The United Nations and the Conceptual Challenges of a Globalizing Economy.

The term globalization is widely used to describe an observable reality, as well as to justify a political programme. It refers, on the one hand, to the vanishing of many limits on international commercial and investment practices, because of a vastly increased human reach achieved by advanced communication and data processing technologies, and to the resulting process of partial but rapid global economic integration. On the other hand, globalization stands for a political mission aimed at altering the relationships between States and large business organizations. Before the eyes of Governments and communities of commentators, globalization is thus presented both as an ongoing, unstoppable process, leaving them without policy options, as well as something they must help bring about through programmes of deregulation, financial liberalization and privatization. Because the two sets of notions are inappropriately connected in numerous analyses that inform policy discourse, the true nature of the political progr amme tends to be obscured by assumptions of economic necessity or inevitability.

Karel van Wolferen is University Professor of Comparative Political and Economic Institutions at the Universiteit van Amsterdam. He has served as a correspondent for the daily NRC Handelsblad, reporting from many countries in Asia. He is the author of "The Enigma of Japanese Power" and several works in Japanese on political and economic subjects.

Various UN organizations are ideally positioned to make major contributions to the construction of an improved conceptual apparatus with which the phenomena attending globalization can be understood, because:

* The United Nations is unique as the world's sole organ that is not under the control of any particular country, and in which all countries have the opportunity to lend their voice to ongoing discussions concerning common human endeavours. The attainment of long-term equitable global economic development ranks with security and the preservation of the environment at the top of the list of such endeavours.

* Unlike other international organizations such as the Organization for Economic Cooperation and Development, the World Trade Organization (WTO) and the International Monetary Fund, UN organizations charged with development or education have not come under suspicion that they represent or are tainted by partisan economic interests.

* Many UN organizations are fundamentally committed to promote learning in their areas of competence, which is a necessary disposition for a project of conceptual improvement.

* Various UN institutions are well placed to contribute to such a project, because they have hand -on experience in a multitude of different social and political settings, and vast institutional memories.

* Through its channels of communication with all corners of the world for various purposes, the United Nations can be a powerful disseminator of knowledge.

Economic crises and other developments in the late 1990s have already prompted at least two gradually evolving general agreements about the fallacy of earlier suppositions concerning globalization. The belief that advanced deregulation will eventually benefit everyone in every country has been severely undermined. Using the words of UN Secretary-General Kofi Annan, the rising tide, in the metaphor often invoked for vastly expanded markets, does not necessarily lift all boats; it has tended to lift the yachts. James Wolfensohn of the World Bank has commented that, "at the level of people", the system of the global economy isn't working. Numerous others have conceded that globalization is enriching the few at the expense of the many, and that its promises of equitable economic development have not been fulfilled anywhere.

Another very important evolving agreement is that the one-size-fits-all approach to economic analysis and to solutions for economic problems is intellectually primitive at best, and at worst causes disaster for countries with disturbed economies. The primary conceptual challenge for UN agencies lies in the fact that no generally accepted conceptual remedy for either fallacy has been forthcoming. Two areas of attention appear to be obvious:

Investigation, deliberation and thought ought to be directed at the question of where a line must be drawn between a type (and degree) of market liberalization that will stimulate and a type that will harm desirable domestic socio-economic development. There is, for example, good reason to conclude that the large influx of foreign capital in some countries has not only expanded wealth among the propertied classes, but also stimulated wide-ranging, if not all-round, economic development. There is also no question that deregulation of local financial systems created new and unforeseen vulnerability to which certain countries fell victim when unforeseen and uncontrollable developments caused capital flight.

Probably helpful in this context would be the introduction into general discourse of a solid distinction between traditional foreign investors who wish to participate in the development of certain industries and speculators who, like herds of antilopes, stampede out of emerging markets at slight provocations. Several UN agencies are well placed to help introduce realistic caveats into what has been, until now, a relatively sterile and simplistic international discussion on the benefits of unfettered markets. The main arguments levelled at the protesters against the ill-fated WTO meeting in Seattle in late 1999 reflected the manner in which arguments used to justify the relatively well-understood and relatively beneficial international economic arrangement of free trade have been used to plead for liberalizations that unleash entirely different and ill-understood economic forces.

The advocates of the political mission of globalization made a mental jump from the evidence that a relatively free flow of goods across borders has brought great benefit to countries participating in the international free trade system, to the conclusion that an equally free global flow of capital would enlarge those benefits and that countries participating in a system of globalized industry are obliged to extend blanket rights to foreign investors. The strong dissimilarities in the two types of trade that have been largely ignored are:

* The amount of money involved in capital trade is hundreds of times greater than the total value of trade in goods and services;

* Capital moves almost instantaneously to everywhere it can go, once a trade decision is made; under a liberalized regime, it is unencumbered by physical and social limitations;

* The interactive effects of currency trade and trade in many financial instruments and their relatively new derivatives are but haphazardly understood, if they are understood at all;

* Speculation as distinct from conventional investment in promising ventures tends to direct most capital trade decisions, especially when the so-called emerging markets of the non-Western world are targeted.

If the claim to universal validity of certain basic tenets of current mainstream economic theory has led to the impoverishment of economic thought, what will enrich it?

The answer is relatively simple: a return to the examination of institutions in the widest meaning of the term. Economic dogmatism has recently undermined the prospects for prosperity for millions of the world's poorest people, and it ought to be replaced without fail by more subtle understandings of how institutions interact with each other, and what the limits are of what populations can absorb and endure in the way of economic shocks caused by market forces under varying conditions.

Economies cannot be adequately understood if they are studied as if they were not heavily shaped by political circumstances and as if they have no historical dimension. This is, nevertheless, the way in which they are more frequently than not treated by the specialists of international organizations guiding and monitoring economic development, as well as by the sponsors of the political programme of globalization. A neo-liberal agenda of liberalization, deregulation and privatization has been presented as if supporting a historical tenet is self-evident and unchallengeable, and was drawn up with much intellectual encouragement from economic science as it is taught at most economics courses at universities in the West today. This mainstream economics, heavily influenced by neoclassical axioms, has become dominant because it appears capable of explaining much economic activity in ways that have earned academic economics the reputation of being an empirical science. While this economics has undeniably produced noteworthy contributions to knowledge, its success rests largely on successful explanations of economic activity in the United States and Great Britain and, to a lesser extent, that of continental Europe. The above-mentioned political agenda based on it tends to benefit large Western financial corporations and economic interests generally. Its regionally limited explanatory success and its justification of corporate power have blinded many to the fact that, for meeting putative standards of scientific rigour, it has had to exclude from its perspective the study of institutions that are relevant to the economy also as politically or socially informed institutions. Unlike economists of an earlier generation, influenced among others by Keynes, Schumpeter and a now almost defunct American school of institutionalist economics, most practitioners of current mainstream economics do not consider institutions as part of an economist's area of concern. Even such a central subject as the phenomenon of the market is norm ally treated as an abstraction rather than studied as an institution or a collection of institutions, interacting with non-economic institutions and driven by variable incentive structures. Current mainstream economics is thus purposely ahistorical arid apolitical.

The application of methods for solving economic problems dictated by theory based on situations in Western economies, which were erroneously believed to be universally applicable (because "scientific"), have led to stagnation or severe setbacks in economic development programmes and even to economically deteriorating situations in Africa, Latin America and Russia. Many errors could have been avoided, and a much more careful approach by countries with emerging markets in Asia would have protected them against emergency situations, if economic reality had been viewed in the perspective of local institutions, including markets, interacting with other economic and political institutions.

Means for international economic harmonization must be found, other than exhortations on behalf of reforms that are unlikely to take place or that will not be effective. The conceptual challenge in this context is huge and clear. Once it is accepted that Japan achieved its industrial power status through an incentive structure that is radically different from those taken for granted in American and most contemporary European settings--an inescapable conclusion when we prevent ideology from taking over thought--we can also discern an unacknowledged but fundamental discordance of successful economic systems.

The fact of incompatability has been implicitly acknowledged by many foreign investors who understand that they cannot fully be part of the local credit systems. Knowing that they would not be protected by the advantages that these same systems offer insiders, they insisted on short-term lending and subsequently were quick to pull out.

Some of this appears to be understood in informed circles, but the continued emphasis on moral hazard, transparency and so on prevents the policy discourse from moving in a more profitable direction. Western businesses normally develop a tacit understanding of, and accommodation with, the reality of political economies in other parts of the world; they must, in order to be successful and maintain their risks from regional involvement at manageable levels.

But for the well-being of local populations, it is necessary that policy makers and international organizations develop an explicit understanding of discrepancies that are part of unalterable reality. Only then can policy aims be formulated to help prevent the process of globalization to cause major economic dislocations and distortions.

It would seem obvious that a profound knowledge of the determining characteristics of local political economies, an understanding of their history, and informed assessments of their potential for desirable transformation are the basic requirements for an institutional approach to economic reality in general, and to the problems of globalization in particular.

The United Nations University could perform a major role in deepening knowledge toward this aim and in disseminating to a wide audience arguments that deserve contemplation, but which have hardly reached the surface of discussions, shaped and guided to a large extent through simplified mass media information porridge.

Related to the above-mentioned conceptual challenge are a number of ideas for overall policy recommendations that serve the long-term purposes of UN agencies and could enhance their stature in the eyes of the world.

Fostering an economically strong and politically significant middle class. In line with the general mandate of various UN organizations to help reduce poverty and develop democracy, there would appear to be one outstanding policy priority: to help foster conditions that will lift the lower echelons of society into a solid, politically significant, middle class. But more often than not, such a policy demands Keynesian-type programmes and therefore much more government spending than is believed to be responsible in current conventional thinking about the relationship of states and markets. Before the Asian financial crisis, Indonesia's growing economic prosperity had received applause because wealth was distributed in such a way as to foster a growing middle class. Aside from bringing potentially disastrous political instability, the miguided handling of the crisis there and elsewhere pushed tens of millions of people below the poverty line. The great weakness of the type of economy among the so-called Asian t igers, in which investments are made for industrial strength rather than profit, is that after a period of rapid growth, a major liability emerges when foreign markets are no longer able to absorb what the pumped-up production apparatus delivers. At the outset of the high growth periods of the tigers, attractive investment opportunities exceed available capital. But when available capital increases rapidly, the economic system pioneered by Japan becomes problematic. Only a middle class with the means to buy consumer products can compensate for this. A viable middle class will make the Asian economies less dependent on exports and therefore less vulnerable to external vicissitudes.

Maximizing conditions for economic self-determination. While acknowledging the fact of economic interdependence and its benefits, policies that ensure a high degree of self-determination are ultimately desirable for obvious reasons. Globalization has so far significantly increased the dependence of economic entities in less developed countries on foreign interests. Exploitation, the potential for which comes with the greater reach of international investors, is a built-in threat for these countries. To see this in proper perspective, one must forget arguments implying ill-intent on the part of foreign economic interests, but rather conceive of exploitation as following from the logic of international economic processes.

A substantial long-term danger is transformation of countries with promising economic prospects into subcontracting positions for more powerful political economies. As part of a developing industry, this can be conducive to growth and limited technology transfer, yet accompanying infrastructural developments may, in the long run, serve the foreign investor more than they do the domestic economy. UN agencies could help popularize the notion of economic self-determination as a desirable cause.

Addressing the challenges formed by international corporate power to the political independence of States. A significant number of transnational companies have become empires with a financial wherewithal that is greater than medium-sized members of the United Nations. Only the UN can remind them of what their power can cause in the way of social distortion and economic dislocation; an ongoing programme pointing out their responsibilities could have far-ranging effects.

Reversing the trend of minimizing the importance of the State. The fallacy in neo-liberal economic imagination, that the State and markets can only exist in opposition to each other--where there is more State-sponsored economic activity, there is less market and vice versa--requires speedy correction. To help ameliorate the negative social consequences of globalization and help prevent a recurrence of financial crisis, we must acknowledge the impossibility of separating the economy from all other institutions and the importance of the State, and be concerned about long-term prospects of democracy through States whose effectiveness and resolve are undermined by the growing power of mostly unaccountable business bureaucracies. The widespread notion that entirely unfettered markets foster democracy is an ideological conceit, without any support from historical experience.

The State forms the only possible protection for the citizen. You can talk with it, negotiate with it and, if necessary, take it to court. Without it we would be delivered to the vagaries of whims and fashions and prejudices of social communities or to powerful but unaccountable economic interests. Whether its advocates have been conscious of this or not, the neo-liberal programme of globalization aims at separating the economy from political and social reality. Its global-utopia can only exist in a realm where there is no interference from a regional social and political exigencies, and in the illusion of the possibility of self-contained and self-ordering, ahistorical and apolitical, human endeavour. But the world a whole cannot be ordered by markets, because markets must always rest on legal and moral guarantees, preventing their self-destruction through inherent extremist tendencies, and such underpinnings do not exist on a global scale.

Since a global State is not conceivable, the nation State is left as producer of guarantees. And without nation States, there would, of course, be no United Nations.