Liberal economics are on trial in Asia and Latin America. The global contagion unleashed by the East Asian economic collapse in 1997 has created a backlash against globalisation and tempered the triumphalism of free-market diehards. How has the crisis changed understanding of the promises and pitfalls of globalisation?

What have we learnt of the nature of interactions between national governments and international financial institutions? Is the West conceptually capable of dealing with the failure of the Asian model of economic development to converge with the Anglo-American form of capitalism? These issues are addressed in a provocative study from the University of Warwick’s Centre for the Study of Globalisation and Regionalisation.

Rejecting the values of the early enthusiasts who relegated the state to a powerless residual category, this CSGR report argues for a more nuanced understanding of globalisation. The tide is turning against those who argue that controls on short-term capital movements should be resisted. In Washington even some former free-market fundamentalists are questioning the wisdom of unregulated global financial markets. The argument that sovereign states have a right and duty to protect themselves against capital flight is gaining ground.

The International Monetary Fund is taken to task for administering formulaic prescriptions for troubled markets without paying attention to national cultural, historical, institutional and political circumstances. The IMF’s insensitive bedside manner has detracted from its credibility. The IMF has not appreciated the depth of resentment in Asia at its role in stifling the initiative to develop an Asian Monetary Fund and allowing international banks to make major inroads in regional banking and US firms to gain unprecedented market access.

Other significant points made by the study include:

• A problem with the neo-liberal agenda is that economic liberalisation often becomes an end in itself.
• Though it has received an intellectual battering in the international media, the Asian tendency towards state intervention is far from dead.
• Explicit anti-US sentiment is less evident among Latin America’s financial elite than in Asia. This is largely due to the fact that few Asian leaders have been educated outside the region while, to a man, Latin American financiers have been to Harvard or the Massachusetts Institute of Technology.
• As modern technology accelerates transmission speeds for capital transfers, the potential for panic and destabilisation grows ever greater.

The report urges policy-makers to recognise that:

• Markets are too important as social institutions to be left in the hands of the free market.
• The state remains the socialiser of risk of last resort and the orchestrator of co-coordinated policy responses to the challenges thrown up by globalisation.
• Globalisation cannot fulfill its promise without the development of institutional capability for regulation of private cross-border flows.
• The discipline of economics needs to be more sensitive to the complexities and frictions of politics.

Source(s):
‘The limits of global liberalisation: lessons from Asia and Latin America’ by Richard Higgott and Nicola Phillips, CSGR Working Paper No. 22/98, Centre for the Study of Globalisation and Regionalisation, University of Warwick, January 1999 Full document.
‘The limits of global liberalisation: lessons from Asia and Latin America’ Review of International Studies 26/3, by Richard Higgott and Nicola Phillips, 2000

Funded by: Centre for the Study of Globalisation and Regionalisation

id21 Research Highlight: 2 May 2001

Further Information:
Richard Higgott
Centre for the Study of Globalisation and Regionalisation
University of Warwick
Coventry CV4 7AL
UK

Tel: +44 (0) 24 7652 4633
Fax: +44 (0)24 7657 2548
Contact the contributor: Richard.Higgott@csv.warwick.ac.uk

Centre for the Study of Globalisation and Regionalisation, University of Warwick, UK

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