Matter Of Values

The media are awash with talk about reform of the global financial architecture, but they focus mainly on discussions taking place within the Group of Seven or
the larger Group of 22. The views of non-neoclassical economists and NGOs, do not count at all.

It is necessary to crash this exclusive party talking about the financial order of the world.

Õ First, because those who are actively debating this issue are, for the most part, still arguing within a paradigm of neoliberal economics that has been central to generating this crisis.

Õ Second, because devising a global financial order is not simply a matter of technical economics but of values, and the main values and priorities of those who are managing this process are
different from those of the great majority of the world's population.

Õ Third, because this process is, first and foremost, a question of power, and unless we do our best to gatecrash this gathering, what will emerge will simply be a global architecture benefitting a
tiny global elite and leaving out the vast majority of the world's peoples.

The most important proposals for world financial reform fall into three different groups: the "It's the wiring, not the architecture'' school, the "Back to Bretton Woods'' school · which are both
neoliberal in approach · and the "Change the development model'' school.

"It's the wiring, not the architecture" is basically the US position · though it is shared to some degree by many of the G-7 members, with probably the notable exception of Japan.

This school assigns primacy to "reforming'' the financial sectors of the crisis economies through greater transparency, tougher bankruptcy laws to eliminate moral hazard, prudential regulation using
the "Core Principles'' drafted by the Basle Committee on Banking Supervision, and greater inflow of foreign capital not only to recapitalise shattered banks but also to "stabilise'' the local
financial system by making foreign interests integral to it.

It also supports the expansion of the powers of the IMF, proposing not only greater funding but also new credit lines, such as the "precautionary credit line'' that would be made available to
countries that are about to be subjected to speculative attack, depending on a country's adherence to the Fund's macroeconomic doctrine.

The "Back to the Bretton Woods Systems'' school would implement tougher controls at the global level, in the form of the Tobin Tax or variants of it on capital inflows and outflows at all key points
of the world economy in order to "throw sand in the wheels'' of global capital movements.

This school sees the World Bank, the IMF and the WTO as central institutions of a world regulatory regime but which must be made to move away from imposing one common model of trade and investment on
all countries.

In contrast, the "Change the Development Model'' approach considers the IMF and WTO, in particular, as beyond reform because of their deep neoliberal indoctrination and the hegemonic influence within
them of the United States. They serve merely to order the global system in favour of the North.

This school's views the possibility of imposing global capital controls or prudential regulations on hedge funds and other big casino players with the same scepticism and would tend more towards
national capital controls.

The main problem, for this school, is not the volatility of speculative capital but the way that the export sector and foreign capital have been institutionalised as the engines of these economies.
The problem is the indiscriminate integration into the global economy and the overreliance on foreign investment, whether direct investment or portfolio investment, for development.

The tenets of the alternative model are as follows:

· While foreign investment of the right kind is important, growth must be financed principally from domestic savings and investment, which means a good, progressive taxation system.

· While export markets are important, they are too volatile to serve as reliable engines of growth. Development must be reoriented around the domestic market as the principal locomotive of growth.
Together with the pitfalls of excessive reliance on foreign capital, the lessons of the crisis include the danger of the region's economies' tremendous dependence on export markets.

· Making the domestic market the engine of development, to use a distinctly unfashionable but unavoidable term, brings up the linkage between sustained growth and equity, for a "Keynesian'' strategy
of enlarging the local market to stimulate growth means increasing effective demand or bringing more consumers into the market via a comprehensive programme of asset and income distribution,
including land reform.

· Regionalism can become an invaluable adjunct to such a process of domestic market-driven growth, but only if both processes are guided not by a perspective of neoliberal integration but by a vision
of regional import-substitution and protected market-integration that gives the region's producers the first opportunity to serve the region's consumers.

· A universal theme of the alternative development camp is "sustainable development''. In place of 8 to 10 percent growth rates, many environmentalists are now talking of rates of three to four
percent or even lower. This links the social agenda with the environmental agenda. One reason for pushing high growth rates was that the elites could corner a significant part of the growth while
still allowing some to trickle down to the lower classes for the sake of social peace.

The alternative · redistribution of social wealth · is clearly less acceptable to the ruling groups, but it is the key to a pattern of development that will eventually combine economic growth,
political stability and ecological sustainability.

Walden Bello is professor of Sociology and Public Administration at the University of Manila and co-director of the Bangkok-based Focus on the Global South.