On the Agenda: Inclusive Globalization

crnogorski

Author: Jan-Peter Olters, World Bank Representative in Montenegro

Published in Monitor, Vol. 19, No. 911 (April 4, 2008),

“Tema dana: globalizacija na korist svih”, pp. 32–33.

In a few days, finance ministers and central bank governors of the 185 member countries governing the World Bank and the IMF, including Montenegro, will descend on Washington to assess the state of the world economy and debate ways of how to best design policies that would most effectively respond to new challenges. Clearly, the clouds over the economic horizon have darkened considerably in recent months. The depth of the financial fragility caused by the decline of real-estate prices in the US and the resultant increase in defaulting has become increasingly clear, with large-scale bank bail-outs in Germany, the UK, and the US. External imbalances among world economies persist and have contributed to the continuing decline in the value of the US dollar, with a tangible impact on international competitiveness of countries using the euro. Rising energy prices and accelerating inflation rates have affected real incomes, particularly those of the poor. On the eve of this bi-annual get-together, the task of policy-makers to maintain macroeconomic stability and foster socio-economic development has become considerably more difficult.

The US dollar depreciation also implies that the real value of the budgets of Bretton Woods organizations declines. This fiscal pressure necessitates country delegations to engage more actively in a debate with their Washington-based counterparts on the most effective instruments of collaboration. The principal direction of engagement, however, has already been agreed upon. About 5½ years ago, Horst Köhler, at the time Managing Director of the IMF, gave a speech entitled “Towards a better globalization.” Half a decade later, with new insights, this view was echoed by World Bank President Robert Zoellick who outlined, in his speech on “Catalyzing the Future—An Inclusive and Sustainable Globalization,” the Bank’s evolving priorities and strategic objectives. These two titles nicely encapsulate the broad direction.

Globalization is here, and it is here to stay. Member countries have largely accepted this and are adjusting to the constraints (and risks) of the interconnected world economy. Each country, in assessing its relative advantages and disadvantages, devises policies aimed at enabling domestic firms and citizens to benefit from a process that is characterized by ever higher rates of cross-border investments, capital flows, and specializations in skills and qualifications. Globalization has lifted barriers and encouraged innovation. It has created opportunities and increased average wealth. But it has also led to anxieties and concerns. Not everyone wins in this process and not everyone is above average. Many remain excluded, and some are falling further behind, both individually within countries and collectively as an economy in its entirety. National economies compete for capital and know-how, for skills, for investments, and not least for market shares of the goods that are produced domestically. This competition creates external pressures and the need to engage in (what German-speaking economists call) Standortwettbewerb, the competition among countries to provide as favorable a business environment as possible to be able to attract (foreign) direct investments and foster private-sector activities—a precondition for growth, job creation, and improved living conditions. As we have seen here in Montenegro during recent months in the debate on the new labor law, these pressures for reform and the continuous need for adjustment create their own political challenges.

The recognition of both globalization’s inherent potential and the accompanying risk has become the starting point in the ongoing policy dialogue between national governments and international financial organizations. In Robert Zoellick’s words: “It is the vision of the World Bank Group to contribute to an inclusive and sustainable globalization—to overcome poverty, enhance growth with care for the environment, and create individual opportunity and hope.” The World Bank’s emphasis on social inclusion—apart for reasons valid in themselves—stems from global experiences that social tension and large income inequalities lead to lower rates of potential growth, weaken political cohesion, contribute to environmental degradation, and add considerable costs to societies in terms of foregone opportunities. The principal challenge of economic policy-making thus consists of increasing the overall productivity of invested capital and employed labor with the instruments that governments have at their disposal—public institutions, laws, regulations, and mechanisms ensuring their rules-based application.

The World Bank’s role in this region has changed dramatically—from post-conflict reconstruction and state-building to supporting ambitious reform agendas for countries approaching the EU standards. In this context, among the World Bank’s six strategic orientations, one relates explicitly to the development of a more differentiated model for middle-income countries. Strong emphasis is being placed on understanding why—in so many instances—rapid economic growth has failed to provide opportunities for the poor. Some partial answers are immediate, including social services, public infrastructure, energy, and the environment, posing hard constraints on economic development potentials. The full answer, however, has not yet been found and is subject of the upcoming debate in Washington.

Recognizing this, countries in Southeastern Europe, like other middle-income countries, have been urging the World Bank to offer high-quality development solutions to very specific problems, to provide more flexible and better-priced banking services, with less bureaucracy, tedious procedures, and shorter turn-around times. They have requested more customized, just-in-time knowledge and advisory services, recognizing the World Bank should play a more active role in fostering regional solutions, where possible, to critical challenges in areas of energy, environment, and climate change.

The World Bank—within its mandate, its financial resources, and its unique experience as an institution of knowledge and learning—needs to continuously ask itself what it takes to achieve inclusive growth and sustained socio-economic development. This reflection, as Robert Zoellick has emphasized during the last gathering, requires humility and intellectual honesty. The institution is not infallible, and a certain number of development schemes have failed in the past. In a rapidly changing world, relevant advice changes with it, requiring staff to remain attentive and critical. This cannot be done in an ivory tower. The policy dialogue between the World Bank and its members—including stakeholders outside the public administration—needs to continue, deepen, and focus on ways to achieving a better globalization.