Let the poor seek a place in the sun

Globalisation - This month, the IMF and the World Bank meet in Prague. Protest groups plan disruption on the scale seen in Seattle. Peter Jay asks: Are the protesters right?

In Prague later this month, the men (mainly) in suits who together constitute the present "economic order" of the world will assemble; in other words, the statesmen, officials, bankers and business camp-followers who run the International Monetary Fund, the World Bank, the World Trade Organisation, the Groups of 7, 8, 10 and so on, the governments of the member nation states and the international companies and banks that operate the world's economy.

Also assembled, if previous such events in Seattle and Washington are anything to go by, will be those who oppose that order; who - in the name of themselves, of an extensive coalition of voluntary organisations and, they say, of mankind - reject the basic architecture of the present economic order, which they describe as a rape of the planet and the exploitation of the poor. They claim to "value human and ecological dignity over corporate profits and trickle-down economics"; and accordingly they see the institutions of the present order - the Bank, the Fund and the WTO - as "the chief instruments used by political and corporate elites to create today's unjust, destructive global economic order".

Their assault is on the central idea of the "globalised" world economy, geared to economic growth based on free trade, market forces and monetary stability, not on its details. This is a fight for the soul of the 21st-century economy.

New Statesman readers, like other citizens who wish to take some responsibility for what goes on around them and for the world they will leave to their children, need to make up their minds what they think and where they stand. It is no spectator sport.

The basic issue - stripped of politician's spin, of corporate PR, of Trotskyist drivel and "green" sentimentality - is economic growth. To that is allied the issue of "globalisation": the greater freedom of movement of trade and investment (although not of labour, which began after 1945). This movement accelerated towards the end of the 20th century. It was the result of successive General Agreement on Tariffs and Trade "rounds" (from Kennedy to Uruguay), of the abandonment of exchange controls in the west, and of decisions by communist and socialist countries, above all China and India, to terminate their own economic isolation.

Economic growth - or the attainment of the highest possible real incomes per head - was the overriding economic goal of the order put in place after the Second World War on the basis of the "Keynesian" commitment to full employment. The IMF, the World Bank and the Gatt (which later became the World Trade Organisation), reinforced by Marshall Aid and what became the OECD, were the foundations of that order. It has been, in its own terms, a huge success. There was no second Great Depression. Economic failure and economic nationalism did not, as in the first half of the century, breed a Hitler, nor did it foster a world war. The spirit of economic co-operation within the OECD nations prevailed over the temptations of autarky and protectionism. Despite the disappointments of incomes policies and the abandonment of the full-employment standard for demand-management policies from the mid-1970s, average living standards rose at unprecedented rates in the "first world".

The "third world" - and, as we now know, but did not then, the "second world" - did not participate uniformly or adequately in this success. But the responsibility for that lay more with mainly self-imposed isolation from global economic forces combined with bad government (sometimes oppressive, sometimes negligent of its essential duties) than with any lack of investable funds, whether from domestic savings or foreign aid.

Look at the success of the Asian tigers and tiger cubs (notwithstanding the Asian crisis), the progress of South American economies, the reconstruction of the central European economies (and Ireland), the achievements of China and India after their decision to embrace more closely the global economy. Contrast these with the continuing disappointments in Russia and Africa. They all powerfully suggest the same conclusion.

Given a political culture that delivers stability and law enforcement alongside individual freedom, and given open access to world markets (capital and trade), any normally endowed economy can grow rapidly (5-10 per cent a year) until its productivity catches up with the global leaders. Then, with further growth constrained by technical progress, it will grow at about the 2-3 per cent annually now experienced by most mature economies.

Larry Summers, the US treasury secretary, said this year: "Quite simply, rapid, market-led growth is the most potent weapon against poverty that mankind has ever known." John Maynard Keynes memorably observed: "From the earliest times of which we have record - back, say, to 2,000 years before Christ - down to the beginning of the 18th century, there was no very great change in the standard of life of the average man living in the civilised centres of the earth." Then came the industrial revolution and modern economic growth - indefinitely prolonged cumulative rises in real incomes per head at compound rates. Keynes, writing in 1928, argued that "the standard of life in progressive countries 100 years hence will be between four and eight times as high as it is today" and that "assuming no important wars and no important increase in population, the economic problem may be solved, or be at least within sight of solution, within 100 years" and is not, therefore, "the permanent problem of the human race" [his italics].

That judgement may underestimate the elasticity of human "needs", which can grow as fast as output grows; but economic growth - and nothing else - is responsible for the transformation of the living standards of the majority of the world's population since the 18th century, before which no such progress had been made for thousands of years. In the past 50 years, the pace has been most rapid,with more people in more countries having enjoyed greater improvements in their living standards than at any previous time.

There are two and a half reasons given for rejecting this route to economic plenty: that the environment cannot stand it; that its price is ever-increasing inequality; and that its hand-maiden, globalisation, is somehow eroding national identity and self-determination, not least through the sinister manipulations of multinational companies. On inspection, all appear exceedingly weak grounds for condemning most of the world to perpetual poverty by abandoning the only known route out of it.

We certainly face serious environmental and ecological challenges. One or two of them may require fairly significant changes in human behaviour, most particularly those that relate to the possible limits of the planet's capacity to absorb the waste-matter and other pollutants from our current lifestyle, notably, in affluent societies. But it makes no more sense to say that the way to achieve this is to abandon economic growth and wallow in poverty (mainly other people's) than it does to offer death as a cure for cancer.

What is required is a strategy for heading off the specific threats that the best science has identified. If that means pricing critical waste-making activities out of the economy - and banning others - then so be it. The market will adjust to the signals, and economic growth will redirect itself into other channels. Only if there are no substitutes, no efficiency gains, no alternatives, will growth itself be halted; and, if this were the case, that would be the right consequence achieved in the right way.

Whether the world, its regions and its nations are capable of the effective governance needed to form such a strategy is much the greatest doubt. But, if it is incapable of it, it is even less capable of the feat of governance required for a general suppression of economic growth as an instrument of environmental policy.

The inequality argument has the right premise - equality matters - but the wrong facts. Inequality between nations has not been increased by globalisation. Globalisation is good news for rich people in rich countries, for rich people in poor countries and for poor people in poor countries; it is bad news for poor people in rich countries, because the capital that was previously confined to employing them is liberated to look for better use elsewhere. In fact, the 1980s and 1990s were the first decades since the industrial revolution in which global inequality fell - chiefly as a result of rising living standards in China and India after they joined the world economy. The freedom of the world's savings, including venture capital, to circle the planet in search of the most cost- effective labour has been the single most powerful engine of income redistribution in favour of the poor (not, alas, all the poor, since many are still trapped under political regimes whose corruption or incompetence raises the risk of inward investment to unacceptable levels). There are more poor people in the world today than there have ever been; but they are a smaller proportion of the world's exploding population.

Within nations, inequality remains enormous; and in absolute terms, the gap widens as the richest get richer. But to tackle it requires a political will that is conspicuously absent in most countries; and there is little reason to think that raising taxes in order to channel more resources to the poor would become any easier where economic growth was slower or where the benefits of free trade were withdrawn. Exchange controls might make it easier to trap some of the wealth of the rich; but experience has shown that that is a diminishing source of funds for alleviating poverty.

The concern about multinational companies is deeply implausible, except in certain small Central American states where dominant firms have exercised undue and unacceptable influence. This concern is an odd mixture of the fears expressed by John Kenneth Galbraith in his The New Industrial State (1967) that somehow the firm itself was becoming the prime mover in the economic life of the nation, displacing both government and consumer from their proper sovereignty, and of the anxiety expressed by Jean-Jacques Servan-Schreiber that American business - or at least Hollywood, Coca-Cola and Boeing - were taking over the world.

The Galbraith thesis has simply not stood the test of time, as is apparent, with consumers and markets having proved far more independent and powerful than most of the great business names that dominated Wall Street when he was writing, and which have since sunk with little trace. The Servan-Schreiber thesis is as enduring as French anti-Americanism - and as interesting to economists.

What multinational companies mainly do is transmit powerfully and rapidly the forces that play upon them, which come down principally to the changing preferences of consumers, the changing costs of inputs and the changing technologies of the time. In doing this, they promote the efficiency of the world economy. They also, like all businesses, try to limit competition, by consolidation and clandestine agreement, and that requires aggressive regulation. But this falls a long way short of treating them as a systematic threat to the public weal.

None of this should detract from the long agenda of reform (as distinct from rejection) that the current economic order requires. We need new forms of global governance that reach beyond and above the sole competence of nation states and their governments and which can hypothecate income (from a pollution tax, for example) directly to functional global bodies. (I am a trustee of WHAT, which has just published Governance for a Sustainable Future, where these issues are aired.)

The IMF, the World Bank and the WTO all need change; and detailed proposals are circulating well before Prague. The G7/G8 needs to work out its permanent role, if any, not least in relation to the UN's Security Council, which itself cries out for reform.

The challenges of poverty, of health, of climate change, of drinkable water, of biodiversity and of population trends leave no room for complacency. There is so much to be done. But threats of violence in Prague - in the name of a blanket rejection of the whole system of openness and technical progress that made the second half of the 20th century such a glorious reversal of the catastrophe of the first half - achieve nothing.

Citizens need to stand up against this hijacking of their future by those they did not elect, in the name of arguments - backed by threats of force against society - whose quality cannot earn their respect. If a new cause is needed for a new century, let it be to assault the one great remaining obstacle to true globalisation, the control of migration.

Let the poor - not just the already advantaged who have marketable skills - seek a place in the sun, wherever it may shine for them. That would be a cause worthy of the idealism, the radicalism and the humanity of those who now so mistakenly seek to reject the best friend the world's poor ever had - economic growth.

Peter Jay is economics editor of the BBC and author of The Road to Riches, or the Wealth of Man (Weidenfeld & Nicolson), the book accompanying his recent BBC2 series

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