As I walked the halls and sat in the conference rooms of the International Monetary Fund (IMF) and the World Bank during their annual meetings this past weekend, I had an increasingly sinking feeling. It became ever more evident that the people who run the global economy are irresponsible stakeholders who grasp neither the economy’s ...
As I walked the halls and sat in the conference rooms of the International Monetary Fund (IMF) and the World Bank during their annual meetings this past weekend, I had an increasingly sinking feeling. It became ever more evident that the people who run the global economy are irresponsible stakeholders who grasp neither the economy’s problems not what to do about them.
The best lines of the weekend were delivered by China Investment Corporation head Gao Xijing in the course of a panel discussion on the crisis of the euro and the EU. After first cautioning the audience not to laugh, Gao explained that Chinese democracy is presently working better than European democracy which he described as too democratic (He carefully explained that he knows westerners think China is autocratic, but that’s because they don’t understand the extent of the consultative mechanisms in China.) and thereby threatening a global financial meltdown because it is having great difficulty in bringing about the only solution (a euro bond and a unified financial system) that can save the EU from disaster. He went on to explicate the European problem as a matter of the people in northern Europe who work 80 hours a week fearing the people of China who work 100 hours a week and being unwilling to underwrite the people of southern Europe who work only 25 hours a week and who retire at age 50. That’s it in a nut shell.
Gao was followed on the stage by IMF Managing Director Christine Lagarde and World Bank President Robert Zoellick who famously wrote a few years ago that China must become a "responsible stakeholder" in the globalization system as organized and run by the IMF, World Bank, World Trade Organization (WTO), G-7, G-8, and G-20. Gao’s comments clearly indicated who the Chinese think is being responsible and irresponsible, but that issue was raised in a more indirect but also more fundamental way by a question from the audience to Lagarde and Zoellick. The question was whether there is a danger of rising protectionism that could turn the present global economic crisis into a disaster of Great Depression-like proportions. The answer from both leaders was a strong "no" with both noting that while there have been a few exceptions most countries have not raised any significant trade barriers in response to the crisis.
While that may be true it also completely misses the point and the fact that it does shows you why there doesn’t seem to be any light at the end of the IMF/World Bank/WTO tunnel. Protectionism in these discussions is always treated as something that constitutes a retreat from previous liberal positions and the re-imposition of tariffs and other trade barriers that had been negotiated away. What is never addressed is the multitude of barriers, currency manipulations, industrial and indigenous technology development policies, cartels, state owned enterprises, and discriminatory informal administrative measures that suffuse the economies of many of the world’s leading economies. Of course, this protectionism can’t be rising because it never fell. So Zoellick and Lagarde ignore it. The IMF, in particular, is supposed to be the keeper and defender of the integrity of the global currency system, yet it has done virtually nothing to prevent massive use by many countries of currency undervaluation as a kind of export subsidy that undermines the reduction of trade barriers negotiated in WTO tariff cutting rounds.
The fact is that global economy today is highly protectionist. Does anyone think that the virtual absence of foreign cars — especially Japanese cars — from the Korean market is the result of free trade, or that Europe’s lack of a significant trade deficit with Asia in steel is due to the openness of its markets, or that GE is transferring its advanced avionics technology to a joint venture with China’s state owned AVIC because China’s market for avionics is a virtual replica of Adam Smith’s free market? Of course not. These anomalies all arise because of various forms – some quite sophisticated — of protectionism.
It is precisely these forms of protectionism — mercantilism, if you will — that have played a major role in precipitating the crisis in which we currently find ourselves because it is this protectionism that gave rise to and fed the enormous, chronic, unsustainable global imbalances that are the background music to the crisis.
Maybe instead of proudly claiming no "rise" in protectionism, Lagarde and Zoellick ought to actually call for a bit of one as a way of off-setting or even jump starting negotiations to reduce the Himalayas of existing protectionism.
Clyde Prestowitz is the founder and president of the Economic Strategy Institute, a former counselor to the secretary of commerce in the Reagan administration, and the author of The World Turned Upside Down: America, China, and the Struggle for Global Leadership. Twitter: @clydeprestowitz
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