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Globalization, Growth, and Poverty: Building An Inclusive World Economy

Washington, DC, December 5, 2001

PROCEEDINGS

MS. ANSTEY: Welcome, ladies and gentlemen, to the launch of the Globalization, Growth, and Poverty report. Let me just do some housekeeping details.

As you know, this report is embargoed until 2 o'clock Washington time this afternoon. When we do get to questions and answers, we will as usual have some roving mikes, and if you could wait until they reach you, and then if you could state your name and media outlet, that would be great.

Let me introduce our distinguished panel. I think you know me. I'm Caroline Anstey, head of media for the Bank. On my left, who you also know, is Nick Stern, the Bank's Chief Economist and Senior Vice President. He will be making some introductory remarks. On his left is Paul Collier, who is Director of the Research Group and a co-author of the report, and he will also be making some remarks. And to his left, who you also know, I think, is David Dollar, who is another co-author of the report.

So, without further ado, we'll throw it open to Nick.

MR. STERN: Good morning, and thank you very much for coming. You're welcome, as ever, and the report today is one on globalization. I'll give a few remarks of introduction and then hand it off to Paul, who will take us through the analysis.

Paul Collier and David Dollar are the two main authors of this report, and David is the director of program of research which has been going on for some time, which has built up to this report.

Now, the report has two very clear and important simple messages.

The first is that globalization--and here we mean particularly trade integration--is a very powerful force for poverty reduction. It's a powerful force of poverty reduction that works largely through generating higher growth which brings reduction in poverty.

The second very important message is that many people, billions of people in the world are being left out of this process.

Those are the two big conclusions from this report. These are conclusions which are based on evidence, a careful look at the evidence, and particularly the evidence of the last 20 years, which has been a very important period in terms of integration for developing countries for growth and for poverty reduction.

It's very important to emphasize this based on evidence because all too much of the discussion of globalization takes place in a zone which is largely free of evidence. And what we've tried to do here is to set out carefully the analysis of what the evidence really tells us.

Now, Paul will set that out, take you through the basic structure of the argument, the kind of evidence that we have used to get to these conclusions. In order to introduce what he has to say, I want to ask four simple questions.

The first is: What is globalization? Well, actually, I prefer personally the word "integration" because you can integrate on different dimensions and you can integrate on different degrees. And there are very many different dimensions to this story, and for very many people the integration will differ on the different dimensions. But what are those dimensions?

The one we emphasize most strongly here is the trade dimension, trading goods and services. But, of course, there's also integration which can take place in capital markets, in knowledge, in the environment, in crime, disease, and so on. So those are all important dimensions of globalization or integration. The one we emphasize here and the one on which the evidence is most powerful and clear is that of the integration of trade.

There's also the integration--and I think it's been a very important story in all this--of civil society and, for example, in terms of the work on debt relief which the World Bank started, civil society has lent a great deal of positive support to that discussion. So those are all the dimensions of globalization which are important, and as I've said, it's the trade one which we're emphasizing here.

Is it inevitable? On some dimensions, surely yes, on environment, on knowledge, on communications on civil society. Those are dimensions of the integration which surely will not go back.

But, of course, trade policy is an area, because it's policy, on which people can take decisions, and it's vital now, particularly post-Doha, particularly after the events of September the 11th, that trade policy goes forward, because a more unified, integrated world is a more stable world, a richer world, and that comes from a very positive attitude to trade policy, and now particularly is a moment for that policy to move forward.

So we've seen that on some dimensions it's inevitable, but some dimensions are matters of policy, and that's crucial. And that's what we would like to emphasize here.

Does it matter? It matters a great deal. As the evidence we'll present will show, trade integration is a very powerful force for growth and for poverty reduction. The challenge, though, as I've said already and I want to emphasize here, the challenge is one of inclusion. There are many hundreds of millions, billions of people who have been left out of this process. The challenge is to understand why and to act to bring those poor people into this process because it's a process which can reduce in a very powerful way their poverty.

What are the risks? On the whole, the risks to trade integration are quite small. There are risks, of course, on other dimensions of integration. Capital market integration does carry its own risk, and it's very important that that moves forward in a careful way, closely tied to the strength of domestic financial systems and that we build an international financial architecture that can protect against those risks. But on the trade front, I think the evidence is very strong that the benefits are real and powerful and important for poor people and from the better-off countries as well.

That's part of the argument, of course. The more important one for us is the importance of trade integration in fighting poverty.

There are other risks that people refer to, and one I think which people feel quite strongly is what they see as a danger of standardization, that we're all destined to live in a world of MTV and drink Coca-Cola. No doubt that's a good program and a splendid beverage, but I do not think that the evidence that we have leads us to the conclusion that integration on trade or, indeed, many of the other dimensions implies standardization.

If you compare the economies and societies of Italy, Sweden, the Netherlands, Japan, the United States, you will see rich societies with very different structures, very different values, very different ways of organizing and, indeed, very different consumption patterns. So there's no standardization involved in trade integration or, indeed, on many of the other dimensions of globalization.

If you look at the routes that the successful countries, successful developing countries over the last 20 years have followed--China, Mexico, Hungary, last ten years or so, Bangladesh--if you look at those countries, you will see that they've followed very different routes. So in terms of where the economy is going and in terms of the routes to get there, I do not think that the evidence shows that integration of trade need necessarily involve standardization of societies.

So our conclusions, then, are clear. Trade is a very powerful force for growth and poverty reduction. The challenge we face is one of inclusion to make sure that the hundreds of millions, billions of people who are being left out of this process are brought in, and brought in in a strong and powerful way. Part of that inclusion will be improvement of governance and policies in those countries themselves, as well as building up infrastructure. But part of the story must be improved market access in the rich countries.

The level of subsidies that we see on agriculture, the protection that we see on agriculture in the rich countries, is not only damaging to the welfare of the rich countries, where taxpayers in the rich countries bear the burden of those subsidies, consumers in the rich countries bear the burden of higher food prices. What's of fundamental importance to us here is that it's deeply damaging to the interests of the poor countries. So it's vital that agricultural protection, agricultural subsidies be reduced over time. Everyone will gain over time if that is organized sensibly.

The same similar arguments are true on textiles, products which are very intensive in labor and products which developing countries can and do produce and which in many cases are being kept out of the rich countries. There's a great deal that the rich countries can do, and I think it's very positive that they are, the rich countries are moving in the right direction. They can do that multilaterally through the WTO. They can do it bilaterally, unilaterally as well. And that's something which we hope will go forward, and go forward strongly.

The end of the report contains an action plan which sets out some of the elements which I've just described, and some more, and that is something which Paul will take us to.

So those are the elements that we have here, and the action plan which we are proposing also emphasizes very strongly the importance of aid. Our main topic here is trade, of course, and that's what we're emphasizing. But we shouldn't lose sight of the very important element in the story, the three parts to the story for fighting poverty: improvement in the policies of poor countries, improved trade market access, primarily initiatives for rich countries, and increasing the level of aid. If those three things come together, we're going to see over these next 10 or 20 years a very big impact on poverty. But it's vital that we proceed on all three fronts.

So I'd like to ask Paul now to take over and take you through some of the analysis.

MR. COLLIER: Thanks, Nick.

Concern about globalization is pretty new, but the actual phenomenon of globalization isn't new. And it's quite helpful, I think, to look back to see when globalization got started, and we can measure it in three different dimensions: flows of goods, flows of capital, and flows of people. Let's start with the picture on the different waves of globalization.

In wave one, you see wave one started around 1870. Before 1870, it's not really meaningful to talk about a global economy. The world's different national economies weren't sufficiently integrated. And what happens during wave one, 1870 to the First World War, is big increases in flows of capital, big increases in the flows of people, and nearly a doubling in the flow of trade to GDP, goes up from about 5 percent to 9 percent. That's driven partly by policies which liberalized these flows and partly by technology, which is reducing transport costs.

That wave starts the pattern which persists for over a century of the developing countries specializing in primary commodities which they export to the developed countries in return for manufactures. So that becomes the basic division of trade.

Wave two, we see the same technological progress, transport costs continue to fall, but what we see is a complete reversal of policies. We get during the inter-war period a retreat into nationalism and protectionism. And that policy reversal more than outweighs the continued technical progress. And so during the inter-war period, we go back to 1870 on all three of these dimensions: a collapse in capital flows, a collapse in migration, and a collapse in trade. So trade to GDP goes back pretty well to 1870.

That shows, incidentally, that it's perfectly possible to reverse globalization, but it also shows it's not very desirable. What happened during the inter-war period was poverty continued to increase, inequalities continued to increase. It was a really unsuccessful period.

Post-war, wave two of globalization, you basically restore wave one in the dimension of trade, so trade to GDP gets back up to where it was by 1914. You don't restore globalization in terms of capital flows and flows of people. The big age of globalization from migration and capital flows was actually wave one.

So wave two is restoring this pattern of developing countries exporting primary commodities in return for the manufactures from the North. And now we come to the current wave, wave three.

There are two things that are dramatically different about wave three, where we are now. The first is that trade to GDP rises to unprecedented levels. That's the red line. We get up to a level of trade to GDP which has never been seen before, and so trade is now the engine of globalization. It's not a capital flows or a labor flows story, particularly. It's predominantly a trade story.

But then the really exciting development which really distinguished wave three from the past is not just that the level of trade to GDP rises, but the structure of trade is transformed. Let's turn to the next picture.

Here we show over the last 35 years or so the structure of developing country exports, and if we go back to 1965, even if we go back only to 1980, what we find is that developing country exports are dominated by minerals, with agriculture there as well. So it's this primary commodity export story. And over the last 20 years, that's changed dramatically. In 1980, three-quarters of developing country exports were primary commodities. Now 80 percent of them are manufactures. So the last 20 years we've seen for the first time in history the developing countries breaking into the global manufacturing market, breaking in in a big way.

Why does that matter? Well, primary commodities, land-intensive, that benefit the owners of land. Manufactures, and especially--it's not just any manufactures. It's the labor-intensive manufactures, and so as developing countries start to export labor-intensive manufactures, that benefits the people who own the labor, who own the skills.

How did developing countries break into manufacturing markets over the last 20 years? Well, it was a twofold process. On the one hand, it was driven by developed countries' trade liberalization. Developed countries lowered the barriers, though during this period there were still some pretty big barriers, and some barriers got even bigger, especially in the area of textiles. But trade liberalization, giving developing countries market access, was an important part of the story of how developing countries break in. And the other half of the story was that developing countries improved their investment climate and improved their education so that people had the skills and the regulatory and infrastructure environment was good enough, at least for some developing countries, to break in.

What were the consequences over the last 20 years of this dramatic new form of globalization? Well, it was a story--until 1980, the story was a division between the North and the South. And post-1980, the story is of a division within the South. One group of countries break in, one group of countries don't.

One group of countries have rising trade to GDP ratios. Let's call them the new globalizers. They account for a population of about 3 billion people. What happened in these new globalizing developing countries is in the 1990s they get very fast growth--5 percent per year per capita growth rates. That's the blue. They're growing more rapidly than the rich countries. And so for the first time for 200 years, poor countries are starting to catch up with rich countries. The gap is narrowing.

But that's only half the story because there are a lot of developing countries where trade to GDP is not rising. It's either stagnant or falling. They're stuck in primary commodity dependence, and what happens to them is stagnation and, on average, absolute decline in incomes, through the 1990s a decline of 1 percent a year per capita incomes.

Let's look more closely at the new globalizers. What we see is a pattern for them of accelerating growth. So they weren't always growing fast. It's a story that sets in in the 1980s, accelerates in the 1990s. If we go back to the 1960s and 1970s, there was nothing special about this bunch of countries. They were poor and they weren't growing very fast.

In the 1990s, not only do they have fast growth, but they have declining poverty, rapidly declining poverty. Our best evidence is--our most recent evidence is for the period from 1993 up to 1998. 1998 is our most recent evidence.

Over that period, 1993 to 1998, in the new globalizing countries there was an absolute decline of 14 percent in the number of poor people. There's still an awful lot of poor people in the new globalizing countries, in 1998, 762 million on our estimate, but it's 14 percent less than it was five years earlier.

Here's four countries where the rapid growth--all had rapid growth in the 1990s, rapid growth in per capita incomes, all rising trade to GDP, and all rapid declines, really rapid declines in absolute poverty. So here's four examples of how rapid growth was going hand in hand with rapid declines in poverty.

So that's the story in the new globalizers. But it's only half the story. It's a story of 3 billion people. Let's go back to the countries that weren't successful in breaking into the new global markets. What we see there is marginalization, 2 billion people living in countries which, even in the 1990s, were in absolute decline. I say "even in the 1990s" because the 1990s was, of course, a relatively buoyant time for the world economy. What you've got to add on to that is that now we're in global recession. Just think what's going to be happening to growth in those countries dependent on primary commodity exports where their growth rates are hooked on to their terms of trade and their terms of trade are now in severe decline.

So we've got a bifurcation within the poor countries. What's the overall picture? It becomes, in a way, less meaningful in the 1990s to talk about an overall picture for poor countries, but for want of anything better, here's the picture. We've managed to construct poverty estimates right back to 1820, and for most of this 200-year period it's a depressing story. The number of absolute poor in the world rises inexorably right through until about 1980. And then for the first time in world history, we see substantial absolute declines in the number of poor.

Now, this might be a blip, but it might be a turning point. If it's a turning point, we think that the engine for that turning point is this ability of a large bunch of developing countries to break into global markets.

What's the challenge? The challenge is clearly to keep that poverty reduction going down, that process of poverty reduction going, but in particular, it's a challenge to include the countries that haven't yet globalized into the process. So the challenge is to integrate the non-globalized countries, the countries with 2 billion people, into the world economy. That's the first challenge. And then the second challenge is to make sure that the growth process when we get growth is inclusive of poor people so that to ensure that poor people have the skills and the voice which enables them to benefit from growth.

Let us be clear that globalization alone will never be sufficient to eliminate mass poverty. There will always be countries which will not be able to break into global markets. But many more countries could break in than have done so so far. Globalization will continue for the next couple of decades to be a powerful engine for poverty reduction.

What policies will be helpful in driving this process? First, market access. Market access is fundamental. It was fundamental for the new globalizers in the last 20 years. It will continue to be fundamental both for the new globalizers and for the currently marginalized countries. We've seen in the last year some excellent initiatives. For example, in America, the Africa Growth and Opportunity Act is reaching out to the countries that are currently marginalized. It's a step in the right direction. It's utterly insufficient. It's far too hedged around. It's the right move. It's not enough.

We've seen the same thing in Europe in the anything-but-arms initiative for the poorest countries improving market access. In Doha, we saw the beginnings, if you like. It's now possible that we'll get processes of agriculture liberalization, of more favorable intellectual property rights, of better access in textiles, et cetera. So market access a development priority, step one.

Step two is what developing countries themselves need to deliver, and within that we emphasize three things. One is improvements in the investment climate. Some developing countries have done that. Some haven't. Without that, you stand no chance of breaking into global markets.

Even if you do break into global markets as a country, whether poor people can benefit from that groove, depends upon their being given the education, the participation, the voice with which to benefit, so the growth doesn't just benefit an elite.

The third component that developing country policies need to address is social protection. We don't want to give the impression that this is a steady onwards and upwards process. It's a very rough process. It's crisis prone. It's a bouncy ride. And so there need to be safety nets in place to protect poor people during this rough process of growth.

Often developing country governments have safety nets which benefit the better off. Ironically, it's the better off who have got better protection, whereas it's poor people who obviously need the social protection. You need a different sort of safety net if it's going to reach the poor.

Finally, back to developed countries' agenda, more aid and better aid. We're calling for a doubling of aid. And aid can work in two different ways. One is, in the countries that have got a growth process going, it can accelerate that growth process. Aid is effective in accelerating growth where the policy climate is reasonable. But aid will also be needed big time in the countries that have little hope of globalizing through no fault of their own, and we shouldn't walk away from that role of aid.

Aid is a flow. Debt relief provides the stock adjustment that reassures the investor community. And the HIPC process is that process of giving reassurance in countries which are making the policy adjustments.

Finally, we're seeing, during the last 20 years, the emergence not just of globalization in the economy, but of globalization in society, what you might call a process of globalization from below. It's the first time in history where you can point to concrete examples of collective action bubbling up from a society not organized by governments, that is international. And international corrective action is needed to correct a lot of the problems that generally apply to globalization such as environmental hazards, global warming.

MS. ANSTEY: Thank you very much. We'll throw it open to questions now. Just to remind you, the mics are coming around, and to announce your name and media outlet for the transcript which we will post. That was something of an economic lecture, so I hope you're up to the task. Yes, sir?

QUESTION: Warren Vieth, "Los Angeles Times." I have a question regarding cause and effect linkage here. There's sort of a suggestion that the countries that have done well here have done well because they have opened themselves to globalization. Is that indeed the sort of finding, or is it possible that these are simply two groupings of countries, one of which have a lot of things going for them, and another which don't, and it's not necessarily an issue of whether they do or don't want globalization?

MR. STERN: I'll say something briefly, then pass on to Paul and David.

If you remember, Paul showed this graph where the growth rates in the globalizing countries were increasing across the decades, and that was corresponding to the periods where their policies were improving strongly. So that association is strongly suggestive that opening up was an important part of the cause.

If you look at the structure of growth in the countries and see the growth of manufacturing, for example, that is associated with the growth of manufacturing in the exports. If you see this happening in countries which people previously referred to as being very disadvantaged, for example the last 10 years in Bangladesh, which is seeing strong opening and much stronger growth than before, again I think you can see these links.

There's no economic--it's a difficult subject--there's no proof of cause and effect, but there is strong suggestion here, and it's the kind of associations that I described, which do strongly suggest that the integration is a big part of the cause. Of course, it's not the only part of the story. Often those countries that we're talking about were forming other policies internally as well, and they were, many of them, embarking very strongly on educational programs, reprising certain markets inside the country and so on. So it's part of the story. It's part of the cause I think. If you look carefully at the evidence, that suggestion is pretty strong.

David, Paul, do you want to add anything?

MR. COLLIER: Yes, I'd just like to kind of say we're not saying if you open, you'll grow. There's a cumulative causation process, where if you do a range of things which is improve your investment climate, if you improve your investment climate and open, those two things will work together, and it's part of, as your manufacturing companies grow, they'll export, and as they export, they'll learn, and that will accelerate the growth process.

If you just open and do nothing, you've got a poor investment climate, and, no, openness is not enough, but it's part of a complex cumulative causation, which I don't think it's sensible to disentangle. And if you just open and have a lousy investment climate, the only things you'll be able to export are the primary commodities, and that doesn't do a whole lot of good. If it was going to do a whole lot of good, we'd have seen development before now, it would have happened before 1980.

MS. ANSTEY: Yes, ma'am? In the second row.

QUESTION: I am Ana Baron from Clarin Argentina. During the '90s Argentina was put as an example of opening, of economic reforms, of ameliorating the investment climate, and really open economy. Now, as you all know, we are in a big, big, big economic crisis. What happened? What is your explanation?

[Laughter.]

MR. STERN: Usually there are a number of things going on at the same time. In Argentina you saw a very big build-up of debt over time which has become a great burden as we all know. You saw a movement of the dollar relative to the euro, which was unfavorable to Argentina. You saw devaluation in a neighbor, and most recently you've seen a slowdown in the world economy. So all those things coming together have made life very difficult in the last few years for Argentina as we all know, and it's going through very difficult times.

But we hope very much that Argentina will pull through this period, and I think that the reforms that Argentina has put in place over the years will stand it in good stead for the medium and longer term, and I think the growth prospects are good.

But we all know these are difficult times, and as President--sorry--Finance Minister Cavallo said just a few days ago, maybe economists sounding off on Argentina haven't always contributed favorably, and I'm not going to add any more to that story.

QUESTION: Can I ask another small-

MS. ANSTEY: Well, can we just get--okay.

QUESTION: I wanted just to know if you think--you know, there is a big debate at this moment about the convertability, that this was one of the problems that whole economy--that led to the crisis?

MR. STERN: I think, I mean economists talk a lot about the virtues of fixed versus floating exchange rates, and of course the system that Argentina put in, the Currency Board, was a very strong version of the fixed rate. I mean economists will go on arguing about the virtues of those two systems, and I don't really have very much to add today to that one.

MS. ANSTEY: In the fourth row?

QUESTION: Jean Doublot from Agence France Presse. Why would you say or recommend for countries which have a lot to import but not much to export and are very poor--I'm thinking about, you know, South Africa, Sub-Saharan Africa or some countries in Central Asia--what was the recipe for--I mean, opening their market, yes, but for what?

MR. STERN: I mean there are no fixed recipes of development. I mean that's clear and one thing I hope we've all learned over these last years. But what we've also learned is that countries which many people previously thought were in very difficult positions, there's not much they can do, that once they started to look at the investment climate, to look at the education and skills of the people, once they start to open up, find out there are quite a lot of ways in which they can move forward, and that I think has been shown by the kind of examples which we've referred to here. And a lot of people in this group of new globalizers were people--were in countries where people said the situation was very unfavorable.

So I think there's a lot that creativity can do. But there are also countries which are geographically very challenged--sorry, that's an Americanism--but geographically find their life very difficult, and that's something which this report looks at in some detail. It may be that Paul or David want to add to that.

MR. DOLLAR: I would add to that that there's a long tradition of being pessimistic about exports in developing economics, and the evidence really suggests that the pessimism is often not warranted. So some of the locations that are doing well, you know, have a pretty nice location like Northern Mexico which borders on the United States, or Coastal China.

But I think what's interesting is that some of the areas that are doing well are places that were dubbed as basket cases 20 years ago. So Bangladesh has no great geographic advantage. The interior of China is doing extremely well. Uganda is a relatively bright spot in Africa.

So you can find locations that seem to have pretty difficult geographic challenges, and if they follow--you know, they've chosen to follow this path of trying to improve the investment climate, you know, get the ports, or if they're landlocked get the airports working, the rail infrastructure opened up, and we've seen that this basic package has worked in a lot of different locations.

MS. ANSTEY: Yes, sir?

MR. COLLIER: Can I just respond briefly? If the question is, is Chad going to break into manufactured markets globally, no. All right? Can such countries find a market niche in the world economy? Probably. Most unlikely to be manufacturers. It's got to be things that are not handicapped by a country being landlocked. Well, countries are landlocked, but they're not airlocked. Some are airlocked, but that's because they've got very poor policies towards regulation of aviation.

So if you're landlocked, don't be airlocked. And maybe there's opportunities in horticultural exports, wherever you manage to break into horticultural export markets will partly depend upon market access issues in developed countries, and so agricultural liberalization is going to be hugely important for the countries that can't make it in manufactures.

Also aid. These countries are dirt poor. They're not going to be able to lift themselves up by their own bootstraps. They will need large aid in floats. They're generally relatively small economies, so the bill isn't massive, but we can make a big difference.

MS. ANSTEY: Yes, sir, in the third row?

QUESTION: Parasuram, the Press Trust of India. You say in the report someplace that globalization is not as important to large countries like India and China as it is for the smaller countries. I was wondering whether you could elaborate on that? Is that because they've got large internal market?

And secondly, you see a news item that in the United States, most industrialist country, they are not able to strand competition of steel, and the steel industry warns that as much as--and what does it do to globalization now that we are talking about? And also the (?) a cap on global production of steel. That means that you are really back to what we used to do in India, find out where market is, and then see how much have been produced in the country, going back to controls. And to what extent is this a setback to globalization?

MR. STERN: It is clear that small countries, you would expect more countries to have a much higher fraction of output going to trade than big countries, and for that reason, trading opportunities are relatively more important for small countries. But what we've seen from India and China is just how important they are to big countries too. And in the last 20 years or so, particularly the last 10 in the case of India, what you've seen is a very strong opening of the economy to trade, and as you essentially implied from your question, very strong rewards in terms of economic growth. And I think those rewards to opening up will continue, both for India and China. So, yes, more important for small countries, but we've seen how powerful they can be in the bigger countries too.

As Paul and David have emphasized, it's not just a trade story. We all know that other sorts of reform have been going on in India and China as well, and they also have been part of the story.

I do think that this is a very important moment for the rich countries to take a stand against protectionism. Above all now, after September 11th, we realize that we're in an integrated world, and what happens in one country has a profound influence on what happens in another country.

It is no good to the world as a whole if we see increasing poverty and a slowdown in growth in the world economy. That can come from increased protectionism. So I think now, of all times, it's particularly important that we all speak up in favor of moving ahead in the program that was set out in Doha, and that the rich countries should go beyond simply the multilateral discussions and do what they can, and do what they should, in bilateral agreements as well.

I think the AGOA program for Africa, which Paul described, a U.S. initiative, was a very good one. I think the U.S. played a very positive role in getting to Doha and during Doha. So I think that there have been very positive signs in the U.S. in terms of an understanding of the importance of integration, importance of improving market access. And I hope that those will be the points of view that will prevail in the U.S. and of course in other parts of the world as well. We're talking about Europe and Japan also when we're talking about protection.

MS. ANSTEY: Yes, second row there and then straight behind, and I'll try to come to everyone.

QUESTION: Hi. Paolo Sotero from "O Estado" de Sao Paolo. I'd like you to comment on the situation of my country, Brazil. There seems to be--I don't know how you classify Brazil in this, a reluctant globalizer or something like that, and the discussion in Brazil--this discussion is very much alive there. And I wanted to see your comments about some of the arguments. For instance, one of--we come from a very strong tradition of protectionism, and we did very well under protectionism, by the way. We have been opening and the discussion now is, you know, in order to open more--well, it is very difficult to open when you are very competitive in agriculture, but the Europeans are really obscene in their protectionism agriculture. And the Americans now, the Congress in the United States, is copying that.

In steel and in other things, well, we're very competitive, but cannot export that, or not as much because, well, there is protectionism there, and maybe they will give President Bush trade promotion authority. If they tie Mr. Zoellick's hand tight enough in Congress, they will negotiate the conditions and give them the trade promotion authority here. But under this scenario that we are seeing here, how do you see the chances--or what a country like Brazil should do in this scenario, facing the real difficulties of being an exporter of agricultural products, of manufactured products, of airplanes, of all kinds of things? It's going for the niche thing? What is the solution?

MR. STERN: I think the key point here is that liberalizing Brazil's own trade will generally be good for the Brazilian economy. It would be much better if your market access was improved, but the restrictions that you face in other markets are not an argument for restricting your own markets. In fact, restricting your own markets will make Brazil worse off. And so that most of the liberalization measures one would point to for Brazil itself will be measures which on the whole would bring benefits to Brazil, and they would be so much more powerful if market access, as you describe, was improved.

So I think Brazil should do two things. One is to keep going on the reform, and the second is to use its considerable voice and influence on the world stage to speak up strongly for improving market access in other countries.

MR. DOLLAR: Can I just add briefly to that that I also think Brazil is a good example of a country where this issue of the investment climate is very important. Paul mentioned that this whole process of opening up and globalization is quite messy, and one piece of evidence there is that in a more open environment you can expect to have a lot more firms closing and you can expect to have more firms opening. A lot of the benefit comes through this churning, this dynamism. And sometimes those could be in different sectors, sometimes they'll be just a very slight change in the product.

But then the important question is, is it easy to start up a firm? You know, what is the regulatory environment? Can you get financing to start up a firm? And is it a good environment not just in one city in a huge country like Brazil, but do you have locations around the country where firms can start up and expand?

So I think that's an important lesson that developing countries are learning from each other, is that some locations are creating a good environment for starting firms and expanding, and that's where you really see the strongest benefits, and if you have the openness, but not such a good investment climate, then you get much weaker benefits from the whole process.

MR. STERN: I think also I would add the economic forecasting is a very dangerous thing, but I would like to forecast at this stage that you are about to see a substantial turnaround in the fortunes of the Brazilian football team, and they've got a very good draw in the World Cup. They're going to do well.

[Laughter.]

MS. ANSTEY: Yes, ma'am, in the middle.

QUESTION: Hello. Christiana Oelrich with the German press Agency. I would like to focus on the plan of action. All the points you've raised are great. None of them have been raised for the first time, but still nothing has happened as regards subsidies, market access, increased aid. What needs to be done to bring these actions about and how confident are you that this report is going to make a difference?

MR. STERN: I don't think it's right that nothing has happened. You're certainly right that these points we're raising are not new, but I think what we're doing is martialing evidence of the kind that you've seen today, which I think makes those points more powerfully and makes the argument for the returns to market access and the returns to aid more powerfully than we've seen in the past.

So I think it's important to bring the evidence to those arguments.

Nothing's happened? I think if you look at the examples of everything, if you look at Doha, if you look at AGOA, the U.S. initiative on Africa, these were movements in the right direction. If you look--and the report tracks much of this--if you look at the way in which tariffs have been going down over time, you will see movements in the right direction. So it's not correct that nothing has happened. We wish that it happened more quickly and there's a very great deal to do and big returns to further moves in those directions.

I think also if you look at the atmosphere, for example, around the recent World Bank Development Committee meetings in Ottawa, you will find much stronger commitments than we've seen in the past, at least in terms of the discussion. Gordon Brown, the UK chancellor, was broaching a plan for raising another $50 billion a year in aid, which is the kind of sums we're talking about here. Chancellor Schroeder of Germany, just a little while later, raised the issue of Germany moving towards 0.7 percent of their GDP in aid.

I think that we have to keep the arguments going and keep the momentum, which I do think is moving in the right direction. And it's the job of the--it's the job of ourselves as analysts, but also of the politicians and people of the richer countries, to look at the evidence and to make the moves, and these are political decisions in those countries themselves. And in part, what we're saying today is addressed to the constituency of those rich countries which are going to have to take a lot of the market access and aid decisions.

MS. ANSTEY: Yes, in that row?

QUESTION: Mark Dragin from Bloomberg News. I was interested in a line in the report that specifically backs the capital controls that India and China have in place. I was just interested in first whether India or China are included in the groups of rapid globalizers, and secondly, whether this is a change in orientation by the World Bank? In the past I've heard what I heard Mr. Stern say today, that countries should be careful when they're opening up their capital markets and be sure that regulation is in place. But in the report you seem to be taking a step beyond that, saying that in fact these capital controls in India and China are really beneficial to both of those countries.

MR. STERN: Yes. I don't think that there's any difference between what we've been saying and what the report says. It is essentially that there are benefits to capital market liberalization but there are risks too, and that if you want to move forward in a careful way that takes account and takes some measure to control those risks, then it's important to link the capital market liberalization to the strength of the internal financial systems. That is something that we have argued for some time, and I don't believe that the report takes any different position from that.

Anything, David, Paul, you want to add to that?

MR. DOLLAR: Well, just factually, China and India are part of those rapid globalizers, and I think the point at one point we were trying to get across is that in China and India you're going to have kind of an increasing openness of the capital account regardless of government policy, where if there's a certain leakage that's starting to occur, and so it's very important to be strengthening the financial system in preparing for that, so we wanted to kind of distinguish between the sort of a simple blanket recommendation, open up the capital account, which we're definitely not making, and we wanted to be very clear about that; and then also to be saying current policy makes a lot of sense, but officials have to be preparing for a future where you're going to have a more open capital account and actually see both China and India doing that.

MS. ANSTEY: Yes, sir?

QUESTION: Claus Tigger with the Frankfurter Allegemeiner. In describing the third wave of globalization you mentioned that one of the driving forces behind this is the increased trade in manufactured goods, and I believe the economic argument behind it is the traditional one of comparative advantage. If that is the case why hasn't this third wave started a decade, two, three decades earlier?

MR. COLLIER: The developing countries, if you go back, there were two bases for comparative advantage. They had a lot of land and natural resources and they had a lot of labor. But in order to harness that labor through manufacturing, you need a lot more than just cheap labor. Just cheap labor isn't enough. Manufacturing is immensely intensive in transactions. Think what manufacturing is, it's bringing in loads of inputs, adding a little bit of value and selling them again. And if the environment, either the regulatory environment or the infrastructure environment isn't conducive to low transactions costs, you haven't got a hope in manufacturing, however cheap your labor.

And so it's only recently that developing countries have managed first to improve their investment climate sufficiently, and partly, of course, the wage gaps got very, very wide. By 1980 you were looking at a horrendous picture of inequality, which you're starving to narrow, right? But it was that combination of huge wage inequalities and improvements in the investment climate which enabled some developing countries to break in. Once they broke in, they then managed to get scale economies and agglomeration economies, which made the process accelerate.

MS. ANSTEY: Yes, sir?

QUESTION: My question is to Mr. Collier. Mr. Collier, you mentioned something about globalization reversal at the turn of the century. My question is, would it actually--you didn't tell us why that happened at the turn of the century, and if you see any possibility of this happening again now. And actually I'm thinking of heightened security concerns all over the world, and again, there could be a slowdown of immigration, possibly again capital to certain countries, the flow of--and trade to certain countries? So, yeah, that's my question basically.

MR. STERN: Well, both Paul and I emphasized on policy fronts you can see reversals, and we did see strong reversals in the inter-war period, and the challenge now is to make sure that those reversals don't take place and we really do work to include many of the people who have been left out of the story so far. And that is really the key part of the message from this report, is working to keep that process of globalization going, but in a way which includes people, in a way that brings in the 2 billion people in countries that have been left out, in a way that even in those countries which have been doing quite well, poor people are included in the process.

And that means bringing education and health internally; it means working on the policy environment internally; it means aid; it means improved market access. And that challenge of inclusion I think what this report highlights the most strongly because it shows what's possible, it shows that globalization can work. It shows that we have to go forward, not to make the mistakes of the inter-war period, but at the same time, it shows that the work which the international community has to do to bring those people who are not now benefiting from that into the story.

MS. ANSTEY: Yes, sir, in the second row here.

QUESTION: You seem to be linking your optimism to the September 11. Some of the evidence on ground is quite to the contrary. At the peak of U.S. need to get Pakistan on board, Pakistan's Minister came here. They wanted to do negotiation, they wanted more market access. But all that--the political requirement also did not help, and ultimately indigenous textile industry put down and nothing happened. So the point is that perhaps when the need for this international collaboration and coalition goes down a little after the series of victories, the U.S. approach may be even more hardened with regard to protectionism than it is at present.

MR. STERN: As I've said before, I think the U.S. has taken the lead actually in this area. They were very strong in the period up to Doha and in Doha itself, in bringing that to a successful conclusion. We all know that there were difficult issues, and as you know yourself, India indeed was involved quite intensively in the discussions in Doha. But I think the U.S. has shown a very positive attitude during that period.

On Pakistan, I was in Pakistan with some colleagues earlier this year, and as you know we have a World Bank office there, as in most developing countries, working closely with the government and people. And I think that you will find that the policy environment in Pakistan for growth and poverty reduction has improved significantly over the last year or so. And it's for those reasons that World Bank and IMF have bene moving towards a Poverty Reduction Growth Facility in the case of the IMF, and Poverty Reduction Support Credit in the case of the World Bank.

So in terms of these two institutions, I obviously can speak only for the World Bank here, I think you'll see that what we're doing and what we plan to do in Pakistan is based on a serious careful collaborative work with the Pakistan authorities and based on track record so far. And that is primarily what moves us.

Now, the last point that I wanted to make, is that we are concerned about the outlook for the world economy. It is true that you're seeing the three big parts of the rich world, the U.S., Europe and Japan, all slowing down at the same time. September 11th has made that worse. It has made the position of the developing countries particularly fragile. As Paul mentioned, commodity prices are a big part of that story for many developing countries, particularly for Africa. In East Asia and Mexico and other Latin American countries, it's a drop in U.S. demand. For some of the countries near Europe, the drop in growth rates for European demand are also important to their exports.

So for many parts of the developing world, the last year or so, particularly post-September 11th, represents a real challenge. And so we're not trying to present an optimistic picture. What we're trying to argue for is, say, a very positive response, an international response to those challenges, first with the rich countries moving to get their economies going again, but second--and this is particularly important in the context of this report--to make sure that the issues of market access go forward and that the opportunities for developing countries, particularly now, are expanded.

MS. ANSTEY: Thank you very much, ladies and gentlemen.

[Whereupon, at 11:13 a.m., the press briefing was concluded.]





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