Friday, May 16, 2008

Larry Summers questioned!

Larry Summers is being charged of floating incoherent arguments about globalization by three researchers in a column published in the Financial Times. They argue that Summers is viewing the pace and fruits of globalization from the US perspective, i.e. if the US loses, it is bad and if it wins, it is good. They question Summers' recent argument that the middle class income stagnation (or decrease) and job losses in the US is a product of globalization.

The terms of what constitutes just globalisation cannot be determined unilaterally from the standpoint of the gains and losses within the US. It has to be determined co-operatively, involving discussions over the costs and benefits to all, especially those least able to defend their interests in both rich and poor countries.

The problem Mr Summers identifies, the hyper-mobility of capital, was an outcome that he and the US actively promoted. Attracting foreign capital was one of the raisons d’ĂȘtre of the Washington Consensus-based reforms. Developing countries were forced to change their intellectual property laws. At the US Treasury, Mr Summers was a leading proponent of capital account liberalisation by developing countries. Having swallowed those bitter pills of intellectual property protection and capital mobility as a necessary price for a better future, developing countries are now told that those medicines cause problems that need more – in this case protectionist – medication.

It is undeniable that the best line of defence for protecting workers has to be overwhelmingly domestic – through progressive taxation, improving education, strengthening the bargaining position of labour and improving the safety nets. Since the Ronald Reagan years, the headlong embrace of market solutions has systematically undermined each of these policy responses.