Great changes in managing and regulating the economy were often initiated by upheavals. It was in 1694 that the British invented central banking in order to finance military expeditions in Europe. The British also invented the modern income tax to fund the Napoleonic wars. The Second World War led to the Great Depression. It produced the framework of economic development - the International Monetary Fund for crisis lending, the World Bank for development aid and the World Trade Organization to negotiate and arbitrate the rules of trade.

On the other hand, international financial institutions (IFIs) have been working more for globalisation than as a coalition for general economic development as it was their objective to offset the war effects. The role of these IFIs thus has been increasingly under scrutiny. The Argentine economic crisis, as an example, made popular the view that IFIs had enforced globalisation blindly rather than promoting balanced economic development of the world. As a result, Argentina is facing worst economic crisis and GDP growth is hovering around 0% and even in negative during the last few years. This has also resulted in high inflation touching as much as 25% during the last five years.  Therefore, IFIs ‘prudence’ and ‘expertise’ has to focus on alleviating the desperation, helplessness and poverty of the people at large. Out of the world population of 8 billion, there are two billion people living on barely a dollar or two a day.

And, lo and behold, the World Bank once advised that Pakistan should “phase out existing industries which are internationally uncompetitive - sugar, refineries, chemicals – automotives, fertilizer and steel which are imposing high cost on the economy”. Under this flawed logic even Pakistan’s main industry, textiles, is not internationally competitive, as it needs massive doses of subsidies for export - through devaluation of currency, cheaper export finance, R&D support and duty drawbacks. Similar has been iterated in World Bank Group Report 2015-2020. However, one wonders that without all the above industries, from where the economic development – the IFIs area of influence - investment, production and export, ensuring increasing employment, thus elevating poverty, would lie? There is no argument to bring competiveness, however, one need to find that inherent issue and address the same.

The International Monetary Fund similarly has been promoting high devaluation and low tariffs. This ironically has led to more of inflation and increased interest rates. Started by an interim government in the early 90’s, the protection provided to the local industry in Pakistan had gradually reduced to 35% in ’01 from 65%. This has been further reduced to 15 percent as per agreement with the IMF. Be that as it may, nowhere in the world has industry developed without adequate protection. This practice is still continuing in the developed world in one form or another and, some developing countries who defied the IFIs rule of the game.

Following the Seattle debacle the WTO chose far flung Doha and subsequently similar distant places to hold its meetings in order to avoid demonstrations against free trade. The question, however, is what and where exactly is the free trade? USA, Europe, India or elsewhere? If there was unequivocal free trade there would be no EU, NAFTA or any such closed regional markets. The fact is that this is an age of regionalism and protectionism, if not nationalism. The guarding of national interest has been most avidly depicted by the refusal of the United States and other similar countries to lower tariffs on (Pakistani) exports. IFIs continually prescribe one prescription for all ailing economies, while serving none satisfactorily, which has been pressing more from poor countries, thus widening the gap between rich and poor. As a result, even in the developed world there have been demands – from George Shultz, William Simon and Walter Wristen  - to ‘abolish the IMF’.

The WTO is also blamed for representing the richest corporations and individuals - 0.01 percent of the world population - enabling about 1000 large corporations, contributing 4/5th of the world production. The 90s saw increase in wealth by 70 percent to 85% in the richest countries as against a 2 percent decline in the 20 poorest countries of the world. Policies of the IFIs skew in favour of the developed world and actually discourage local investment.

The shortcomings of the Bretton Woods set-up in dealing with the problems of the modern economy have become apparent. But despite a torrent of rhetoric about a new Bretton Woods, the world is left with much the same system, if not worse.

The world’s largest emerging economies are now beginning to assert their influence. Discontent from developing countries caused the 2003 ministerial meeting in Cancun to collapse. India and Brazil were given a role in the inner core of the negotiations which continued to refuse unacceptable deals.

The financial and economic shocks since the Depression, and grand talks of a new Bretton Woods did not do much for the system. The regulators’ forum now includes more emerging markets but the test will be the rigor of rules that may emerge. Ultimately, Bretton Wood  arrangement collapsed and major currencies began to float against each other.

Although the Group of seven rich countries has largely been replaced by the Group of 20 which includes the systemically significant emerging markets, but it has not distinguished itself. At the G20 meeting in Washington in November 2008 the global governance rhetoric rose to fever pitch. But the G20’s credibility was immediately undermined by a no-protectionism pledge that was broken within 36 hours and yet another promise to finish the Doha round that was also broken.

All this shows that political problems cannot be solved with technocratic solutions. No amount of shuffling the pack to include the emerging markets will make any difference unless they, and the rich countries, are aware what tough decisions have to be made, and are willing to face their domestic constituencies. The crisis has produced nowhere a new world order.

The developing countries thus and for that matter, Pakistan will have to be guided by their national interests in following any policy emanating from external factors. The then World Bank President, Mr. Wolfensohn supports this view. In one of his statements he said that “……searing images of desperation, hopelessness and decline of people who once had hope but will have it no more……. We need local ownership and local participation. Gone are the days when development could be done behind closed doors in Washington or western capitals or any capital for that matter….”

The best solution lies in an arraignment which product or service is marketed globally while accommodating to local conditions, thus a coalition for development and, as such, globalization through localization i.e. glocalization, that is, in the global interest: “create your own world with self help”

 

The writer is the Chairman of the Honda Atlas group of companies