Id like to start by saying I how inspired I was by Paul Martins remarks last night.
Certainly my pulse quickened to hear the Finance Minister of Canada talking about creating a caring society, talking about eradicating child poverty, talking about the need for sustainable development.
How many in this room have ever heard a Finance Minister of Canada or elsewhere talk along these lines. Certainly I havent.
The question Im going to raise is, as desirable as these goals are, how possible are they? And how possible are they in a globalizing world?
What Im going to do in my remarks is set before you a vision of the future which is based on an understanding of the present, where trends are going. In other words, a vision of what ought to be not simply a scenario of what wilt be based on some hypothetical calculations.
Let me just add another preamble before I get into the substance.
Since were looking forward to the 21st century, I think much of the 20th century has been consumed in keeping the world safe for capitalism and democracy.
The first part of this struggle, keeping the world safe for capitalism, seems to have been largely won. The second, making the world safe for democracy, is still being fought in most of the world not just in the Third World, but in the North as well as the South.
In contrast, the 21st century is likely to be consumed with the challenge of keeping both the world and democracy, safe from capitalism, or, if you prefer, with the challenge of democratizing capitalism or, if you prefer, making market-based economies and societies more responsible and accountable to the citizenry and the human community.
What Id like to do is to expound this thesis by talking about the significance of the Asian financial crisis and then distill from that interpretation some key lessons we have forgotten, or have not yet learned, and thirdly to spin out some implications for Canada and Canadians.
The Asian crisis, which could be in the process of turning into a full-blown world economic crisis weve seen the turbulence in the markets just this week marks the end of innocence about the virtues of globalization.
No longer can we think about such disruptive and unpredictable crises as "growing pains" of globalization blips along the way but rather as symptoms, as indications, of what I call, fundamental systemic instability.
Its time to wake up and smell the coffee: the current shape and evolution of the global economic system is inherently unstable and threatens insecurity for a growing number of inhabitants of the planet, particularly the poor and the asset-less.
By asset-less I mean those without financial assets, but also those without human capital assets who, as Tom Courchene said, are able to vote with their feet and move from one jurisdiction to the next.
What Im arguing here is this is not a question of turning back the clock on globalization.
Rather, its a question of seizing the agenda, and making globalization and markets and market actors more democratic, more accountable and more people-friendly, and to work in support of sustainable and equitable development. And Ill get to some idea of how we might do this in the third part of my remarks.
Lets just look at the Asian crisis as a symptom of whats ben happening.
The so-called Asian crisis is the fourth in a series of international financial crises that weve experience since 1982, beginning with the debt crisis of the 1980s; the European currency crisis of 1992; and the so-called Mexican peso crisis of 1994-95.
None of these has been a local crisis: the "Latin American" debt crisis of the 1980s included what was then Yugoslavia, Cote dIvoire, the Philippines and Nigeria.
But, closer to home, it threatened the solvency of many large Northern Canadian banks, including the Royal Bank of Canada, the Bank of Montreal, and the Bank of Nova Scotia, all of which were dangerously over-exposed to the debtor countries.
The European currency crisis caused major disruptions to the project of European monetary union, to world currency markets and, I would argue, heightened the panic over the deficit in Canada.
The so-called Mexican peso crisis of 1994-95 also involved capital flight from other Latin American countries, including Argentina and Brazil. Argentina tried to respond to the crisis with such ultra-orthodox policies that its rate of unemployment is still around 18 per cent. Argentina is a relatively developed developing country without too much in the way of social security nets. So, if youre out of work, youre out of luck. That goes for large parts of Latin America.
Again closer to home, I would argue that whats happening to the Canadian dollar today is directly as a result of the Asian financial crisis. The Asian financial crisis has undermined the dollar, despite the strong economy. I would endorse what Mr. Martin said on that score.
Before I leave the Asian crisis one thing I would like to emphasize is the terrible devastating consequences of the crisis for people in Asia.
In Indonesia, for example, here we had a country with a poverty rate of 10 per cent; 10 per cent of the population was living below the poverty line in 1996. By the end of this year, current forecasts predict, the proportion of people living below the poverty threshold will slip to around 50 per cent; a five fold increase in the incidence of poverty in that country.
Some of us in the NGO, NGI community are, in fact, mounting a mission. Were calling it a Citizens Team Canada and we intend to visit both Indonesia and Thailand in September and come back and talk to Canadians about what we have learned and what we think could be done.
Why are things happening this way? What lessons should we have learned if we had studied history more assiduously.
Id argue that were learning or re-learning many of the lessons our parents and grandparents had to learn in the Great Depression of the 1930s.
Lesson number one is all markets can and do fail. That is they dont work properly to create full employment. They dont work properly to take into account so-called external effects, so we have environmental pollution.
Im sorry, I dont think the United States is a model. I was in the United States a couple of years ago and the private economists at that time and still today are bewailing the widening disparities of income between the rich and the poor. The good news about the United States is the unemployment rate is four per cent. The bad news is if your at the bottom of the pile you need three jobs to get by and to make ends meet.
Just go across the Ambassador Bridge from Windsor to Detroit and youll see the difference between a country that has distortions and a country that has much more open and free markets and lower tax rates and you choose which one you want.
Lesson number two is that financial markets are particularly prone to failure. And are particularly prone to failure because borrowers typically know more than lenders and lenders and investors are often prone to join bandwagons. Remember BreX. They are often prone to panic and thats exactly what many economists say has been the problem precipitating disaster in Asia.
Financial markets are prone to contagion. You have crisis erupting in Thailand and suddenly Hong Kong, which is one of the most conservatively-managed economies in the world, is embroiled in financial panic and meltdown. Why? Its because financial markets are particularly vulnerable to failure.
I would say that in financial crisis, although some financial asset holders for example the mutual funds in Asia suffer losses [and] many, the more nimble and powerful and, in particular, the large banks, are able deftly to protect themselves.
Generally speaking its the more ordinary people and investors who pay the price for financial instability through unemployment, lower incomes, loss of social programs and capital losses on small investments.
But one of the largest problems in Asia is that you have something like $224 billion in short-term loans pouring from Northern and Western banks, including Japanese banks, and the asset holders and creditors who have particularly been precipitating the problem are the ones who have not suffered any losses. The banks have been the nub of the problem and we can talk about this in the discussion period. I think its really important to disentangle the meltdown in Asia and look at the role of the banks.
Lesson number three. When global markets fail, they fail big time.
As I mentioned due to contagion, panics spread from crisis countries to non-crisis countries and contaminate currencies such as the Canadian dollar, but also the Australian dollar and the New Zealand dollar.
When we look back at history and look at the precedent for the kinds of crisis were experiencing, we look at the 1930s Depression and the debt crisis of the 1980s, both of these episodes took a decade or more to resolve.
The question I have to ask is, are we prepared to see another decade long, world-wide Depression?
The conclusion I draw from lessons that we have not learned and should be learning is that when we liberalize financial markets financial markets were very liberal and open in the 1920s and started to become open in the 1970s and again in the 1990s are becoming more open were asking for more and more trouble and more turbulence and turmoil.
This is not to say that liberalization of trade is a bad thing.
In fact, if you look at a very interesting article in the May-June edition of Foreign Affairs, by Jagdish Bhagwati, entitled The Capital Myth, one of the premier defenders and proponents of trade liberalization. Yet, this eminent economist is also saying that were playing with fire in liberalizing capital markets and opening the capital account, particularly in smaller, more vulnerable jurisdictions in the developing world and the emerging market.
I urge you to read this article, because he talks about why is this happening and he points to what he calls the Treasury-Wall Street complex. Its a confluence of what he called interest and ideology; the ideology of the U.S. treasury department and the interests of Wall Street.
Le me just turn from this to implications for Canada and Canadians in the 21st century.
Canada can hardly resolve the problems of globalization single-handedly. Rather, the challenge facing us is to identify ways forward that make sense for all members of the world community; that retain the advantages of globalization, while rooting out its grave shortcomings and weaknesses.
But I think as committed internationalists, Canadians can take a leadership role in identifying and implementing solutions, both at home and abroad. But clearly, what we need is global solutions with global buy- in.
No longer can we have global policy prescriptions crafted by the United States, filtered through the G-7, and imposed on the rest of the world. That has to go!
If we think of the 21st century in this way, we have to think of initiatives on two levels.
First of all in terms of the global public, or collective space; in creating more space for collective action and public programs: more scope and funding for institutions, like the UN family, the Bretton Woods institutions, and other organizations; and, as Mr. Martin himself has initiated for the market system, better rules, better supervision and oversight, including more tolerance of diversity and differences among national regimes, but also more rules at the international level as well.
One of the things that is quite disturbing is if you look at the operation of hedge funds in the international markets, theres something like $300 billion worth of hedge funds that basically operate in a very speculative fashion and they ;leverage their positions through the banking system through a 10-to-1 ratio.
In other words, the hedge funds command something like $3 trillion. Now, whos regulating the hedge funds in the international markets?
Will it come under the kinds of supervisory and regulatory initiatives that Mr. Martins been talking about? I hope so, but my reading of its not. Were pointing our finger instead to the victims and blaming them for poor regulation and poor supervision. I dont think thats sufficient.
So, my menu of prescriptions would read like the following:
Theres two kinds of debt problems we have in the international economy. One concerns the very poorest countries and theyve been labouring under debt since 1982 and theyre always pushed to the margin of peoples thoughts. I think its just abysmal and scandalous how slow we have been to move towards debt forgiveness and debt relief. And I think here we should earnestly consider some of the proposals put forward by the NGO coalition called Jubilee 2000 for deep-seated debt forgiveness for the poorest countries in the year 2000.
The second is the debt of the countries Ive just been talking about in Asia; a debt of over $200 billion mostly held by the banks. And here again, unless something is done to accelerate debt writeoffs and debt workout programs, I think were going to look at another lost decade; a lost decade that will impinge mostly on Asia but will contaminate the rest of the world.
Thirdly, lets renew programs of international co-operation on foreign aid. Our foreign aid program has been cut by 40 per cent over the last decade by both the Conservative government and more particularly by the current Liberal government.
Lets think about rebuilding the aid program and making it a force to try and spearhead the program that the OECD donor countries articulated in 1996 in a document called, Shaping the 21st Century; an agenda that looks at reducing poverty in the developing world by one half by 2015, and an agenda that includes the achievement of universal primary education for all people by the year 2010.
The North-South Institute is about to publish a history of CIDA, the Canadian International Development Agency formed in 1968. I think its an appropriate time to rebuild the agency and put behind us the unholy trinity that we have always associated with foreign aid; that it has to be for humanitarian, commercial and political reasons.
The commercial reasons have fallen away. As we calculated at the Institute, we get $1.65 from the third World for every dollar we put into the Third World though our aid program. And the political reason for aid has also fallen away since the Cold War has ended.
Let me quickly end up with some thoughts about corporate responsibility and accountability, because ultimately global markets arent going to go away. Theyre here to stay and this means that we have to work actively with corporate and private sector agents engaged in global business and the subject of our 1998 Canadian development report deals with the question of corporate social responsibility.
This is new territory and what we argue there is [that] socially and environmentally responsible corporate conduct can be costly, but it can also make good long-run business sense. The view that corporations are responsible only to their majority shareholders is still very much a mainstream view, but it now seems to be on the defensive against people who argue that corporations have to take into account a more broad-based stakeholder approach to corporate governance.
However, we also argue its not enough for corporations in the global economy to issue codes of ethics or codes of conduct as corporate edicts in the hope that the public will reward these good intentions, while ignoring actual practice.
The future of corporate social responsibility in other words the future which lies in the direction of democratizing the corporation must consist in turning noble words into attestable actions. This will require new institutions and new activities. For example, social auditing, to indicate to the wider public, to the stakeholders, that the corporation is, indeed, practising what it preaches and as a minimum cannot be said to be socially or environmentally bankrupt in its operations.
A last word. Globalization is here to stay, like it or not. But the challenge we face and the challenge we can rise to is to make it globalization with a human face.