World starts to agree on braking money flows
The global financial crisis that began in July 1997 was the start of a gloomy, embarrassing period in the pin-striped world of international economics. Experts and officials had to acknowledge that they first failed to see what was coming and then made bad things worse.Skip to next paragraph
Subscribe Today to the Monitor
But now that the crisis seems to be abating in some places, these economists have shaken off the criticism and begun to spin gleaming new theories from the lessons learned in Thailand and other severely affected countries.
It's I-can-see-clearly-now time, in short.
This debate is in part an attempt to pull something useful from the wreckage of several once-emerging economies. But it's also an attempt to establish new global economic ground rules for the beginning of the 21st century.
That's why Japan, long irked by America's post-cold-war push for worldwide free markets, is vigorously encouraging the new discussion.
Japanese officials seem eager to seize the opportunity to promote their economic thinking, which emphasizes the need for governments to guide and control what markets do.
With the support of Japan's Ministry of Finance, the World Bank convened a conference in Tokyo March 1 and 2 to discuss two innovations in post-crisis economic thinking. The first - the call for a "global financial architecture" that could prevent crises caused by sudden shifts in the worldwide flow of money - has been under discussion since last year.
The second is just off the copier. World Bank President James Wolfensohn proposes a more comprehensive approach to development than the checkered attempts of rich countries to help poor countries get a little richer themselves.
Linking aid to effective government
Mr. Wolfensohn says he wants to broaden the idea of development to include the promotion of clean government, the creation of effective justice systems, and other issues that aren't strictly economic but directly affect nations' economies.
What links these two ideas isn't immediately obvious - global finance and international development are typically discussed in separate forums. But Wolfensohn argues that the push for new international financial regulation ought to be accompanied by consideration of development.
Another tie between the two topics is Japanese interest in them. Eisuke Sakakibara, Japan's vice finance minister for international affairs, says that steps toward a new financial architecture are the necessary response to a crisis caused by unrestrained capital flows. "Please don't misunderstand," he adds. "We think the market is the single most important institution that we have at this moment. What we have criticized is what could be called 'market fundamentalism,' " his term for US economic policy in recent years.
Japan, the world's leading donor of development assistance, also appears to be lining up behind Wolfensohn's proposal. As a nation constitutionally barred from exercising power through military force, Japan has long sought to raise its international stature by promoting and funding improvements in other countries, particularly in Asia, so development is a topic Japanese officials take seriously.
Bank officials took pains to clarify that Japan had no role in the origin of the proposal. "I think that if the Japanese government supports the 'comprehensive development framework,' it is going to be because they think it is a good idea and not as a matter of international policy [in] either confronting or agreeing with the US. We do not yet know what the US thinks," says Wolfensohn.
The bank president says his proposal is occasioned by the crisis but motivated by the realization that the world is not winning the war on poverty. "We have been losing," he says. "The number of poor people is rising ... inequity is increasing not diminishing."