Democratic instability, investment confidence


DAVOS, Switzerland -- It took two political men, America's Henry Kissinger and Britain's Chancellor of the Exchequer Gordon Brown, to remind the World Economic Forum that the economic policies promoted by the international trading and financial communities clash with the democracies' political policy of promoting stability and democracy.

The economic program is radical and disruptive. It demands replacement of the economy that exists with a new system of internationalized industry and society, subordinated to the norms of an implacable (but infallible) market.

This revolutionary program is apparent in Asia and threatens to happen in South America.

Severe costs

The program automatically undermines or destroys the traditional economic structures of backward countries and draws workers into the internationalized industrial sector, at severe cost to indigenous agriculture and artisanal enterprise, to their values and ways of life.

If foreign investment is withdrawn, and the internationalized sector collapses, the program requires that these people be cast adrift. Are they supposed to go back to the farm? The farm is paved over, the old workshops abandoned, and the forest has been stripped and burned.

The political consequences can be devastating, as Indonesia currently demonstrates. The policy's internal contradiction is institutionalized in the contrasting mandates of the World Bank, concerned with social improvement and political stability, and that of the IMF, applying narrow fiscal and economic criteria to societies in trouble, with the political domain outside its responsibility.

The IMF has been named the scapegoat -- even if it was only obeying orders. When Larry Summers, U.S. Deputy Secretary of the Treasury, attacked what the IMF has been doing, the message has been delivered. The U.S. Treasury has clean hands; the IMF did it.

The IMF's deputy director, Stanley Fischer, was moved to a bitter response. His defense underlined how narrow are the criteria by which the world economy is currently managed, and how ingenuous the political assumptions behind them. The chairman of the New York Stock Exchange, Richard A. Grasso, made an institutionally self-congratulatory speech to the Davos audience in which he emphasized that what the new world is all about is "investor confidence."

The poor of this world, the backward nations which want to develop, have only to create investor confidence. This means that they must convince investors that they can make more money in the poor countries than they can make in rich countries with highly developed regulatory systems and tough competition, and also convince them at the same time that the money they make will be perfectly safe. The idea is to eliminate the downside.

You may have read in economic theory that high return is linked to higher risk.

The message the New York Stock Exchange wants delivered is different. The most telling criticism that has been made of the IMF is, of course, that it has tried to meet that need to spare the international investor the inconvenience of risk by arranging for other people to assume the consequences of his imprudences.

The United States remains the unfettered market's great defender, but no longer commands much confidence in its ability to deliver on its words.

Mr. Summers and Charlene Barshefsky, the U.S. Trade Representative, were notable for their uncompromising messages on how others should behave.


They explained the correctness and immutability of U.S. policy, listed what the U.S. required from Japan, Russia, the European Union, and the developing nations, and when -- and seemed to imply that if these instructions were not followed, those in error could expect to be crushed.

Their listeners, however, were commenting on the Clinton Administration's reactivation of the U.S. "Super 301" program for protecting American industry and trade, the xenophobia and protectionism of the Congress Washington's failure to pass Fast Track trade negotiating authority, and the simplistic and ignorant nostrums being promoted by the likes of that formerly influential American, Newt Gingrich.

William Pfaff is a syndicated columnist.

Pub Date: 2/16/99

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