Announcements and Assignments

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Study Questions - Fall 2007

 
Group Project Teams - Fall 2007

Group A:   Globalization and International Security - November 28
1 Bissell, Caleb Samuel
2 Donovan, Sean Paul
3 Jones, Laura
4 Liner, Ashley Elizabeth

 Group B   Globalization and Democracy in China - November 28
1 Lam, Lincoln
2 Munk, Brian Gregory
3 Pelkey, Landon Kyle
4 Scheid, Sean Francis

 Group C:   Child Labor - November 14
1 Evans, Matthew Lawrence
2 Kurniadi, Aditya Perdana
3 Olsen, Renata Ashley
4 Scalza, Samantha

 Group D:   Globalization and Culture - November 12
1 Gallardo, Diego Alonso
2 Mackin, Samuel B
3 Neil, Katherine Marie
4 Rotoli, Joseph Daniel

 Group E:   The Impacts of Multinational Corporations on Environment - November 19
1 Del Rosario, Shaun Felipe
2 Lafave, Jessica Ann
3 Pagani, Andre Antonio
4 Retzer, Jenna

 Group F:   The Impacts of Wal-Mart aroud the World - November 26
1 Hammond, Nathan Joseph
2 Lahr, Matthew Stephen
3 Mundy, Kevin Michael
4 Miano, April

 Group G:   Women and Globalization - November 14
1 Carley, Joshua Thomas
2 Proietti, Michelle Nadine
3 Schoonerman, Stacy Sue
4 Weigel, Kathleen Elizabeth

 Group H:   Globalization and Green House Gasses - November 19
1 Loman, Christopher Michael
2 Mctiernan, Ejay
3 Sanchez, Yohanka Miguelina
4 Trifunovski, Nicolina A

 Group I:   NAFTA - November 26
1 Kidder, Amber Jane
2 Moosbrugger, MacKenzie Ann
3 Patterson, Jasmine Michelle
4 Salazar, Deyvis Rafael

 Group J:   English as a Common Language: Pros and Cons - November 12
1 Hatch, Maryland Jo
2 Kerins, Kelly Patricia
3 Pond, Matthew Lewis
4 Ravindran, Priyadarshini
 

Note: By October 3 each group must submit a topic along with a brief description to the instructor. You may submit your topic by email as an attachment. Be sure to indicate which group member(s) you would like the instructor to contact for further clarification, if needed.

A few topic ideas


The BusinessWeek Article

World Bank/IMF News


Review Questions



Assignments
Homework Assignment - Due Date: Wednesday, September 26
While some argue that globalization could promote democracy others express concerns that globalization might constrain democratic processes. Briefly discuss some of the arguments behind each point of view.
Note: Please submit your answer in one double-spaced typed page.



 

An outline of some of the arguments made in support of "globalization":

Arguments in support of globalization:
 

==================
An outline of some of anti-globalization arguments/concerns:

Economic concerns:

 Private interests versus public interests
· Ideologically, globalization is a market-oriented (capitalistic) movement that places the private interests of international business (corporations) ahead of the public interest.
· The type of broad-measure statistics often used to promote and sell the idea of globalization seldom reflect the social and economic costs of free trade and unrestricted movements of capital to those who end up with the short end of the stick.
· Globalization at both global and regional levels (NFTA, EU, etc.) is shifting economic and political power away from national and local governments and communities to unelected individuals and non-democratic organizations that are controlled by global corporations and international bankers.
· Limited government and fewer regulations are the principles advocated by the globlists and their international agents (IFM, World Bank, etc.). Governments are encouraged (if not forced) to sell off their (public) assets, privatize or abandon many of their functions (such as providing health care and other services for their citizens) and get rid of their regulations many of which are intended to protect the environment and their citizens against possible harmful behaviors of profit seeking corporations. Some are even pushing for the privatization of public services, claiming that government is inherently bureaucratic and inefficient. They want to have governments contract public services out to foreign (multinational) corporations.
· Profit seeking corporate globalists measure success by indicators such as increased sales, rising stock prices, and lower production costs (often at the cost of reduced work force).
· Seldom corporate gains are measured against the social and economic costs of increased unemployment and the disfranchisement of the most disadvantaged population groups in both developing and developed countries.
· While the rich are getting richer and the poor are getting poorer, demand for high-priced luxury goods (beef, coffee, shrimp, etc.) increases and, naturally, corporations respond by allocating more and more of the world’s scarce resources to the production of such goods at the cost of reductions in the production of essential goods needed by the poor.
· With little or no respect for the public interest in the environment, social justice, etc. corporations influence both the scope and scale of the government that is supposed to serve and safeguard the interests of its people.
· With the aid of international organizations such WTO, World Bank, and the IMF multinationals corruptively intervene in the governance processes of the countries in which they choose to do business. Both existing and developing democracies are affected by such interventions.
· The weakened (or constrained) governments are not able to effectively deal with economic problems such as inflation, high interest rates, unemployment that may be, at least partly, caused by globalization. More often that not countries find themselves forced to seek help from international organizations such as the IMF whose help is usually accompanied by more constraining conditions. (e.g., the Asian financial crisis of late 1990s)
· In the pursuit of economies of scale global corporations are getting bigger and bigger (often through international takeovers and acquisitions) resulting in more concentration of both economic and political power. (e.g., Exxon Mobil and Daimler Chrysler)
· Free flow of capital (money) has enabled corporations to pick and choose where they want to produce and where they want to market their goods, taking advantage of cheap labor, for example, in one country and favorable market conditions (high prices) in another. This could lead many small (poor) countries to becoming one-product economies, making them more vulnerable to changing international market conditions (and changing trade policies as well as the ups and downs in other economies.) In addition, free capital movements encourage speculative transactions that could also be the cause of financial and economic instability in smaller economies.
· Localized or regional self-reliant economic systems characterized by local (and democratic) ownership of productive assets are more sensitive and responsive to the needs and interests of the community and are likely to produce more sustainable (and desirable) outcome.
(Note: It is not quite clear how “local” we want the economies to be. Should we, for example, ban all international trade in all countries irrespective of their sizes? Or should we go further and ban all inter-regional or inter-state trade as well? )

The widening gap between the poor and the rich
· Globalization has widened the gap between the rich and the poor both within and across countries; the rich have gotten richer and the poor (relatively) poorer. In 2000 American CEOs, on average, were paid 458 times more than production workers, up from 104 times in 1991.
· The weakened governments are unable to deal with the increasing social problems arising from the increased poverty.
· The jobs that are replacing the manufacturing jobs that have been lost to free trade are often low-paying service jobs; as the rich are getting richer and the poor poorer, the demand of rich people for certain services increases and thus the service sector may grow. That is how some of the benefits of globalization may trickle down to the poor in the form of low wages in the service sector. (See pages 44-51)
· Lack of “economic democracy”: “equitable participation in the ownership of productive assets.”
· The rules of the game: are the rules of the game “unfair” and defective? Or, are they not properly followed (or enforced)?

Is the environment a globally public good?
· Environment is generally of no concern to the globalists.
· Under the pressure of global competition, countries are in a race to lower environmental standards. Laxer attitude toward the environment is observed in both developing and developed countries.
· Under free trade, while globally uniform environmental standards may place developing countries at a disadvantage and therefore may be deemed unfair, a lack of international standards could have disastrous impacts on the environment.
· Increased international trade has resulted in a significant increase in the volume of international shipping (by sea, air and land) that is not only contributing to the pollution in the air (toxic and greenhouse gasses, etc.) it is also causing possibly permanent damages to wildlife and fisheries.
· As countries specialize in the production of one or a few goods, crop diversity that could be essential for the ecological health of the environment diminishes.
· The more localized and self-reliant a community the less pressure it would feel to sacrifice its environment for global economic interests. In such communities environmental standards are decided based on the characteristics of the region (form both geological/ecological and land-usage standpoints) and the community’s preferences.
· International organizations (aided by NGOs) may be able to play a useful role in facilitating and coordinating global efforts of all nations in safeguarding the global environment. These organizations however must be organized and managed through truly democratic processes.
· Assuming “fairer” terms and better “rules of the game” are realistically achievable, given the ecological limits of the earth can we expect trade driven high growth to be sustainable forever? Hypothetically, for all the people of the world to enjoy a standard of living comparable to that of the United States today in fifty years (when the world population is expected to reach ten billion) the world output must grow by about ten folds.

Other concerns:
· Cultural Homogenization: The globalist are interested in a uniform global culture so that they can market the same products allover the world and take advantage of economies of scale both in production and in marketing-- Levies (blue jeans), Nikes, Coca Cola, McDonalds, and Toyota have customers allover the world.
· The most influential international organizations are the IMF, World Bank, and WTO. These organizations have been actively encouraging and pushing economic liberalization and globalization.
· The International Monetary Fund was established as result a of The Bretton Woods Agreement after WWII to help member countries with their short-run balance of payments problems so that they would be able to maintain their currency exchange rates stable. The stability of currency exchange rates was deemed essential for the growth of international trade and investment. In collaboration with World Bank and WTO, under the label of “restructuring reforms” the IMF has been actively pushing many developing countries to liberalize their economies while cutting government programs (often social programs) to balance their budgets. These “structural” changes (adjustments) have often produced disastrous results for the poor in these countries. Having recognized their failures (to some degree) both IMF and World Bank have recently made some modifications in their approach to reforms. They are now claiming to be more sensitive to the social and economic problems of the developing world. They will no longer push for sudden reductions in government programs on which the poor may depend. They will also allow each country to take part in deciding on the type and extent of reform it wants to adopt.
· The World Bank that evolved from the International Bank of Reconstruction and Development was also conceived at Bretton Woods, New Hampshire, at the end of WWII. The original mission of the bank was to help the war-ravaged European countries rebuild. Today’s World Bank that encompasses a number of organizations has redirected its focus on poverty, especially in the developing world. Through direct loans and loan guarantees it helps to finance development projects in infrastructure, education, and institution building aimed at economic growth and development.
· The World Trade Organization (WTO) was established at the conclusion of the GATT (General Agreement on Tariffs and Trade) rounds (Uruguay Round) in 1994. The primary function of WTO is to oversee the members’ compliance with the trade agreements achieved (and signed) through the GATT rounds as well as all other following agreements. The governance regime of WTO is highly influence by the US and other rich countries. As a result many of its policies and decisions tend to favor the rich.
· All three organizations are blamed for pursuing goals and objectives that serve the rich and the privileged groups connected to big business and large multinationals.
· The policies of World Bank and the IMF have created a class of poor debtor nations who under no circumstance can see themselves being able to repay their debts. Unless all or large portions of theses debts are forgiven, these countries cannot have any hope for seeing their poverty reduce at any time in the foreseeable future.
 



Online Readings:                     Assignments
The Cancun Failure: NYT

The developed Countries Challenged

The Cancun Talks Collapse: Washington Post

The Cancun Conference Ends: WTO

Cotton Trade

China and Jobs in Mexico

Protests Against WTO Meetings
More Protests
The Cancun Meeting: NY Times

Farm Subsidies Challenged

Globalization Challenges

Globalization Issues: WB

Asian Languages

Fall 2003 Assignments
Practice Questions
Answer the following questions by referring to the charts and tables in Chapter 5 in the textbook.

1. Among the NAFTA members which country has the largest share of the world trade?
2. Among the NAFTA nations which country has the highest share of its trade with the other NAFTA members?
3. Among EU nations, which country’s share of world trade is smallest?
4. Among EU nations, which country does most of its trade within the Union?
5. Among ASEAN nations which country’s share of world trade is greatest?
6. Among Mercosur nations, which country has the smallest share of its trade with the other countries in the bloc?
7. Which economic/trade block has the highest share of world trade?
8. What does the trade concentration ratio measures?
9. Which trade bloc has the highest concentration ratio?
10. What is the Mexican share of Canadian imports?
11. What is the US share of Canadian Exports?
12. What is the US share of Mexican exports?
13. What is the Mexican share of US imports?
14. What is the Canadian share of US imports?
15. What is the US share of Canadian imports?
16. What do we mean by trade diversion?
Also do questions/problems 1, 2, 3 and 4 on page 155 in the textbook.

Reading Assignment
The first two chapters of "Globalization and Its Discontents" by J. Stiglitz have been placed on electronic reserve for you. Click hereto read them.
Assignment 3
On Thursday, October 2, we will have a short quiz on the material covered in the course to date.

Assignment 2
Due Date: September 18
The table below contains information on the market (supply and demand) for wheat in a small country with no trade with the rest of the world.

Price          Annual Demand                          Annual supply
 ($)         (1,000,000 M. Tons)               (1,000,000 M. Tons)

  100                 0                                                  60
   80                 15                                                 45
   60                 30                                                 30
   40                 45                                                 15
   20                 60                                                  0

a. Carefully draw (plot) the supply and demand for this market.
b. What is the equilibrium price?
c. What is the equilibrium quantity?
d. What would happen if the government of this small country determined a price floor (price guarantee) of $80/MT for wheat? (The government would buy all the wheat the farmers could not sell at $80 in the market.)

Now suppose the country’s legislative body passes a law dropping the price support and allowing completely free trade in wheat. Suppose the international price of wheat is $40/MT.
e.Will the country end up importing or exporting wheat?
f. On your diagram show how (international) trade in wheat would affect the domestic market (production and consumption).
g. Suppose as a result of increased unemployment there is a reduction in the level income. How would this situation affect the after-trade wheat market ?
    (Demonstrate it on your diagram.)

Assignment 1
Review the following questions. We shall discuss them in class on Tuesday, September 9.

1. Table 1-1 in your book lists the top twenty globalized countries of the world. Although many of these countries are well developed industrial states, a few could still be considered “developing.” Generally, though, most of the world’s international trade and investment take place among industrial countries. Why do you think developed countries find it easier to engage in international trade than less developed countries?

2. Explain why poor countries that are often also capital-poor find it very difficult to attract foreign investment?

3. In developing countries the benefits of international trade often go to a few individuals (or groups), whereas the rest of the population may be even hurt by trade. Why?

4. Figure 1-2 in you book shows the relative size of trade for a selected number of countries. Does the information reflected by this figure surprise you at all? Why? (Explain.)

5. Among the developments shaping the world order since the end of WWII which one do you consider most important? Explain.



Study Questions for the Final

1. In the neoclassical economic theory economic changes are generally market-driven and the historical context in which such changes take placed is ignored. Explain how this omission might render neoclassical models irrelevant. You may use an example to make your point.
2. In the new economic theory technology is considered endogenous. Explain what that means why it is important in explaining economic developments.
3. What do we mean by “economies of scale?” Why are economies of scale important in effecting economic growth? How might economies of scale influence international economic relations?
4. Not only have technological innovations been a key factor in economic development, they have significantly influenced the global division of labor as well as the nature of economic and political relations among nation states. Elaborate.
5. Gilpin argues that the national systems of political economy differ in three major areas (among other things). What are those areas? To elaborate compare the US and Japanese systems of political economies.
6. Compare the American system of corporate governance with that of Japanese. Explain how the differences between the US and Japanese systems of corporate governance might have affected the economic relationships between the two nations.



Essay Project III
Due: Tuesday, December 5

Having discussed some of the complexities of international relationships, I think, you are now ready to reflect on a recently created international economic regime that has directly or indirectly affected all of us. I am referring to the NAFTA, the North American Free Trade Agreement. The following are two links that you might find useful. There are plenty of other Internet sources that you can explore.
NAFTA I
NAFTA II

This is a group project. I would like for you to work with the same group that you worked with on the previous essay. If, for some reason, you would like to work with another group let me know. I might be able to arrange that.

Following a brief introduction, here are some possible questions that you might want to address in your essay:

Note: You do not have to address all of the following questions in detail. You may choose one or two of them and make them the focus of your essay.

1. What are the main objectives of the NAFTA? Are these objectives consistent with the ideological goal of global economic
    liberalization advocated by some “western” states?
2. How does NAFTA compare to the EU?
3. What have been the global implications of the NAFTA?
4. What have been the realized (and anticipated) relative gains and losses of this treaty for each member country?
5. What have been the political implications (in terms of political and economic sovereignty, national security, national
    economic interests, etc.) of the NAFTA for each of the member countries?
6. How might (or has) the agreement affect(ed) the political and economic relationships of each member country with the
    rest of the world, particularly with the Latin American countries?
7. What are the strategic components of the agreement from the perspective of each member country? (To what extent does
    the agreement serve the long-term economic and political objectives of each member state?)
8. What are the long-run and short-run effects of the treaty on the patterns of legal and illegal immigrations among the
    member countries?
9. What have been (will be) the impacts of the NAFTA on the industrial (economic) geography of the region?
10. What have been (will be) the impacts of the NAFTA on the characteristics of the labor force and the wage structure in
      each of the member states?
11. The politics of the NAFTA: How has the NAFTA affected the political processes in each member country?
12. How has the NAFTA affected the domestic business environment (regulatory, financial, etc.) of each member country?
13. What will (or have) be(en) the environmental implications of the NAFTA for each member country and for the world, for
      that matter?



Study Questions
Part 1
1. What does the slope of a typical demand curve indicate?
2. What does the slope of a typical supply curve indicate?
3. Name three factors that could cause demand (curve) to change (shift).
4. Name two factors that could cause supply (curve) to change (shift.)
5. Explain the effect of a general increase in incomes and a reduction in the price of crude oil (occurred simultaneously) on the equilibrium price and quantity of gasoline.
6. What would happen if the price of a good were set below its equilibrium price?
7. What would happen if the price of a good were set above its equilibrium price?
8. What is the effect of an increase in the demand for a good on its supply? Explain.
9. What is the effect of a reduction in the supply of a good on its demand? Explain.
10. Consider a small developing country that produces wheat and tea. In autarky the relative price of tea in this country is considerably lower that the international price of tea. Discuss the possible effects of free trade on the wheat and tea production and their relative prices in this country.
11. What is a production possibilities curve?
12. What does the slope of a production possibilities curve measure?
13. What does it mean for a country to be at a point inside its production possibilities curve?
14. What kinds of changes could make a country’s production possibilities curve to shift?
15. What does it mean when we say, for example, that US has absolute an advantage in the production of corn?
16. What does it mean when we say US has a comparative advantage in the production of fighter jets?
17. What do economists mean by “gains from trade?”
18. What do economists consider the necessary condition(s) for two countries to engage in trade and mutually gain from it? Briefly explain.
19. What are the underlying assumptions of the Heckscher-Ohlin (factor endowments) theorem?
20. Explain how differences in factor endowments would result in differences in production possibilities.

Part 2
1.What were the reasons for the failure of the recent WTO conference in Cancun?

2.Why it is said that international trade is more important to most countries today that it was in the 70s?

3.Suppose while advances in technology have made the production of computer chips much easier and thus less costly an economic recession has reduced the demand for computers. How are these developments expected to affect the market for computers?

4.Demonstrate the effect of a government price guarantee (support) on milk on the market for milk.

5.Under the protection of high tariffs Snowland, a small country, produces wine for its domestic market. Using a supply and demand diagram demonstrate how the removal of wine tariffs would affect wine production and consumption in Snowland.

6.What does producing inside the production possibilities frontier indicate?

Country A can produce one unit of food with 10 units of labor while it can male one unit of cloth with 8 units of labor. In country B it takes 8 units of labor to produce one unit of food and 4 units of labor to produce one unit of cloth.
a. Which country has absolute advantage in the production of cloth?
b. Which country has absolute advantage in the production of food?
c. Which country has comparative advantage in the production of food?

7.What kind of changes in an economy could result in a shift in the production possibilities frontier (curve)?

8.What do we mean by gains from trade? Explain how trade could be mutually beneficial for trading partners? Feel free to use diagrams if you think they make it easier for you to make your points.

9. Is it possible for a country to lose its comparative advantage in a certain good and gain one in another?

10. As we discussed in class, often the gains from trade are not distributed equally and, in fact, international trade could affect certain groups negatively. Explain.

11. What do we mean when we say a country is labor abundant?

12. Briefly explain Heckscher-Ohlin theorem?

13. Why were the Leontief’s findings (in relation to Heckscher-Ohlin theorem) became known as a paradox?

15. What are some of the explanations for the Leontief paradox?

16. Briefly explain the relationship relative prices of traded goods and factor prices. (The Stolper-Samuelson theorem)

17. Suppose a labor-abundant country opens its border to free trade. Under the H-O theorem this country is likely to specialize in and export labor-intensive goods. Explain how export of such goods would affect wages in this country.

18. How might free trade affect factor prices in the import-competing industries?

19. International outsourcing has become a rather common practice in many industries. Is this practice consistent with the principle of comparative advantage? Explain.

20. Explain how economic growth could affect the patterns of production and trade. You might want to use a PPF diagram to make your explanation more clear.

Part 3

1. Southland is small country with an abundant amount of labor. This country produces hand-made rugs that is labor intensive and corn. In autarky the relative price of rugs in Southland is 20 units of corn per one rug. The international price of hand-woven rugs is 10 bushels of corn per one rug. If Southland opens its borders to free trade, which of the two products will it export and which one will it import? How will free trade affect wages in this country?

2. Both US exports and imports have grown significantly in the past ten years. Although relatively lower prices of many consumer products have benefited most consumers, the overall benefits of trade have not affected all Americans equally. In fact some Americans have been adversely affected by free trade. Briefly explain which groups of Americans have gained and which have lost as a result of free trade.

3. What is international outsourcing? Does outsourcing increase or decrease economic interdependence among nations?

4. How does trade affect real income? Explain.

5. What is a specific tariff?

6. What is an ad valorem tariff?

7. What is the weakness of a specific tariff?

8. Explain how the imposition of a 20-cent tariff on imported rice by a small country would affect the price of rice in that country? How would it affect the production and consumption of rice in that country?

9. Why do we say that form the standpoint of an importing county that wishes to restrict imports tariffs are less harmful (and less restricting) than quotas?

10. Suppose the US, as a large importer of lumber, imposes a tariff on imported lumber. How will that affect the price of lumber in the US and in the international market? Why do we say that the imposition of a tariff by a large county harms the exporting countries in two ways?

11. What is dumping?

12. Explain the distributive effects of (export) subsidies.

13. Why do economists generally prefer subsidies to tariffs and quotas?

14. What major international institutions have played important roles in helping and encouraging developing countries to liberalize their economies and remove trade barriers?

15. Out line what Stiglitz regards as positive effects of freer trade and increased globalization.

16. Outline some of the major flaws that Stiglitz has identified in the policies of the IMF (and the World Bank) towards developing countries.



REVIEW QUESTIONS - F06
I hope you'll find these questions useful. I have revised and rearranged them so that you'll be able to find references to them more easily. We'll go over some of them on Monday.

1. Give a brief, but comprehensive, explanation for the term “globalization”.
2. What are basic economic arguments in support of globalization?
3. What are in Bhagwati’s view different aspects or dimensions of globalization?
4. How does Bhagwati distinguish today’s globalization from the expanding trade and economic integration that occurred in the late 19th century and early 20th century?
5. Briefly explain what Bhagwati means by “a trilogy of discontent?”
6. What does Bhagwati mean by “an ironic reversal” of positions of the North and the South?
7. Why does Bhagwati attribute the anti-capitalist sentiments of some young people to their liberal arts education?
8. While Bhagwati regards new communication and media technologies as contributing factors in the globalization process he argues that these technologies have also encouraged anti-globalization sentiments. Explain.
9. Recognizing the validity of some of the concerns of anti-globalization groups, how does Bhagwati suggest
these concerns should be addressed?
10. What are the fundamental causes of poverty?
11. Why does the gap between the poor and the rich seem to be widening despite the relatively steady global economic growth?
12. What does Bhagwati see as the most effective solution to the problem of poverty? Explain.
13. Briefly, explain what Bhagwati means by “immiserizing growth” and how he suggests it could be avoided.
14. How does Bhagwati distinguish the old development models from the new?
15. What characterized the Indian model of growth before 1980? Was this model successful? Explain.
16. The poor in growing economies should be provided with “Access” and “opportunities”, according to Bhagwati. What does he mean by that?
17. Explain how trade and scale economies can promote economic growth.
18. What are the important features of the new Chinese economic strategy? Has it succeeded in reducing poverty? Briefly explain.
19. While claiming that global inequality in the past twenty years has declined, Bhagwati argues that in growing economies increased inequality could be tolerated if certain conditions are met. What are those conditions?
20. Outline the primary concerns of anti-globalization groups.
21. How do anti-globalization groups describe the “globalists?”
22. How do anti-globalization groups describe corporations and why do they see them as instruments of destruction and corruption?
23. What do anti-globalization groups mean be “commodification” of public goods (such as air) and services (education, waste disposal, etc.)?  Why are they against that?
24. What are the main characteristics of the ideal socioeconomic structure that anti-globalization citizen movements advocate?
25. Why do some believe that globalization undermines democratic institutions?
26.  What is you understanding of the term “fair trade”?
27. Should all countries have the same environmental and labor standards? Discuss?
28. Why do anti-globalization groups argue that globalization promotes cultural homogenization? Should
trade and international investments be curtailed to protect cultural diversity?
29. What do anti-globalization groups mean by “national self-reliance” and national (or local control) of the
domestic economy?
30. Why are anti-globalization groups concerned about WTO rulings on trade-related disputes between
countries?
31. Why are international financial institutions such as IMF criticized for their treatment of developing
countries?
32. According to the critics of globalization who are the people or groups that have befitted most from
globalization? Explain.
33. Despite globalization and the significant outsourcing of manufacturing processes and some service, the
unemployment rate in the US has remained relatively low and the economy has been growing. Why are
anti-globalization groups still complaining about jobs?
34. Recall that Bhagwati criticized the media for contributing to anti-globalization sentiments. What do the
critics of globalization say about the role of the media? What do you think?
35. How does Bhahwati argue that increased free trade and increased competition could help to narrow the
wage gender gap?
36. Why does Bhagwati say that multinational corporations have been good for Japanese women?
37. Why is it argued that IMF has been bad for the women in the developing world?
38. Why is it argued that WTO rulings have been bad for women?
39. Why does Bhagwati argue that we should not be much concerned about the migrant female workers that
leave their children behind (under the care of their extended families)?
40. It is argued that free trade and globalization have particularly improved both economic and social status
of women in some developing countries where historically (and culturally) women have been oppressed. Do
you agree? Explain. (You may use examples in your answer.)
41. Assuming capital movements across borders are allowed, explain why owners of capital might invest
outside their home countries? What kinds of risks do they face when they do so?
42. What are the economic benefits of capital mobility from both the source and the host countries’
perspectives?
43. What factors have contributed to the increase in the size of the international capital flow since the end
of WWII? (Be sure to refer to specific relevant developments.)
44. What are the risks that host countries face when borrowing from foreign sources? How could they
manage (or mitigate) those risks?
45. The Asian financial crisis of the late 1990s has often been blamed on the capital market liberalization
policies of some the impacted countries. Explain why.
46. Why is it argued that free capital flows (especially short-term investments) could be destabilizing to an
economy?
47. Are foreign banks a stabilizing type of foreign investment from a host country’s perspectives? Explain.
48. According to the author (Calomoris), why was Russia able to recover from its financial crisis that led to
the collapse of its stock market and significant bank failures in late 19th century rather quickly?  What
kind of lesson does he suggest we can learn from the Russian experience?



Group Project Teams

GLS 300
Fall 2006
Group A
1. Shawn Capron
2. Time Farnsworth
3. Krystal Lavonier
4. Stacey Baker

Group B
1. Karen Cornelio
2. Karen Opokua
3. Kari McCann
4. John Secord

Group C
1. Sean Conlon
2. Ryan Lombardo
3. Ashley Farrell
4. Travis Brown

Group D
1. William Bussert
2. Chad Wierzbicki
3. Jeffrey Scott
4. Shannon Hill

Group E
1. Shelley Youmans
2. Nicholas Ronnquist
3. William Maier
4. Samantha Connors

Group F
1. Mark Molnar
2. Phillip Dimura
3. Michael Foster
4. Joshua Cootware
5. Melanie Kane

Group G
1. Scott Chawgo
2. Daniel Crain
3. Peter McHugh
4. Andrew Russell
5. Andrew Valenzuela
==================
Topic Ideas
TRADE
How have the patterns of international trade changed since 1980?

How have the patterns of developing countries’ trade changed since 1980?

How has outsourcing impacted international trade?

Has outsourcing benefited developing countries?

Does international trade help or harm a county’s economic and political security?

Does international trade help or harm the world peace?

How has international trade affected peoples’ habits and cultures around the world? Has globalization harmed cultural diversity?

Could trade restrictions be ever necessary or useful for economic development?

Have the persistent US trade deficits since early 1980s harmed the US economy? What kind of implications have the deficits had for the US economy?

Are WTO’s terms conditions for joining the organization fair to developing countries? How well have the developing countries that have recently been accepted as a member met those conditions?

How has globalization affected wages in developed and developing countries in the past twenty years?

NAFTA
The impacts of NAFTA on the US labor market

The impacts of NAFTA on the US auto industry

The economic impacts of NAFTA in Mexico

The environmental implications of NAFTA for Mexico

Political development in Mexico since the enactment of NAFTA

The changes in the Mexican labor market since the enactment of NAFTA

Has NAFTA affected legal and illegal labor migrations into the United States?

The economic impacts of NAFTA in Canada

How has NAFTA affected maquiladoras?

CAPITAL FLOWS
The importance of capital formation and economic development: the case of developing countries

How important/useful has direct foreign investment been in advancing the development goals of developing countries?

How well have developing countries done in attracting foreign direct investments in the past three decades?

How useful has World Bank been in distributing capital around the world and particularly in directing capital to capital-poor countries?

Do free movement of capital cause economic instability in developing countries?

Could foreign investments be harmful to the economy of the host country?

The effects of foreign investment on the economy of the source countries

Do multinational corporations exploit workers in developing countries?

Have multinational corporations been harmful to the environment in developing countries?

Have multinational corporations contributed to corruption in developing countries?

How have multinational corporations affected labor laws and work conditions in developing countries?

Have IMF and World Bank been successful in promoting economic growth and stability in the developing world?

How much progress has World Bank really made toward its objective of eliminating poverty?
 

SOCIAL ISSUES
Has globalization worsened the status of women in developing countries?

Has globalization discouraged or promoted child labor?

The status of education and literacy in developing countries: have the countries that opened up their economies to trade and foreign investment and liberalized their economic institutions been able to improve their education systems and reduce their illiteracy rates?

How has globalization strengthened or weakened the democratic institutions in developing countries?

Do economic openness and increased economic relations (interdependence) among nations promote or discourage radical ideologies and  movements that are often associated with terrorism?
 



Review Questions (Fall 2005)
1. In your own words define globalization.
2. What were the objectives of the GATT rounds?
3. Who made the following statements, Bhagwati or Stigliz?

“ To them (the proponents of globalization) globalization which is typically accepting capitalism, American style, is progress; developing countries must accept it, if they are to grow and fight poverty effectively.”

4. Explain how Stiglitz and Bhagwati’s characterize the anti-globalization demonstrators at the sites of recent World Bank/IMF/WTO meetings.
5. To demonstrate that globalization has not been consistently successful Stiglitz uses a couple of recent occurrences as examples. What are they?
6. What does Bhagwati mean by “and ironic reversal” of positions relative to globalization developments?
7. According to Stiglitz some critics of globalization accuse Western nations of hypocrisy. What is his explanation?
8. List some of the important landmark events of the past fifty years that you think paved the road to an economically more liberal global environment.
9. List some of the important underlying causes of poverty in developing countries.
10. What was the original function of the IMF?
11. Why is IMF, according to Stiglitz, so disliked among some developing countries?
12.  In brief, what did the IMF want the Ethiopian government to do in the late 1900’s?
13. What are some of Stiglitz’s criticisms of the IMF?
14. What does Bhagwati mean by “the trilogy of discontent?”
15. Why does Bhagwati say that capitalism should be viewed a system that “can destroy privilege” and provide opportunities for the poor and the disfranchised?
16. How does Bhagwati suggest the problems associated with globalization should be addresses? (Chapters 3, 4)
17. How does Bhagwati suggest the problem of poverty should be addressed?
18. How does Bhagwati distinguish the old development strategies from the new?
19. Briefly explain the “East Asia Crisis?”
20. What does Stiglitz identify as the underlying cause(s) of the “East Asia Crisis?” Why did some countries go through it more easily than others?

Review Questions II - Fall 2005
1. Why is it argued that globalization (free trade) might help to reduce discrimination in the labor market?

2. What are the concerns of some women’s organizations and groups (such as NOW and Women’s Edge) about women who work in EPZs?

3. Why does Bhagawti dismiss most of the anti-globalization arguments about women’s concerns?

4. Make an argument supporting the position of those who claim that globalization promotes democracy.

5. Why does globalization affect public spending? Do democratically elected governments become more cautious in undertaking policies supported by electorates?

6. Why do some critics argue that WTO is undemocratic?

7. How do we (economists) expect free trade to affect wages in trading countries?

8. Have US wages fallen as a result of globalization?

9. What are the main points of Bhagwati’s race-to-the-top argument with regard to wages?

10. Why is it argued (by Edward Gresser, for example) that protective “tariff policy” that are intended to protect wages and jobs in labor intensive manufacturing sectors are more likely to harm the poor?

11. What does Bhagwati consider fundamentally wrong with the position of environmentalists relative to globalization?

12. Why is it argued that trade treaties and agreements are not appropriate mechanisms for protecting (domestic) environment?

13. Explain why it is argued that globally uniform environmental standards are neither practical nor efficient.

14. Why do some environmentalist groups fear that globalization would lead to a “race to the bottom” in standards for domestic pollution?

15. What does Bhageati mean by “global pollution”? How does he suggest it should be dealt with?

16. What are the downsides of globalization (free trade and market liberalization) for developing and developed countries?

17. How does Bhagwati suggest the downsides of globalization should be dealt with, especially in developing countries?

18. What role could WTO and World Bank play in helping developing countries in dealing with the problems they might face in their attempt to liberalize their economies (and their trade policies)?

19. Comparing Russia and China’s experiences in their transition to a more market-oriented economy, Stiglitz clearly favors China’s approach over Russia’s.  What are the main points of his argument? Try to be as specific as you can.



Study Questions, Fall 07

1. What are the major underlying causes of poverty in developing countries?

2. Discuss some of the major post-WWII developments that contributed to the process of globalization.

3. Discuss some of the problems (economic, political, and social) that the critiques attribute to globalization?

4. Discuss the benefits (economic, political, and social) that supporters of globalization promise.

5. Explain why economists generally support globalization while acknowledging the problems associated with it?

6. Comparing different countries’ experiences with globalization, Stiglitz criticizes Russia and praises China. Explain why.

7. Name the major international organizations that have been instrumental in determining the direction and pace of the globalization process, and explain how.

8.  What are some of the contradictions that Steger (in the little book) sees in al Quida and ben Laden’s so-called Islamic movement? To what extent do you think globalization may have helped the spread of  radical Islamic ideologies?

9. Steger characterizes today’s globalization by a breakdown of traditional social, economic, political, cultural, and geographical boundaries? Explain.

10. What are the five dimensions of globalization identified by Steger?

11. What are the major economic engines behind globalization?

12. Outline the major discontents with globalization and give a brief explanation for each. Note: The test version of this question will be broken down and more specific.

13. Explain why some supporters of globalization argue that globalization helps economic development. Be as specific as you can.

14. Explain why Stiglitz argue that economic liberalization may not be an effective prescription for development in developing countries. You could use examples in your answer.

15. Why has Stiglitz been so critical of some of IMF’s policies in the 1980s and 1990s?

16. Briefly explain the role of modern communication in today’s globalization.

17. Outline Stiglitz’s suggestions for reforming the globalization process.

18. What have, according to Stiglitz, been some of the main reasons for the widening gap between the poor and the rich?

19. Why does Stiglitz argue that capitalism may not be the answer to all economic problems?

20. What are, according to Stiglitz, some of the important prerequisites for (market-based) economic development?

21. What are the important provisions of NAFTA?

22. Has NAFA been successful in achieving its objectives? Explain.

23. Explain what Stiglitz means by “fair trade” and why he argues that free trade may not always lead to “fair trade.” (What are the perils of free trade?)

24. What are Stigliz’s suggestions for making free trade “fair trade?” Explain.      Note: The test version of this question will be broken down and more specific.

25. What are externalities? How is the difference between a private externality and a public externality? You may give examples.

26.  Explain some of problems that make it difficult for developed and developing countries to arrive at an agreement on controlling green house emissions.
 


World Bank / IMF News

Shift in order seen at IMF, World Bank talks
Emerging nations demand larger role
U.S. plan offers to redistribute power
Sep. 18, 2006. 07:04 AM
STEVEN R. WEISMAN
NEW YORK TIMES NEWS SERVICE

SINGAPORE—Even before the conclusion of the annual gathering of the World Bank and the International Monetary Fund, a striking swing in the global order has been obvious.
China and other fast-growing developing countries are demanding a bigger say in the aging institutions that superintend the world economy.
The demands of China and other countries are stirring concerns in the West that agencies like the monetary fund, set up in the 1940s to stabilize the global economy, are in danger of fragmenting — a sobering thought for those worried that the breakdown of global trade talks last summer imperils the future of global economic co-operation.
The richest countries of the world are scrambling to make sure that this fragmentation does not happen. Accordingly, an American-backed plan that would give a bit larger role at the fund to China, South Korea, Mexico and Turkey appears headed for passage today.
The plan is what the United States calls a down payment that will pave the way for more power to be given to other developing countries at the monetary fund, which is responsible for monitoring the global economy and rescuing countries from default.
But that process is likely to produce much wrangling over the next year or two.
Judging from the comments of such countries as India, Brazil, Argentina and Egypt, which have said they oppose the down-payment idea, there is a clear residue of distrust from the poor or developing countries that feel left out of the process being discussed here at these annual meetings.
That criticism underscores the general anxiety about the future of the global economy and the systems set up to secure it.
Despite a healthy world growth rate of 5 per cent in the last year, economists here are warning that the rise of protectionist sentiment, soaring oil prices, the huge American overhang of debt and other factors are casting a shadow over the future.
"Clearly there are still risks in the global economy," said Jean-Claude Trichet, president of the European Central Bank. "A lot of homework still has to be done.''
One piece of that homework, everyone agrees, is the overhaul of institutions like the IMF. But that has proved difficult, in part because countries with existing power at the fund, including some in Europe, are nervous about being marginalized after decades of power.
Gordon Brown, Britain's chancellor of the Exchequer and chairman of a committee that helps set policy for the fund, said yesterday he expected that Europeans and others who might lose power to the Asians "will approach this in a statesmanlike way'' and voluntarily give up some of their clout.
 
 
 

AP
SINGAPORE The 184-nation International Monetary Fund on Monday approved reforms to increase the voice of emerging economies China, South Korea, Turkey and Mexico to reflect their growing economic sway.

The move, which raises the voting share of those four nations, aims to boost the credibility of the IMF, which six decades after its founding is facing criticism for giving the U.S. and other Western powers too much influence.

The proposal won 90.6 percent of the total vote, the IMF said in a release. It needed 85 percent to pass.

Voting shares affect member countries' say in the decisions of the Washington-based institution and how much they can borrow from it. The IMF works to promote global economic stability and provide emergency loans to members in crisis — akin to a financial firefighter.

"These governance reforms are tremendously important for the future of our institution. They will enhance our effectiveness and add legitimacy to all of the other reforms we are implementing," IMF Managing Director Rodrigo de Rato said in a statement prepared for delivery to delegates Tuesday.

As a second step in the reform package, the IMF will overhaul the voting structure of all member nations.

The reform measure was the most important agenda item on IMF's annual meeting, held in Singapore along with its sister institution, the World Bank, which lends money to countries to fight poverty. The meetings wind up Wednesday.

When the IMF was founded in 1945, it focused on the needs of the United States, Europe and Japan. Over time, the importance of emerging economies has grown. The reforms seek to redress these changes.

"For institutions like the IMF to continue to be relevant they have to change with the economy," U.S. Treasury Secretary Henry Paulson said before the results were announced.

The IMF did not say which nations voted against the proposal, but German Finance Minister Peer Steinbrueck said Argentina, Brazil and some North African countries opposed it.

In days leading up to the vote, India, Brazil and Argentina had said the reforms should include all members and be implemented in one step. They also said they were doubtful that wealthy member nations are willing to see their voting shares reduced at a later stage.

The weight of each nation's vote is tied to its quota, or financial commitment to the institution. Quotas are determined by the size of their economies and currency reserves as well as openness to trade and capital flows.

The U.S. vote, for example, is about 17 percent of the total and Japan has 6.1 percent, while European nations together account for about a third. Argentina has a voting share of 0.99 percent, while the Pacific island nation of Palau has 0.01 percent.

The plan raises China's voting share to 3.65 percent from 2.93, raising its rank from eighth to sixth.

South Korea's voting share rises to 1.33 percent from 0.76, Mexico climbs to 1.431 percent from 1.196 and Turkey goes to 0.548 from 0.453.

The World Bank's policy-planning committee, meanwhile, endorsed a broad strategy for tackling corruption Monday that gave the 24-member executive board oversight to ensure that the institution's decisions are broadly based.

The move came after the bank's president, Paul Wolfowitz, had blocked more than US$1 billion for projects in Africa and Asia because of allegations of corruption. That decision was criticized by many countries — both donors and recipients — that say it penalized poor people for the abuses of their governments.

"Given the importance of the issue, we stressed the importance of Board oversight of the strategy as it is further developed and then implemented," the World Bank's Development Committee said in a statement after a daylong meeting

While Wolfowitz insisted that fighting corruption was critical to promoting growth and overcoming poverty, he also said the bank's approach must be "innovative and flexible," taking into account the conditions in various countries.

"We cannot abandon the poor because their governments or institutions are weak," he said. "That would mean they would be penalized twice."

British Development Secretary Hilary Benn said the World Bank's decision to have board oversight was the most important outcome of the meeting. As a result, the British government pulled back from a threat made last week to withhold 50 million pounds (US$94 million; €74 million) of funding due next year to protest the conditions the bank places on aid to poor countries.

The bank says that it has resumed funding for projects after recipient countries promised to bring safeguards against corruption.

Kenya, however, says that disbursals of World Bank funds have been delayed even though the country has met all conditions for World Bank loans, according to the country's finance minister.
World Bank mulls controversial anti-graft campaign
AFP
Monday, September 18, 2006  09:25 IST
SINGAPORE: The World Bank policy-setting body convened on Monday to debate an aggressive anti-corruption plan that critics contend imposes harsh conditions harmful to the interests of poor countries.

The campaign is spearheaded by World Bank President Paul Wolfowitz, who insists that stamping out graft is critical to eliminating poverty and raising living standards.

"The fact that governance and anti-corruption have risen high on the agenda of the World Bank reflects, I think, a worldwide recognition that better governance and reduced corruption are key to addressing the central mission of our organization -- the reduction of poverty," Wolfowtiz said on Sunday.

The World Bank Institute estimates that more than a trillion dollars is paid in bribes worldwide every year, a figure that does not include embezzlement of public funds and theft of public assets.
"The evidence is quite clear that better governance is associated with more rapid growth, lower inequality, lower child mortality, lower illiteracy," Wolfowitz said.

"Poor governance, at its most extreme, can lead to financial collapse and even societal instability."

Wolfowitz's initiative would link Bank financial assistance to commitments by beneficiary countries to good governance, such as transparency in public procurement, and anti-corruption measures. But he says his aim "is not to find a reason to cut back on lending" to poor countries, which is up nine percent this year to 9.5 billion dollars.

Nonetheless, several World Bank members, notably Britain, France and Germany, are wary about what is seen as a blueprint for interfering in the internal affairs of poor countries by attaching conditions to aid.

Several countries, most recently the Democratic Republic of Congo, have seen aid projects stall because of obstacles thrown up by the corruption-busting initiative.

There is also controversy about World Bank policy prescriptions. In Bangladesh the World Bank has made lending conditional on privatization in key sectors, according to the British-based pressure group Oxfam.

Britain has said it will withhold a 50-million-pound contribution to the Bank, about 10 per cent of the amount it planned to provide the institution next year, to protest the strings attached to aid given to poor nations.

British International Development Secretary Hilary Benn said conditions should be attached in areas such as tackling corruption and promoting good governance but it was "not right" to impose them on economic policy choices.

British charity Christian Aid's head of policy Charles Abugre praised London's decision but urged it to go further in withholding all its contributions to the World Bank.

"This is a very welcome development and vindicates Christian Aid's long-held belief that economic conditions imposed on poor countries by the World Bank and the International Monetary Fund can be disastrous for poor countries. But this is only a first step. We now urge Britain to go the extra mile and withhold all its monies."

Wolfowitz gained support for his position at a seminar here Sunday from leading anti-corruption campaigners including former US Federal Reserve chairman Paul Volcker, who chaired the explosive inquiry into the UN Oil for Food scandal.

"I see no real question of national sovereignty involved," Volcker said, adding that the greatest threat to development "is to sit back and be passive in the face of this challenge".

Nigeria's celebrated anti-corruption chief Nuhu Ribadu told the seminar that "the biggest challenge facing world development is corruption," which he said forces poor countries to depend on foreign aid.

The corruption and governance question figures prominently on the agenda of the Development Committee, which sets policy for the Washington-based World Bank.

The committee was meeting here ahead of plenary sessions Tuesday and Wednesday of the full membership of the Bank and the International Monetary Fund.
 
 
 

The Indian Express
Wolf in sheep’s clothing
Saubhik Chakrabarti
Posted online: Monday, September 18, 2006 at 0000 hrs

 When George Bush appointed Paul Wolfowitz World Bank president, continental Europe was aghast. Plenty of Indian commentators were aghast, too, at Bush picking the neo-con who helped “con” the world on Iraq. In European criticism they again found validation of the hypothesis that America is an ogre and Europe understands “our” pain.
Last Friday Wolfowitz delivered the verbal equivalent of a cluster bomb to Singapore, host of this year’s World Bank-IMF meeting. The city-state that made gum-chewing a penal offence played to its character and banned and/or deported many protesters planning to demonstrate at the Bank-Fund meet. Wolfowitz met protesters’ representatives and called Singapore’s decision “authoritarian”. That was unusually refreshing — a high dignitary plainly criticising the host nation and defending the rights of those who, among other things, had planned to trash him and the organisation he leads.
No doubt those who reckon Europe is a civilised, sympathetic friend of the non-Western world will dismiss this as trivial. They may not have the same easy option over what will happen in Singapore in the next two days, 19th and 20th September. As part of Bank-Fund deliberations, the IMF will debate reforming the formula that determines how power is apportioned between its 184 member-countries. The formula is arcane. Much of the debate will be technical. But the principle involved is simple — does Europe understand our pain?
Power distribution in the IMF is fixed by a quota that was calculated in 1944. The quota determines how many votes an IMF member can cast, how much it has to contribute to the Fund’s kitty and the extent of its soft loan facility (beyond this limit loans will attract penal interest rates). So it’s obviously important. Also important to remember is that the number of quotas overall is fixed. A quota increase for some members may come at the cost of some others.
The original, horrendously complicated formula for fixing quotas was drawn up on the basis of three things: the size of a member-country’s economy, the quantum of its foreign exchange reserves and the economy’s propensity to volatility. It made sense in 1944 that China’s quota was less than that of the Netherlands or Belgium. But does it make sense in 2006? China’s economy is now twice the size of the Belgian and Dutch economies combined. But both Belgium and the Netherlands still have larger IMF quotas than China. What about us? India’s economy is now twice the size of Belgium’s. Belgium has a larger quota.
Europe as a whole commands around a third of IMF quotas. Since that is roughly the same as Europe’s share in the world economy, it may seem that overall the continent has a fair claim. Not true. America’s share of the world economy is roughly a third. But America’s share of the IMF quotas is around 17 per cent. So you would expect America, especially Bush’s America, especially an America that sends Paul Wolfowitz to head the IMF’s sister organisation to rabidly push for a quota increase.
But here’s what Timothy Adams, US undersecretary for Treasury, said on the issue: “Many countries in the world are woefully underrepresented in the IMF. Just as America’s quota has gone down, so must Europe’s.”
Here’s what Axel Weber, chief of German Bundesbank (Germany’s equivalent of India’s RBI) said: “A broad package has to be found for a more transparent and fair representation of all IMF members. To that extent EU countries should not prematurely relinquish their own justified position and claims” (italics ours). Translation: Belgium, Netherlands, Luxembourg — combined share of IMF quotas around 6.7 per cent — must fight to preserve what was given to them 60 years back. China, South Korea, India — combined share of IMF quotas around 3.5 per cent — must forget their contribution to changing the world in the last 60 years. They should be happy with crumbs.
And crumbs are exactly what the IMF is offering. Rodrigo de Rato, the Fund’s European chief has been saying since he took the job in 2004 that quotas must be reformed (courtesy a cosy postwar arrangement, Americans always head the Bank and Europeans, the Fund; it is to preserve this privilege that Europeans didn’t fight Wolfowitz’s nomination; if they had, America would have fought Europe’s next choice for the IMF).
What Rato’s offering and what the IMF will debate is a one-time small increase in the quotas of China, South Korea, Turkey and Mexico. The increase will cover just one-third the distance between these countries’ current quotas and what even internal IMF calculations have fixed as their ideal quotas. India doesn’t even figure. Neither do big Latin American countries like Brazil and Argentina.
The IMF proposes to take two years to ask rich countries to sacrifice some of their quotas and to work out a new formula by which a country’s GDP would be the biggest determinant. Guess which countries will lose out the most? European nations, of course, especially the smaller ones.
Europe enjoys another unfair advantage in the current formula. Since 2000, 12 European countries have formed the euro zone. They all have the same currency. This means trade between euro countries doesn’t have the standard balance of payment implication that applies to trade between countries with different currencies. Trade between the Netherlands and Belgium is no different in this respect from trade between Delhi and Bengal. Neither should show up in IMF quota calculations that take international trade into account. A May 2000 IMF staff paper calculates that if intra-EU trade is excluded, the EU’s quota comes down by more than 9 percentage points. Among the biggest losers are Belgium and the Netherlands. Since euro-using countries are a huge majority in the EU, the same conclusion would hold for a study of the euro zone.
All Indian commentators who look at Europe for sympathetic understanding should ponder this question over the next two days as the IMF tries to get the 85 per cent support it needs for all members to accept its crumb: Is it Paul Wolfowitz who thinks Belgium matters more than India in the world?
 

Post News
World Bank anti-graft plan backed

Singapore (dpa) - World Bank President Paul Wolfowitz on Monday won backing from the bank's powerful 24-member development committee for his fight against graft and corruption.

But bank member governments demanded constant oversight of the drive and said incentives, rather than sanctions, must be used to promote good governance.

Endorsement of the anti-graft campaign is a boost for Wolfowitz, a former US deputy defense secretary, who took over as head of the Washington-based institution last year.

However the go-ahead came only after ministers, attending a joint World Bank-International Monetary Fund (IMF) development committee, insisted that fighting poverty must remain the bank's key objective.

Wolfowitz was also repeatedly told that his focus should be on the wider issue of promoting good governance rather than merely combatting corruption.

"Governance is a large, complex concept that requires institutional reform and strengthening of state agencies, customs, and the judiciary," a European official told Deutsche Presse-Agentur dpa.

Reflecting this stance, European Union development chief Louis Michel told the development committee that "governance can not be limited to fight against corruption. It would be inefficient, superficial and non-sustainable."

Michel, voicing European views, also insisted that securing change in developing nations required "dialogue and positive incentives rather than sanctions and conditionality."

Criticizing a recent bank initiative to measure the quality of governance in countries, Michel said he doubted the appropriateness of such a qualitative ranking of countries.

"I do understand the logic of it, but it seems too strictly rational to be fully workable," said the EU development chief.

European governments have also balked at Wolfowitz's decision last year to suspend 1 billion dollars worth of projects in India, Chad, Kenya, Congo, Ethiopia and Bangladesh because of corruption.

Much of that funding has resumed after countries agreed to implement anti-graft safeguards.

But the move had been simplistic and took no account of countries like Congo which were in the midst of crisis and could not meet World Bank clean governance standards, said a European official.

Wolfowitz insisted after the development committee that he was not slapping new conditions on the bank's multi-billion dollar lending schemes in poor countries.

Instead the focus was on giving an "extra push" to governments which were struggling to fight graft and corruption, he said.

Wolfowitz said his focus was on ensuring that money goes "to schools and textbooks for children and medicines for mothers, not to line the pockets of the rich and powerful."

But he admitted that improving governance was a long-term project which will "take place over time, not happen overnight."

With up to one trillion dollars in aid being squandered through corruption in developing countries, Wolfowitz underlined that efforts to strengthen and improve governance were a key element in the fight against poverty.

A communique by the development committee said the World Bank's principal objective must be to help develop "capable and accountable states" which could deliver services to the poor, promote private sector-led growth and tackle corruption effectively.

Reflecting demands by African officials that state authorities should not be side-stepped by the bank, the statement said "governments are the key partners ... in governance and anti-corruption programmes."

But it added that "a broad range of domestic institutions" would also be consulted.

In another sign that governments were not giving Wolfowitz a free hand on the issue, the statement said the World Bank board, representing governments, would have "oversight of the strategy."

In what analysts said was a softening of an earlier tougher line, Wolfowitz told the development committee that the World Bank could not abandon the poor because their governments or institutions are weak.

"That would mean they would be penalized twice," he admitted.

In such cases, donors must look for "alternative ways to remain engaged to solve development problems," he said.

However, the strategy paper adopted by the committee said that in cases of "widespread corruption," the bank could restrict lending, shift to non-lending activities or "very unusually" suspend financing support.

Non-governmental aid agencies said fighting corruption was a crucial component in the larger combat against poverty.

"But the bank's initiative will misfire if used as a means to reduce lending or force privatization," said charity group Oxfam.

Instead of only focusing on corruption in poor countries, Oxfam said more was needed to "expose the bribe-givers who grease the wheels of corruption."

Actionaid International also warned that the bank's new approach must not "add more layers of conditionality," adding: "This is not the time for a one-size-fits-all approach to good governance."

The joint World Bank-IMF development committee, met in Singapore ahead of the annual meetings of the bank and IMF which open Tuesday.
 
 
 
 

 IMF approves reforms to boost voice of China, other emerging economies
The Associated Press

Published: September 18, 2006
"There is this belief that we are not doing enough. But nobody has told us what that 'enough' means," Amos Kimunya, the finance minister, told The Associated Press. "Nobody has added any item to what we are already doing."

According to the World Bank, US$1 trillion in bribes change hands worldwide every year. The bank itself has uncovered 2,000 cases of alleged fraud, corruption and other misconduct related to its projects since 1999 and has sanctioned more than 330 companies and people, it says.

Activists accused both lenders of seeking to impose conditions for aid and loans that are not directly related to corruption.

"As part of their aid and debt relief, the World Bank and IMF insist that countries satisfy all sorts of economic conditions, such as forced privatization, trade liberalization, fiscal reforms," said Trisha Rogers, director of the Jubilee Debt Campaign, a British-based coalition of groups working for the cancellation of poor country debts.

"We think these should not be imposed by unelected bureaucrats in Washington," she said.

Sept. 18, 2006, 5:03AM
Wolfowitz: World Bank Can't Abandon Poor
By ELAINE KURTENBACH AP Business Writer
© 2006 The Associated Press
SINGAPORE — World Bank President Paul Wolfowitz, under fire for blocking aid to countries accused of corruption, acknowledged Monday that poor people should not be penalized for the abuses of their leaders.
"We cannot abandon the poor because their governments or institutions are weak," he said in comments to the World Bank's policy-planning committee. "That would mean they would be penalized twice."

Wolfowitz, who has championed fighting corruption since becoming chief of the bank last year, has been criticized by Britain and several African nations for blocking more than US$1 billion in aid to either countries believed to be involved in illegal activities or such projects where there reports of graft.
In apparent recognition of that criticism, Wolfowitz's statement Monday said the bank "must find solutions which are innovative and flexible and which respect the unique constituents and conditions in each country."
To ensure that the World Bank's decisions are broadly based, the institution's policy-planning panel said Monday that its strategy to fight corruption needs oversight of its 24-member executive board.
British Development Secretary Hilary Benn said the decision to have "board oversight," was the most important outcome of the meeting. Last week, Benn had threatened to withold 50 million pounds (US$94 million; euro74 million) of funding due next year to protest the conditions the bank places on aid to poor countries.
Benn denied there was ever a row with Wolfowitz on the issue, saying there had been a "genuine debate" at Monday's meeting of the World Bank's Development Committee.
Wolfowitz, the former U.S. deputy defense secretary, stressed that transparency was critical to fighting poverty, which is the World Bank's stated purpose.
"Sound principles of accountability and transparency not only assure funds are spent as intended, but also are essential to accelerating economic growth, helping poor to escape poverty," he said in a statement.
The Washington-based World Bank says that it has resumed funding for projects after recipient countries promised to bring safeguards against corruption.
But Kenyan Finance Minister Amos Kimunya said Sunday that although Kenya has met all conditions for World Bank loans, disbursals have been delayed because the allegations have yet to be investigated.
"There is this belief that we are not doing enough. But nobody has told us what that 'enough' means," Kimunya told The Associated Press. "Nobody has added any item to what we are already doing."
Speaking on behalf of 21 African countries, Kenya's Kimunya said Sunday that every country has its own way to deal with corruption and that there cannot be a uniform prescription to deal with the problem.
According to the World Bank, US$1 trillion in bribes change hands worldwide every year. The bank itself has uncovered 2,000 cases of alleged fraud, corruption and other misconduct related to its projects since 1999 and has sanctioned more than 330 companies and people, it says.
Activists, meanwhile, accused the bank of seeking to impose conditions on its lending that are not directly related to corruption.
"As part of their aid and debt relief, the World Bank and IMF insist that countries satisfy all sorts of economic conditions, such as forced privatization, trade liberalization, fiscal reforms," said Trisha Roberts, director of the Jubilee Debt Campaign, a British-based coalition of groups working for the cancellation of poor country debts.
"We think these should not be imposed by unelected bureaucrats in Washington," she said.
Sept. 18, 2006, 9:43AM
IMF Gives China Greater Voice
By MALCOLM FOSTER AP Business Writer
© 2006 The Associated Press
SINGAPORE — The 184-nation International Monetary Fund on Monday approved reforms to increase the voice of emerging economies China, South Korea, Turkey and Mexico to reflect their growing economic importance.
The move, which raises the voting share of those four nations, aims to boost the credibility of the IMF, which six decades after its founding is facing criticism for giving the U.S. and other Western powers too much influence.
The proposal won 90.6 percent of the total vote, the IMF said in a release. It needed 85 percent to pass.
Voting shares affect member countries' say in the decisions of the Washington-based institution and how much they can borrow from it. The IMF works to promote global economic stability and provide emergency loans to members in crisis _ akin to a financial firefighter.
"These governance reforms are tremendously important for the future of our institution. They will enhance our effectiveness and add legitimacy to all of the other reforms we are implementing," IMF Managing Director Rodrigo de Rato said in a statement prepared for delivery to delegates Tuesday.
As a second step in the reform package, the IMF will overhaul the voting structure of all member nations.
The reform measure was the most important item on the agenda for the IMF's annual meeting, held in Singapore along with its sister institution, the World Bank, which lends money to countries to fight poverty. The meetings wind up Wednesday.
When the IMF was founded in 1945, it focused on the needs of the United States, Europe and Japan. Over time, the importance of emerging economies has grown. The reforms seek to redress these changes.
"For institutions like the IMF to continue to be relevant they have to change with the economy," U.S. Treasury Secretary Henry Paulson said before the results were announced.
The IMF did not say which nations voted against the proposal, but German Finance Minister Peer Steinbrueck said Argentina, Brazil and some North African countries opposed it.
In days leading up to the vote, India, Brazil and Argentina had said the reforms should include all members and be implemented in one step. They also said they were doubtful that wealthy member nations are willing to see their voting shares reduced at a later stage.
The weight of each nation's vote is tied to its quota, or financial commitment to the institution. Quotas are determined by the size of their economies and currency reserves as well as openness to trade and capital flows.
The U.S. vote, for example, is about 17 percent of the total and Japan has 6.1 percent, while European nations together account for about a third. Argentina has a voting share of 0.99 percent, while the Pacific island nation of Palau has 0.01 percent.
The new plan will raise China's voting share to 3.65 percent from 2.93, South Korea's to 1.329 percent from 0.76, Mexico to 1.431 percent from 1.196 and Turkey's to 0.548 percent from 0.453.
The World Bank's policy-planning committee, meanwhile, endorsed a strategy for tackling corruption Monday that gave the 24-member executive board oversight to ensure that the institution's decisions are broadly based.
The move came after the bank's president, Paul Wolfowitz, had blocked more than $1 billion for projects in Africa and Asia because of allegations of corruption. That decision was criticized by many countries _ both donors and recipients _ that say it penalized poor people for the abuses of their governments.
"Given the importance of the issue, we stressed the importance of board oversight of the strategy as it is further developed and then implemented," the World Bank's Development Committee said in a statement after a daylong meeting.
While Wolfowitz insisted that fighting corruption was critical to promoting growth and overcoming poverty, he also said the bank's approach must be "innovative and flexible," taking into account the conditions in various countries.
"We cannot abandon the poor because their governments or institutions are weak," he said. "That would mean they would be penalized twice."
British Development Secretary Hilary Benn said the World Bank's decision to have board oversight, was the most important outcome of the meeting. Last week, Benn threatened to withhold 50 million pounds ($94 million) of funding due next year to protest the conditions the bank places on aid to poor countries.
The bank says that it has resumed funding for projects after recipient countries promised to bring safeguards against corruption.
Kenya, however, says that disbursements of World Bank funds have been delayed even though the country has met all conditions for World Bank loans, according to the country's finance minister.
"There is this belief that we are not doing enough. But nobody has told us what that 'enough' means," Amos Kimunya, the finance minister, told The Associated Press. "Nobody has added any item to what we are already doing."
According to the World Bank, $1 trillion in bribes change hands worldwide every year. The bank itself has uncovered 2,000 cases of alleged fraud, corruption and other misconduct related to its projects since 1999 and has sanctioned more than 330 companies and people, it says.
Activists accused both lenders of seeking to impose conditions for aid and loans that are not directly related to corruption.
"As part of their aid and debt relief, the World Bank and IMF insist that countries satisfy all sorts of economic conditions, such as forced privatization, trade liberalization, fiscal reforms," said Trisha Rogers, director of the Jubilee Debt Campaign, a British-based coalition of groups working for the cancellation of poor country debts.
"We think these should not be imposed by unelected bureaucrats in Washington," she said.

By Geert De Clercq  |  September 14, 2006
SINGAPORE (Reuters) - Singapore said on Thursday it might admit some of the 27 civil rights activists it barred from an IMF-World Bank meeting, but the bank rejected the government's softer stance as being insufficient.
Singapore had originally blocked the activists from attending the September 11-20 meetings on the grounds they posed a threat to security and public order.
But in an apparent attempt to placate the monetary chiefs, who along with the European Union have criticized the city-state's tight security, Singapore said on Thursday it was willing to reconsider the ban on the activists.
"The IMF/WB have asked the government to allow in the 27 activists. The government has responded that if these activists travel to Singapore, we will assess at the point of entry whether they pose a security or safety risk," the Singapore 2006 Organizing Committee said in a statement.
"If we judge the risk to be acceptable for that particular activist, we are prepared to allow him or her in. However, we cannot guarantee that all 27 activists will be admitted to Singapore," it said.
The statement was issued shortly after World Bank President Paul Wolfowitz met with Singapore Prime Minister Lee Hsien Loong.
"This statement is not a sufficient response to give the individuals in question the assurance that they would be granted access," a World Bank official told Reuters.
"We have accredited these individuals based on clearance by their respective governments and we believe they should be able to participate in our meetings."
Wolfowitz had said earlier that he hoped the ban on the activists was not a case of censorship, adding that it might be in breach of a 2003 agreement with the city-state.
But the Singapore 2006 committee said the memorandum of understanding signed between IMF/WB and the Singapore government "obliges Singapore to take all necessary measures for the safe passage of all persons in and out of Singapore."
It said the government takes this duty seriously in view of the international security environment.
Antonio Tricarico of Italy's Reform the World Bank said that according to the list, Singapore's objection to his accreditation was based on security and law and order considerations.
"Technically, that means terrorism. This is absurd," he told Reuters. Tricarico is the first person on the blacklist, a copy of which was obtained by Reuters.
Earlier, Singapore police said they had detained three Singaporeans who were planning to distribute flyers criticizing the IMF and World Bank and had seized their computers.
Police spokesman Mohamed Razif said they were investigating the men under legislation stating that anyone possessing materials which contain "any incitement to violence or counseling disobedience to the law" would be jailed for up to three years or fined, or both.
On Wednesday, Singapore deported two Filipino activists who had been planning to join anti-IMF protests.
(Additional reporting by Wee Sui Lee)
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2006 Press Releases
World Bank Criticized over Approval of Controversial Gold Mine in Ghana

EARTHWORKS - FIAN Germany - FIAN Ghana - WACAM
NGOs to maintain pressure on IFC and Newmont to resolve community concerns
On January 31, 2006, the Board of Directors of the International Finance Corporation (IFC), the World Bank's private sector arm, approved loans amounting to USD $125 million for Denver-based Newmont Mining Company's controversial Afaho gold mining project in Ghana. Ghanaian and international human rights and environmental NGOs had previously called on the IFC Board to postpone loan consideration until IFC and Newmont had fully addressed the project's human rights and environmental problems.
These groups have expressed concerns about the the IFC's capacity to hold the company accountable to social and environmental standards. The Board approval came days after an IFC-commissioned monitoring report released in January disclosed that the Ahafo project does not comply with IFC standards on involuntary resettlement. Access to land remains uncertain for a large number of the 9,500 people who have so far been displaced by the project and whose livelihoods are at stake.
"It is irresponsible of the IFC Board to grant a loan without any binding commitment by Newmont to resolve the issues around land and resettlement. Already, affected people are experiencing economic hardship and food security has become a pressing issue," said Ute Hausmann, human rights expert with FoodFirst Information & Action Network (FIAN), Germany.
In recent months, there has been growing international attention to the World Bank's inadequate oversight of extractive industries projects, in particular, those financed by its private sector arm. The non-governmental groups state that they will continue to closely monitor this and other World Bank-funded mining projects and will maintain pressure on IFC and Newmont to meet social and environmental standards. The groups argue that the development benefits of the project hinge upon the restoration of sustainable livelihoods and the protection of clean water for the rural communities affected by the project.
"So far, Newmont has not addressed the community concerns. Instead it has spent resources on research to support its public stance that the community problems are nonexistent. This ostrich behaviour will no longer be viable: Newmont has to provide answers," said Daniel Owusu-Koranteng, executive director of the Wassa Association of Communities Affected by Mining (WACAM), in Ghana.
The project's impact on human health and the environment has been of major concern from the initial stage of the project. Critical tests to fully assess contamination threats such as acid generation have not been completed, nor are the proposed remediation measures adequate, according to an independent technical review.
"Ghana has experienced a spate of mining disasters in the past decade. A full assessment of risks associated with the Ahafo mine and more stringent protective measures are needed to ensure that history does not repeat itself," said Radhika Sarin, international program coordinator at EARTHWORKS, an environmental group that promotes mining reform.
"If there is a time to prevent severe damage to biodiversity, human health and water resources in the area, then the time is now. We will make sure that the people in Ghana and worldwide are aware of what is at stake," said Mike Anane, coordinator of FIAN in Ghana.

The Contribution of Europe to Globalization
By Eckhard Polzer
Mr. Eckhard Polzer is the former Chief Executive Officer of Dornier Medizintechnik GmbH. He started his career at Dornier in 1977, after leaving Siemens AG, where he worked as a program manager in Ghana, Zaire and Nigeria from 1973 to 1977.
By the end of the eighties, "globalization" was a term used at best by a few sociologists. The rest of us were occupied with international trade, the restructuring of the economy, the end of colonialism - a topic which by then hardly interested anyone anymore in the West - and Japan as the looming hegemonic power of the coming century. The iron curtain came down and George Bush spoke cryptically of a new world order, a concept nobody really knew what to make of.
Today, everybody talks about globalization, and some even claim that the USA as sole superpower already behave like a world government, or at least as the world´s policeman.

Globalization, a paraphrase for undefined fears
Since a couple of years, the rich nations had to accept that their blueprint theories are no longer valid. It is no longer sufficient to invent new products, which then, divided into handy incremental sub-systems, can be produced by cheap sub-contractors. Today, many of the former sub-contractors are offering their own complete systems, and the times when the competition for the best product idea took place only between the countries of the developed West are long gone. Nowadays, the speed of realization and commercialization, product quality and customer service, available venture capital and world-wide access to markets play a decisive role in addition to the new product idea.
Although world trade is increasingly determined by systemic factors, many resort to old concepts of the enemy, especially when it becomes more difficult to further one's own development. One of these is the argument that after-effects of colonialism still affect the countries of the former Third World. Neo-colonialism is a popular charge to distract at least temporarily from home-made problems. Those who deal daily with the effects of a global market can only shrug their shoulders at such blame. Most of the speculators who move billions between different securities daily in order to optimize their returns can hardly even remember what colonialism means. They only look at the track-records for the last three years, as if the countries they want to invest in were stock-quoted companies. Investors only distinguish between good and bad policies, between good and bad political leadership, between high and low expected returns.
Old allegations like economic imperialism and neo-colonialism quickly surfaced in the course of the Asian crisis. Thereby it was often gently overlooked that some countries eagerly accepted the IMF's money in order to put their economies back on their feet again, but refused the attached controls. Funding from the World Bank is also often welcome to finance projects, but reports to audit the usage of the funds are understood as illegitimate interventions into national sovereignty. However, without sensible controls no national economy, nor any business or political organization can work. The resort to out-dated charges only leads to additional tensions. That is least useful in a globally networked economy, the sole aim of which must be to generate more wealth for all.
No country, not even the rich West either, should be allowed to say goodbye to its past. However, if we acknowledge that the world is on the threshold of a new, common future, then permanent mutual accusations are of little help. A Europe which extensively destroyed itself during the first half of the last century had to realize that only cooperation could lead the way to a new beginning. A similar, only bigger new order, which shall organize the world economy to everybody's advantage, lies now ahead of us.
Europe can play a leading role in this process of change, as after the painful experiences of the last century, when the idea of extreme nationalism discredited itself in dreadful and inhuman ways, the model of Europe in its federal variety seems to work. Certainly, the Americans sometimes smile at European integration moving at a snail's pace. Sometimes they are upset, too, that not all developments correspond to their interests. But Europe moves, and within the last fifty years has moved, with determination in the direction of a culturally pluralistic but economically unified community of nations. The often crticized social security systems are not necessarily an obstacle for Europe, but rather insurance for its citizens that the economic returns will be enjoyed by all and not just a few.
If today criticism against unrestrained capitalism grows, then that is also to Europe's credit. This has nothing to do with a new form of dominance exerted by the West. Rather, it represents the quest for an answer to the old question: "What is man and how can he distribute the sources of his wealth justly?"

Global integration at breathtaking speed
In the last couple of years the impression has grown that economic developments no longer evolve step by step, but rather take big leaps. Of course, this is not helpful in creating trust. In addition, we are subject to accelerating changes in corporate governance and political management. Corporate returns are maximized in order to boost stock prices. A common strategy to achieve this is to concentrate on core competencies, i.e. to sell off and outsource those parts of the corporation with low yields. In any case, thousands of jobs are lost. Aiming to increase short-term profits, the big competitors in each sector merge or take over smaller ones. Such mergers and acquisitions in most cases do not involve the transfer of hard cash, but are usually financed through the exchange of equity. Initially, a further loss of jobs is the result. Increased returns come in only later; that it come in at all. Statistically, more than sixty per cent of all mergers flop due to incompatible corporate cultures. At first, there is no new value created in the form of new ideas or new products. However, the virtual value increase in the form of risen share prices is enormous. Most of all that feeds the array of lawyers and bankers structuring the deals. At the same time, the public enjoys the false security of bubbling stock markets. In the USA this has led to an alarming increase in private sector borrowing, as everyone wants to have a share of the bonanza.
The growing density of work means excessive demands on people. In addition, an ever higher degree of automation remains as the only means to further increase productivity. All this leads to high stress for the social security networks intended to support those that lose their job in the course of corporate restructuring. At the same time, an enormous redistribution of wealth is taking away place within the countries of the West: way from the mature industries towards the new, which stimulate the imagination of investors with the help of gigantic promises for the future. It is a historical milestone that AOL only because of the inflated value of its shares is able to buy a big conglomerate like Time Warner. As this system can only function if constantly new markets are opened up, a truly global economy is in the making. At the same time, a vicious circle of increasingly virtual values is emerging.
The USA has been living with a changing consciousness of its citizens for quite a time now. The negative impacts of a restructuring economy have been balanced by the optimism of the rising stock markets and the growing supply of jobs. During the eighties the country strode through the rock bottom under immense psychological stress for the nation. Now it is accustomed to rapid change and has learned to deal with it. Thereby the traditional "corporate man" has dropped out of the race. Nowadays everyone cares for his or her own sake, showing loyalty only to him or herself or at best to his or her family.
A similar development is only starting in Europe. The wave of corporate mergers and acquisitions just has gained momentum. As a result, much overdue structural change will be accelerated. The first signs are showing up concerning the service sector and the growing number of start-ups financed through venture capital. Despite a certain spirit of optimism, not everything new is accepted without criticism by Europe, especially regarding new biotechnological applications. At the same time, highest attention is paid to the environment. As for the exploding information technologies, Europe follows the rationale: "Information alone is not sufficient. We also have to understand the content and participate actively."
In comparison to the USA, the countries of Europe with only very few exceptions have a different view on the role of the state. Thus there exist different constitutions and different understandings of how to live democratically. High expectations towards the state to supply certain services are the rule. However, the insight is growing that the upper boundary has been reached with fifty percent state involvement. As a consequence, the pressure on governments to hurry along privatization is increasing.
Because of its complex inner structure, Europe today resembles the future trade bloc of Asia more than the economic monolith of America does. Increased cooperation should be the consequence, although the USA will continue to play the main role in Asia because of military security.
Economically, Europe does not fall back. The old dame sometimes only takes some more time to contemplate. For years Europe won the prize for innovation, but the prizes for commercialization regularly went to the USA and Japan. Now Europe has to invent itself anew, and it does this thoughtfully with full consciousness of the risks for the community of its member states, in case no viable long term social contract will be achieved.
More and more it becomes obvious that soaring stock prices are no longer compatible with high job security. This situation is apt to increasingly polarize capital and labor. Happily, the necessary social changes are hardly questioned. However, criticism arises concerning the uneven distribution of resources, increasing automatization marginalizing the human being, and the creation of a society shaken by envy and mistrust. The growing disparity of incomes we see in the USA is neither acceptable for Europe nor the social structures of Asia.
However, the wish for a just world will not hinder capital to flow into those investments with the highest return. On the contrary, it would be a mistake to encumber capital with a social component, even in its highly speculative and risk-taking form. Nevertheless, a new way to distribute the increasing returns from capital must be developed. That does not apply for pure capital investment where risk and return are more or less balanced. Where capital and talent in combination generate the actual value added, a way to fairly redistribute rewards to talent has to be found, or any economy runs the risk that talent concentrates itself only on short-term profit and dries out in other productive areas. The concept of talent has to be sufficiently broad here. Just because teachers are paid by the state that does not mean we can do without their talent. The same is true for doctors, nurses and a lot of other professions.
The emergence of this new society creates new global challenges most of all for the rich in this world. At the same time it offers the chance for a new beginning for the educated and motivated irrespective of their country of origin. A dilemma exists for those that are neither equipped with enough capital or talent to escape the vicious circle of poverty through their own power. As long as the human being is the subject of economics, the poor have to be supported, with measures more effective than just spending one percent of the rich nations' GDP. Once the human being is made the object of economics, we have lost more than simple a few percentage points of development help funds or remission of debt.

What are the future challenges?
A kind of world economy will certainly be unavoidable. Surely, the claim that the West again is crafting the rules will then be made by many. However, in the long run, neither the concept of the "West" can be retained, nor can be assumed that in the future the influence of the nation state will be as dominant as it has been in the past. The supranational organizations will be strengthened. They will have to be increasingly able to exert influence through regulations, in order to avoid excessive shocks like the Asian crisis. The attacks on the WTO in Seattle, primarily with the justified claim for "no taxation without representation", i.e. no influence without legitimization, show that we are on the right track.
Here the issue of a world-wide agreement on a basic concept of democracy, from which we are still miles away today, quickly arises. Democratic conduct not only consists in exerting the right to vote, but also demands the universal acceptance of some basic rights, without which the right to vote is at best used as a fig-leaf. Societies that are reluctant to advance the process of democratization often like to use the argument that their peoples are yet politically immature. Especially in Asia the necessity of a special Asian way is often stressed. Predominantly, this means the gradual move away from one party systems or military government towards more democracy. The reasons for such a directed transition consist mostly in fears of the blunders of excessive individualism and the desire to preserve traditional family values.
Whether a directed development will even be possible in the future is doubtful. The world-wide revolution in communication strengthens the wish for a new society, which is based on individual achievement. The effects of China's one-child policy on its future social structure are difficult to predict, but a strengthening of the traditional family values is rather no to be expected. The increased emergence of high-technology enclaves in otherwise underdeveloped regions points to a social change that can not be stopped. Accordingly, the general ability to direct the whole process through governmental institutions has to be questioned even in Asia. Pointing to Singapore, whose three million people are comparably easy to govern, is of no help. For states like Indonesia and China, a more complex framework of conditions has to be considered.
In the emerging new world economy the importance of work will have to be newly defined. It would be fatal to play off the haves against the have-nots. With or without university education, workers can no longer be expect to proceed their entire careers at a single employer. To change careers ten to twelve times should be considered normal today. This does not have to be a disadvantage. However, personal mobility, life-long learning and essentially private provisions for retirement must be seen as necessary preconditions. Of course, this affords a new way of thinking and again supports the already well-off and top-performing. This sharpens the question for social security mechanisms for those who are not equipped to go along at such a high-performance pace.
Presumably, the position of women will further be strengthened, too. This not only applies to equal rights in rich countries. In poor countries, women will have to get more powers of self-assertion and more hearing for their vested interests, too. That is a good idea and possibly saves us one or the other conflict, but requires a new kind of partnership between the genders. Especially traditional societies will have deal with this for decades.
New technologies will furthermore, and even more rapidly than before, transform the globe. The discussion about biotechnology, most of all in Germany, is absurd. Progress can not be reversed. The attempt at political demarcations is bound to fail from the very beginning. The only remedy here would be to focus on basic research in order to be able to appraise the risks of new technology. In addition, as with any other new technology, a new sense of responsibility has to be enforced. In that respect, new technologies are not different from already established ones. If in doubt, the well-being of human beings should always be valued higher than economic return. It is true, that new important questions are raised by the opportunity to change our genetic make-up through the use of biotechnology in the future. However, these are not economic, but rather ethical in nature. In any case, we are at the threshold of a new chapter of human development.
Not only because of this development humanity needs a new notion of humanism. It must not be that in the age of the Internet human beings are increasingly often subordinated to computers and their functioning. We need more education about ourselves and our inducements. In order to foster the self-fulfillment and social responsibility of individuals we need a modern rather than a backwards oriented education. And we need the security of and an enhanced consciousness about our individual basic rights. This is not supposed to advocate a Pax Americana, but rather to appeal to the individual not to subject oneself to the institutions entirely. Most of all we need mature citizens, not only in rich regions, but also in developing countries.
However, we have a long way to go. The USA is already several years ahead of the general development, and many a one is dreaded of the possible excesses of this future society. Nevertheless, America's cultural dynamics also appeal to more and more people. Europe can be a fair mediator between the interests of the Third World to grab a growing share of world GDP, and the restless dynamics of the USA. Maybe Europe's colonial past will even help to build the bridges. Bridges through common language, familiar institutions and the opportunity to share common education not only for a privileged elite.
Europe's cultural diversity and the autonomy of its states will remain despite progressive integration. It offers a model for other regional economic communities, whose member countries do not want to sacrifice their specific cultural, religious and social traditions to an anonymous world economy. That is true especially for Asia with its thousands of years old culture, but also for South America and Africa, as soon as the basic requirements of a stable social environment are in place there.
However, precondition for an active role as mediator is Europe's independence of the USA and the willingness to take the interests of the Third World into consideration. If we succeed in discussing global issues like the preservation of nature, the control of financial flows and a minimum of basic human rights under conditions of mutual trust, we could at least improve the efficiency of the mammoth international conferences. If we additionally succeed at least occasionally in giving the common good more weight than the national self-interest, we would come one step closer to a functioning world society. When we look at the lives of our children and their friends, we can already see the outlines of a global society. Irrespective of their country of origin they study at the same universities. Their courses deal with global topics. They marry or live together without the family having substantial influence on their decisions. They will earn their living where they can contribute their varied interests and talents. Given the growing flows of global tourism, the emergence of huge global conglomerates and international financial interdependence, we inevitably are on the path to a world society, whatever the result may look like.
We forget too easily that only a few decades ago China was in the midst of a suicidal cultural revolution, Eastern Europe was behind the iron curtain and the Asian Tigers were closer to poverty than to the wealth they enjoy today. Great efforts are still necessary to prevent the past from repeating itself. In order to master the future, the willingness to cooperate is essential. The USA and Europe are accelerating their development into multicultural societies. Not because that is so much fun, the burden on the individuals is enormous, but because there is no alternative. Those who have to uphold the future society have no other choice than to address the growing complexity. The force to change does not affect only rich countries. Because of these changes, great social upheavals are to be expected. In order to master these, the idea of some kind of world government does not seem too absurd. For the first time in history, we are all sitting closely together in one rocking boat.