Financial Globalization: New Challenges for Peoples’
Movements
By Kavaljit Singh
There is no denying the
fact that the globalization of finance has surpassed the globalization of
production. With a daily turnover of 1.2 trillion dollars in 1995, the global
currency trading has gained a life of its own, and much of it is hardly related
to the real economy. The deregulation and globalization of financial markets -
as twin elements of the Washington Consensus - in developing countries coupled
with lower interest rates and institutionalization of savings in developed
countries, are the main factors behind the rapid transborder
capital mobility.
However, increased global
capital mobility has been accompanied by an increased frequency of financial
crises in both the developed and developing countries.1 The fact that there is a
positive correlation with international financial liberalization and financial
crises has been well established. Even the International Monetary Fund (IMF)
has admitted this fact. In a recent study, which looked into the empirical
relationship between banking crises and financial liberalization in 53
countries during the 1980-95 period, the IMF also came
to the conclusion that banking crises are more likely to occur in liberalized
financial systems.2
As recent financial crises
are the outcome of international financial liberalization, there is a growing
concern to restructure the present international financial architecture.
Surprisingly, the need for effective and meaningful regulations is not only
expressed by leftists economists or radical groups,
even the true believers of liberalization and globalization are also advocating
the relevance of capital controls and regulatory mechanisms. Critics had never
anticipated that the tide against free-market financial system would turn so
quickly. Perhaps, certain recent events, particularly the contagion effects of
the Southeast Asian currency crisis and the near collapse of a multi-billion
hedge fund, the Long-Term Capital Management, seem to have contributed in the
sudden change of mindset. Increasingly, it is being admitted that if the
international financial system is not regulated, no country can remain immune
from the impact of financial crisis.
The Response of Peoples' Movements
In recent months,
restructuring of the global financial architecture has become the key theme in
the ongoing international debates, as witnessed during the just concluded
annual meeting of the World Bank-IMF.
However, peoples' movements, NGOs, and labor organizations, in both
developing and developed countries, have yet to respond - effectively and
critically - to the issues emerging from globalization of financial markets.
There could be two
important reasons behind this. Firstly, financial markets are a new subject for
peoples' movements, which have largely been dealing with either foreign direct
investment (FDI) or official capital flows - multilateral (e.g. World Bank,
IMF) or bilateral. Second, and perhaps more importantly, there has been a lack
of information and understanding on issues related to global finance. No doubt,
financial matters are very complex and require a considerable amount of
expertise and experience, which, unfortunately, many groups do not possess.
Therefore, a well-thought and coordinated action program by the social
movements at various levels is yet to emerge.
The Indian Scenario
At the political level,
except for a few issues such as liberalization of insurance sector, there seems
to be a growing consensus among mainstream political parties in
There is no doubt that in
recent years, the Indian groups have shown to the world that mass campaigns can
be successfully launched campaigns against many World Bank-funded projects
(e.g. Narmada dam and Singrauli
power projects). Similarly, many struggles and campaigns against FDI have come
up in
Like others, the Indian
groups also lack the expertise on global financial issues. Although a large
number of research institutes working on financial matters exist in the
country, but most of them serve the information requests of corporate sector.
Since the reports and journals published by these institutes are very
expensive, the activists and movements are unable to afford these. Furthermore,
to keep in tuned with the changing economic and political scenario, many
institutes have radically changed their perspectives and as a result, have
become greater votaries of financial liberalization in recent years.
Thus, the task of
providing regular information to movements has been left to a handful of
research groups and socially committed intellectuals. With their limited
resources and outreach, efforts are being made to provide information and
campaign tools to activists and groups in the country. In recent months,
efforts have been made to demystify the complex issues related to globalization
of finance in order to democratize the debates.5 Such efforts need to be
further supplemented by preparation and publication of educational materials
for the masses, especially in local and regional languages in
What should be the Agenda of Social Movements?
Given the present
geo-political conjuncture, one cannot expect any major structural changes in
the global financial system to take place, without mass mobilization and
empowerment of people in both developed and developing countries. Perhaps, more in the developed countries from where the majority of
these financial flows originate.
As the financial crises
are, increasingly, becoming global in character, the response of the social
movements to address these issues should also be global. Although the arena of
mass struggles by the movements may remain national, but transborder
alliances and linkages with other groups need to be developed and strengthened.
Further, the struggles against the global financial system cannot be fought exclusively, it should be an integral part of wider
cross-sectional movements against neo-liberalism and global capitalism.
But, the earlier
successful methods and strategies of campaigning and lobbying with official
capital flows (World Bank, IMF) are unlikely to work in the case of finance
capital. While the World Bank and other institutions (multilateral and
bilateral) are “public” institutions, have a mandate for poverty alleviation and
sustainable development (although one may dispute the seriousness of intent and
differ with their approach towards it), on the other hand, private finance
capital is only looking for profits, has no developmental agenda, and is only
accountable to its shareholders - with no responsibility for public
participation and disclosure of information.6
Furthermore, it is
relatively easier to target campaigns and monitor the funding by the World
Bank, the IMF and the ADB, while much of global finance capital is liquid and
footloose in nature, moving from one country to another within seconds, thereby
making it extremely difficult for social movements and others to monitor it.
Similarly, the earlier strategies of campaigning (e.g. labor, legal or
environmental action) on private capital flows that were largely in the
form of FDI may not work in the case of footloose finance capital.7
In the given economic and
political context, an action program calling for total elimination of global
financial flows is unlikely to succeed, although it may be desirable. The
author is of the opinion that action programs based on restricting
international financial liberalization and selective delinking
from short-term and speculative funds may have better chances of success. This,
however, does not mean that one is blindly supporting long-term FDI and other
types of financial flows. There is no doubt that the cost of FDI is also high
as capital can move out through royalty payment, dividend, imports as well as
other illegal and legal means.
The strategies of
struggles will differ from country to country depending on specific context;
still a number of common action programs could be planned at both recipient and
source countries. Some of the common action programs are outlined below. These
are not definitive but could serve as a starting point for further debate and
development.
Action Programs in Recipient Countries
At the national level, the
groups and movements should advocate for greater regulations with regulatory
bodies. Efforts should be made by activists and groups to put strict capital
controls on the inflows of speculative funds in order to prevent the emergence
of a crisis-like situation. In this context, it will be worthwhile
to examine the efforts by
The recent experience in the recipient countries suggests
that policy makers and regulatory bodies, very often, tend to overlook the
problems during the boom periods (when massive capital flows move in). However,
their response is quicker during the bust periods. The policy makers cannot
remain blind to the fact that those people (usually the upper middle class and
rich) who are the main beneficiaries during the boom periods are not the real
losers during the bust periods. While vast sections of society (consisting of
the poor and lower middle class) do not gain during the boom period, as their
purchasing power is very limited or negligible - are the worst sufferers during
the bust phase, which is accompanied by job losses, fall in real wages, high
inflation, high taxes, and reduced public expenditure.
Although with globalization, the power of nation-state to
pursue independent economic policymaking has weakened, still nation-state can
restore relative autonomy in the management of its economy, as witnessed
recently in
Action
Programs in Source Countries
The NGOs and peoples' movements in source countries will
have to take serious notice of global finance capital. They will have to exert
public pressure on regulatory bodies for strict regulatory mechanisms and
disclosure standards. Certain types of financial instruments (e.g. hedge funds)
are highly unregulated in their source countries. The recent collapse of
In source countries, any
campaign against the global finance capital is unlikely to succeed without the
support of middle class investors who invest their savings in the mutual funds,
pension funds, bonds and other financial instruments. Since the size of this
community is very large, running into millions, the capital collectively
contributed by them is in trillions of dollars. In
In recent years, a few
attempts have been made by NGOs in
The
Need for International Action
While working at the national level (both recipient and
source countries), peoples' movements and groups will also have to address the issues
at the international level. The need to work at the international level is necessiated
by the fact that financial globalization can also cause serious damage to world
financial markets and the real economy. The growing trend
towards mega-mergers and acquisitions in the banking and financial sectors
further calls for international action in terms of regulation and supervision.
Some of the proposals to deal with the financial issues at the international
level are discussed below.
Tobin Tax: Given
the volatility of short-term flows, the Tobin tax could serve as perhaps the
best instrument to discourage short-term flows. However, this idea needs to be
updated, modified and debated in the present context. The Tobin tax is also
desirable from the point of view of its revenue potential. It can generate forex reserves, which can be used during the period of
currency flight. Its counterpart domestic currency and financial resources can
be used for the removal of poverty, hunger, environmental degradation,
illiteracy, etc. The revenue potential of a 0.25 percent tax in the 1970s was
relatively modest; with the 1995 global forex volume,
annual revenue raised would be closer to $300 billion.8
This amount is very tempting given
the fact that international official aid has declined over the years, and the
national governments are faced with less financial resources for social sector
spending due to the implementation of structural adjustment programs.
The idea of Tobin tax has certainly generated a lot of
interest among many economists, NGOs, trade unions and political groups all
over the world. This became very evident during the World Social Summit in
1995, when many social groups and movements advocated the imposition of Tobin
tax to raise additional resources to finance developmental projects. The groups
could immediately launch a major international campaign for Tobin tax.
A New Global Institution (World Finance Authority)?: Since the existing international financial
institutions are unable to deal with the global financial issues and cannot
enforce regulations, a proposal for creating a new global institution (World
Finance Authority) has been put forward by Lance Taylor and John Eatwell.9 According to the proposal, this new institution
should have adequate executive authority to monitor and regulate global
financial flows. This institution could ensure transparency and accountability
of the IMF and the World Bank. Besides, it could also monitor and regulate the
activities of international banks, currency traders, and fund managers.
At this stage, it is
unlikely that such an institution will be created, given the hostility of
global financial institutions, particularly the IMF and fund managers, to have
a supranational body to oversee their operations. However, the British Prime
Minister, Tony Blair, who is also chairing the G-7 nations, has recently
supported the need for such an institution.10 In an unexpected move,
The groups will have to
closely monitor the developments related to the creation of a World Financial
Authority. They will have to ensure that this authority should function under
the UN system, besides it should have a wider developmental agenda with an open
and democratic process.
In the short run, ongoing
campaigns against the OECD proposal for a Multilateral Agreement on Investment
(MAI), which includes capital account liberalization, should be further
strengthened. Similarly, campaigns against the rewriting of IMF articles
favoring full capital account liberalization as well as against the
liberalization of trade in financial services under the WTO agreement should be
immediately launched by the NGOs and movements.
In the coming days, NGOs
and others will have to grapple with and take notice of two major international
institutions that deal with finance capital. These institutions are the Bank of
International Settlements (BIS) and the International Organization of
Securities Commission (IOSCO). The BIS is the oldest international financial
institutions. Located in
Towards A New Strategy?
Finally, I am of the
opinion that peoples' movements need new tools of analysis and advocacy to deal
with the globalization of finance. It is high time that activists and groups
start understanding the language, procedures and working of finance capital in
order to effectively deal with it. Perhaps, activists need to heed the advice of
Brent Blackwelder of Friends of the Earth, “NGOs need
a ‘quantum leap’ from
Notes and References
1. UNCTAD, Trade and
Development Report 1998, United Nations, 1998.
2. Asli Demirguc-Kunt and Enrica Detragiache, “Financial Liberalization and Financial
Fragility,” Working Paper WP/98/83,
IMF, 1998.
3. Kavaljit Singh, The Southeast Asian
Currency Crisis and
4. Shripad Dharmadhikary,
“Campaign Against Narmada Bonds,” in Kavaljit Singh, A Citizen's Guide to the Globalisation
of Finance, Madhyam Books and Zed Books, 1998.
5. See, for instance, Kavaljit Singh, 1998, op.cit;
Arun Ghosh, Asian Currency Turmoils
and WTO Issues: Lessons for India, CSGTSD, 1998.
6. Welcome Speech by Brent Blackwelder,
International Training programme on International
Private Finance, Friends of the Earth and National Wildlife Federation,
7. Kavaljit Singh, op.cit,
1998 (a).
8. For a detailed discussion on the Tobin tax proposal see, M. Haq, I. Kaul and I. Grunberg (eds.), The
Tobin Tax: Coping with Financial Volatility, Oxford University Press, 1996.
9. John Eatwell and Lance Taylor,
“International Capital Markets and the Future of Economic Policy,” CEPA Working Paper Series III, Working
Paper No. 9, August 1998 (Revised September 1998).
10. Tony Blair, “Designing A New International
Financial System for A New International Financial Age, ”
Speech to the
11. “Ministry to hold talks with vigilance panel,” Business Line, September 16, 1998.
12. Talk by Kavaljit Singh, International Training programme
on International Private Finance, Friends of the Earth and National Wildlife
Federation,
13. Brent Blackwelder, op.cit.