HOW many economists does it take to screw in a light bulb? None. Open markets will do it for them.
Harvard-trained economist Jeffrey Sachs has told this old war horse before but still laughs when he trots it out during a recent speech. As with all enduring jokes, it contains a kernel of truth that many may doubt, but is popular among economists: Open markets are a virtual panacea for the economic ills of nations.
"We are living in an unprecedented global revolution" of expanding democracy, trade, and technology, says Mr. Sachs. "It gives more fundamental hopes to the prospects of economic development than anything seen in the world in the past 200 years."
Swiftly developing international trade rules and technological changes are ripping down economic barriers and shaping a single, global free-trade zone favoring nations that are lowest-cost, highest-quality producers, Sachs and others say. On average, the result is a rising standard of living around the world.
But are governments and citizens prepared to embrace the social costs of becoming lean, mean competitors to fit the vision of a globalized economy?
"If you live in Montreal and compete with someone in Seoul or Bucharest who has the same technology and education you do - but a lower salary - then your salary isn't sustainable," says Kenneth Courtis, a senior economist with Deutsche Bank Capital Markets/Asia. "It's as simple as that."
What happens when this sort of personal-yet-global competition causes standards of living for some less-educated citizens to fall noticeably in countries such as the United States and Canada even as they rise in such countries as Thailand, India, and China? Computer programmers in India will work for $800 a month, for example, Mr. Courtis says.
Confronted by these growing questions, the leaders of the Group of Seven (G-7) industrialized nations, who met June 15-17 in Halifax, only tinkered around the edges of the problems, economists say.
Surface progress toward a globalized open market has been steady. The emergence of the European Union, the North American Free Trade Agreement (NAFTA), and the new World Trade Organization (WTO) all seem to indicate a growing sense of cooperation in line with international law.
Yet, the fish war between Canada and the EU (mainly Spain) this spring and the row today between Japan and the US over cars - both driven by domestic politics - suggest that globalization of the world's economies has reached a fragile stage.
"There are obvious, very critical, and unresolved issues staring us in the face in all the important areas of international economic policy," says Paul Volcker, former chairman of the US Federal Reserve. "Let there be no mistake. There is a large unfinished agenda if we are to make the promise of the recent economic revolution a reality," he told a recent conference of economists and business leaders in Montreal. That unfinished agenda includes finding ways to:
* Confine international trade disputes to multilateral forums like the WTO instead of fighting nation-to-nation with sanctions that could run out of control.
* Address the "social dimension" of globalization by better preparing populations for intensifying competition as world markets open wider - helping them learn to retrain and reeducate themselves - to be "resilient," in the words of one economist.
* Avoid a protectionist backlash against economic globalization and open markets when living standards drop, unemployment rises, and social safety nets are inevitably chopped.
* Limit violent foreign-exchange-rate swings caused by quick inflows and outflows of short-term capital.
Capital flow was one issue the G-7 did address in Halifax. Short-term capital sloshing around the globe in search of the highest return causes volatile, potentially dangerous exchange-rate swings. A trillion dollars changes hands each 24 hours on foreign-exchange and stock markets around the world. This worries leaders.
"Global markets are imposing new dimensions of pressure on national economies and policymakers," said Canadian Prime Minister Jean Chretien in a speech in Montreal prior to the G-7 summit. "While we can try to anticipate these pressures and respond as they emerge, there is no way to control them."
Massive currency devaluations, such as December's Mexican peso crisis, rattled other Latin currencies and Canada's as well. The US and International Monetary Fund provided a $50 billion rescue package to Mexico before the peso stabilized. But the US can't be the lender of last resort, President Clinton has said.
What Mr. Chretien and other leaders did at Halifax was give the IMF new funding promises and new technical accounting tools to spot troubled currencies and economies before their problems get out of hand. That seemed reasonable to world leaders. But economists say it isn't enough.
"Mexico is not the first, and it won't be the last financial crisis aggravated by the increasing amounts of highly mobile capital," Mr. Volcker said in Montreal. "I wish I felt that [G-7 moves to fix the IMF] provided an adequate answer ... but I don't."
Foreign-exchange crises evolving from large-scale indebtedness occurred in Italy in 1974, 1981, and again in 1992. It happened to the United Kingdom in 1976, Denmark in 1980, New Zealand in 1984, and Sweden in 1992. Sweden's government was forced to raise short-term interest rates to 500 percent in a single day to squelch a run on the nation's currency.
Human hardship accompanies such devaluations, as it has in Mexico, where citizens are angry about their suddenly lower standard of living, even though the "crisis" is supposedly passed.
Volcker suggests that smaller countries whose currencies are the most vulnerable adopt Chile's solution of simply barring short-term investment. Other ideas, such as taxing short-term investments, are unworkable, since they are too easy to find ways around, he says.
Sachs, who has advised several nations on the route to free enterprise, recommends an alternative modeled after US bankruptcy law. When currencies melt down because of overdependence on short-term capital that can't be paid back immediately, as happened with Mexico, he proposes allowing nations to declare bankruptcy and seek temporary protection from creditors. "Does it make any sense that Macy's can declare bankruptcy and then get a $600 million loan - but an entire nation, Russia, cannot get similar protection from its creditors?" he asks. "Of course not."
To make such solutions work, however, requires that nations broadly agree upon and follow international law. The creation of the WTO indicates that instituting a framework to protect a country from creditors during a "national bankruptcy" is possible.
But not, Sachs says, when big players choose to undermine the WTO by adopting unilateral sanctions, as the US has against Japan. "The Halifax summiteers must appreciate more than they do the fragility of the world [economic] system," Sachs says. "It is reckless, in my view, for the US to be pursuing its attack on Japanese trade policies outside the [WTO]."
The danger of the short-run perspective, Sachs says, is that world economies are interdependent and affect one another as never before. For example, competition for capital in a globalized economy is increasingly showing vulnerability of debtor to lender nations.
The US may slam Japan today on cars, Sachs says, but it may later wish it had supported the WTO's "rule of law," because the balance of economic power is tilting toward the Pacific Rim. Others agree. "The shift has just started," Courtis says. "And the shift to come is going to be tremendous compared to what we've seen."
By the end of 1993, the dollar value of the economies of Japan, China, and the rest of East Asia was about $5.5 trillion. By comparison, the dollar values of NAFTA and the EU were about $6 trillion and $6.5 trillion respectively.
But a decade from now, East Asia's economy is projected to be the world's largest, bolstered by 55 percent to 60 percent of the world's economic growth, Courtis says. In that period, North America is expected to produce $1.5 trillion in new wealth, Europe about $1.6 trillion, and East Asia about $3.8 trillion.
That, he says, portends a shift in the "center of gravity in world economy" in political as well as economic power. When it comes to reorganizing international financial institutions, East Asia will want more power in the IMF, World Bank, WTO, and the United Nations.
What this shift also means is that the West will eventually have to compete more effectively for capital. And it will have to do this either with higher interest rates that stymie economic growth or by lowering standards of living and cutting social services.
"The huge social-welfare programs have been the glue that has held our political and societies constituencies together during the cold war," Courtis says. "But today, Europe and North America no longer have the means to sustain these."
Citizens will have to fend for themselves more than in the past, says Judith Maxwell, a Canadian economist. Firms that have "trimmed fat" through major layoffs must also pay some of the social costs of becoming internationally competitive - like providing day-care or elder-care centers.
"Market forces unleash cold winds," she says. "The insecurity that arises from those cold winds places a greater demand, both internationally and domestically, for creativity on the part of the state in helping citizens to be resilient - even though, in the final analysis, it is the citizens themselves who have to be resilient."