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Subject:Issues in International Political Economy no. 10
Date:Mon, 16 Oct 2000 06:53:00 -0700 (PDT)

This message contains the text of Sidney Weintraub's "Issues in International
Political Economy" October 2000. To go directly to the web version, click on:

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Rebecca Tunstall
Research Assistant
William E. Simon Chair in Political Economy
Center for Strategic and International Studies
p- 202-775-3123
f- 202-466-4739

October 2000, Number 10

Sidney Weintraub

This is my curmudgeon commentary. Its barbs are directed against
exaggeration, double talk, and scapegoating of important institutions engaged
in global economic development.

I do not intend, in what follows, to disparage the importance of labor unions
in protecting the rights and benefits of workers, or to argue that the United
States is a protectionist nation, or to doubt the valuable work that is done
by multilateral institutions. My purpose, rather, is to highlight a few
points: the hypocrisy that exists when imports of goods and services from
poor countries are restricted while simultaneously insisting that this
exclusion will benefit workers in those countries; the inconsistency of
promoting democracy in developing countries even as we neglect the interplay
of foreign trade, economic well-being, and political outcomes; the
perpetuation of the fiction that multilateral institutions are independent
actors that behave supranationally in ways that conflict with the desires of
their powerful members; and the misconception that institutions such as the
World Bank provide a service by promising more than they can deliver.

The leaders of organized labor in the United States opposed NAFTA and the
grant of permanent normal trading relations with China. They are also against
a free trade area of the Americas and opening a new round of negotiations in
the World Trade Organization. The stated basis for this opposition is that
the United States should not further liberalize its import structure until
other countries accept core labor standards (right of association, power to
organize and bargain collectively, prohibition against forced labor, minimum
age for employment of children, and acceptable working conditions), and that
punishment should be meted out in the form of U.S. import restrictions when
these standards are violated.

Is this protectionism or a socially conscious initiative to upgrade labor
conditions in poor countries? The leaders of poor countries insist that they,
too, want to raise labor standards, but cannot do this if their export
earnings are restricted. The practical result of the U.S. position is that
meaningful trade negotiations are not going forward. Even though labor
leaders insist this is not about protectionism, it sure looks like
protectionism. (Former senator Dale Bumpers has noted that when politicians
say something is not about money, it is about money.)

World Bank analysis has shown persuasively that the developing countries that
have made the most progress in raising incomes are those that have opened
their markets and engaged actively in world trade. However, there are still
antitrade advocates who advise today's developing countries to look inward,
just as many of today's developed countries focused first on internal markets
and protecting their producers against foreign competitors. This was
Alexander Hamilton's advice to the newborn United States. It was the
development pattern for Japan. It was Ra?l Prebisch's advice to Latin
American countries. Although this advice may have had some relevance once
upon a time for countries with large or potentially large internal markets,
such as Brazil, it surely does not for countries with tiny markets, like many
in Latin America, the Caribbean, and Africa. The lesson of post-World War II
development history is that countries that looked outward, such as those in
East Asia, grew rapidly, while those that looked inward, as in Latin America,
were relatively stagnant.

Is the advice to poor countries to look inward in the modern and increasingly
globalizing world sincere, or is it designed to prevent competition in the
U.S. market? Why advise developing countries to emulate the world's losers
rather than the winners?

A dominant aspect of U.S. foreign policy today is to promote democracy
wherever this seems feasible, such as in Latin America and the Caribbean,
East Asia, Africa, and the transition nations of the former Soviet Union.
This is a laudable effort. At the same time, however, the most severe U.S.
trade restrictions are directed against imports from developing
countries-such as sugar and textile products from just about everywhere,
orange juice from Brazil, and steel from many developed and developing
countries alike. U.S. foreign aid now represents 0.1 percent of our gross
national product, placing it at the bottom of the list of donor countries.
Our slogan used to be "trade, not aid." Now it is more like "not too much
trade and very little aid."

It is extremely difficult for poor countries to establish stable democracies.
Achieving this obective is made even more complex by the inherent
contradiction in U.S. policy-preaching democracy even as we limit the ability
of these countries to obtain the resources necessary to make democracy

During the past year much invective has been hurled at key multilateral
institutions established at the end of World War II. This was evident in
Seattle late last year when protesters tried to disrupt the meetings of the
World Trade Organization (the successor to the General Agreement on Tariffs
and Trade, which came into being in 1947), and again last month in Prague
during the annual meetings of the World Bank and the International Monetary
Fund. It is not clear why the demonstrations were directed against these
institutions rather than at the countries which determine the institutions'
policies. They are not supranational bodies, but rather creatures of their
masters, the world's most powerful national governments.

It is troubling when nongovernmental organizations exercise their right of
free speech by preventing delegates to international meetings from exercising
their right of free speech. We should not be troubled, however, when serious
nongovernmental observers act constructively to change practices they find
offensive. The IMF has long been ultrasecretive about its analyses and
findings; this is inappropriate for an institution that obtains its funds
from national governments (i.e., from taxpayers). The WTO's
dispute-settlement procedures, which are an important part of that
organization's work, have themselves been overly secretive. Many of these
practices are changing, and the outside critics deserve much of the credit
for this greater openness.

The president of the World Bank, James Wolfensohn, has exerted great effort
to make the bank's work more transparent. At the same time, he exaggerates,
incorrigibly so. He implies that the bank, under his leadership, has
"discovered" that economic growth, while necessary, is not sufficient to
achieve widespread social development. There are many examples of this
attitude. Only one will be cited: "The old approach of an exclusive focus on
growth as the elixir for all the world's problems is thus too circumscribed"
(op-ed by Wolfensohn and Joseph Stiglitz, Financial Times, September 22,
1999). Wolfensohn's emphasis on alleviating poverty is praiseworthy, but the
trashing of all the foreign aid practitioners who preceded him for not
understanding the multiple aspects of development is egregiously inaccurate
and ungracious.

The World Bank's World Development Report 2000/2001 is devoted exclusively to
"attacking poverty." It approaches this theme citing three areas for action:
creating opportunities, empowering the poor, and providing greater security
against the risks the poor face. The study contains a mountain of data and
undoubtedly will be a valuable reference source for years to come. What it
fails to do, however, is to explain how the World Bank can achieve these
goals, particularly empowerment, which it admits depends on "the interaction
of political, social, and other institutional processes." Is this the role of
the World Bank?

Issues in International Political Economy is published by the William E.
Simon Chair in Political Economy at the Center for Strategic and
International Studies (CSIS), a private, tax-exempt institution focusing on
international public policy issues. Its research is nonpartisan and

CSIS does not take specific policy positions. Accordingly, all views,
positions, and conclusions expressed in this publication should be understood
to be solely those of the author.

, 2000 by the Center for Strategic and International Studies.