WHY GLOBALIZATION WORKS Martin Wolf, Associate Editor & Chief Economics Commentator, Financial Times, London Nottingham University Nottingham 17 th February 2005

2 Future of Globalisation Five Big Themes of the Book –Technology and the market revolution –Role of states –Development record of the “second age of globalisation” –Threats to globalisation –Exploiting the opportunities of globalisation

3 Theme 1 – Centrality of markets Globalisation is integration of economies through markets across frontiers It is enabled by technology and by liberalisation The 1980s and 1990s were a liberalisation revolution Globalisation followed

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10 Theme 2 – Markets and States Markets need supportive states They need to be both strong and constrained The creation of such a state is difficult and the achievement is rare Far more common are predatory, weak or even failing states Good states are created by external regulatory competition, constitutional change and moral reform The difference in quality of states is the world’s biggest challenge

11 Theme 3 – Record In many ways, there is too little globalisation, not too much. Labour markets are less integrated than in the late 19 th century Capital markets are less good at moving capital to less developed economies, because of monetary disorder and poor property rights But trade and production are more integrated than ever before, because of technology and liberalisation

12 Theme 3 – Record Where globalisation has worked, predominantly in Asia, it has been remarkably good.

13 Theme 3 – Record “Let China sleep, for when she wakes, she will shake the world.” Napoleon Bonaparte

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21 Theme 4 – Threats ahead Insecurity Instability Interests Ideas

22 Theme 4 – Threats ahead Insecurity –Then: huge conflicts among the great powers, leading to two world wars –Today: fear of terrorism, but the great powers are on the same side, at least for the moment –Risks ahead: rise of China, mega-terrorism and resource wars –Assessment: risks manageable

23 Theme 4 – Threats ahead The consensus is that oil supply can increase in the years ahead But we still do not know what will replace it in the long run The resource needs of Asian industrialisation are enormous: half of global incremental demand for oil is now from Asia, with China a bigger factor than the US

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25 Theme 4 – Threats ahead Instability –Then: the Great Depression –Today: financial crises in emerging market economies, asset price bubbles and global imbalances –Risks ahead: dollar crisis and asset price crashes –Assessment: risks manageable

26 Theme 4 – Threats ahead Interests –Then: national companies with the same interests as their work force and no World Trade Organisation –Today: multinational companies with internationally integrated operations and interests at odds with their national work forces and also the WTO –Risks ahead: middle class anxiety as services become more internationally tradable –Assessment: risks manageable

27 Theme 4 – Threats ahead Ideas –Then: belief in socialism, planning and import substitution –Today: collapse of socialism and worldwide move towards the market and discordant group of anti-globalisation protesters –Risks ahead: loss of faith in market, particularly if financial system continues to be unstable –Assessment: risks manageable

28 Theme 5 – How to exploit opportunities I have no blueprint for a new world. I think these are a waste of time. But here are ten “commandments” that bring together my main conclusions –The market economy is the only arrangement capable of generating sustained increases in prosperity –Individual states remain the locus of political debate and legitimacy. Supranational institutions gain their legitimacy from the states that belong to them –It is in the interest of states and their peoples to participate in international treaty-based regimes that deliver global public goods

29 Theme 5 – How to exploit opportunities –Such regimes need to be specific, focused and enforceable –The WTO has strayed too far from its primary focus on trade liberalisation –The case for regimes covering investment and competition is strong. But such regimes do not need to be global –It is in the long-run interest of countries to integrate into financial markets, but they should do so carefully –It is necessary to accept renegotiation of sovereign debt as a normal feature of the world economy –Official development assistance need to increase –Countries need to learn from their own mistakes, but also we need the ability to rescue failed states