Qatar 2005

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Information about Qatar 2005

Published on December 28, 2007

Author: Nikita


Slide1:  Managing Globalization Doha, Qatar November, 2005 Joseph E. Stiglitz Columbia University New York Outline:  Outline What is globalization? Why has it become such a topic of concern? The mixed record of globalization The changing landscape of globalization The problems of natural resources Explaining puzzle of oil prices The natural resource curse What is Globalization?:  What is Globalization? The closer integration of the countries of the world as a result of lowering of communication and transportation costs and the elimination of man-made barriers Expansion of the size of the market holds out prospects for increasing standards of living, gains for all But Globalization, As It Has Been Managed, Has Not Benefited All…:  But Globalization, As It Has Been Managed, Has Not Benefited All… Losers in developed countries Competition from low wage workers abroad And increasing threat up the skill ladder Outsourcing Even if only small fraction of jobs can be outsourced, there can be large effects on wages Undermined traditional response to the threat of globalization “We don’t want those low-skilled jobs anyway….” We just need to up-skill Mixed Record in Developing Countries:  Mixed Record in Developing Countries East Asia, the most successful region in the world, has grown as a result of globalization Globalization of technology Globalization of markets Some have benefited enormously from foreign direct investment But they managed globalization on their own terms Slow to open up their markets Many still have not fully liberalized capital markets Did not follow prescriptions of the Washington Consensus Elsewhere, Globalization Has Not Gone So Well…:  Elsewhere, Globalization Has Not Gone So Well… Decline in real incomes in Africa Stagnation in Middle East Failures in Latin America Unemployment rose Fraction of population in informal sector up Growth rates half of what it was prior to 1980 Poverty persists Gap with the advanced industrial countries increased Even true for Mexico, with free access to the U.S. market The Lessons:  The Lessons The Washington Consensus has failed Emphasis on liberalization, privatization, macro-stability (emphasis on price stability) is neither necessary nor sufficient conditions for growth But since the core of Washington Consensus was “opening up markets for globalization,” in many quarters, its failure has led to opposition to globalization The Real Problem…:  The Real Problem… A particular view of the market economy was pushed Which did not even describe U.S. economy U.S. has strong industrial policy Large role of government in financial markets Safety net—social security Macro-policy with emphasis on employment, growth, not just inflation Question: Role of ideology, bad economics, and special interests Policies were those which advantaged particular interests in U.S. and other advanced industrial countries Globalization and the End of the Cold War:  Globalization and the End of the Cold War The end of the Cold war provided an opportunity for redefining international economic policy Could now be based on principles Or it could be based on interests, unchecked by threat of competition from Russia U.S., West chose the latter course With adverse effects for many in Third World The Uruguay Round:  The Uruguay Round Unfair to developing countries Poorest countries were actually worse off Allowed advanced industrial countries to continue levying tariffs four times higher on imports from developing countries than on imports from fellow developed countries TRIPs agreement may stifle future economic growth (kicking away the ladder) Even the worst, deprives developing countries of life-saving drugs U.S. , Europe reneging on commitments made in Doha for a ‘Development Round’ of trade talks U.S. meanwhile increased agriculture subsidies Europe now refuses to open up its markets But agriculture just one of many issues Even if an agreement emerges, it would not deserve the epithet of a ‘development round’ Capitalism: An Efficient System:  Capitalism: An Efficient System But capitalism has inevitable winners and losers And in modern democracy, capitalism is often tempered But internationally, this tempering does not occur Disproportionate role of “special interests” in international institutions Intellectual property in TRIPs At the IMF, capital market liberalization Which finally IMF has recognized is not necessarily good for the developing countries The Changing Global Landscape: Rise of China and India:  The Changing Global Landscape: Rise of China and India Enormously rapid growth Their integration into the global economy is ushering change of historic proportions 2.5 billion people With different factor ratios Enormous adjustments may be required Theory predicts enormously strong downward pressures on unskilled labor in North, growing inequality Potential source of backlash Competition from China and India:  Competition from China and India For the first time, there has been such combination of technology, unskilled labor, skilled labor, and access to international markets by a developing country Even developing own global entrepreneurs (Infosys) China’s success in textiles not based just on low wages Chinese apparel exporters have been able to reduce unit cost by more than 40% between 2000 and 2004 Although labor cost is higher in China than in Bangladesh, Kenya, Cambodia or Madagascar, China is still the least cost producer of clothing - cost saving mostly came from automation of processes, especially from effective sourcing and supply chain management Increasing Role of Asia in the Global Economy:  Increasing Role of Asia in the Global Economy As source of manufactured goods Asia, especially the East Asian miracle countries and India, likely to continue to be the bright stars in the global economy As a source of technology And as source of savings China far larger source of global savings than the U.S. Increasing influence in global geo-politics Increasing Role of Asia in the Global Economy:  Huge savings Ability to buy technology, corporations And access to needed resources New globalization provides them legal framework to do this Unocal case expose U.S.’s unease U.S. cannot stop them in most of the rest of the world Growth of China may provide new check on U.S. But unfortunately, will also provide limits on its ability to push democracy, human rights policies (Sudan) Weak economic performance in the U.S. and Europe, however, is likely to lead to rise in protectionist sentiment Though, as in Europe, protectionism will meet resistance As retailers and consumers will be hurt And even jobs Increasing Role of Asia in the Global Economy China-U.S. Inter-dependence:  China-U.S. Inter-dependence Both countries gain from the economic relationship Argument that China needs the U.S. to buy its goods and the U.S. needs china to buy its treasuries is not fully persuasive China could expand domestic consumption, investment— it has great needs Would other countries be as willing to hold U.S. dollars as China has been? What are consequences of shift of deficit from China to others? Easier to increase consumption than to decrease it U.S. made a major mistake in dealing with the Chinese bid for Unocal Even if some of the arguments about lack of full symmetry are correct U.S. cannot stop China from buying energy assets elsewhere U.S. has shown that it believes ownership/control matters China Being Blamed for U.S. Trade Deficit…:  China Being Blamed for U.S. Trade Deficit… But problem lies in the U.S. macro-economic policy Much larger revaluation would put China in a difficult position Lower prices in rural sectors Rural-urban income inequality will grow– already a major source of concern Will require costly use of government revenues to offset impact on farmers Move to peg RMB to a basket of currencies and the increased flexibility in exchange rate management make sense for China Global Economic Imbalances:  Global Economic Imbalances Huge U.S. trade deficits US$ 617.7 billion in 2004 – a 24% increase since 2003; trade deficit in 2004 stands at record 5.8 % of U.S. GDP Twin deficit problem Largely a result of huge fiscal deficit But related to deeper problem, global reserve system Leading to huge financial instability High level of global uncertainty Related to political uncertainties Middle East instability (Iraq) High and volatile price of oil Eroding confidence in dollar as a reserve currency Moving away from dollar reserves No longer good store of value Exchange rate fluctuations undermine its role as much as inflation would Why American Economists Are Worried About the U.S. Economy:  Why American Economists Are Worried About the U.S. Economy Growth has been sustained by consumption Consumption has been sustained by borrowing against housing Major source of economic growth: Home building increased from 4.25% GDP 1980-2000 to 5.98% Difference equals $200 billion year Generating approximately 2 million jobs Increase in housing prices added $7 trillion ($ 3 trillion if re-mortgage and inflation is taken into account) in wealth during the past five years Adding $150 billion in spending Generating 1.5 million jobs But: High level of household indebtedness Large debt service If primary residence excluded, net worth of median U.S. households declined by 13% during 2002-2004 – from $40,000 to $35,000 If interest rates rise, can consumption be sustained? Greater Interdependence Means..:  Greater Interdependence Means.. Problems in one part of global economic system impact others “That which is unsustainable will not be sustained” The U.S. Deficits not sustainable A Downturn—or even stagnation—in U.S. will have global ramifications The Puzzle of High Oil Price:  The Puzzle of High Oil Price Oil prices soar Yet investments in alternative energies, conservation have not Rising Oil Price Since 2003:  Rising Oil Price Since 2003 Long Term Trends in Oil Price:  Long Term Trends in Oil Price Source: U.S. Energy Information Administration Futures: High Oil Price is Here to Stay?:  Futures: High Oil Price is Here to Stay? Puzzles of Sustained High Price:  Puzzles of Sustained High Price The Futures Market is predicting oil price to hover around $65/barrel during 2006 and 2007 and to remain in the low $60 range till 2009 The oil price increased by more than 40% since 2004 While oil shales – with an extraction cost of $27-$30 per barrel – represents a viable alternative to crude oil in case the price crude oil remain over $40 range The US Office of Naval Petroleum and Oil Shale Reserves estimates there are some 1.6 trillion barrels of oil contained in oil shales around the world, with 60–70% of reserves (1.0–1.2 trillion barrels) in the United States The puzzle – why isn’t sustained high oil price inducing a relatively quick shift away from oil to other viable alternatives – natural gas and oil shales? A Possible Answer: In an Uncertain World…:  A Possible Answer: In an Uncertain World… Risks and uncertainty about future prices make investment in alternative energy sources costly Market takes a short term perspective – price hike is temporary and there is no incentive for investment in innovation Risk of Peace – there is a perception that price of oil will inevitably fall if there is a lasting peace in the Middle East Market also cannot rule out the possibilities of new discoveries of oil deposits Innovations for efficient and alternative energy solutions will require governments to bear the cost of innovation and risk Oil in a Globalized Economy:  Oil in a Globalized Economy Supply and Demand Shocks The spare capacity in crude oil production is dwindling – most of the oil producing countries are running on full capacity Production in Iraq remains lower than the pre-invasion level – current production level is about 1.9 million bpd compared to over 2.5 million bpd in 2002 Even if Iraq reaches full capacity production, the impact on the world oil price will be insignificant Demand growth – especially from China and India – will continue to out pace the growth in oil supply Dwindling Spare Production Capacity:  Dwindling Spare Production Capacity And the Demand for Oil is Growing, Albeit at a Slower Rate:  And the Demand for Oil is Growing, Albeit at a Slower Rate Economic and Political Consequences:  Economic and Political Consequences Macro-economic consequences Slowdown in global economy Especially if Central Banks continue focus on inflation High/volatile prices forcing countries to think more about what is required for energy security Worries about distributional consequences Discussion in U.S. of “windfall profits” tax Especially in light of huge subsidies in last energy bill The Resource Curse:  The Resource Curse Paradox: Countries with large endowments of resources have not (on average) done well Many face high levels of political instability Many are not democratic Related to instability of oil prices Exacerbated by pro-cyclical lending Dutch Disease problems Rent seeking/corruption Keys to Avoiding Resource Curse:  Keys to Avoiding Resource Curse How to maximize the fraction of the value of the resources that is available for public purposes Minimizing “diversion” to private interests Whether as a result of public sector corruption Or private sector cheating How to ensure that funds are well spent How to manage macro-economics to avoid Dutch Disease problems Issues involve both politics and economics Keys to Avoiding Resource Curse:  Corporations wish to minimize prices paid Which can sometimes be done by bribing government officials Institutional arrangements can make a difference Transparency Stabilization funds? The design of auctions Design of contracts Resource curse is not inevitable - some countries have managed their resources well Botswana Malaysia Keys to Avoiding Resource Curse There Have Been Problems Even in Advanced Industrial Countries:  There Have Been Problems Even in Advanced Industrial Countries Fire sales in U.S.—reduces government revenues Failure to use well designed auctions Contrast with telecom Alaska and Alabama—cheating on contracts Environmental problems Valdez Alaska The Rate Of Extraction and Usage of Depletable Natural Resources:  The Rate Of Extraction and Usage of Depletable Natural Resources Azerbaijan— 20-25 years of supply IMF recommendation—lower taxes; uniform rate of “spending” out of natural resources Bolivia and Ecuador—resources are about to come online, but the country in recession; education and other budgets being cut drastically to reduce budget deficits Should they be ‘allowed” to borrow against these future incomes to support deficit spending The Rate Of Extraction and Usage of Depletable Natural Resources:  Nigeria—a long history of squandered resources Spending of natural resource revenues leading to currency appreciation Should it now spend all of its revenues? Chile—creates stabilization fund But IMF treats spending out of stabilization fund just like any other form of deficit spending Does this make sense? Bangladesh—limited reserves of natural gas Should it sell natural gas to India? The Rate Of Extraction and Usage of Depletable Natural Resources Political Issues:  Political Issues Angola BP offers transparency (publish what you pay), government threatens to throw country out, other companies support government position Sudan Providing support for a government engage in genocide in Darfur Though some in international community wanted to embrace the government for having stopped its ruthless campaign against the South Would an embargo simply provide others (like the Chinese) who pay no attention to human rights greater scope What pressure should be brought to bear against Sudan? Chad—little economic opportunity other than oil But current government likely to misappropriate funds With funds used to maintain itself in office And worries about environmental damage of pipeline Oil will still be there when a future government takes office Political Issues:  Venezuela Venezuela (also Bolivia, Botswana) demand new contracts Claiming that previous contracts were unfair Sometimes signed by uninformed or corrupt government (with or without bribery) Circumstances have changed (high oil prices) What is a fair and efficient contract? Political Issues Environmental Issues:  Environmental Issues Papua New Guinea major gold mine provides substantial fraction of country’s exports Studies showing that environment damage would be minimal later turn out to flawed No economically feasible way of producing gold and containing the damage Mine has to be shut down Should the mine operator pay for cleaning up the river and the surrounding environment? Or should they just walk away? In the future, what can governments do to prevent this? Environmental Issues:  Environmental Issues Global Warming Major concern of our time Overwhelming evidence Requires curtailing usage of fossil fuels How active should one be in promoting conservation measures? Even if it lowers prices and profits Should but if prices are lowered, usage may not be curtailed—only change in who gets rents Should one argue for quantitative restrictions Is one’s primary responsibility to one’s shareholders ()in which case one might oppose these measures) or to society more broadly. Cartel and Competition Issues:  Cartel and Competition Issues Market economy requires competition Cartels are designed to limit competition Should one support/oppose cartels in one’s industry Raise price Using arguments about “stabilization” Could be used in most other industries Cartels in Oil, aluminum; proposed in steel Many of These Present Conflicts Between Interests of Firm and Interests of the Society:  Many of These Present Conflicts Between Interests of Firm and Interests of the Society Why cannot we simply rely on firm’s maximizing its market value Adam Smith’s invisible hand suggests that doing so will ensure economic efficiency Modern economic theory helps explain why Maximizing shareholder value does not lead to economic efficiency Adam Smith’s Invisible Hand…:  Adam Smith’s Invisible Hand… Adam Smith’s Invisible Hand said that pursuing self-interest leads to economic efficiency But does not ensure either social justice, the preservation of the environment, or human rights Many market failures involve externalities—including environmental failures When there are these market failures, maximizing shareholder value does not let to efficiency or societal well being Concluding Remarks:  Concluding Remarks Good business goes beyond maximizing shareholder value - There are multiple stakeholders—workers, customers, communities A broader view of corporate governance Reflected in many European countries legislation A corporation can do well by doing good Acting in a responsible manner can be good for profits But collective action (government regulation) is often required in addition Self-regulation does not suffice

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