In some circles, these days, it is fashionable to blame globalisation for all manner of ills. Critics hold it responsible for everything from poverty and inequality to environmental pollution.
It is important, of course, to listen to what the critics say. Many of them have genuine misgivings about the spill-over effects of rapid economic progress. Policymakers should make every effort to ensure that these costs – usually short-term – are kept to a minimum.
But it is also important to remember how substantial recent economic progress has been – and how widespread. Globalisation is not new, and nor are most of its consequences. Technological progress has always encountered resistance from those fearful of change and its impact on them. But economic growth in the past 50 years or so has been more rapid than at any point in history. In the 19th century, for instance, countries like Britain, at the forefront of the industrial revolution, managed average annual per capita growth rates of around 1.5%. Contrast that with the per capita annual growth rates of 5-8% that several countries have achieved in the period since the Second World War. The most successful emerging market economies have grown in a decade by as much as countries managed in a hundred years in Victorian times.
Just as it has been for thousands of years, trade has been the main driving force behind this unprecedented economic expansion. Rapidly falling transport and communications costs have helped, of course. But the dismantling of trade barriers that took place after 1945 fuelled economic growth. The multilateral trade system set up first under the General Agreement on Tariffs and Trade and now overseen by the World Trade Organization helped all participating countries reap the benefits of free, or freer, trade. We must not lose sight of the role that trade liberalisation has played in creating the gains in economic welfare from which so many people have benefited.
The industrial countries have done well in the past half century. But so too have many people in the developing world. A large proportion of the world’s population has become better off at a faster pace than ever before. Infant mortality has declined sharply; literacy rates have risen to more than 70%. World poverty has declined – in the five years after 1993, for example, the number of people living on less than US$1 a day fell by more than 100 million. Life expectancy in developing countries is now around 65 years, only about 10 years less than in the industrial countries. Economic growth has also raised the demand for democracy and representation. A large part of the world’s population now lives under elected governments.
Recognising the gains is essential if we are to preserve them. History shows us that progress can be halted, and even reversed. The problems faced by the international economy after the First World War are a sharp reminder of how dangerous a retreat into protectionism can be – and how widespread its impact. Governments need constantly to remind themselves that it is not enough to pay lip service to the principles of free trade. Preserving the multilateral trading system, and dismantling trade barriers, must remain at the forefront of economic policy if the gains from globalisation are to be preserved.
Many people forget, or overlook, the International Monetary Fund’s role in promoting world trade. That is understandable. The general assumption is that the IMF exists to prevent or resolve international financial crises – and it does. But that task is a means to an end. The Fund’s Articles of Agreement charge it with facilitating “the expansion and balanced growth of world trade”.
It is not the IMF’s job to oversee the world trading system – that task falls to the WTO. But the IMF can help countries develop the sustainable macroeconomic framework, including monetary, fiscal and exchange rate policy, which they need to benefit fully from participation in the world economy.
The IMF has also recently launched a new initiative, aimed at providing support for countries that may face short-term balance-of-payments difficulties as they adapt to the further trade liberalisation that we hope will eventually be agreed under the Doha round. Based on what we know from past trade liberalisations, and the IMF’s own preliminary research, we do not expect the temporary costs of adapting to a Doha settlement to be significant for the vast majority of countries. But by standing ready to provide support in those cases where it might be needed, the IMF is providing a kind of contingent insurance, so that no country feels unable to commit to further trade liberalisation.
By helping to underpin the process of trade liberalisation in this way and by helping governments take the necessary action to maintain financial stability, to pre-empt crises or, in some cases, to resolve them, the IMF is also helping them exploit the opportunities offered by globalisation.
Of course, crisis resolution is an important element of the Fund’s work – it certainly has the highest profile. But increasingly the Fund has sought to help governments put in place the sort of framework that both reduces the risk of crisis and better equips them for those occasions when trouble strikes. Such assistance extends far beyond the traditional domain of macroeconomic policy. Institutional reform, financial market reform and technical assistance across a whole range of issues – these all form part of the IMF’s day-to-day work with governments. The IMF is also active in helping low-income countries to develop pro-poor growth policies, again aimed at helping countries and their populations reap the maximum benefits from globalisation.
Efficient markets, at the national and international level, are key to delivering the conditions for the stability that governments, firms and individuals cherish. Economic sustainability is at the heart of the IMF’s work. But it is – or should be – everybody’s aim.
©OECD Observer No 240/241, December 2003