Leave Proposal for writing new book on IPE. Basic outline of proposed manuscript with Stephen Golub. Selected chapters as forecast, October, 2001.
Outline of Chapters. We envision that the monograph will have five chapters: an introduction on the evolution of the world economy in recent decades, three chapters covering the major topics in the world economy mentioned above: trade, finance and development, and a conclusion which summarizes our analyses and recommends improvements for international organizations and national governments.
1. Introduction. The international order since World War II has involved ever more rapid changes in the scope and speed of economic activity, an evolution that can be roughly divided into two main periods:
i. 1945-1973: with the ascendancy of the United States and impetus from the war and depression, the creation of the International Monetary Fund (IMF), World Bank, and General Agreement on Tariffs and Trade [the World Trade Organization's predecessor] marked the foundations of a truly global economy. This period, aside from strains and exclusions of Cold War barriers and conflicts, was marked by relative stability and improving prosperity throughout the world. Within an imbedded acceptance of substantial liberalization for trade and financial movements, there was still a generally held belief that a strong state role was appropriate for administering both domestic and international economic relationships.
ii. 1973-2001: this period, on the positive side, was marked by continued growth of international trade and investment, growing integration of many emerging markets, the collapse of communist doctrines and socialist economies and the spread of global production strategies; it also saw the growth of an interdependence that allowed for spreading financial crises and economic stagnation with some countries experiencing declines in domestic production, increased inequality of incomes and growing discontents. Throughout the World, moves towards market liberalization, privatization, deregulation and other reductions in the role of the state has been greeted with mixed appraisals. The results of accelerated globalization upon economic performance and political stability have become the central elements in debates about reform.
iii. Future: the introduction will conclude with analytical distinctions such as those between public and private goods, formal and informal [or unregulated] markets, and various legal entities created for shaping outcomes, such as firms, non-governmental organizations (NGOs) and states. We will begin to develop our core argument that open markets are beneficial but only in the context of adequate provision of public goods. Much of the rest of the book will be to refine this perspective, exploring cases that both support and challenge it.
2. International Trade. The economic principles of comparative advantage, and the post-War trade liberalization rationalized by these ideas, played an important role in shaping our modern international economic system. This basic argument of liberalism underlies analyses of economic and political recommendations for the "debordering" of states as a path to global gains. To a large extent, worldwide experience has validated these principles and arguments. As growth in international trade exceeded global production, countries which participated in the global economy tended to perform much better than those that closed themselves off. A number of East Asian developing countries, in particular, experienced phenomenal export-led economic growth.
Nonetheless, resistance to and critiques of free trade have multiplied in recent years. The increasing inequality both within and between countries is the most glaring problem. In the rich countries, and especially the United States, international trade has contributed to the widening disparities between the wages of skilled and unskilled workers. In Africa, Eastern Europe and elsewhere, some countries have failed to grow despite repeated bouts of structural adjustment and trade liberalization. Meanwhile, grave international environmental and health problems have been largely ignored. Although reactionary and often simplistic claims of the anti-globalization camp are mistaken in focusing their attack on principles underlying trade liberalization, there are truths in their complaints. Special interest groups, such as the pharmaceutical industry, and governments that cater to these interests, sometimes exercise excessive influence on the WTO and other international organizations.3. International finance. International financial integration has occurred at an even more pronounced pace than international trade. As for international trade, economic analysis points to important gains from free movement of capital, financial, physical and human: its overall effect promotes international risk-sharing and the provision of funds from capital-rich to capital-scarce parts of the world. And as liberalization has been practiced, financial openness has provided gains to many countries. Nonetheless, there are adverse effects of unrestricted capital movements, especially visible in the case of short-term "hot money." Repeated financial crises in emerging markets, such as the Asian crisis of 1997-98 and the current problems of Argentina and Turkey, underline the prospective instability of contemporary huge capital flows and the inadequacies of the international supervisory framework. Most immediately, the terrible events of September 11 have reminded us that insufficient monitoring of the international financial system increases the scope for money laundering by terrorists, criminals, and corrupt government officials.
4. Third-World Development. In the 1980s and 1990s, often at the behest of global financial institutions, particularly the World Bank and the IMF, most of developing countries turned sharply away from protectionism and state intervention in markets in favor of neo-liberal, conservative macroeconomic policies that emphasized free trade, privatization and less government. The continued hardships in Africa and the formerly Communist countries, however, lead us to propose, with others, a deeper assessment. It is becoming increasingly clear that the solution for countries with weak state capacity is not simply less government intervention, but better government. Our view is that the so-called "Washington Consensus" of the 1990s is durable in its arguments for trade liberalization, ending of inefficient state-owned enterprises and subsidies, and similar advice urging that market forces provide signals and incentives, but that this prescription, standing alone, devotes insufficient attention to the government's role in providing essential public goods such as fundamental law and order, a reliable legal system, health, education, and financing for a well-functioning physical infrastructure. Ultimately, it is up to each country, with it unique history and circumstances, to find a satisfactory path towards better and adequate governance. Donor institutions, the World Bank in particular, can assist in correcting such state failures.
5. Conclusion. A recurrent theme of the monograph is the tension between anti-globalization protestors who fail to appreciate the logic or benefits of open markets in providing a prosperous and peaceful world economy and the partial analyses of neo-liberal analyses that assume markets exist independent of governance, while systematically under appreciating the benefits of public goods that private markets fail to provide. Institutional analyses help us understand how to balance market efficiencies with the valuable provision of public goods such as the environment, education, and health. Indeed well functioning markets require information and often regulation, although of a less bureaucratically intrusive sort which has been practiced internally and externally by many governments, especially in the developing world. Contrary to much conventional wisdom, globalization is not inconsistent with a strong state. In fact, it demands it. It is failed states that have made the globalized world so dangerous and unjust. Effective national and international state action is essential for a viable liberal international economic order.