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The Arc of Crisis, Trade in Bads,
And Challengers
Stephan Haggard and Barry
Naughton
Globalization
November 30, 2006
The Limits to Globalization
1. The Great Global Divide: Progress and
Democratization vs. The Arc of Crisis.
2. International Trade in “Bads”
3. Challengers and Alternative Versions of
the Global Order.
1. Progress, but not for All
• Most countries are currently experiencing
economic growth; giving hope for an
improvement compared to the past twenty
years.
• The world is becoming more democratic.
• The world is becoming more peaceful.
• But, the world is becoming more polarized
1A. Current Economic Growth is
Strong
2/28/06 OECD Projections for 2007 Growth:
– US 2.4%
– Europe 2.2%
– Japan 2.0%
– China 10.3%
– India 7.5%
– Russia 6.0%
One of the most favorable outlooks in years.
1 / 1 4
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Intercountry Inequality:
Rep
Each country counts as a single observation): This has clearly
increased because many small countries have done poorly
(SubSaharan Africa, Caribbean), while a few have done
very well (Hong Kong, Singapore)
The “Gap” has widened in relative, and also absolute, terms.
Real Per Capita PPP Income: Ratio between the Twenty
richest countries and the Twenty poorest countries:
– 1960 23 X
– 1980 26 X
– 2000 36 X
The “intercountry” Gini coefficient has increased from 0.45
in the 1950s to 0.54 in 2000. (But what does it mean to
have a country as an “observation”?)
1B. Democracy is Spreading
• “Second Wave” of Democratization in the early
1990s.
• But new democracies are not stable (in our region,
Thailand, Cambodia, Venezuela, Colombia all
have “issues.”)
• Authoritarian states still around (Middle East,
former Soviet Asian states—the ‘Stans’—China,
Cuba)
• Some backsliding: Russia the most prominent
example.
Number and Proportion of Democracies in the
World, 18002000
1C. The World is Becoming More
Peaceful
• There are many fewer interstate wars than in past
historical periods. Most conflicts are intrastate
conflicts (civil wars).
• Since the early 1990s, there number of intrastate
conflicts has also declined significantly.
• These are, generally speaking, low intensity
conflicts, participants avoid pitched battles, often
prey on civilians. Overall casualties low.
• Interstate warfare is generally “asymmetric,” with
hightech modern armies facing lowtech
opponents.
Number of Conflicts: 19462003
Casualties from Terrorism have
increased, but are relatively small.
1D. However, the Exceptions to the
Positive Trends Are Grouped into an
Arc of Crisis
• An Archipelago of Failed States and
seemingly intractable problems.
• Geography: Often Arid and Mountainous
regions.
• Natural resource wealth often contributes to
instability (“Natural resource curse”)
• Long term problems: Congo, Somalia,
Haiti, Burma, Pakistan, Afghanistan, …..
In the Arc of Crisis, Conflicts Still
Rage
• Virtually all combat deaths over the past decade;
nearly all the “low intensity” conflicts.
• Focus of revisions of US military strategy under
the (now departed) Secretary of Defense Donald
Rumsfeld.
– 2005: Four core problems: partnerships with failing
states to avert terrorism; homeland defense; influence
countries at strategic crossroads such as China and
Russia; prevent weapons of mass destruction spreading.
World on fire?
Source: Nobelprize.org
http://nobelprize.org/peace/educational/conflictmap/index.html
Does Globalization have anything to
do with failed states?
• National boundaries were imposed on areas with
weak national consciousness. “Tribes with flags.”
But nobody wants to open the Pandora’s Box of
redrawing boundaries.
• Globalization makes it conceivable for micro
states to survive.
• International networks (“diasporas”) support
conflicts.
• Natural resources find global markets and support
conflict.
2. Trade in Goods, Trade in Bads
• Presumption: that free flows of goods, services
and finance are welfareenhancing…
• …but what about trade in “bads”: commerce in
which there is a return to the participants but
adverse effects (externalities) for others?
• Controlling global bads
– International regimes and conventions, particularly
where collective action problems are large
– Labeling and certification in some cases
– But all contingent on national enforcement and
closingrather than openingborders
Drugs
• Drugs
– opiates;
– cocaine;
– cannabis;
– amphetamines and ecstasy
• $2025 billion a year in trade, some multiple at
street level (landed price = 1020% of retail)
• Externalities
– Violence in production and distribution
– Links to other types of crime
– Drug abuse
Conventional Weapons
• Do sales enhance or reduce security? And whose?
• Types of weapons
– Major systems: aircraft, tanks, artillery, missiles
(MTCR)
– Small arms and light weapons: no conventions
• More than 500 million small arms and light weapons are in circulation around the
world – one for about every 12 people. They were the weapons of choice in 46 out of
49 major conflicts since 1990, causing four million deaths – about 90 per cent of
them civilians, and 80 per cent women and children.
– Landmines and the Ottawa Treaty (nonsignatories
include US, Russia and China)
Other Illicit Trades
• Trade in Endangered Species
– CITES 1973
• Conflict diamonds
– Angola, Congo, Sierra Leone, now Cote d’Ivoire
– Kimberly Process Certification Scheme
• Trade in toxic industrial waste
– Basel Convention on Transboundary Movement of
Hazardous Wastes and their Disposal
• Trade in human organs
– Nancy ScheperHughes
Trafficking
Human trafficking is defined as the recruitment,
harboring, transportation, provision, or obtaining
of a person for labor or services through the use of
force, fraud, or coercion, for the purpose of
subjecting that person to involuntary servitude,
peonage, debt bondage, or slavery.
Sex trafficking: when commercial sex is induced by
force, fraud, or coercion, or in which the person in
question is a minor.
Child domestic servitude.
The Financial Side of Trade in
Bads: Money Laundering
• Money laundering is the conversion of criminal
income into assets that cannot be traced to
underlying crime
• Placement, layering, and integration phases of
laundering
• Externalities of capacity to launder (predicate
crimes):
– Whitecollar crime and tax evasion
– Corruption, kleptocracy and state failure
– Drug dealing (large sums of cash in small bills)
– Funding of terrorist networks (Financial Action Task
Force)
The International Dimension
• Offshore (vs. international) financial centers
– Nonresidents on both sides of the balance
sheet
– Low taxation of transactions
– Light regulation and anonymity
– Nearly half of all transborder assets
• States unwilling to comply with AML
actions
3. Challengers
• U.S. hegemony is still the predominant
structural characteristic of the current global
order. Some groups challenge U.S.
domination, especially when overstretch
weakens US power. Is there an Islamic
alternative?
• Today, though, most challengers present an
alternative version of globalization,
stressing international interactions, but
under a different set of rules.
• Is there a “Beijing consensus” to counterpose to
the “Washington consensus”? Probably just
wishful thinking, but still China operates under a
different set of principles:
– National sovereignty top principle; not in the business
of telling other governments how to run their countries.
– Accepts that many states are fragile with limited
capabilities; you can’t demand that much from them.
– Move stepbystep, and gradually; consistent with
current realities.
– But then, China is also the big exception: the only
autocracy among the economically succeeding
countries…..unless Russia joins in.
A Peculiar Challenger: Hugo Chavez
in Venezuela
Combines distinctive traits:
• Quasisocialist welfare and employment creation
at home (funded by oil revenues).
• Hard line renegotiation with international oil
companies (succeeded b/o oil scarcity).
• Will to create an alternative political and
economic alliance in Latin America.
• A genius for provocative statements about the US.
Guerrilla diplomacy
In Dec., 2005, Chávez said he would
sell heating oil at a 40% discount
(“humanitarian aid” worth $4 m. )
to lowincome people in the Bronx.
He put fullpage ads in US papers:
"Venezuela is keeping the home fires burning."
Earlier, Chávez offered aid to Hurricane Katrina
victims, but was rebuffed after he called George W.
Bush “a cowboy.”
Threats
Venezuela is “one of the biggest problems” in Latin
America. Its ties to Cuba are “particularly
dangerous.” Condoleezza Rice, 2/17/06
“Don’t mess with me, girl … The US government
should know that if they go over the line, they are not
going to have Venezuelan oil.''
Hugo Chávez, 2/19/06
Two men?
“I was overwhelmed by the feeling that I had just been
traveling with two opposing men:
one whom the caprices of fate had given an
opportunity to save his country;
the other an illusionist who could pass into the
history books as just another despot."
Gabriel García Márquez on Chávez
News: Chávez Squeezes Oil Firms
“The Venezuelan government has forced foreign oil
companies, at short notice, into new contracts and a
new, markedly tougher, tax regime.
The new contracts remove operational control of
oilfields from foreign firms and make the firms
minority partners in staterun ventures.”
“We have done nothing less than to snatch the world's
biggest oil reserves from the mouth of imperialism.”
oil minister Rafael Ramírez
The Economist, 11/10/05
News: Venezuela Raises Oil Taxes
“Venezuela will raise the tax rate on foreign oil firms in
the Orinoco river basin to 50% from 34%. It will
apply the increase retroactively.
President Hugo Chávez's ruling coalition controls all
167 seats in the National Assembly, guaranteeing
swift approval of any legislation.
In 2004 Venezuela raised the royalty on Orinoco
production to 16.67% from 1%.”
Wall Street Journal, 3/15/06
Venezuela’s problems are real
“Oil is the devil’s excrement. We are drowning in the devil’s
excrement.”
oil minister Juan Pablo Pérez Alfonso, in 1976
Per capita GDP (2003) is US$3,300, or in PPP terms US$5,000
( ≈ China, Philippines; ⅔ Mexico; 1∕10 US)
Despite the vast oil revenues, over the last 30 years per capita
income has fallen by 25%.
Gini Coefficient: .49, quite unequal for small country.
Venezuela: Awash in oil
Creating a “Bolivarian Alternative”?
• Substantial foreign assistance—cheap oil financed
with soft loans—to Cuba, Caribbean, Argentina,
etc.
• Dream of creating a “Union of South American
Nations,” or Unasur, sharing trade links and
common principles.
• Close allies newly elected presidents of Bolivia
(Evo Morales) and Ecuador (Rafael Correa), but
not Peru or Mexico.
Whatever the outcome…
The process of globalization is:
– Probably inevitable
– Provides benefits to many
– Is seriously incomplete
But there are alternative paths and alternative
visions. Imagination, political will,
rigorous analysis, and creative solutions are
all urgently needed.