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by Walden Bello

Walden Bello from the Philippines is one of the foremost actors in the anti-economistic peoples' movement which demonstrates and reflects, from Seattle to Prague, on the necessity of an alternative, people-based and environmentally sound globalization. This paper was published by our partners of La Oltra Bolsa de Valores (n° 47).

The "Back to Bretton Woods" school of thought puts tougher controls at the global level, in the form the Tobin tax or variants of it. The Tobin tax is a transactions tax on capital inflows and outflows at all key points of the world economy that would "throw sand in the wheels" of global capital movements. Controls at the international level may be supplemented by national-level controls on capital inflows or outflows.

A model of such a measure is the Chilean inflow measure that requires portfolio investors to deposit up to 30 per cent in an interest-free account at the Central Bank for a year, which has been said to be successful in discouraging massive capital portfolio inflows. Among some writers, there is an ill-concealed admiration for Prime Minister Mohamad Mahathir' s tough set of outflow measures, which included the fixing of the exchange rate, the withdrawal of the local currency from international circulation, and a one-year lock-in period for capital already in the country.

In addition to controls at the national and international level, regional controls are also seen by proponents of this view as desirable and feasible. The Asian Monetary Fund is regarded as an attractive, workable proposal that must be revived. The AMF was proposed by Japan at the height of the Asian financial crisis to serve as a pool for the foreign exchange reserves of the reserve-rich Asian countries that would repel speculative attacks on Asian currencies. It was, not surprisingly, vetoed by Washington.

The thrust of these international, national, and regional controls is partly to prevent destabilising waves of capital entry and exit and to move investment inflow from short-term portfolio investment and short-term loans to long-term direct investment and long-term loans. For some, capital controls are not simply stabilising measures but are, like tariffs and quotas, strategic tools that may justifiably be employed to influence a country's degree and mode of integration into the global economy. In other words, capital and trade controls are legitimate instruments for the pursuit of trade and industrial policies aimed at national industrial development.

When it comes to the World Bank, the IMF, and the WTO, the thrust of this school is to reform these institutions along the lines of greater accountability, less doctrinal push for free trade and capital account liberalisation, and greater voting power for developing countries. Like the G-7, advocates of this approach view the IMF as a mechanism to infuse greater liquidity into economies in crisis, but unlike the G-7, they would have the Fund do this without the tight conditionalities that now accompany its emergency lending.

Some people in this school accompany their proposals to reform the Bank and the Fund with a recommendation to establish a "World Financial Authority", whose main task, in one formulation, would be to develop and impose regulations on global capital flows and serve as "a forum within which the rules of international financial cooperation are developed and implemented ... by effective coordination of the activities of national monetary authorities".

In other words, the Fund, World Bank and WTO continue to be seen as central institutions of a world regulatory regime, but they must be made to move away from imposing one common model of trade and investment on all countries. Instead, they must provide a framework for more discriminate global integration, that would allow greater trade and investment flows but also allow some space for national differences in the organisation of global capitalism

As formulated by Dani Rodrik, the current chief economic adviser to the G-22, a grouping of developing countries, the ideal multilateral system appears to be substantially a throw-back to the original Bretton Woods system devised by Keynes that reigned from 1945 to the mid-70s, where "rules left enough space for national development efforts to proceed along successful but divergent paths". In other words, a "regime of peaceful co-existence among national capitalisms".

Not surprisingly, this "Global Keynesian" perspective has resonated well with economists and technocrats from developing countries, the devastated Asian economies, and the UN system - which is well known as a refuge of Keynesians who fled the neoliberal revolution at the World Bank and academic institutions.

Third school

Let us proceed to the third perspective, the one that I call "It's the development model, stupid!" school. Those that we classify as belonging to this school regard the IMF and WTO, in particular, as Jurassic institutions that would be impossible to reform owing to both their deep neoliberal indoctrination and the hegemonic influence within them of the US. Indeed, the world would be better off without them since they serve as the lynchpin of a hegemonic international system that systematically marginalises the South.

The same skepticism marks their view on the possibility of imposing global capital controls or prudential regulations on hedge funds and other big casino players, again because of the strength of neoliberal ideology and financial interests. National capital controls are seen as much more promising, and the experiences of China and India in avoiding the financial crisis, of Chile in regulating capital flows, and Malaysia in stabilising its economy have convinced proponents of this view that this is the way to go.

Like the Global Keynesians, this school would also see regional arrangements such as the Asian Monetary Fund as feasible and workable. Where the proponents of this view differ from the Global Keynesians is the fact that their advocacy of capital controls is accompanied by a more fundamental and thorough critique of the process of globalisation that goes beyond its blasting away legitimate differences among national capitalisms.

Buffering an economy from the volatility of speculative capital is an important rationale for capital controls, but even more critical is the consideration that such measures would be a sine qua non for a fundamental reorientation of an economy toward a more inner-directed pattern of growth that would entail, in many ways, a reversal - though limited - of the globalisation process.

The main problem, from this viewpoint, lies not in the volatility of speculative capital, but in the way that the export sector and foreign capital have been institutionalised as the engines of these economies. The problem is the indiscriminate integration of the developing world into the global economy and the over-reliance on foreign investment, whether direct investment or portfolio investment, for development. Thus while the current crisis is wreaking havoc on peoples' lives throughout the South, it also gives us the best opportunity in years to fundamentally revise our model and strategy of development.

In this process, it would, of course, be ideal to have a more congenial international financial architecture, but since that is not going to happen in the short and medium term, there are two overriding tasks in the area of international finance. The first is preventing the current efforts to reform the global financial architecture from becoming a project to more thoroughly survey, penetrate and integrate the financial sectors of developing country economies into the global financial system controlled by the North.

The second is to devise a set of effective capital controls, trade controls and regional cooperative arrangements that would "hold the ring" as it were to allow a process of internal economic transformation to take place with minimal disruption from external forces.


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