Globalisation: demanding change, preserving hope

Prime Minister António Guterres, leader of the Portuguese Socialist Party and Chair of the Committee on Economic Policy, Development and the Environment, sets out a path for change

Issue 4, Volume 47, 1998

We are now faced with the major financial crisis of recent decades. Is it a surprise? I would say no. I think that what we have been facing was predictable and eventually unavoidable. Why? Because we have a global economy, but that global economy is based on unregulated global markets.

In each one of our countries we have a market economy, but that market economy works within the framework of a regulatory state and of an organised civil society. The same does not apply to the world economy. There is almost no authority to regulate it, and there is not such a thing as the global civil society organised worldwide.

I would say the great challenge which is faced by socialists is to be able to promote the regulation of the global society and economy, that is to globalise regulation in the world economy.

We are not starting from zero. In our New York Congress two years ago we adopted a platform for the global economy, one that rejected the ultra-liberal view in which the globalisation of profits comes together with the globalisation of poverty, a view that disregards social rights and the cohesion of all societies.

We presented a platform based on responsibility, on the creation of a global system of collective responsibility. A global system of collective responsibility able to combine a global economy with justice in international economic relations among the different regions of the world, with preserving the social cohesion in our societies, with protecting environments, with being able to promote the welfare of our societies.

This platform was not based on vague, abstract ideas. It was based on detailed, concrete proposals to reform the world economy. Concrete proposals that now we can present again to the world public opinion showing our views about the present crisis and about regulating the world economy.

The view we had two years ago seems prophetic today. We were right. I would say that if our proposals had been adopted by the international community, we would not be facing the present crisis. A crisis that is not only a financial one, a crisis that has already created enormous economic difficulties and unemployment in different regions of the world, even economic chaos in some countries. I am speaking of course about Asia, of Russia and other parts that have been most severely hit.

But there is a major risk, the worst could be yet to come. That major risk is that the financial crisis could become an international, global economic crisis, in other words a global recession in future years.

So I think we have two main tasks. First of all to fight the crisis, to prevent the financial crisis becoming an international, global economic crisis: a global recession. Secondly, to take advantage of this opportunity to convince world public opinion, to convince governments and institutions that it is time to regulate the world economy to avoid crises like this one.

Now first of all, we have an urgent need to fight the crisis, to avoid a world recession. There the major responsibility lies in the developed world. We need global coordination of economic policies in the developed worlds to boost demand, to promote growth, employment and international trade.

That must combine very specific demands. The first has to be put on Japan. Japan is today probably the biggest burden that drags the Asian economy to the bottom. Japan must be forced to reform its financial institutions and to boost its economy in order to help to solve the world problems of today.

But in North America and Europe we need to harmonise the actions of governments, of central banks and of international institutions to make sure that we have combined, efficient fiscal policies that can respect stability and promote growth. That we are able to create the environment to bring interest rates down and to provide liquidity to the emergent economies that are facing the biggest challenges of today. That will also require a bigger role for the international financial institutions, for a World Bank and an International Monetary Fund, IMF, with more initiative and more resources, but most importantly with a different approach to the problems faced by the countries that are helped by those institutions. A new conditionality, not based on financial orthodoxy, but based on the real needs, social and economic needs of the countries that those institutions are trying to help, in order to allow them to avoid the extreme difficulties they are facing.

We have to recognise that in today's world there are some points that are particularly relevant if we want to avoid the crisis spreading. I would say that the two key countries now are Brazil and China. And it would seem that the international community must mobilise all its resources to help Brazil and China to avoid a major currency crisis, because if those two currencies crumble, I think that there will be a domino effect with devastating impact on the world economy in the months to come.

So the developed world has a major responsibility, and what emerging economies ask of the developed world is to boost demand, increase growth, generate employment and create better conditions for international trade to develop and for new opportunities to be given to the emergent economies facing enormous threats and difficulties today.

Now Europe has an essential role to play at this moment. Europe has a very strong responsibility in boosting demand and in promoting world economic growth. That responsibility is even stronger when we know that there is a dominance of socialist governments in Europe. We have been able to achieve coordination in active employment policies, we have been able to achieve political and economic coordination for stability, to fight inflation and to create the euro. We are now agreeing to look at economic policy coordination to promote growth, but we have not yet been efficient in promoting it. And we still lack European-wide instruments to boost demand, to promote European-wide investments and social policies based on euro bonds or other kinds of European-wide financial instruments.

There is a risk that Europe will not be able to face this challenge and I would say there is an enormous risk for socialists, because the biggest blow that the socialist movement could suffer would be to have a socialist-dominated Europe in 1999 or 2000 with even higher unemployment.

So we must succeed in promoting the effective economic coordination in Europe. In doing this together with other parts of the developed world in order to make sure that we avoid the financial crisis becoming an international economic crisis and a world recession. We socialists are particularly targeted in this and we hold a particular responsibility in avoiding this.

Now how to fight the crisis, but also how to take advantage of this opportunity of the ultra-liberal view's complete failure to promote global reforms in the world economy. First of all in the financial markets, where we need transparency, effective supervision both at international and at national levels, where many of our institutions still lack the capacity to do that; where we need to impose codes of conduct and minimum standards on the operators in the markets in order to be able to control the worst effects of devastating crises; where we need to seriously consider new instruments, for instance the Tobin tax that was proposed several decades ago creates a financial instrument able to moderate speculative movements, and also to provide resources to international financial organisations, resources that could be used to help those emergent economies to face their threats and problems.

We would need to reform the institutions. First of all to provide leadership to the world economy, and it is obvious that the G7 has not been able to provide that leadership. So I would like to join my voice to all those that have been advocating the creation of a United Nations Economic Security Council comprising not only the G7 countries but also representatives from different regions of the world, so ensuring adequate leadership in the conduct of the world economy.

Reforms also of our operative institutions. First of all the Bretton Woods system. We need to clarify the role of the World Bank and of the IMF. We need to increase political accountability and political control of its decisions and I refer to the recent suggestion of the French government to replace the interim committee of the IMF by a political council with effective decision-making capacity.

We need to change the system of allocation of Special Drawing Rights in favour of less developed countries. We especially need, and I would emphasise it again, a new conditionality, because countries need to be helped, and they need to be helped based on conditions that must not only address the fulfilment of financial constraints, but must take into consideration their economic needs and especially the need to put a special emphasis on social policies, on education, on training, on health, on urban development, on protecting the environment. These are basic conditions that should be taken into consideration by the IMF and especially by the World Bank. Not only conditions related to the state of public finance or to the inflation rates or to other instruments, which are the only ones that these institutions normally impose on the countries that they try to support.

To reform the Bretton Woods must be a major objective and together with the members of our economic committee I would like to suggest that a working group is created among us to study in detail the reform of the Bretton Woods system which would be able to present proposals to the different governments in which members of the Socialist International are in power to make sure that we can do active things in the next months. In this way reform could really be fulfilled and the present situation overcome in which we discuss a lot, but we really do not do much in changing the present institutions.

Reforming the Bretton Woods system, but also the World Trade Organisation where a social clause is absolutely essential, does not mean reintroducing protectionism, forcing countries to have the same levels of salaries or the number of hours worked in each week. A social clause must combine of course a ban on child labour, on forced labour, with the need to respect social rights. Trade union freedom, the capacity to collective bargaining, the right to strike, being able to combine free trade with fair trade is also to globalise democracy and to globalise respect for human rights. This is the basic precondition for free trade to be fair trade in the world today.

And of course we need to combine the introduction of a social clause in the World Trade Organisation with the strengthening of the International Labour Organisation, ILO. The ILO has done enormous work in creating standards, the problem is that the majority of countries do not respect the standards they approve within the ILO organisation. We must strengthen the ILO and its capacity to have an active role in promoting the standards that the ILO approves and that the countries accept when dealing with it.

To regulate globalisation also needs strong regional organisations, but not simply free trade organisations, as the liberals promote. Regional organisations that are truly organisations of social, political and economic integration, like the European Union. They should be able to coordinate their policies among themselves and cooperate in an open, inter-regional world in which every region of the globe is able to preserve its own social model and to promote free trade in a regulated manner.

Now all this has to be done, all this must be done and we have now a major opportunity to convince public opinion of the need for change, because the global financial crisis is there and the risks of it becoming a global recession still remain. But let me recall those countries of the world which were already in deep crisis before all this happened, namely the poorest countries in Africa and in other parts of the world, which were already in enormous distress before the financial crisis started in Thailand. Countries that face terrible problems in which institutions crumble, in which the economies are in disarray, in which you have tremendous social problems with health, famine and death.

All these countries need a world commitment, a commitment of developed worlds, a commitment of the international organisations. First of all to support rebuilding their institutions, to support the software of democracy in their countries, to support the creation of conditions of good governance and having this as a basic precondition to giving them new access to financial markets and relieving their debts, to reintegrate them in the international trade flows and to finance adequate programmes for them to face their basic social problems again in education, in health, in urban development and in the environment.

To be able to face the problems of these countries, to be able to give them another opportunity, to be able to give them hope for the future. Hope is an essential pre-condition for democracy to be stable, and this is, I think, a major political and moral responsibility of us all. If we fail in this moral and political responsibility, I do not think we even deserve to be called human beings.