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Al-Ahram Weekly 18 - 24 February 1999 Issue No. 417 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 18 - 24 February 1999 Issue No. 417
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Features Special Travel Living Sports People Time Out Chronicles Cartoons Letters Self-criticism in Switzerland
By Mahmoud Abdel-Fadil *The topic of this year's Davos Forum, which met from 28 January to 2 February, was "responsible globality". The very choice of subject reflects the present climate, dominated as it is by the "crisis of globalisation". The Asian, Russian and Brazilian crises and the financial and social damage which they generated, not simply in their own backyards, but around the world, have suddenly made the idea of a single global society, or at least a global economy, seem very real.
Prior to these crises, people were forever extolling the advantages of globalisation and speaking of the need to rush to catch up with the train. Ever since the inception of the annual Davos meetings, at least until last year, the conference topics were essentially geared to promoting globalisation and its mechanisms, to keeping the train rolling. Indeed, the title of the 1996 Davos meeting was "Sustaining Globalisation". And indeed, what else could one expect? The Davos Forum itself is conceived as one of the principle means by which the world elite can facilitate and intensify the "trend of globalisation".
But now, instead of stoking the engine, everyone is trying to work out where the brake lever is. The crises that shook the global financial order in 1997 and 1998 were the first storms to buffet this brave new economically-unified world. As such, they opened the door to a revolution of doubt and scepticism. This is why Davos, this year, was largely devoted to a critical review of the current shortcomings of global market mechanisms and to reflections as to how it might be possible to reduce or protect against their more detrimental effects.
In his paper, Jeffrey Sachs, Director of the Harvard Institute for International Relations and the Forum's major economist, held the IMF responsible for intensifying global financial panic, and thereby exacerbating the financial crises of the past 12 months. In order to counter this phenomenon, he said, international financial relief programmes should be redesigned. Unfortunately, Sachs' assessment was simply in keeping with the current trend, which is to identify a single scapegoat. Only the target varies -- some preferring the IMF, others "investors and hedge funds", "governments and policy makers" in the crisis-ridden countries or even "rampant corruption". The fact is, however, that all these factors have had a part to play in producing the present crisis. Any radical solutions, therefore, must seek to rectify all the relevant processes, as well as the behaviour of the fundamental players in the international economic arena.
An interesting feature of Davos this year was the workshop on "Casino Capitalism", which in effect turned into an extended interrogation of the notorious financier, George Soros. The term "casino capitalism" was first formulated by Keynes in his General Theory of 1936. It refers to that frantic form of financial speculation that generates a "bubble economy" floating on top of the real, or material, economy, and disconnected from concrete questions of everyday profit and loss. Yet, while in Keynes' day the volume of such speculation was relatively modest, the activity of these gamblers has since expanded enormously, and is now valued at several times the volume of global trade in real goods and services. Because of the threat such speculation poses to the globalisation process, Soros called on participants to support all international and regional efforts to formulate practical rules for its regulation. These would include introducing stricter control mechanisms to ensure greater "transparency" and closer monitoring of both overt and concealed speculative operations.
However, US Treasury Secretary Robert Rubin took the opposite tack, urging national leaders not to resort to restrictive or protectionist measures to protect their economies from the risks of the open market, in spite of the current crisis. Rubin, along with US Vice President Al Gore, specifically criticised countries such as Malaysia for introducing protectionist customs' measures and restrictions on the movement of short-term "hot" assets. As is his wont, Malaysian Prime Minister Mahathir Mohamed hastened to condemn the US stance, accusing Washington of itself applying precisely those measures for which it was criticising the developing countries, in order to cushion its own economy against possible shocks.
The discussions also brought to the fore sharp divisions between the US on the one hand, and Japan and Europe on the other. The US refuses, at least in theory, to countenance government intervention to alleviate the impact of financial fluctuations and remains adamant that fully open and deregulated markets are the only way forward. In Europe, however, the balance of power has shifted towards the centre-left. As a result, governments are ever more inclined to favour a certain amount of interventionism at the global level to help tame the vicissitudes of the financial markets. No sooner had Rubin returned to Washington, than he had once more to announce American opposition to European attitudes -- this time, to the suggestion by British Treasury Secretary Gordon Brown that a new international committee be created to monitor the global economy and act as an economic "early warning station".
If the industrialised nations are beset with such differences, there is virtual unanimity among the countries of the Third World that the globalisation process poses severe challenges to their well-being. As a result, they want to see the international financial order reformed to ensure greater financial stability and greater equality between participating nations. This was the theme of President Hosni Mubarak's speech to the Davos Forum, in which he reflected on the bitter sense of unfairness pervading emerging markets -- a sense that there must be somewhere some fatal flaw, if a mere market fluctuation is able to erase development gains won by many years of arduous effort.
Mubarak also spoke of the growing scepticism among developing countries as to the efficiency of "open" financial markets and, consequently, the possibility of achieving "equal growth" at the global level. In particular, the Egyptian president argued, if the new financial order is to be a fair one, the task of shaping it cannot itself be a one-sided business. Rather, both the industrialised nations and the countries of the developing world must all put their heads together and work in concert towards this aim.
* The writer is a professor of economics at Cairo University.
