Friday, March 18, 2011

Pondering globalization

Globalization, whether good or bad, has certainly transformed the world. Globalization can be defined in different ways, but it is fair to say that the term encompasses processes by which trade, investment, technology, and culture flow freely between nations because of the elimination of protectionist barriers to trade and capital flows, such as tariffs. A 2008 Paul Krugman post shows the pervasiveness of financial interconnectedness between nations as a result of globalization since 1995. And in the documentary “Morristown: In the Air and Sun, director Anne Lewis shows the effects of trade and labor liberalization on both American and Mexican workers, including the devastation NAFTA inflicted on Mexico’s corn growers by flooding the market with artificially cheap American corn (artificially cheap due to American farm subsidies). The Omnivore’s Dilemma author Michael Pollan explained back in 2004 that while freeing up the corn market may have made sense in an abstract economic sense, but can be devastating in reality.

Of course, the economic theories that support globalization often seem to make some sense. In the case of the Mexican corn farmers, some would argue that Mexico is actually better off; America can grow corn more cheaply, so Mexico should just buy cheap corn from us so they can focus their economic activities on other more efficient sectors. In actuality, it seems as though NAFTA has not really helped Mexico all that much, with growth at a slow 1.6% per year and job losses outpacing job gains, according to some researchers. But it is unclear whether the problem was just with NAFTA specifically or free-trade in general.

I often find myself very confused about whether globalization is a good thing in the long run because tracing economic policies to their effects is difficult, and because of the argument that protectionist policies in one country lead to a downward spiral of retaliation by other countries (but even this is debated). It seems like you can always find “experts” who have diametrically opposed views on whether a particular economic or financial policy is good or bad. (The Cato Institute for example, claims that “study after study has shown that countries that are more open to the global economy grow faster and achieve higher incomes than those that are relatively closed.” I have a hard time believing that when I look at Mexico, but I’m sure the Cato institute could muster a reply.) I also find that trying to formulate informed opinions about matters of trade policy and international finance to be a demoralizing enterprise because it just takes so much time and effort- more than most people can probably afford to expend. Unfortunately, as economic issues dominate our day to day lives more and more, the importance of an informed polity is higher than ever.

Even if it may be too difficult for most of us to investigate these issues on our own, hopefully federal regulators can be watchdogs on our behalf. The Dodd-Frank law tasks the Commodities Futures Trading Commission (CFTC) to more closely monitor financial markets, which is a good thing, but House Republicans want to make cuts in the CFTC budget in spite of its new responsibilities, while the CFTC is requesting an increase. I believe a refusal to fund oversight of Wall Street is only asking for a repeat of the malfeasance that led to the current crisis.

Of course, closer regulation of our financial markets may help stabilize markets at home, but it may not be of much help to citizens of countries like Ecuador. Although the matter is a few years old, I happened to be reading one of journalist and author Greg Palast’s books, which discussed World Bank policies regarding investment in Ecuador’s energy sector (The section of the book was taken from this Nation article in 2005). Palast claims to have received a copy of “confidential” World Bank 2003 Structural Adjustment Program Loan conditions for Ecuador, which provides that Ecuador must pay 70 percent of any oil price spike related profits to bondholders, while keeping only 10 percent for “social services.” Ecuadorians must also pay double the prices paid by American citizens for electricity, which is unfathomable given that per capita GDP is about $3,000.

I had planned to write my entire post about Palast’s claims, trying to see if I could substantiate them, but I couldn’t. The World Bank doesn’t publish its loan terms, or at least doesn’t make them easily accessible. Searches for “Ecuador” and “World Bank” in the archives of the New York Times and Washington Post turned up a few articles about the rise of “leftist” leadership in Ecuador, such as this 2007 Times article noting that Ecuador does not actually benefit much from high oil prices (not bothering to explain why of course), and a mild request in 2004 that the World Bank advance its mission of reducing poverty. There certainly weren’t any articles directly related to the loan conditions imposed on Ecuador. Without any transparency from the Bank, and any mainstream media interest in the topic, the concerned citizen is left to make his or her best guess as to what is really going on behind the scenes. Maybe that’s all part of the plan. Either way, it’s disheartening.

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