Globalization: Washington Consensus, Jay Mandle's Reformed Globalization, and Phelps Minimum Wages - Essay Example

___________ ____________ ____November 2006 Globalization Globalization began with the improvement in communication and information technologies and was helped along by the lowering of entry barriers to businesses and freeing of the cross border flow of capital. Dismantling of communist political regimes in the erstwhile iron curtain countries hastened the path of globalization and made way for the emergence of the bulkiest chunk of international market viz.China, for all global marketers alike. This included top branded goods and services. While globalization was bringing in a radical economic change the globe over it was perhaps gradually contributing to the design of an international bond by unfastening the intra national social bonds primarily in terms of opening marketing interfaces to cultures across the world resulting in comprehension and exchange of elements from other cultures. Thus economic forces enabled international marketing to get energized and, which in turn, set in the challenging assignment of making commercial sense out of cultures to which wares were marketed. Devetak and Higgott explain how globalization has brought about a weakening of an intra national social bond. They further posit that ongoing process of globalization causes constant disruption in existing social bond. It is their view that "under conditions of globalization, assumptions made about the social bond are changing; .... the article concludes that the prospects for a satisfactory synthesis of a liberal economic theory of globalization, a normative political theory of the global public domain, and a new social bond are remote"(Devetak & Higgott 1999). Again, in a slightly different context, Phillip W.Jones makes a statement which is extremely relevant to the definition of globalization in present context. Jones states that," The logic of globalization contrasts markedly with that of internationalism. The latter, with its intrinsically democratic foundation, looks to a world ordered by structures supportive of that functionalism which is embedded in accountability. Globalization, by contrast, implies few logical imperatives in favor of accountability, but rather looks to the pursuit of interest on the global level through the operation of unfettered capitalism"(Jones,1998).According to Jones view international marketing efforts in new cultural milieu would fall in the category of 'globalization' as defined by him. However multinational corporations take a broader view of their international marketing efforts and venture in new international markets only after completing a thorough study of local cultures. New technological developments, improvements in communication, growth in transnational infrastructure and liberalizing of trade and capital flows have enabled entrepreneurs the globe over to deploy and run their capitals chasing markets the globe over. The globalization aligned attitudes of IMF and World Bank are exemplified with clarity by Jean-Claude Trichet, President of the European Central Bank, when he says that," The key aim of today's policy makers has not changed compared to those at the Bretton Woods times - it has been, and still is, global prosperity and stability - but the environment in which we are acting has changed profoundly......Today we are striving for stability of the international financial system in a world of free capital flows with a growing importance of private flows and increasing trade and financial integration"(Trichet, 2004). As Roby says," world-wide output and trade have grown apace with market openings and the rise of efficient global business networks these past 15 years. An entrepreneurial class is energizing once-stagnant command economies" (Roby, 2005). It is at once apparent that this 'entrepreneurial class' is essentially limited in number the globe over and its population effectively determines the contours of globalization. Washington Consensus John Williamson, the person responsible for the phrase Washington Consensus says: "Audiences the world over seem to believe that this signifies a set of neoliberal policies that have been imposed on hapless countries by the Washington-based international financial institutions and have led them to crisis and misery. There are people who cannot utter the term without foaming at the mouth."(Williamson, 2002).The phrase is taken "to refer to the lowest common denominator of policy advice being addressed by the Washington-based institutions to Latin American countries as of 1989." (Naim,1999).Such policies often include-fiscal discipline; a reorientation of public expenditure priorities toward fields offering both high economic returns and targeting evener income distribution,.e.g. primary health care, primary education, and infrastructure ;tax reform (to lower marginal rates and broaden the tax base);Interest rate liberalization ;a competitive exchange rate ;trade liberalization ;liberalization of inflows of foreign direct investment ;privatization ;deregulation (to abolish barriers to entry and exit) and secure property rights. This privatization agenda in pursuit of globalization has come under criticism as Williamson(2002) says," Some of the most vociferous of today's critics of what they call the Washington Consensus, most prominently Joe Stiglitz... do not object so much to the agenda laid out above as to the neoliberalism that they interpret the term as implying. I of course never intended my term to imply policies like capital account liberalization...monetarism, supply-side economics, or a minimal state (getting the state out of welfare provision and income redistribution), which I think of as the quintessentially neoliberal ideas". Jay Mandle's Reformed Globalization Jay Mandle argues that while globalization has benefited the developing countries; however the globalization has an essential adjunct in heavy corporatization of these countries. Such coporatization is invariably absolute and controlling and often results in exploitative use of such vantage position.Labour, environmental laws, for instance are violated in pursuit of production and markets. Jay Mandle, therefore, offers a balancing approach to globalization.Mandle's system attempts a balance between development and bridling of corporate actions through a corporate nurturing programme. A careful balancing is needed in which excessive corporate power is curbed, but doing so does not put in jeopardy the prosperity that large firms help to create. As Mandle (2001) says," With globalization, this problem of balance has become an international one. In the past, individual nations were able to pursue their own balance without giving much consideration to how that same process was evolving in other societies. With the increased integration of global markets, however, this ability to pursue insular strategies with regard to corporate governance has become attenuated. Advances in the technology of information processing, communications, and transportation mean firms increasingly are able to locate production wherever they choose. This new corporate mobility means that if a country attempts to curb corporations by, for example, increasing business taxation or reducing their ability to retrench workers, it could be exposed to a loss of corporate investment." Prof Joon and Free Trade Prof Ha-Joon states that the developed countries press the argument that, in the same way all of them had used free trade policy in order to become rich, they all have benefited from free trade policies welcoming foreign investors; therefore, the developing countries should do the same. Such developing countries by refusing to promote free trade agreements and liberal investment agreements are making a futile attempt to go against the current of history - by trying to walk on an uncharted path of economic development of trade control whereas history has evidenced that free trade promoted economic development in the developed countries. (Ha-Joon, 2003) Ha-Joon proves through analysis of trade policies of developed countries that this was not actually so. The developed countries astutely fine tuned their trade regimes depending upon the capital requirements and that in general they did not used liberal policies towards foreign investment before to reach highly developed status. For instance USA, when it was a capital-importing country, it had all kinds of provision to ensure that foreigners invest in the country but do not control its economy.regulation. Similarly the UK, France, and Germany did not have to control foreign investment until the Second World War, as they were capital-exporting countries before that. However, faced with US forays globally after the Second World War, they used a number of formal and informal mechanisms to ensure that their national interests are not hurt. (Ha-Joon, 2003) Phelps' Minimum Wages Edmund Phelps has proposed a system of wage subsidies. In a minimum wage system with subsidies suppose every worker was to be paid at least $20/hour. A minimum wage would work to simply destroy employment of those had productivities below he minimum wage. They all would simply be laid off. However, if the state were to come forward in support of laborers having productivities below the minimum wage rate in the form of subsidies then, Phelps argues, employment would be protected, wage markets would be stable and production and efficiency would not suffer. The essential idea of a wage subsidy is that if an employer pays a worker a $10/hour salary, the government will give that employer a $10/hour subsidy which it would then pass on to the worker. The worker would make $20/hour, but the employer pays only as much as labor's productivity that is $10/hour and it still makes sense for the employer to hire and jobs are kept intact. If such subsidies are carefully planned and phased out on a sliding scale, so that there are no cut-off effects. Work Cited Devetak ,Richard & Higgott ,Richard.(1999).Justice Unbound Globalization, States and the Transformation of the Social Bond. International Affairs. Volume 75.Page 483. Jones, Phillip W.(1998).Globalization and Internationalism: democratic prospects for world education. Comparative Education.Volume 34. Number 2.pp 143 - 155. Trichet, Jean-Claude.The international financial architecture - where do we stand Speech by Mr. Jean-Claude Trichet, President of the European Central Bank, at the Conference "Dollars, Debt and Deficits - 60 Years after Bretton Woods". Madrid.14 June 2004. Roby, Edward. (2005).Globalization spawns wealth, but not equality as deep poverty persists. The Asian Wall Street Journal.dated 19 January 2005. Williamson, John. "Did the Washington Consensus Fail" Outline of Remarks at CSIS. Washington DC: Institute for International Economics, November 6, 2002. Naim, Moses. "Fads and Fashions in Economic Reforms: Washington Consensus or Washington Confusion" Working Draft of a Paper Prepared for the IMF Conference on Second Generation Reforms, Washington DC: Moses Naim, October 26, 1999. Mandle Jay. Reforming Globalization - Industry Trend or Event ,Challenge, March, 2001. Ha-Joon Chang.Foreign Investment Regulation in Historical Perspective- Lessons for the Proposed WTO Agreement on Investment.Cambridge University.2003. Read More