Re: ``globalization'' and poverty

["Canova, Timothy" <CANOVA@xxxxxxxxxxxxx>]

Dear Barkley,

Yes, but that's my point:  the kind of free trade that we get with NAFTA and
the FTAA is one which emphasizes free capital mobility (particularly hot
money, portfolio capital).

For instance, NAFTA Article 1109 requires that each Member country "permit
all transfers relating to an investment."   Article 1139 defines investment
as including equity securities and certain marketable debt securities.  In
addition, Chapter 14 of NAFTA provides for a gradual tolerance for, and
liberalization of, foreign ownership of financial institutions and services.
By mid-1998, at least seventeen subsidiaries of foreign banks were operating
a brisk business in Mexico (a result of Annex VII(B) of NAFTA).

NAFTA also coincided with Mexico's membership in the Organization for
Economic Co-operation and Development (OECD).  The Bank for International
Settlement's (BIS) risk-based capital requirements, known as the Basle
Accord, put a zero weighting on credit risk for the central government debt
of all OECD countries (which by mid-1994 included Mexico).  Therefore, at
the time of the Mexican peso crash, banks from around the globe could hold
Mexican government debt securities without providing any capital reserves
for credit risk.  The OECD-BIS stamp of approval was certainly a premature
inducement to free flows of in a particularly volatile form of portfolio
capital.  All this combined with the restructuring of Mexico's debt from
bank loans to "Brady bonds" contributed to the peso crisis of 1995 by
increasing the short-term nature of Mexico's exposure -- in this way a
qualitatively and quantitatively more dangerous environment than had existed
pre-NAFTA.

My point is that capital account liberalization is a central feature of
today's trade liberalization regime -- in fact, it's been a central aspect
of trade liberalization for the past two decades.  Such free trade in
currency and capital has fueled the enormous expansion of hot money flows
and made the peso collapse all but inevitable.  (David Felix and many others
have documented the enormous increase in such speculative capital flows).

The devaluation/depreciation of the peso, the IMF structural adjustment
(which includes austerity, including cuts in agricultural supports) were
entirely predictable; and each had the immediate effect of slashing living
standards and wage levels drastically, and increasing debt burdens.

The Salinas policy of cutting agricultural protection in the 1980's must
also be seen as part and parcel of the IMF model which was imposed on Mexico
through repeated IMF Letters of Intent throughout the 1980's.  But the
financial collapse stemming from capital account liberalization and foreign
speculation in the Mexican bond markets certainly had the effect of
intensifying those IMF-supported solutions.

Only two months ago Turkey started to permit unlimited trading of its lira
in international currency and capital markets.  Two weeks ago, the lira came
crashing down -- a victim of the same dynamic forces of currency contagion
that have crushed currencies throughout Asia, Latin America, South Africa,
and Russia.  Turkey, hat in hand, came to the IMF for emergency assistance,
which is coming only after Turkey took action to actually implement 15 major
changes to its financial and economic system, including a plan to make the
central bank more unaccountable, allow the lira to float freely on
international markets, reduce government spending, and privatize state-owned
companies -- the entire menu of IMF bad medicine.

There's free trade in goods, but there's also free trade in capital,
currency, and financial services.  The latter kind of free trade is akin to
throwing lots of fuel onto an already simmering brush fire.  You are
certainly right to warn of the hypocrisies and dangers of US and northern
trade positions.  But we should not ignore the way that FTAA could quickly
increase the dangers to every Latin American member in an exponential way.

Tim Canova



Timothy A. Canova
Assistant Professor of Law
University of New Mexico School of Law
1117 Stanford Drive N.E.
Albuquerque, New Mexico  87131

Tel:  (505) 277-5654
Fax:  (505) 277-0068
e-mail:  canova@xxxxxxxxxxx


-----Original Message-----
From: J. Barkley Rosser, Jr. [mailto:rosserjb@xxxxxxx]
Sent: Thursday, May 03, 2001 4:39 PM
To: Canova, Timothy
Cc: Post Keynesian Thought
Subject: Re: ``globalization'' and poverty


Tim,
       The questionable actions by the IMF in
Asia, of which I do not approve, involved
encouraging free capital mobility and imposing
fiscal and monetary austerity on those countries.
There was nothing involving free trade involved
at all.
      It is true that since NAFTA has come in
there has been no net improvement of real
per capital income for the median citizen.
But, this is largely because there was a collapse
of the peso in 1995 with a huge one year recession.
Such collapses have happened in the past, and,
although one can blame that one on NAFTA, the
evidence as I read it has it that it has more to do
with capital liberalization than with trade liberalization.
Since 1995, the Mexican economy has been
growing very rapidly.
      There has been a negative effect of NAFTA
on the very poorest in Mexico.  The very poor sector
that has been negatively affected is the corn (maize)
growing sector in the old communally owned and
traditionally cropped ejidos.  Their protection has
been removed, and poverty rates in that sector are
now upwards of 50 percent.  However, the data
I have seen (Nora Lustig) suggests that most of the
increase in the poverty rate in that sector occurred
in the 1980s, before NAFTA came in.  President
Salinas in particular had policies of reducing
subsidies and aid for the ejidos and altering their
traditional tenure status.
Barkley Rosser
----- Original Message -----
From: "Canova, Timothy" <CANOVA@xxxxxxxxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Sent: Thursday, May 03, 2001 2:16 PM
Subject: Re: ``globalization'' and poverty


> See: Paul Lewis, "World Bank Says Poverty Is Increasing," N.Y. Times, June
> 3, 1999, at C7:  the number of people living on less than one dollar per
day
> rose from 1.2 billion to 1.5 billion between 1987 and 1999.
>
> In addition:
>
> David E. Sanger, "U.S. and I.M.F. Made Asia Crisis Worse, World Bank
Finds,"
> N.Y. Times, Dec. 3, 1998, at A1.
>
> Mark Landler, "Grim Assessment by U.N. of Economic Slide in Asia," N.Y.
> Times, Dec. 3, 1998, at A8 (reporting that the International Labour
> Organization reported dramatic worsening in social and economic conditions
> throughout Asia).
>
> David E. Sanger, "As Economies Fall, the I.M.F. Is Ripe With
> Recriminations," N.Y. Times, Oct. 2, 1998, at A1.
>
> Thomas Friedman also makes a *specific* point that anyone who opposes the
> proposed Free Trade Agreement of the Americas (FTAA) is in favor of
keeping
> the poorest people poor.  If we look at the specific provisions of FTAA we
> will see that it is modeled after NAFTA.  Has NAFTA lifted the average
> standard of living in Mexico?  No.  NAFTA's provisions for free capital
> mobility have arguably exacerbated Mexico's dependence on portfolio
inflows,
> made the peso more susceptible to its inevitable fall in 1994-1995, and
let
> Mexico into the embrace of yet another IMF structural adjustment plan.
>
> Friedman is a complete TINA ("There Is No Alternative").  He sees our
> choices in dichotomous terms:  either we accept the specific form of free
> trade embodied in NAFTA and FTAA or we go down the road of protectionism
and
> autarchy.  Taking an historical perspective, Western Europe did not
recover
> from WWII devastation by going down either road.  Rather, Western Europe
> recovered with the help of public capital transfers (Marshall Plan
grants),
> and behind a wall of currency and capital controls.  Western Europe did
not
> achieve currency convertibility until the late 1950s or capital account
> liberalization until the 1990's.  Soon after the latter, the currency
> contagion can be said to have started in Western Europe in the early and
> mid-1990's.
>
>
>
>
>
>
>
>
> -----Original Message-----
> From: Alan G. Isaac [mailto:aisaac@xxxxxxxxxxxx]
> Sent: Wednesday, May 02, 2001 9:29 PM
> To: pkt@xxxxxxxxxxxxxxxx
> Subject: Re: ``globalization'' and poverty
>
>
> > "Alan G. Isaac" wrote:
> >> It would be helpful if you would contest *specific*
> >> points he makes rather than reiterating your easily
> >> anticipated disagreement with his general stance.
>
> On Wed, 2 May 2001, Henry C.K. Liu wrote:
> > I did just that, if you only bother to read the next sentence:
> > "Freidman talks more like a political propagandist than an economist.
> > The poorest parts of Africa benefit least from trade not because of a
lack
> > of political freedom but because of the legacy of centuries of Western
> > imperialism that left "nations" that continue the imperialist
> > partition of Africa.  The notion that "freedom" is necessary for trade
is
> > spurious, unless freedom is defined within the distorted context of
> > neo-liberalism.  There is no freedom in Saudi Arabia, by Western
> > standards, yet SA is very rich from oil trade."
>
> Let's compare Henry's comments, which sound ``more like a political
> propagandist
> than an economist,'' as he says, with the specific point of Friedman's
> that he seems concerned to deny:
> >    if you actually
> >    look around Africa you see that the countries
> >    that are the most democratic, where the people
> >    have the most freedom to choose --- South Africa,
> >    Nigeria, Ghana --- are the most pro-trade, the most
> >    integrated in the world economy and the most
> >    globalized. The countries that are led by
> >    dictators, are the least open and where the
> >    people have the least freedom to choose --- Sudan,
> >    Zimbabwe, Liberia, Libya etc. --- are those most
> >    hostile to globalization, openness and trade in
> >    goods and services.
>
> So Henry has not spoken against Friedman's actual point at all.
> Indeed, Friedmand is speaking to some basic political economy
> considerations that ought to interest anyone on this list.
>
>
> On Wed, 2 May 2001, James R. Olson, jr. wrote:
> > Proponents of globalization like Thomas Freidman seem to prefer to keep
> > their discussions of the subject on a high and theoretical plane.
Palast
> > deals with the real actions that are being taken in the name of
> > globalization.  The disconnect between the theoretical claims and the
> > actual policies is illuminating.
>
>
> Like Henry, James prefers not to deal with the actual points in
> Friedman's editorial. For example, Friedman writes:
> >    Last year this same anti-globalization gang, in
> >    its most shameful hour, tried to block
> >    Congressional passage of the African Growth and
> >    Opportunity Act --- a bill enabling Africa's
> >    poorest countries to export textiles to the U.S.
> >    with little or no tariffs, which is critical for
> >    creating lots of low-skilled jobs. Eventually the
> >    bill squeaked through. The early result?
> >    Madagascar's textile exports to the U.S. are up
> >    120 percent, Malawi's are up 1,000 percent,
> >    Nigeria's are up 1,000 percent and South Africa's
> >    are up 47 percent. Real jobs for real people.
>
> I am unable to consider this a ``a high and theoretical plane''.
> Indeed, it is much more concrete than Palast's piece.  (Which is not
> to claim that Palast makes no contribution to the discussion, although
> Palast's discussion of IMF attitudes toward capital flows is a bit dated.)
>
> I confess I am baffled why anyone on this list would be surprised to
> learn that economic interests faced with import competition like to
> foster ``anti-globalization'' sentiment.
>
> Alan Isaac
>