April 23, 2000

Information, Capital, Alliances Wave of the Future

One-issue radicals were out in force again last week at Washington, D.C., protesting – about what, they were not sure.

Alleged target was the annual meeting of the International Monetary Fund and its partner, the World Bank Group.

The marching and shouting was sequel to the anarchy that turned the World Trade Organization meeting at Seattle into a shambles of destruction and looting. This time, however, District police kept the streets open by arresting 1,300 trouble makers and corralling the remainder.

The umbrella issue of protesters was “globalization.” They are again’ it, what ever it is. Jobs, trees, gays, owls, environment are just a few good things threatened by “one worlders.”

There certainly are problems adjusting to a global economy. Identifying and defining them is unsettling. In addition to the IMF demonstrations, examples popped up elsewhere last week:

• Congressman Dick Gephardt, minority leader of House Democrats, joined labor unionists in opposing President Clinton’s proposal for China’s membership in the WTO.
• The U.S. balance of trade fell to a record deficit of $113.4 billion.
• Sub-Sarahan Africa nations, and American advocates, launched a drive in the United Nations for forgiveness of international loans.
• U.S stock markets suffered losses bordering on crash, primarily with technology companies.
• North Korea and Vietnam admitted severe economic difficulties and pleaded for help.

Like it or not, the world is shrinking to global interdependencies.

Big producers -- with abundant natural resources and access to capital -- need markets to maintain their high standards of living. Small nations without these advantages need markets to raise their standard of living.

To help level the playing field, an array of international regulators has been devised.

The WTO is comprised of 123 nations that agree to follow mutual trade regulations, promote free trade agreements and abide by rulings in trade disputes.

The IMF, an agency of the United Nations, is charged with stabilizing world currencies. It maintains a depository of $220 billion contributed on a quota basis by its 181 member countries. The largest contributor, America, keeps $26.5 billion in the pot.

If a member’s currency value falls below a designated exchange rate, IMF advances a loan to buy that nation’s excess exchange money – in effect, a low interest loan. To ensure replenishment of the bail-out fund, economic reforms are imposed. Among these is additional bank reserves (requiring tax increases) and a ban on printing new money (devaluation of money).

The World Bank works closely with the IMF and maintains funds contributed by the five largest nations – principally, again, by the United States. It makes capital available to developing nations for construction of projects intended to improve their economies.

A Heritage Foundation study of World Bank loans found startling results. Of 89 less-developed countries that received World Bank loans from 1965 to 1995, 48 are no better off in terms of per-capita wealth. Of these 32 are worse off.

Approximately $94 billion in World Bank loans are in default. This is the debt that poor countries want “forgiven.” U.S. taxpayers are expected to eat $18 billion of it.

More and more, international regulation of trade appears to be schemes to transfer wealth from haves to have-nots – laudable, but self defeating if carried too far.

Economists are unsure about the impact of rules on trade.

On the one hand, prosperity may be enhanced by free trade and currency manipulation. On the other hand, giving money to developing countries – in hope they will become successful trading partners – may steer limited working capital to dead ends.

This is why President Truman wished he could find a one- armed economic advisor.

Today’s prosperity in the United States – which began in 1988 with a tax cut and end of the Cold War – is the longest in our history. However, not all nations share the good times. Economic stress is a reality in most Asian, African and South American countries.

The global trade tariffs of the late 1920s – coupled with dissipation of capital through bad credit -- was a castrophe of epic proportion. Thus today, excess credit and opposition to free trade is worrisome.

Small nations with limited resources can not compete in the modern world of freely flowing information and capital. They must move into, perhaps, a half-dozen economic unions. The united Euro states of Europe, and the North America Free Trade Alliance is the wave of the future.

Fasten your seat belts.

PARTING SHOTS

Roy Block wonders: “Why is it that the people who how to run the country are cutting hair or driving taxis?”

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Sen. John McCain journeyed to South Carolina to apologize for not denouncing the Confederate flag during the primary election. Mistake. In politics it’s better to be never than late.

Lindsey Williams is a Sun-Herald columnist and can be reached at linwms@lindseywilliams.org