GLOBALIZATION AND

DEVELOPMENT
JOSEPH E. STIGLITZ
TOKYO
JULY 2007
The Successes of Globalization
• China and India, with 2.4 billion people, growing
at historically unprecedented rates
– Continuing the successes of the East Asia Miracle,
which Japan had led beginning in the early 1960s
– Countries that were marginalized, excluded from the
global economy are closing the gap between
themselves and advanced industrial countries
• China at close to 10% for 30 years
• India recently at more than 8%
– Engine of global economic growth
• Global growth at 5% for past couple years has been almost
historically unprecedented
• Increased demand for commodities has helped developing
countries
 Historical Perspective
• 1820: China had 1/3 of global GDP, India
more than 15%
• 1814-1828: Industrial Revolution and tariff
barrier knocked out Indian export
– Indian textile export to Britain fell by two-thirds
– British export of textile to India rose five times
• Opium wars, and other external and
internal problems had contributed to
China’s declining share
35%
30%
25%
20%
China
15% India
10%
5%
0%
1000 1600 1820 1913 1973 1998
Globalization has played major role
in their success
Globalization—the closer integration of the countries of the world as a
result of lower communication and transportation costs and
reduction of man made barriers to movements of goods, services,
people, capital, ideas, knowledge

• 50 percent compounded annual decline in telecommunication cost

in the 1990s
– Fiber optic glut during the Internet Bubble slashed telecom cost
– Scanners convert data to image file - 160 pages per minute.

Developing countries have benefited through

• Access to markets
• Access to technology
 Discontent with Globalization:
Outcomes
• Failures in development: contrast between success in
East Asia and disappointments elsewhere:
– Latin America—growth even in the 90s half of what it was in
earlier decades
• Benefits of growth going to upper income groups
• Growing poverty, unemployment, crime
• Growing fraction of population in informal sector, without job
protections
– Africa—decline in per capita income
– Economies transitioning from Communism to market
• Given inefficiencies of communism, success should have been easy
• But in fact, there were massive decreases in income, huge
increases in poverty
 The World is not flat
And in many ways it is getting less flat
• Growing inequality between countries
– Standard economic theory predicted
convergence, instead, there was divergence
• Growing inequality in most countries
 Globalization has played an
important role in these failures

– Predictable effect on inequality within

advanced industrial economies
• Effects on developing countries harder to explain
– Unfair trade treaties have compounded
problems in developing countries
– Problems compounded by asymmetric
liberalization
– Africa has neither resources nor education to
take advantage of new opportunities
 Globalization has played an
important role in these failures
Latin America followed advice of IMF/WB
– best “student” of Washington Consensus policies
– Capital market liberalization exposed them to huge
volatility; privatizations were often corrupt
Contrast between Transition countries following
Washington consensus policies and China and
Vietnam (which did not) is marked
Africa exploited even in post-colonial world
– Exacerbating general problem of
– But had been left without the education, technology,
and resources to take advantage of new opportunities
 Further problems: Finance
• Growing instability—100 crises in last 30 years
• Money is flowing from poor countries to rich
• But, in spite of advances in ability to slice and dice risk,
poor countries still bear brunt of risk
– Meaning that many are burdened by huge debt payments
– One of sources of crises
• Much done to protect investor interests
• But little done to protect the environment in developing
countries from investors
– Who use limited liability to protect themselves after taking out
natural resources
– Bilateral investment treaties are one-sided
 Further Problems: Trade
• International trade regime is unfair to developing
countries
• The Uruguay Round Agenda focused on the
interests of rich countries; it included
– Services - but not unskilled labor intensive services;
– Subsidies - but not agricultural subsidies;
– Intellectual property rights;
• Most of projected benefits accrued to rich
countries
– 70% of gains to developed countries
– The 48 Least Developed Countries were actually left
worse off
• System is unbalanced, stacked against poor
countries
– Average OECD tariff on goods from poor countries is
4x higher than on goods from other OECD countries
– Rich countries cost poor countries 3x more in trade
restrictions than their total development assistance
• Little progress on agricultural issues
– OECD countries continue to subsidise agriculture by
48% of total farm production, just 3% lower than
1986; maintain high tariffs
• There was a need for a Development
Round to address these problems
• But the Development Round agenda was
mostly putting old wine in new bottles
– Some elements were even anti-development
• And US and EU reneged on their promises
• As it is, the round does not deserve to be
called a development round
• Even if successfully completed, would do little to benefit
developing countries
– Problem not just in agriculture
– Also in manufacturing—escalating tariffs
– US refusal to go along with opening up to poorest countries
• EBP (Everything but what you produce)
– Non-tariff barriers
• Risk if completed—belief that it was a development
round, return to earlier regime
• Risk if fails—continuation of bilateral trade agreements
– Even more unfair to developing countries
– Undermining multilateral trading system
 Further Problems: Knowledge
• One of main problems facing developing
countries is reducing gap in knowledge
• But unbalanced intellectual property
regime makes this even more difficult
• And makes access to life saving
medicines more difficult
• Developing countries have called for a
Development Oriented Intellectual
Property Regime
Further Problems: Global Warming
Another arena in which global social
injustices are being played out
• Major source of pollution in the North
• Major consequences in the South
 Discontent with Globalization:
Other Values Dominated by
Economics
• Environment sacrificed for short run commercial interests
• Reduced access to life saving medicines
• While no compensation provided to developing countries
for environmental services
– Biodiversity
– Carbon sequestration
• And no protection for traditional knowledge
• Traditional cultures weakened, and WTO rules make
support difficult
• Democratic processes undermined, e.g. by IMF
conditionality
 Discontent with Globalization:
Processes
• Global governance is undemocratic
– Voice of developing countries not heard
– But even when it is heard, it is not listened to
– Dominated by North and by special interests
• Rules made by advanced nations for advanced nations
• For their interests, or for special interests within them
– Problems of global governance highlighted by
problems at the World Bank and IMF
– Governance problems contribute to bad outcomes
• Failures of global governance also reflect
failures in “democracy” within advanced
industrial countries
– Special interests dominating national interests
• Problems aggravated by “smokestack
structure”—trade ministers meet with trade
ministers to decide on trade issues, with little
attention to environmental, health consequences
– Markedly different from way decisions are made
within countries
• And globalization, as it has been
managed, has undermined democracy
– Conditionalities
– Reducing the scope for democratic decision
making
Globalization has made us more
interdependent
Greater interdependence means greater
need for collective action, to act
cooperatively

Just as the world has greater need for global

economic institutions, confidence in these
institutions has waned
 FUNDAMENTAL PROBLEM
• Economic globalization has outpaced “political
globalization”
– Views about democracy, social justice, “social solidarity,” even
the “rule of law” change at the border
• Democracies have learned how to temper the market
economy, to make sure that most individuals benefit
• But we have not yet learned how to temper the excesses
of globalization
– It has put new demands on the nation state (growing inequality)
– But reduced their ability to respond
– Part of the reason is that we have not yet democratized
globalization
 Matters Have Become Worse in
Recent Years
• Cold War made Emerging Markets battle fields
– Little care about virtues of government (Pinochet)
– But considerable concern about limiting alienation of people
• With end of Cold War there was a choice
– To pay more attention to human rights, democratic values, global
social justice, fundamental values, OR
– more willingness to engage in economic exploitation and impose
doctrinal policies
• U.S. missed opportunity for global leadership, used new
position to advance parochial commercial interests, often
in “unilateralist” manner
• Unilateralism especially severe in last six years
– Further weakens ability to have global democratic cooperation
 NATURE OF OPPOSITION TO
ECONOMIC GLOBALIZATION
• Not so much to globalization itself but to
the way it has been managed
– Economic values dominating other values
– Undemocratic processes
• And to the particular set of ideologies that
have underlay the policies
– Market fundamentalism
– In developing countries, “Washington
Consensus” policies
 Change is possible
• Indeed, change is inevitable with changing
world
– new global geopolitics
– New technologies, New Economy
– New scarcities
– Climate change
– And globalization has set in motion its own
changes
• Rulings that US cotton subsidies are illegal
• Question is only whether we make the
changes before a crisis occurs
– Changes in crises tend to be patchwork
– Setting in motion another crisis at a later date
• Or we work together today to Make
Globalization Work, or at least work better
Reforms that would make globalization
work better for Developing Countries
• Trade: A true development round
If developed world is willing to commit .7% of GDP
to help poor countries, shouldn’t they help them
also by opening up their markets, to give them
an opportunity to earn income for themselves?
– Generalized Market Access—expanding and
extending the EBA
• Opening up markets to countries poorer and smaller
– More policy scope—allowing developing countries to
do what the developed countries did to advance their
development
• Asymmetric consequences of subsidies
 A true development Round
• Labor market liberalization as well as
capital market liberalization
• Agriculture
• Escalating tariffs
• Non-tariff barriers
• A development oriented intellectual
property regime
 Global Financial Reforms
• Debt relief
– But unless there are more fundamental reforms, debt
problems will arise again
– Shift burden of risk from developing countries
• Reform of the international reserve system
– Expansion of Chang Mai initiative
– Implicit foreign aid from developing countries, through
cheap loans to hard currency governments, is greater
than foreign aid they receive
– Contributes to global instability
• Environmental responsibility
– And other legal obligations enforce through
International Commercial Court
– Redoing bilateral investment treaties
• Limiting scope
• No longer enforced through commercial courts
• Global competition
– Enforced through International Competition
Authority
• Escaping the Resource Curse
– Expanding the Extractive Industries Initiative
• Only transparent payments tax deductible
– Ending abusive bank secrecy
– Model contracts, that ensure that developing
countries get fair share of value of resources
 Global Warming
• Beyond Kyoto
– Major achievement
– But didn’t go far enough
• Developing countries need to be compensated for
providing environmental services
– Rainforest coalition—avoided deforestation
• All countries need to induced to cooperate
– Global public good
– Trade sanctions—worked in the case of ozone destroying gases
• Ecological taxes—better to tax bad things than good
– And more likely to reach agreement than on setting common
targets
• Standards
 Foreign Assistance
• More of it
• And more effective
• Assistance has played an important role in
the past
• And can play an even bigger role in the
future
– Especially with programs based on the
successes of the past—East Asia Miracle
– And providing more country ownership
Japan, as the second largest economy in the world, has an
especial responsibility for making globalization work,
including working for developing countries
• And an especial opportunity
• Understands development—because it went through the
development process itself so recently
• Understands the need for global peaceful cooperation
• Poverty in developing countries is one of major global
problems facing the world
– Japan has long been committed to promoting growth and fighting
poverty in the developing world
– New organization puts it in a position to do so even more
effectively