Global Speculators

A billionaire and a Nobel laureate want to fix international trade agencies. Why bother?

Charles Oliver from the March 2003 issue

George Soros on Globalization, by George Soros, New York: PublicAffairs, 191 pages, $20

Globalization and Its Discontents, by Joseph E. Stiglitz, New York: W.W. Norton & Co., 282 pages, $24.95

When the International Monetary Fund (IMF) and World Bank held joint meetings in Washington, D.C., in September, nothing remarkable happened. Given the recent struggle over globalization, that was news. Starting with the 1999 meeting of the World Trade Organization (WTO) in Seattle, meetings of international groups concerned with trade and economic development attracted thousands of protesters, some of them violent. They aimed to make themselves heard, even if that meant stopping these organizations from doing business. Violence, property damage, and clashes with police became expected features of the anti-globalization movement.

But that was before September 11, 2001. Protests planned for the 2001 IMF-World Bank meeting in D.C. were canceled, and some observers said the anti-globalization movement was dead.

Organizers of the 2002 protests hoped to show their movement was very much alive and announced that 20,000 protesters would show up. But the police and the public are still much less tolerant of the behavior protesters displayed in Seattle and other cities. The September meetings in Washington drew barely 2,000 protesters, who quickly found themselves outnumbered and outmaneuvered by police. Property damage was limited to a single smashed window and some graffiti.

But globalization criticism hasn't gone away. Indeed, it has gained some support from surprising quarters, including prominent businessmen and respected economists. These more economically literate critics point to some very real problems with the way globalization has taken place. In particular, they focus on the problems caused by organizations such as the World Bank and the IMF. Unlike the street demonstrators, these critics don't call for a halt to globalization and economic integration. They simply want it to be guided by right-minded individuals. But their criticisms of the institutions charged with guiding economic integration carry more power than they seem to realize, calling into question the very prescriptions they put forth.

Financier George Soros certainly understands a thing or two about how markets work. (In December a French court convicted the billionaire of insider trading and fined him $2.3 million.) And he certainly understands how trade helps nations become wealthier. In George Soros on Globalization, he admits, albeit in a footnote, that a World Bank study found developing countries with the biggest increases in trade as a share of gross domestic product have experienced higher and faster growth compared to their "pre-globalization" years as well as to "non-globalizing countries."

"Globalization," Soros writes, "is indeed a desirable development in many ways." But Soros is a strong critic of globalization, at least as it has taken place so far. He gives three basic reasons: "First, many people, particularly in less developed countries, have been hurt by globalization without being supported by a social safety net; many others have been marginalized by global markets. Second, globalization has caused a misallocation of resources between private goods and public goods. Markets are good at creating wealth but are not designed to take care of other social needs. The heedless pursuit of profit can hurt the environment and conflict with other social values. Third, global financial markets are crisis prone."

For Soros, the real problem with globalization is that it hasn't gone far enough. "While markets have become global, politics remain firmly rooted in the sovereignty of the state," he complains. He proposes that we strengthen existing international organizations and create new ones devoted to "social goals such as poverty reduction and the provision of public goods on a global scale."

For example, Soros notes that "workers in the countries that offer cheap labor are often deprived of the right to organize and are mistreated in other ways. China is notorious in this respect." The problem, as Soros sees it, is that the International Labor Organization (ILO) lacks the teeth to enforce global labor standards. Developed nations such as the U.S. haven't lined up as solidly behind the ILO as they have behind the WTO. Soros wants the West, especially the U.S., to put more effort into strengthening the ILO and obeying its edicts.

He also wants the West to offer more aid to developing nations. Yes, he says, trade and globalization can help raise the standard of living in such nations, but they aren't doing so quickly enough. To speed things up, Soros offers a complex proposal. Every year, he says, the IMF should issue "Special Drawing Rights," a special kind of reserve money. Developing nations would keep their SDRs as part of their foreign currency reserves to draw upon in times of need, but developed countries would contribute their SDR allocation to the provision of global public goods.

Although Soros calls for new and more powerful international organizations, he's quite critical of the way existing institutions have used the powers they already have. According to him, the rules of the WTO are slanted to favor developed nations and multinational corporations over Third World nations.

That may be an overly harsh criticism, but it contains more than a kernel of truth. Soros argues that the WTO made a major mistake when it became involved in the protection of intellectual property. You may not agree with his assessment that intellectual property law in the West has tilted too far toward protecting the interests of big corporations. But he has an undeniable point when he argues that this issue takes the WTO outside its core mission of reducing global trade barriers. He also has a point that this issue is of greater concern to Western nations and multinational companies than it is to Third World nations.

The Third World would rather the WTO focus on removing the trade barriers that block their agricultural goods from Western plates and try to find ways to reduce the subsidies Western nations give their farmers. Those subsidies cause the global market to be flooded with farm products, driving down prices and making it harder for Third World farmers to make a living. But the WTO has yet to open up talks on freeing up the agriculture sector. Powerful farm interests in the U.S. and Europe have fought their governments' participation in such talks.

The WTO isn't the only international economic agency Soros finds fault with. He targets the World Bank and the IMF as well. World Bank loans flow to central governments, Soros argues, thus reinforcing the power of corrupt or repressive central regimes in developing nations. Again, that conclusion seems difficult to argue with. And his claim that the IMF creates a "moral hazard" in international credit markets has been well documented.