what it is to be an asylum seeker in the 21st century. Far from "sponging off the state", the life of an economic migrant is fraught with risk and can end in a container that becomes a tomb.

Treating this tragedy as a law and order matter misses the point, because it fails to distinguish between symptom and cause. The conventional wisdom is that governments need to take tougher action against criminal gangs who, for a fee of £10,000 per head, promise that they can smuggle people into the west.

Actually, this case says more about the perils of globalisation than it does about the failings of governments to stamp out crime, highlighting that the liberalisation of capital markets has been accompanied by ever tighter controls on free movement of labour.

Until the debacle in Seattle last December, it was assumed that what was good for Bill Gates and Monsanto was good for everyone. Governments are no longer quite so confident that they are carrying their electorates with them and have been forced to reassess not just what globalisation is, but how it can be shaped to maximise economic welfare.

No virgin territory

Britain's contribution to the debate will be a white paper being prepared by international development secretary Clare Short and due to be published this autumn. A gathering last week discussed how globalisation compared with the previous epoch of economic liberalism in the two decades before the Great War, and what could be done to make globalisation work for the world's poor.

One big difference between now and 100 years ago is that economic migrants from Europe were encouraged to start new lives in the US, southern Africa, Australasia and Latin America. The dislocation and the misery of mass migration should not be minimised, but labour mobility was a shock absorber that gave the international system stability. Today, there is no virgin territory left and governments are wary about granting rights to citizenship now that welfare states are far more wide-ranging than before 1900.

In years to come this approach will look increasingly short-sighted as falling birth rates and the ageing of the baby boomer generation leads to a shortage of prime-age workers in the west. Had they settled in Britain, the 54 men and four women would almost certainly have added to the economy by finding work and paying taxes. As far as the government is concerned, there are lessons to be learned from what went before. The first, which perhaps has to be emphasised after Seattle, is that there really is not any alternative to a market-based economic system.

Lots of the hardline, anti-globalisation protesters are good at saying what they don't like, not so adept at what they envisage once capitalism has been smashed and the International Monetary Fund, the World Bank and the World Trade Organisation have been reduced to rubble. What it would actually mean is lives that would be - as Hobbes put it - nasty, brutish and short. However, letting markets rip is equally daft. The story of the period 1850 to 1950 is of governments exploring ways of shaping, managing, directing and controlling markets to spread the benefits of growth and to ensure that the risks of economic failure did not all fall on the poorest and weakest.

Progressive taxation, welfare states, health and safety regulations, anti-trust laws, state ownership of key industries were all born out of the sense that wider democracy and ever-greater inequality of income were incompatible. With the gap between rich and poor today widening all the time, the challenges that faced reformers from Shaftesbury to Keynes now face policymakers.

How can a market system - which operates globally as well as nationally - be governed to maximise economic and social welfare? As was said at Ms Short's seminar, the task is much harder than a century ago because nation states exercised more control over their own markets than they now do over global ones.

That is one reason why the good side of internationalism - the spread of ideas, technology transfer, lower costs to consumers - has been accompanied by a dark side - money laundering, drug smuggling, trafficking in prostitution, financial instability. So unless some action is taken to shape globalisation the world will become an even more dangerous and volatile place.

So the third and final lesson for the government is to ignore those who say that the discredited policies of the 1980s and 1990s can do the trick, and that a system of global trickledown will work for rich and poor. This is like people in mid-Victorian Britain trying to pretend that a limited franchise, the defence of property rights and regular crackdowns by the militia would keep the industrial proletariat under control. In fact, it soon became obvious that the alternative to reform was revolution.

Pitifully slow progress

Likewise, it may be tempting for governments in rich, western nations to believe that all will be well - provided the global marketplace is only lightly regulated and poor countries fast-track liberalisation policies. But this would be a mistake. Today the United Nations meets in Geneva to assess progress towards meeting the 2015 development targets set in Copenhagen five years ago.

On each of the three main counts - income poverty, child mortality and universal primary education - results have been pitifully slow and targets will not be met unless governments take more decisive action. There is less unanimity, however, on what should be done. World Bank economists David Dollar and Aart Kraay argue that the main driving force for eliminating poverty is growth, and that there is no real evidence that redistribution has much of an impact. Growth is neutral in its distributional effects, with a 5% increase leading to a 5% increase in incomes for the poor. The trickledown brigade cite this as evidence that those who support managed markets and redistribution are utterly misguided.

But if growth is all you need, and the invisible hand of the market will do the rest, why did poverty in Britain soar in the 1980s and 1990s when liberalisation was all the rage? Why have the past 10 years seen so many financial crises, resulting in governments pursuing anti-growth policies - higher interest rates and fiscal retrenchment - to prevent hot money leaving their shores?

Of course, growth is necessary to lift people out of poverty, but strategies that fail to recognise the need to tackle inequality are actually anti-growth, resulting in the waste of productive potential. As Oxfam's Kevin Watkins puts it: "Highly unequal countries are bad at converting growth into poverty reduction because they have to grow faster than more equal countries to achieve the same level of income gain for the poor." East Asia, where policymakers have pursued egalitarian economic policies, has been far more successful in eradicating poverty than Latin America, where there has been less emphasis on equity.

The events since the devaluation of the Thai baht three years ago this week should act as a wake-up call for governments. We have been living through the first crisis of globalisation, and there is a need for policies to increase the flow of aid, reduce developing country debt, open up protected markets to goods from poor countries and manage capital flows to minimise financial disruption.

Governments should ask not whether they can risk trying to shape and manage global markets, but whether they can risk not doing so.

larry.elliott@guardian.co.uk

 
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