The case for optimism: a response to David Held

Martin Wolf
16 June 2004

David Held, in his openDemocracy essay “Globalisation: the dangers and the answers” has provided a social democratic agenda for the world. I disagree with it on many levels. But I agree with his favourable view of the potential benefits of economic globalisation and admire the ambition and the passion that animates his vision. As I have argued in my recent book, Why Globalisation Works, the intellectually interesting debates about the world’s future are among social democrats, liberals and conservatives. David Held has done us a great service by defining the first of those positions clearly.

Martin Wolf’s book Why Globalisation Works (2004) develops further the arguments in his critique of David Held

Nevertheless, I disagree with large parts of his analysis and recommendations. I think Held exaggerates and misrepresents the dangers the world confronts, makes a largely false comparison between the “Washington consensus” and US unilateralism in the security field; makes incorrect statements about the consequences of current development policies; and offers suggestion for a new world order that are infeasible, unnecessary and, in some respects, irrelevant.

A flawed prospectus

David Held’s analysis of the dangers the world confronts is deficient. He argues that we risk the potential collapse of the regulation of world trade, failing to achieve the UN’s Millennium Development Goals, are not doing anything about global warming, and are watching the erosion of the multilateral order symbolised by the United Nations. This is mostly wrong.

I agree with David Held on our failure to address global warming, though he ignores the technical and political difficulties that prevent us from tackling it. Renewable energy will not provide the energy we seek, while electorates will not tolerate the huge reductions in energy usage that would deal with global warming in a credible way.

openDemocracy’s climate change debate features arguments from Benito Műller, Lionel Hurst, Tom Burke, and our globalisation editor Caspar Henderson

It is wrong to say that there is “a failure to move towards the United Nations’ Millennium Development Goals”. There is such movement, just not fast enough. The proportion of the world’s population in extreme poverty is falling, despite the rapid growth of that population. Extreme poverty may disappear from most of Asia in the next two decades. The failure lies largely in sub–Saharan Africa. To describe a shortfall in reaching arbitrary targets in one continent as an element in a “catastrophic combination of negative factors” seems, at the least, exaggerated.

There is little likelihood of a collapse in the regulation of world trade. The most likely outcome is the postponement of completion of the Doha round. Similar postponements of the completion of negotiating rounds have occurred in each of the last three trade rounds. Trade remains more liberal than ever before. Moreover, many developing countries continue to exploit trading opportunities successfully. China, after all, is now the world’s third largest trader. The big failure is in agriculture. The problem here lies not in the international system, but in the recalcitrant protectionism of the rich countries.

Moreover, there has been no erosion of the multilateral order. The World Trade Organisation (WTO) is the most effective international economic institution there has ever been. The United Nations has always been ignored by the great powers when convenient. It has been more effective since the end of the cold war than at any point prior to then. The International Monetary Fund (IMF) is weaker today, because its resources are inadequate for contemporary purposes. But, given Held’s opinion of the IMF’s recommended policies, he should welcome that erosion.

openDemocracy interviews the founder of the WTO, Peter Sutherland, and explores the problems and possibilities of the international trade policy in our Trade, Economics, Justice debate – with contributions from Anita Roddick, Mary Robinson, Ann Pettifor, Robert Wade, Maria Livanos Cattaui, Gordon Conway, and Kevin Watkins

The parallel made by Held between the Washington consensus and the security strategy of the US is dubious. I fail to see how the Washington security strategy can be described as being against the positive role of governments; it certainly does not wish to abolish the positive role of the American government! More generally, it seeks to ensure that neither hostile states nor terrorists can operate freely against the US. Achieving that aim requires the creation of strong and effective (though friendly) states able to control their territories.

The Washington security strategy is made in Washington. The “Washington consensus” is not. It is a label for nothing more exciting than conventional economics. Whether or not the ideas embodied in the Washington consensus are right, they are widely shared by policy–makers across the world.

A short response to a lengthy argument on development policy is hard, but four further points on David Held’s analysis are necessary.

First, when the term “Washington consensus” was coined by John Williamson, a centrist economist, its meaning did not include freedom for capital flows.

Second, I know of no evidence that “one of the key global factors limiting the capacity of the poorest countries is the free movement of capital”. This is hardly surprising, since private capital has shunned these countries almost completely.

Third, the argument that the Washington consensus prevents developing countries from development of human capital, economic infrastructure and robust national institutions is wrong. Of course, this is what countries need. But, the government of many of them, particularly the poorest, are incapable of doing any of those things. Neither the Washington consensus nor “neo–liberalism” has had anything to do with that inability. Far more important are governmental overstretch, lack of resources, misallocation and misdirection of those limited resources (by lavish military spending, for example), pervasive corruption and other forms of malfeasance.

Fourth, it is nonsense to say that cutting back the boundaries of state action must mean restricting services that offer protection to the vulnerable. The opposite is the case. In almost every developing country I know, services provided by the state go disproportionately to benefit middle and upper–income groups, not the poor. By cutting back on this largesse, the government could, if it wished, focus its efforts on helping the poor. Of course, depressingly few governments wish to do so.

The Washington consensus is an imaginary enemy, a bogeyman. The idea that everything would work well with development if developing countries did not have to liberalise or privatise is just wrong.

A misdirected ambition

If David Held’s diagnosis is defective, so are his proposed cures. Running through almost all his comments is an unwillingness to confront the fact that sovereignty resides in states that are also of hugely unequal power, competence and wealth. That is why development is such a difficult challenge. That is also why designing a new multilateral security system is a largely idle exercise.

Held assumes that the realities of sovereignty and power can be negotiated out of existence. We can, of course, design any UN Security Council we like. But if the United States government still holds the allegiance of – and provides the finance for – the US armed forces, that council will be a paper institution. The Security Council has to recognise the realities of power. So, of course, does the management of the World Bank or the IMF. Similarly, we can design any development assistance programmes we desire, but a Zimbabwe run by Robert Mugabe will still be driven into ruin and its people impoverished.

What future for the UN in the post–9/11 world order? Kofi Annan, UN secretary–general, writes in openDemocracy on “America, the United Nations and the world: a triple challenge” (June 2004)

Fortunately, such ambitious reconstruction of the global institutions is unnecessary. Those of us who live in the rich countries can decide to cut protection against agricultural imports or increase aid budgets on our own. We can provide greater assistance to governments in developing countries that are trying to help their people, if we wish to do so. We can intervene to halt humanitarian disasters, such as that in Sudan today, or rescue failed states, should we desire to do so. No one of these things demands a global compact or covenant. All it demands is for the citizens of the rich and powerful countries to insist that their governments act more generously and effectively.

Finally, some of David Held’s proposals will not even help achieve the purposes they seek. The construction of a new global geopolitical architecture will certainly not secure development. That depends on what happens on the ground. Aid can help, in the right context. But there are too many cases of failed development in countries with large resource windfalls to be confident that it alone will guarantee success.

Development depends on the ability of countries to exploit market opportunities. Fortunately, if governments do the right things, development will normally happen, as China and now India are showing. Held says that “unregulated economic development which simply follows the existing rules and entrenched interest of the global economy will not lead to prosperity for all.” Perhaps not. But it would be a huge help.

openDemocracy’s Globalisation theme presents a range of debates on global institutions and how they can or should be reformed

David Held should cheer up. Yes, the challenges we face are huge. But they are far less frightening than those of four decades ago when nuclear–armed superpowers confronted each other, more than a quarter of humanity lived under totalitarian political regimes and Asia was mired in its millennia–old poverty. Things are getting better. They can get better still. But let us not wait for an entirely implausible and unnecessary reconstruction of the geopolitical order before doing the simple things that will make them so.

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