The US Needs to Wake Up and Realize We Are No Longer Compatriots of Just One Country but of an Increasingly More Intimate Global Community

I agree with Singer's ethical argument presented in Chapter Five. I especially think that America needs to realize that we live in "one world" now and that we need to adopt a "moral standard that transcends the nation-state" (153). Singer is correct when arguing that "Our problems are now too intertwined to be well resolved in a system consisting of nation-states, in which people give thir primary, and near-exclusive, loyalty to their own nation-state rather than to the larger global community" (171). Unfortunately, when looking at statistics and other empirical evidence, no other nation seems to be as guilty of national partialty than the United States...

Singer's Reality Check-
All people of the developed nations should be concerned about foreign aid..."When subjected to the test of impartial assessment, there are few strong grounds for giving preference to the interests of one's fellow citizens, and none that can override the obligation that arises whenever we can, at little costs to ourselves, make an absolutely crucial difference to the well-being of another person in real need" (180).

A Sad Story-
Current Assessment on achieving this goal...not so promising, especially in terms of the United States. For example, in 2000, the US only gave .10 percent of GNP (10 cents in every 100 dollars produced by the economy) which was 3.5 billion dollars less than Japan (even though the US economy is about twice the size of Japan's). Also, .10 percent of GNP is 1/7 the goal set by the United Nations, a goal which is accomplished and even surpassed byy Denmark, Sweden and others. Even more depressing, is that the countries that this pathetic .10 percent goes to are often picked solely for political purposes resulting in only about 1/4 of aid going to low-income countries, once again much less than in Japan. While some argue that the US gives alot of private aid, in reality, non-government aid is only about 4 billion which is merely 40 percent of government aid raising the total amount of aid to roughly .14 which is still terrible.

Some Even Sadder Stats-
US investment in private and official development aid annually: 14 billion
AS OPPOSED TO...
Domestic US spending on alcohol annually: 34 billion
Domestic US spending on tobacco annually: 32 billion
" " Non-alcoholic Beverages: 26 billion
" " Entertainment Admission and Fees: 50 billion
Proposed Military Budget for fiscal year 2003: 379 billion

THIS IS APPALLING...OBVIOUSLY AMERICANS REALLY DO NOT FEEL OBLIGATED TO HELP THOSE OUTSIDE OF NATIONAL BOUNDARIES...IN THE WORDS OF SINGER, "These facts are consistent with the claim made at the start of this chapter: despite the lip-service most people pay to human equality, their circle of concern barely extends beyond the boundary of their country" (182).

Singer vs. Wolf: The Environment is Important

While the Wolf reading from Tuesday argues against the importance and validity of the "environment argument," Singer provides a wake up call emphasizing the urgent need to make policy changes to help protect the environment. Wolf would say that when people oppose free trade because it is harmful to the environment, it is really a disguise of protectionism, because free trade and economic development do not harm the environment any more than inefficiency in a poor developing country. On the other hand, Singer makes a persuasive argument about protecting our "one atmosphere" against global warming and other types of devastating pollution.

Singer also brings up an interesting argument about allotting a particular quota of carbon that can be emitted per person in the world. He also offers ideas on how this policy could be controlled and readjusted for changes in population, so as not to encourage population increases. One important distinction that Singer makes is between the various environment arguments which are outlined below:

Time-Slice Argument: regardless of environmental damage done in the past (particularly during the industrial revolutions in developed countries such as the US and Europe), the slate and therefore the blame should be wiped clean. This means that the developed countries are not obligated to take on the sole responsibility of the damage, but rather the entire world should work together to begin protecting the environment more efficiently.

Historical Approach: You break it, you fix it, basically the developed countries made the most damage so it is up to them to figure out (and pay for) the remedies

Worst-off Argument: The worst-off countries should be helped no matter what

Finding The Magic Formula: Government + the Market (A compilation of notes regarding Stiglitz's Chapter 2)

free market ideology and the Washington Consensus vs. those who see an important role for both government and the private sector...Stiglitz is pro-government intervention

Washington Consensus: (encouraged by IMF...not encouraged by Stiglitz...or anyone with common sense it would seem but I will leave that up to you)
-focused on minimizing the role of government
-emphasizing privatization
-trade and capital market liberalization
-deregulation
-put little emphasis on equity
-"based on a theory of the market economy that assumes perfect information, perfect competition, and perfect risk markets- an idealization of reality which is of little relevance to developing countries in particular" (28).

"The alternative view, which I hold, sees government having a more active role, in both promoting development and protecting the poor" (Stiglitz 27).

"What separates developed from less developed countries is not just a gap in resources but a gap in knowledge, which is why investments in education and technology- largely from government- are so important" (28).

"The most successful countries have been those in Asia, and that in most of the Asian countries, government played a very active role" (29).

"Globalization- in the form of export-led growth- helped pull the East Asian countries out of poverty" (30).
-able to take advantage of globalization without being totally taken advantage of by globalization

-China followed its own policies (not the ones recommended by the IMF) and saw growth
-government invested heavily in education and infrastructure
-"also went beyond the usual list of what governments typically do. Governments in East Asia played a large role in planning and in advancing technology, choosing which sectors their countries would develop rather than leaving it up to the market to decide" (32).
-China's high savings rate (another key to it's success)

So the IMF seems to be retarded:
Asia and china for the most part have restricted short-term capital flows..but during the 1980's many East Asian countries succumbed to pressure from the IMF and the US treasury and opened up to the free flow of capital...for a while this was good and then it fled out resulting in a big crisis...
"The IMF policies failed to stablize the currencies; they only succeeded in making the economic downturns far worse than they otherwise would have been..." (35)
-critics would argue that the IMF is just protecting the lenders
-"The capital market liberalization pushed by the IMF made matters worse because it made it easier for the oligarchs who had stripped assets from the corporations they controlled to take their money offshore, to places where secure property rights were already established" (39)...the importance of property rights and secure, trustworthy institutions are extensively discussed by North
-The IMF and Washington Consensus have an even worse track record in Africa...For example "In Ethiopia, for instance, the Fund went so far as to demand that the country ignore foreign assitance in assessing whether it's budget was balanced; in effect, foreign assistance went to increase reserves, not to build hospitals or schools or roads. Not surprisingly, the policies failed to bring growth. But the burden of debt remained" (41).


shock therapy into market economy(as evidenced by Russia and China's Great Leap Forward in the 1960's) = a no go
a more gentle and slow transition = much better idea

"the tortoise has outpaced the hare" (40)
-India (although open to FDI)also restricted short-term capital flows and has been successfully developing and growing
-reaped the benefits of long term investments
-success alot like China's with an emerging middle class
-both rec. importance of technology and education
(Asia graduates three times as many engineers and scientists as the US)
-success requires social and political stability


-East Asia has come to reject the Washington Consensus market fundamentalism which totally opened up the countries

Basically, Latin America fully embraced the WC and they failed big, big time
East Asia did not fully embrace the WC but rather had an actively involved government along with the market and was very successful

China...an example of Globalization that Works
Why? Their "Comprehensive Approach to Development" (48)

-China changes the focus of its attention as needed as it moves through various stages of development; for example it shifted from focusing on attracting foreign investment to developing domestic entrepreneurs (48)
-government had a large role to play]
-Each stage= a different mix of government and market that is balanced relative to the current circumstances
Four Pillars of a successful development strategy as evidenced by East Asia
1.market
2.government
3. individuals
4. communities

Challenges to this plan: 1.corruption (of the host government or trade organizations or really anyone involved)
2. IMF (which according to Stiglitz undermines democracy when "monetary policy is taken out of the hands of democratic politcal processes and turned over to experts" (56)
3. The world is not flat and it is actually (in some ways) becoming less flat
4. The rules of the game are tilted against developing countries because the global trade and financial regimes give developed countries an advantage

Kind of comes down to a final question...
who is to blame for East Asia's success or for Latin America's failure??
Is it the IMF and trade agreements or the host government?

Getting the Magic Formula for Successful Development-
Well, as evidenced by China and India the government intervention is crucial, so the host government is important and is either postively or negatively impacting...but the IMF has encouraged and implemented policies that have led to crises even in China which is now growing successfully, so the IMF is obviously a problem too. I would say that they are both to blame because they are both neccessary. If one or the other is not functioning properly development is not going to be successful. The magic formula is dependent on the stage, the circumstances, the pace, and demands a particular balance of government intervention and market.

**This chapter was particularly interesting to me because during our session we will be talking about whether globalization works...and according to this chapter, I am representing an example of successful globalization, none other than China...
***Interestingly, the authors of FL Chapter 26 do not think that East Asian countries are good examples of sustainable development and they are part of the "lost decade" due to "recent labor unrest and ecological destruction" (FL, 392). I undoubtedly side with Stiglitz on this one.

The Role of the Host Governments in Relation to MNC's

All three authors, Fieldhous, Tarzi, and Wolf discuss the important role of the host government in relations with MNC's (in particular LDCs or Least Developed Countries). Fieldhouse does an excellent job of distinguishing between the imperialistic utility and extractive corporations that were prevalent in the 1980's (which are becoming more and more nationalized and controlled) to the current manufacturing MNC's that are less threatening to host country sovereinty, IF (and this is a BIG IF) the host government has the ability and the willingness to (in the words of Tarzi) turn potential power into actual power.

Wolf discusses what governments cannot do and what they need to do in order to provide for and protect their citizens in the new global economy. Wolf also discusses why governments fail, flaws of good governments and the disastrous effects that are caused by bad governments. According to Wolf, "Bad governments are a huge obstacle to gaining the benefits of economic integration across borders. Indeed they are the most important obstacle of all" (Wolf, 76). Interestingly, Fieldhouse makes the same argument. Fieldhouse would say that in the end, it is up to the host government to decide and control, but the real question is whether the government can "match up to its assigned role" (Fieldhouse 175). If the officials are too corrupt to consider national interest or lack the neccessary knowledge and policy-making skills then sovereignty does not help defend host governments from the "superior cunning" of MNC's (Fieldhouse 179).

Tarzi is right to argue that for a host government to change potential power (relative bargaining power) into actual power (hosts ability and willingness to exercise bargaining power in order to have more favorable terms from foreign firms)it depends on the level of the host government's expertise and the type of FDI among other dependent variables.

Therefore, when pointing fingers at the IMF, MNC's, and hegemons such as the US, we cannot forget the role of the host government, its sovereignty and its ability to make effective policy and successful bargains with MNC's.

FDI: A Race to the Bottom?...Or a Race to the Top?

I would like to respond to Thursday's debate on Foreign Direct Investment and its effects on developing countries. When asked the question, from the perspective of a developing country, whether I would want to resort to increasing foreign direct investment or to taking out foreign loans from the IMF; I would undoubtedly say increase FDI. After personal research, I found that extensive amounts of foreign direct investment in both China and Ireland have led directly to economic growth. I must say that I was very happy to read Wolf's article this week because he offers excellent argumentation supporting the positive role that FDI plays in developing countries. Wolf critiques fundamental criticisms of FDI and offers analytical and empirical data proving these criticisms to be partly if not entirely incorrect.


*An Argument against FDI that Wolf addresses include:
- "Foreign direct investment impoverishes recipient countries, particularly poor ones, and their workers. It does so partly by accelerating the race to the bottom in regulation of the environment and workers' rights." (Chapter 11)

First of all, critics say that FD investors "exploit" and "focus on" poor developing countries (232). Wolf argues that this accusation is wrong. According to UNCTAD in 2001, 39% of the world's stock was contained by the EU, 19% by the US, and only 0.6% by the least developed countries (or the most poor). Therefore, "We may conclude then that the EU must be in a dire state, given the damage FDI is supposed to do. The US, too and Asian developing countries appear to be in trouble, while Africans live happily unexploited" (233). This proves a good point; the investors are not focusing on the poor and vulnerable but rather the successful. Also, according to the World Bank, "the more advanced the rule of law, the higher the direct foreign investment" will be (233). Therefore, in order to better attract FDI, a country is encouraged to stabilize politically. A push towards political stability and success seems to be much more of a race to the top than a race to the bottom. Developed nations are looking at the top, not the bottom as potentials for increased investment.


In certain circumstances, such as with natural resources, investment happens in a country no matter what its conditions purely because the resource is located there. But, unless there is an important resource, economic success, political stability, and openness to trade are crucial to attracting substantial amounts of FDI. In terms of developing countries, China is a perfect example of how foreign direct investment has helped to make it "the most economically successful developing economy since 1980" containing 26% of the net stock in developing countries in 2001 (234). This can be compared to 5.3% in sub-Saharan Africa and 2.6% in the least developed countries. Therefore, in the words of Wolf, "The world's least developed countries are not exploited by transnationals, but ignored by them, except when they have particularly valuable resources" (234).


According to Wolf, foreign investors not only pay higher wages, but treat their employees better than domestic employers. An example of this is how wages are higher along the Mexico-US border because US-owned companies are more highly concentrated there than the rest of Mexico. Also, when foreign investors pay more to their employees, competition for labor encourages domestic companies to raise their wages as well. Basically, the conditions in US domestic factories may be better than those in US owned factories in India, but conditions are still much better than they would have been without foreign investment. Therefore, if conditions are improving as a whole, why would this be considered a race to the bottom??


Another charge that Wolf critiques is that developing countries are racing to the bottom in order to better attract FDI in terms of environmental and labor regulations. Wolf offers evidence that workers' rights had not worsened and had even improved. He argues rather that there is a race to the top with incentives such as tax reductions, tax holidays, duty drawbacks and other fiscal incentives, as well as overall improvements in the financial market. The presence of EPZ's in countries, (Ireland for example has SEZ's which are Special Economic Zones with much lower tax rates and other incentives to investors), is controversial. In some countries (such as Ireland) they have proved successful but they can also cause problems because they do dodge certain obstacles and are not always backed by "good infrastructure, educated labor and an ability to obtain competitively priced local outputs" (241). I agree that EPZ's are not always the right tool but have some positive characteristics that should be used in creating a successful integration policy.


In conclusion, foreign direct investment is not only a good idea, its a race to the top. I agree with Wolf that it does not target poor and vulnerable countries but rather invests in successful and somewhat stable countries. Foreign direct investment in developing countries does not worsen the wages or conditions of employees but rather improves them. Developing countries are being pushed up the ladder rather than down the ladder in order to make them selves more attractive to foreign direct investment. Although all the tools (such as EPZ's are not flawless), the overall goal of integration into the world economy, openness, stability, and cooperation with foreign investors is right on track to international development and economic growth.

The Controversial IMF

While visiting the IMF website I noticed the high concentration of power within the top high-income countries, otherwise known as the Group of Seven. In particular the United States has an immensely higher number of votes than any other country. After learning about the WTO and the World Bank I was skeptical of the IMF, having serious doubts about its motivations and its success in "crisis resolution." At first, I felt bad that I was so doubtful of an international organization in which our country is at the forefront, but after reading Wolf and Stiglitz I now realize that I was correct in questioning the Fund. According to Wolf, in terms of the IMF controversy, "It would take a book to address all the complaints made against it" (288). Wolf looks at the most popular criticisms of the IMF and then offers his personal anaylis of their accuracy, they include: (288)
1. Using a one-size fits all "policy of austerity" in all countries
2. Failure to better predict the risks of capital account liberalization
3. Its unsuccessful recomendations made during the Asian crisis
4. Creating "moral hazard" by "lending too much and bailing out the imprudent lenders who are its true masters, at the expense of innocent people in crisis-hit countries"
5. Being overly influenced by the self-interests of the Group of Seven

Interestingly, Wolf begins his section regarding the "Follies of the IMF" discussing the first charge and quoting Stiglitz. Wolf then goes on to critique Stiglitz saying that Stiglitz is right up until a certain point. He agrees with Stiglitz that the IMF is often "hidebound, arrogant, demanding, and incompetent" (281) but he also addresses the idea that the IMF is also sometimes the scapegoat (similar to when a doctor comes in too late and is "blamed for the pain" (290). According to Wolf, "The correct criticism of the Fund is that it is a hedgehog-that is, someone who knows just one big trick- pretending to be a fox- that is, a flexible master of many tricks" (289).

Perhaps the most obvious and the most disheartening point is the joke that Wolf presents that the letters IMF actually stand for "It's mostly fiscal" and sadly that is very true. It is all about money; the moral argument to give to the poor and let the risks flow from the poor to the rich is simply not a reality. The G7 has the power and they are going to act in their own self-interest, unless serious changes are made to the power structure allowing for more power and representation from lower-income countries.

Stiglitz offers some proposals of changes that could possible help to "ensure that debt burdens do not again grow to levels that are beyond the ability of poor countries to pay" (213). Stiglitz want's more of an emphasis to be put on overlending than just overborrowing and he wants "the poor country's taxpayers" to stop having to pay for "the rich country's lending mistakes" (217). I wholeheartedly agree.

Therefore, I am learning that this is once again a money vs. morality issue, and currently money is definitely winning.

Commentary on a Speech given by Jaime Caruan (Monetary and Capital Markets Department Director- IMF)

I would like to comment on an interesting article that I read off of the IMF website (www.imf.org/external/np/speeches/2007/050707.htm) about risks and opportunities in globalization. In particular, I am interested in one of the paragraphs directly addressing Foreign Direct Investment, especially in China because I did research on FDI in China and Ireland for a term paper (this was my inspiration for taking this class).

According to Caruan, there was a study done that examined influencial factors of FDI in which thirty global firms took part. This study showed that FDI is predicted to increase and that many countries are undergoing government reforms that make them more attractive to foreign investors. China is noted as the leader of this movement, getting the most FDI of the emerging markets. This was not surprising to me after researching the government reforms of China such as the Open Door Policy that greatly benefit foreign investors and bring lots of foreign capital, knowledge and technology into the country.

Interestingly, Caruan comments on some risks and motivations involved with FDI that I have not previously considered. Caruan says that "...a primary motivation behind FDI was to gain a presence in faster growing markets, rather than immediate profit, and that repatriation of those profits was heavily influenced by tax considerations. Also, the high cost of hedging in emerging markets was a deterrent to FDI, underlining the significant benefits from countries developing their financial infrastructure. That high cost may explain why cross-border FDI flows have been overtaken by debt and bank flows over the last decade." First, I have a question for Prof. Dickovick: what is hedging? Next, to what extent is FDI being affected by debt and bank flows? According to Caruan, "Investors are now more ready to achieve exposure to emerging markets directly through buying bonds. An increasingly important innovation has been the ability of financial markets to provide protection against exposure to emerging markets through credit risk transfer instruments." What are the risks involved with bonds? For a country like China with lots of FDI, what risks are they facing and how are they preparing to protect themselves? Due to my research, I am very interested in finding out the answers to this question as China is an important actor in the global economy. Also, how do smaller countries with alot of FDI, for example, Ireland, handle the risks involved?

"I don't like TRIP"

Stiglitz offers an insightful and (at times frustrating look) at the way in which intellectual property is handled in terms of international trade. Chapter four of Stiglitz book goes into detail about TRIPs (an agreement on Trade-Related Aspects of Intellectual Property Rights). Judging from my title, Stiglitz has convinced me that Trip or (TRIPs) is not my friend. My dislike for TRIPs is based on several reasons and key examples. Stiglitz explains how "poorly designed intellectual property regimes...," in which "TRIPs presents an example par excellence,...not only reduce access to medicine but also lead to a less efficient economy, and may even slow the pace of innovation" (105-106). Intellectual property rights, which are strictly enforced and expanded upon by patents/ laws upheld by TRIPs, actually create monopolies that cause serious inefficiencies in the economy and all aspects of society. This is especially true in terms of medicine in developing countries. Stiglitz calls for a more balanced intellectual property regime in which knowledge is more freely available for the common good. He argues that the current regime stifles innovation because "monopolies insulated from competition are not subject to intensive pressures that drive innovation" and also because companies protected by TRIPs use their power to "squash rivals, reducing the incentives of others to do research" (109). Therefore "Trip" is not my friend because it is creating a "lose-lose situation" where innovation is reduced in the long run, the economy loses and public welfare is worsened due to monopoly prices.


My dear enemy Trip is driven by corporations that care much more about protecting their intellectual property and high profits than saving millions of lives in developing countries. Interestingly, Trip is within the WTO, an organization in which I have already expressed dislike and concern. In negotiating the TRIPs agreement, American and European negotiators fought for the interests of the corporate drug and entertainment industries that undoubtedly support strong intellectual property rights. Sadly, US interests got their wish and a little time plus the possibility for compulsory licensing (note the word possibility, because the US drug companies will do whatever they can to avoid this) was the only thing that developing countries got out of the battle.


According to Stiglitz, "intellectual property does not really belong in a trade agreement" and I totally agree. As Stiglitz points out, TRIPs "was concerned with restricting the movement of knowledge across borders" which is the exact opposite of what normal trade agreements are set up to do. TRIPs is simply a way of enforcing the intellectual property rights that help large corporations such as American drug companies to remain monopolies. In the third world there is a huge "knowledge gap" that is keeping countries from developing the medicines/ vaccines they need to save their citizens from life threatening diseases such as AIDS. Currently, TRIPs makes it more difficult for third world countries to manufacture and access generic (and therefore affordable) medicines. Since most third world citizens cannot afford to pay the monopolized prices set by private drug companies, people are dying unnecessarily. This makes me disgusted with both the American companies and especially the WTO which is allowing this kind of self interest to dominate international welfare. For example, in the 1990's, Brazil and South Africa proposed the idea of "issuing compulsory licenses for AIDS medicines," but American drug companies responded furiously, "claiming that TRIPs didn't allow this even for AIDS drugs, and a filed a complaint with the World Trade Organization" (121). This proves that no matter how many people are dying, the focus of the US drug industry, and thus the American negotiators, is completely profits which means doing anything "to keep as many generic drugs as possible off the market for as long as possible" (122).


Stiglitz offers examples of programs and ideas that can help to better balance the current intellectual property regime such as allowing for compulsory licenses, "waiving" the taxes on intellectual property in developing countries, stopping biopiracy in developing countries (developed nations are coming in and stealing intellectual property, then under TRIPs, charging the third world country for it...ridiculous I know), and creating innovation funds that "directly encourages innovations of benefit to developing countries" (124). I agree with Stiglitz's proposals and join him in the fight against the current TRIPs. Developing nations are calling for a new TRIPs or a "TRIPs minus," and if Trip is ever going to be my friend, I would say that this is totally necessary.