Download Politics of Globalization

Politics of Globalization
Political Economy of the Global South
Prof. Tyson Roberts
Does Globalization Promote
Democracy?
Bhagwati: Yes
• Directly: Rural farmers can bypass dominant
classes and take produce directly to market
thanks to modern information technology
State-run marketing boards enabled
the state to exploit farmers in the
1960s-70s
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Today, farmers & fishermen in India use computers &
cell phones to bypass middleman, get higher prices
Does Globalization Promote
Democracy?
Bhagwati: Yes
• Directly: Rural farmers can bypass dominant
classes and take produce directly to market
thanks to modern information technology
• Indirectly: Globalization => Economic
Development => Social Development =>
Democratization
Source: PWT & Polity IV via QoG; Year: 2007
Does economic development really
lead to democratization?
• Most countries with high income level and a
large middle class are democratic
• But authoritarian regimes that deliver
economic growth are supported by middle
class
– Brazil in 1970s, China today
• More on economic growth and democracy
next week!
“democracy is constrained by globalization, even
as globalization promotes it”
(Bhagwati p. 96)
Why might globalization constrain
democracy?
Clues from “Our Brand is Crisis”?
Why might globalization constrain
democracy?
• The majority of most countries in the Global
South are poor
• Poor people, given political power, may want
to expropriate/redistribute property from the
rich
• This can lean to capital (physical and human)
outflow
• In order to prevent capital from fleeing,
democracy may be sacrificed
The political trilemma of the global economy
(Rodrik 2011)
Democratic politics
Hyperglobalization
“Golden Straitjacket”
Nation state
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Hyperglobalization
• Elimination of all trade barriers
– Tariffs, quotas, subsidies, standards favoring local
labor
• Elimination of all capital controls
– Currency exchange, FDI, financial securities
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In Global North countries, increased exposure trade
leads to higher social spending to address disruption
However, many Global South countries do
not have the capacity to do this
• How did globalization affect the masses in
Bolivia?
• Was Bolivia unable to use government social
spending to address disruptions?
• If not, why?
Argentina’s attempt to harness
(hyper)globalization for
economic growth
Argentina introduced convertibility
(including currency board) to kill inflation
Domingo Cavallo
“a man of action”
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Out with the old, in with the new
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One source of foreign exchange was rapid privatization to foreign firms,
sometimes using unconstitutional emergency decrees
(Saba and Manzetti 1997)
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Many firms repatriated profits, continuing pressure on the peso.
International crises & strong dollar forced Argentina to raise
interest rates to maintain peg, raising the cost of capital
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The high cost of capital made borrowing expensive
The overvalued exchange rate made exports expensive
The economy shrank, the government adopted austerity budget
Depositors got nervous, began to pull money from banks
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Government limited withdrawals
Argentinians were not pleased
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Dollarization abandoned, peso lost 75% of its value
Savings and purchasing power decimated
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Argentinians were not pleased
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Over time, lower borrowing costs & cheaper exports helped the
economy (in spite of default reputation costs) until the start of
the global financial crisis
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ISI policies and commodity prices enabled growth for
some time but it was unsustainable. Inflation, capital
flight, followed by new capital controls
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Where did Argentina go wrong?
• Pegging to the dollar, with full convertibility,
was a risky strategy
– Stronger dollar => stronger peso => lower exports
=> lower growth
– Full convertibility doesn’t allow for capital controls
• Capital controls were a successful part of
Bretton Woods that the IMF now agrees can
be useful
The political trilemma of the global economy
(Rodrik 2011)
Democratic politics
Hyperglobalization
“Golden Straitjacket”
Nation state
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How hyperglobalization impinges on
democratic choices
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•
•
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Labor standards
Corporate tax competition
Health and safety standards
“Regulatory takings” – regulations that favor
domestic over foreign producers
• Industrial policies in developing nations
Morales thus far has been successful in compromising
globalization in favor of redistribution
The economy in Bolivia has been
growing under Morales …
Mostly because of gas revenues
Despite Morales’s nationalization policies, investors are
happy to invest in gas opportunities – and Morales is
happy to accept the FDI
Morales’s government uses the funds
to invest in public spending
Just as Global North countries do
Resulting in income growth, reduced
poverty rates, etc.
WTO and Democracy
• WTO agreements can trump democratically
passed laws
• For example, WTO ruled against US in meatlabeling case
• In developing countries, WTO restrictions can
block developmental strategies such as infant
industry protection
• However, the WTO can also promote economic
development – e.g., Brazil won coffee subsidy
case against US; China won tire case against US
Conclusions
• Globalization brings economic benefits:
– Increased trade, increased access to capital or
investment opportunities
• However, globalization can also be disruptive
– Cheap imports destroy some jobs
• And globalalization constrains governments
– To attract and retain capital, the government has
less discretion to meet voter demands for
redistribution, etc.
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Conclusions
• Wealthy democracies with strong state capacity
(often in Global North) can address disruptive
effects of globalization with social spending
• Some Global South countries can afford such social
spending, but not all => tradeoff between
globalization and democracy
• Globalization is necessary for strong long-term
economic growth, but hyperglobalization often
undermines democracy; instability harms growth
– Argentina: convertibility law => voter revolt
– Bolivia: Gas capitalization => voter revolt
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