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Science, People & Politics

Science, People & Politics, issue 8, November December, 2006

World Bank faces a challenge to its task
by Fred Pearce

Global Economic Prospects 2007: Managing the next wave of globalisation (November 2006),
Washington DC.

ISBN:0-8213-6727-7
price: US$38.00, shipping and handling charges within the US, $8.00.
Geographic discounts apply. See the International Bank for Reconstruction and Development (World Bank) website.

GLOBALISATION is a funny business. Everybody seems to think it is a new phenomenon. But by some measures, international trade made up a greater proportion of total trade a century ago than it does today. In the heydays of the great European empires, huge volumes of goods were transported from the Far East and Africa to Europe and North America. The entire Indian economy, one of the world's largest, was run for the benefit of the British. So much so that many of India's assets were stripped bare in the process.

Trade between Europe and Africa was much greater in the 1950s and 1960s than it often is today. In several modern African countries, the main imports from the US and Europe are second-hand goods, particularly clothing, donated by consumers.

And we often forget too about the great Soviet trading empire, in which the countries of central and eastern Europe - not to mention clients states from Cuba to Ethiopia and the central Asian countries, that were then yoked into the Soviet Union - formed until recently part of an intricate Moscow-organised trading regime. Many of these countries, partly through poverty and partly simply through the loss of imperial connections, are today regressing into themselves. For citizens from Moldova to Uzbekistan, globalization looks more like the past than the future.

That said, we are bewitched by two recent phenomena of undoubted global importance. First is the quite extraordinary growth of China as an economic force over the past two decades, during which it has had an almost permanent 10-per-cent annual growth. China is today nothing less than the new "workshop of the world", a phrase first invented to describe Britain in the early 19th century. China manufacturers most of our computers and i-Pods, toothbrushes and Christmas trees, TVs and T shirts. This Christmas, Santa is undoubtedly Chinese.

The second phenomenon has been the hugely assertive demand of US manufacturing and service industries to be allowed to force their way into previously closed or tightly controlled markets. This is not so much a new globalization as the replacement of a defunct Soviet hegemony with US hegemony.

With the current round of world trade talks, the Doha Round, more or less dead, we are probably seeing the end of this latest phase of globalization. The new architecture created by the collapse of the Soviet Union, the rise of US hegemony and the surge of China as the world's workshop, is now in place. This is implicitly acknowledged in the World Bank's new report, Global Economic Prospects 2007, which uses as its subtitle "Managing the next wave of Globalization". But this begs the question of what the "next wave" will be - something which the report, interesting though it is, does not satisfactorily tackle.

The default setting for the bank's thinking is that we can expect more of the same: continued US rule-making for world trade and finance, coupled with the economic rise, China-style, of other populous nations like India and Vietnam and Indonesia and Brazil. That is clearly on the cards. But perhaps, as the report ponders, there are other factors at work that could kill what the Bank still clearly sees as the golden goose.

There are plenty of straws in the wind suggesting a more complex future. We don't hear much about them, but the formerly docile sweatshop workers of China, Bangladesh and elsewhere have been in ferment in recent months, with strikes and sabotage popping up all over the place. Do these insurrections have the potential to snuff out the new globalisation, triggering either a return to protectionism or some much greater insurrection?

What are we to make of the growing assertiveness of Putin's Russia? As it prospers from high energy prices, Moscow is buying into Europe's gas market to the west, while attempting to expel Shell from Sakhalin in the east. Globalization or protectionism? Or both?

And globalization itself is starting to take new and unexpected forms. Take the burgeoning market in carbon credits. This is a globalized market-based response to the global environment threat of climate change. But it hardly conforms to the free-market model of mainstream globalizers. This market only exists at all because of new internationally agreed and state-controlled limits on greenhouse gas emissions. And of course, it has led to the irony of the corporations of the US - the world's self-appointed globalizers and traders in chief - being largely left out of this new market, because its government has declined to set any domestic limits on emissions.

Globalization of trade is likely to continue, but as the Bank's report begins to admit, it will likely take forms that may often be very different from those imagined by the free-market ideologues.

The report posits three potential pressures on its default model of free-market globalization. One is the continued growth of economic inequalities as economic shake-down continues to confirm the losers in the globalization process, whether whole African countries or the poor in Asia and Latin America. This, it acknowledges, may lead to an upsurge in protectionism. A second is "pressures in labour markets", not least insurrection among the new global working classes. The third is "threats to the global commons" (water, air, etc...). As the report admits: "If these forces are left unchecked, they could slow or even derail globalization". Where the Bank is much vaguer is in imagining how to check these threats.

The report is particularly weak on the global commons, hardly knowing where to look for an answer. The Bank may have been talking about environmental issues for a couple of decades now, but it appears no closer to discovering how to incorporate them into its overall thinking - to come up with a framework for sustainable development - than it was back before the Earth Summit of 1992.

The report quotes the observation of Sir Nicholas Stern, in his important recent report for the British government, which called for an investment of global GDP of around 1 per cent today to be made in cleaner energy to head off a potential climate-induced global economic meltdown that could strike 20 per cent from the global economy. But rather than underpinning its own analysis with this work, Stern's work is placed firmly in a Box. The Bank fails to endorse the idea.

Stern was formerly chief economist at the World Bank. But the Bank still can't quite stomach his central analysis that the free market's failure to find a way of penalising the villains of climate change represents its single greatest failure to date. Until the bank can crack that one, it will probable no more be able to "manage the next wave" of globalization than King Canute was able to manage the waves in his own day.


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