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Globalisation has become a convenient catch-all for everything many people dislike about the modern world. In truth, it is simply shorthand for how our lives are becoming increasingly intertwined with those of distant peoples and places around the world – economically, politically and culturally. These links are not always new, but they are more pervasive than ever before.

Globalisation gathered momentum after the Second World War and received a further boost in the 1980s and 1990s as many countries – China, Mexico, Russia, India and others – embraced open markets. But there has been a spectacular political backlash on the streets of Seattle and elsewhere. Globalisation is the focus for popular fears about American power, the might of big business, the pace of economic change and a sense of powerlessness in the face of intangible global forces. The debate is increasingly polarised between market fundamentalists and anti-capitalists. But a simple truth has been lost: far from being a single, uniform system that imposes markets and American ways everywhere, globalisation embraces a wide variety of options from which people and governments can pick and choose. Sweden, for instance, is among the most open economies in the world, yet its social democratic society is a long way from America’s.

In his new book, John Plender argues convincingly for radical reform of American financial capitalism. He argues that poor regulations exacerbate financial markets’ intrinsic weaknesses and that poor countries often pay the price for it, but he remains a fan of the American model and believes that Europe should adopt more American ways. His insightful and wide-ranging book is a must for anyone who wants to understand how global finance shapes the world.

Admirers of American capitalism argue that its sophisticated financial markets allow investors to take punts on new technologies and efficiently redeploy capital from failing firms to more productive uses. Yet one country that shares many of its features has singularly failed to match its economic success: Britain. Cut-throat financial markets are no panacea. Nor are they as efficient as supporters make out. The world is

still suffering a hangover from the biggest financial bubble of all time: hundreds of billions of dollars that poured into dotcom-related companies have been wasted. Although Europe was not immune to this mania, America’s excesses were far greater.

The bursting of the bubble has highlighted the system’s many flaws. Most mergers and takeovers destroy value. The incestuous relations between investment bankers, accountants, lawyers, company bosses and fund managers are reminiscent of crony capitalism. Corporate scandals make a mockery of claims that managers serve shareholders’ interests, rather than their own. To satisfy short-termist institutional investors and inflate the value of their share options, bosses gamble with their company’s future to ramp up the share price. Unsurprisingly, trust in the financial system has evaporated since the collapse of both Enron and WorldCom.

Despite the advances of Europe’s single market and the euro, its single currency, Continental capital markets are still much less developed than America’s. Plender thinks this is a weakness – and that Europe should become more like America. Now Europe’s cosy, club-like capitalism is not the stakeholders’ paradise that some portray it as. Nor are the benefits of well-functioning capital markets to be sniffed at. And it is certainly true that many countries in Europe are crying out for reforms to reduce unemployment and stimulate entrepreneurship. But embracing the flawed American model does not look like the solution.

As Plender himself lucidly explains, American-style hostile takeovers may produce narrow financial returns, but at the expense of social stability and the trust and loyalty of employees. Indeed, he argues that the notion that companies should be run exclusively for shareholders sits oddly with the increasing importance of footloose knowledge-workers. The world is awash with capital, but skilled workers are in short supply. Since they ultimately create value, ignoring their wishes will end up making companies – and the economy – worse off. The stakeholder model of capitalism may have life in it yet.

The crisis-prone international capital markets are a particular headache for developing countries. Hot money flooding in and out can wreck their fragile economies. Blaming all this instability on developing countries will not wash. The flaws are inherent in speculative financial markets – and exacerbated, Plender argues convincingly, by wrong-headed rich-country regulations.

The rules that aim to limit banks’ risk-taking, for instance, encourage them to lend too much in booms and too little in busts. Banks that become "too big to fail" are bailed out rather than punished for their recklessness. Central bankers likewise prop up falling stock markets, but fail to intervene to curb their excesses. Far from being impotent, as many anti-globalisers claim, regulators still have a huge – albeit often perverse – influence over markets.

If Plender’s book has a weakness, it is that it overstates the importance of corporate governance and finance more generally. It can therefore give the impression that capitalism is in worse straits than it really is. How capital is allocated – or misallocated – is important. It helps determine the fate of companies and their workers, the size of people’s pensions, and the success or failure of whole economies. But less so than competitive product markets – and free trade – which continue to deliver higher living standards for all. The worry is that capital markets’ failings will undermine trust in global capitalism in general, pushing people to seek false security behind protectionist barriers that would do huge harm to rich and poor countries.

Where Plender’s critique of global capitalism is nuanced and original, Charles Derber’s People Before Profit is an inchoate anti-globalisation rant. Like Naomi Klein, Derber thinks that poverty can be cured simply by giving people more say. Greater global democracy has become the panacea for anti-globalisers, who make a virtue of their lack of understanding of economics. Yet the slogan "people before profit" is empty. For sure, markets are imperfect, and collective action (by governments or others) is often justified; but politics alone cannot tell us how and what society should produce to satisfy people’s needs, as the collapse of the Soviet Union demonstrated. Without markets – and profits – people are condemned to penury.

Derber, a sociology professor at Boston College, senses a "constitutional moment", akin to the birth of the US in 1776 – "a special period in which the rules of the game are up for grabs". Yet his blueprint for greater global democracy is unrealistic and mostly undesirable. A world parliament is a non-starter: 60 million Britons, or indeed 900 million rich Europeans, Americans and Japanese, will not accept being outvoted and taxed – by 1.3 billion poorer Chinese. Derber fantasises about networks of local activists "thinking globally" to frame international rules to protect their communities. But people (and communities) often have conflicting, rather than shared, interests. And except for genuinely global problems such as climate change, uniform rules are generally undesirable in a far from uniform world.

Derber proposes a four-pronged "New Deal for the world" that involves global regulation, redistribution, "decommodification" and participation. He wants, for instance, to affirm "the right of each nation to choose its own development model". Quite right, too: countries should be – and are – able to choose how they engage with the world. China’s economic model differs from neighbouring North Korea’s, South Africa’s from Zimbabwe’s. But he also wants to enforce global labour and environmental standards. So much for allowing each country to choose its own path! International companies, he argues, should not only face the same standards everywhere, they should pay the same wages "adjusted appropriately to the living costs of other nations". But if wages could not reflect differences in productivity, poor countries would receive no foreign investment. Why hire a less productive Vietnamese worker if you have to pay her as much (adjusted for living costs) as a more productive American? Far from earning more, workers from poor countries would end up out of a job.

Paul Kingsnorth, an Oxford-educated former deputy editor of the Ecologist, shares Derber’s world-view. But his book, One No, Many Yeses, is more entertaining. Part travelogue, part voyage of self-discovery through Mexico, Genoa, Papua New Guinea and other places of tension, it is an enlightening guide to the ragbag of anti-globalisation movements.

Kingsnorth argues that anti-globalisers are united by what they oppose. The "one no" of his title is, naturally, globalisation. But they favour a variety of alternatives and lifestyles – the "many yeses". Where the book falls down is in its analysis of globalisation’s alleged ills. "Power is marginalising more people than at any time in history," he claims. Yet according to the UN, the number of regimes considered (however imperfectly) democratic leapt from 44 to 82 between 1985 and 2000, while the number of authoritarian regimes dwindled from 67 to 26.

"The world is more unequal – more unfair – than at any point in human history. This in a nutshell, is globalisation’s story – the rich getting richer, and the poor getting poorer," Kingsnorth writes. In fact, global inequality has been falling since 1980 – witness China’s and other east Asian countries’ catch-up. The proportion of the world’s population living on less than a dollar a day declined from 28 per cent in 1990 to 23 per cent in 1998. Countries that have embraced globalisation have seen remarkable progress. In Vietnam, for instance, of the poorest twentieth of the population in 1992, 98 per cent were better off six years later. Who said globalisation doesn’t help the poor?

Posted 21 Apr 2003 in Published articles

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