Apresentacao Seminario Martin Wolf

7/27/2019 Apresentacao Seminario Martin Wolf

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Globalisation, States and Markets

Economics Commentator, Financial

Times, London

Braudel Institute

Sao Paolo

4th October 2010


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Globalisation, states and markets

1. Towards a global economy

2. Globalisation and the state

3. The financial crisis and the state

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4. Global governance and the state


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Globalisation is integration of economies through

markets across frontiers. It is driven by technological change;

economic liberalisation; and

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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


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THE INTERNET BECOMES ASIAN

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RISE OF THE MOBILE INTERNET

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TRENDS IN OPENNESS

100 MINUS THE TARIFF RATE

85

90

95

100

Source: IMF

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50

55

60

65

70

75

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Latin America and the Caribbean Developing Asia

Newly industrialized Asian economies Advanced economies


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PATTERNS OF CATCH-UP GROWTH

GDP PER HEAD RELATIVE TO US (2009 EK $s)

100.0%

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1.0%

10.0%

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

Japan South Korea China India


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We are in the midst of a huge global upheaval, driven

by technology, liberalisation and the entry of countrieswith huge labour resources into the world economy.

It is a labour shock, as opposed to the land shock of

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the 19th

century. It changes everything about our world: economics and

politics


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Markets need supportive states

States must provide a range of essential public goods,

particularly security

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,

The creation of such a state is obviously difficult andthe achievement rare

More common have been predatory, weak or failingstates


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The difference in size among states is not a problem,

except to the extent that big states have to provideglobal public goods and so must accept free-riding bysmall states

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But the difference in quality of states is a hugechallenge for the world

This not only creates great global inequality, but black

holes of disorder


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The late Mancur Olson in Power and Prosperity,

defined the state as a stationary bandit. This wassuperior to a roving bandit. But it was still a bandit.

He argued that democracy would bring the stationary

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bandit under control. But it changes the nature of thebanditry rather than its existence.

The function and operation of the state always reflect

the interests of those who control it.


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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

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emocra c; an

Source of wealth, with resource-rich countries less likely to bedemocratic.

As far as the nature of the state is concerned, two forms are

particularly important: Welfare states and developmental states


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Welfare states:

In the course of the 19th and 20th centuries, western statesbecame democratic.

Since property and income are more unevenly distributed than

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vo es, e we are s a e s an a mos nev a e resu . spointless to complain unless one believes one can (andshould) return to a limited franchise.

Over time, spending in contemporary advanced welfare states

rose from about 10 per cent of GDP in the early 20th

century(predominantly on defense) to 30-60 per cent of GDP, mostlyon transfers and social consumption.


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Welfare states have proved compatible with economicsuccess and globalisation. But they face constraints:

Tax rates have reached politically acceptable limits;

Demographic change makes public spending increasinglyunaffordable; and

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income from capital and highly skilled people is increasinglymobile 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.


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Developmental states:

Catch-up states have always been developmental states, tosome degree. This was true of the US and Germany in the19th century and Japan in the 20th

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as s an s a es ave een par cu ar y success udevelopmental 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.


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Latin American states are welfare-developmental

hybrids

Brazil is an obvious example

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Low savings; and

High public spending;

Or are these premature welfare states?


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Ronald Reagan famously said that "The nine most

terrifying words in the English language are: 'I'm fromthe government and I'm here to help.

For the world and the advanced economies in

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,

growing confidence in markets and diminishingconfidence in states.

How much of this is now left after the financial system

the heart of the market economy had to be rescuedby governments?

So how did this happen and what does it mean?


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So why did we have this huge financial crisis?

1. Ideas: belief in efficient markets, inflation targeting and thegreat moderation;

2. Economics: emergence of huge global imbalances andextraordinar reserve accumulations low real and nominal

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interest rates and the reach for yield;3. Finance: innovation in the financial sector, to provide

notionally safe, high-yielding assets and failure ofcommission (risk-weighted capital ratios and reliance onratings) and omission (deregulation of securities and housingmarkets) in financial regulation.

Success bred excess and excess bred collapse


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THE RISE OF THE IMBALANCES

GLOBAL CURRENT ACCOUNT IMBALANCES

(as share of global gross domestic product)

2

3

Source: IMF, WEO April

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-3

-2

-1

0

1

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

US OIL DEU+JPN OCADC CHN+EMA ROW


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RISE OF FOREIGN CURRENCY RESERVES

RISE OF FOREIGN CURRENCY RESERVES ($m)

7,000,000

8,000,000

9,000,000

Other developing

Mexico

Brazil

Algeria

Saudi Arabia

Russia

Other industrial

20

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

, ,

31/01/1999

31/07/1999

31/01/2000

31/07/2000

31/01/2001

31/07/2001

31/01/2002

31/07/2002

31/01/2003

31/07/2003

31/01/2004

31/07/2004

31/01/2005

31/07/2005

31/01/2006

31/07/2006

31/01/2007

31/07/2007

31/01/2008

31/07/2008

31/01/2009

31/07/2009

31/01/2010

Australia

UK

Eurozone

US

Other Asia

Thailand

Malaysia

Hong Kong

Singapore

Korea

Taiwan

India

Japan

China


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FINANCIAL SECTOR DEBT EXPLOSION

SECTORAL RATIOS OF US DEBT TO GDP

100.0%

120.0%

140.0%

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0.0%

20.0%

40.0%

60.0%

80.0%

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Households Non-financial Business All Government Financial Sectors


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The economic collapse has been large.

The rescue has been extremely expensive unprecedented fiscal and monetary action andcomprehensive socialisation of financial sector

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liabilities: It has worked.

But it has also changed the entire policy game.


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FISCAL FIREPOWER USED

FISCAL BALANCES OVER GDP

-2

0

2

23

-10

-8

-6

-4

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Advanced economies Emerging and developing economies World


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FISCAL FIREPOWER LARGELY USED UP

PUBLIC DEBT OVER GDP

100

120

140Source: IMF WEO April

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0

20

40

60

80

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

Advanced economies Emerging and developing economies World G7


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What, then, does this crisis mean for the future of the

state? I would propose four points:

It has revealed the contradictions in a lobal econom shared

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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 tofinance; and

It has destroyed the prestige of the US and the west.


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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

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We need to provide global public goods, internaliseglobal externalities (climate change, for example) andprovide machinery for managing the world economy

This can be done via a combination of informal co-operation and formal specialised institutions


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The rise of the emerging countries and the financial

crisis has altered the context for global governance infundamental ways:

It has shifted the balance of power;

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It has increased resistance to globalisation, particularly inadvanced countries.

Results already include the rise of the group of 20, the

semi-decoupling of emerging economies andfundamental questions about the durability of the US-based global political and economic system


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In economic policy, some of the big challenges ahead

include: Rebalancing the world economy;

Adjusting exchange rates; and

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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.


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5. Concluding points

I would like to leave you with four points:

Globalisation continues to transform the world in which we livein often surprising ways. The rise of Asia is the most importantfeature of this age of globalisation.

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ar e s eman governmen . u w a n o governmen s

best? We are watching another round in the long debatebetween welfare states and developmental states.

The financial crisis has dramatically increased the role ofstates, while also accelerating the fiscal stresses upon them.


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5. Concluding points

The financial crisis has also discredited the intellectualdomination of the West.

Global governance requires a very high level of co-operationamong states. The rise of Asia, particularly China, is going tomake this much more challenging than before.

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Apresentacao Seminario Martin Wolf

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