The role of government
There is a consensus among major British political parties in favour of globalisation, with good reason. Britain has the highest ratio of exports and imports to Gross Domestic Product within the G8 and therefore stands to gain a great deal from globalisation – and indeed to lose a great deal should globalisation decline.
Liberals have always believed in the potential of free and open markets to enable wealth creation and individual fulfilment. However, they have also long understood that markets will never benefit everybody, especially if they are untrammelled. Public action is required to plug gaps and regulate excesses.
Liberal Democrats believe that national and local governments are not impotent in the face of globalisation, contrary to much recent political rhetoric. In particular, government needs to pay attention to how best to tax and regulate multinational companies (both UK domiciled and overseas based) without discouraging inward investment; supporting individuals and communities who have yet to benefit from globalisation; ensuring that the UK economy as a whole remains stable, flexible and competitive; and working to prevent a reversal of international trade and cooperation, particularly in the event of future periods of recession.
It is essential to recognise that, as in all areas of policy, UK responses to globalisation need to be made at different levels. Some issues clearly fall within the remit of the EU and Britain’s role can only be to lobby and persuade. Many others are best dealt with at local levels, through reinvigorated local authorities and town and parish councils. The Scottish Parliament, Welsh Assembly, GLA and county, city and unitary councils all have as important a role to play as the UK parliament. The Liberal Democrat principle that decisions should be made as locally as practically possible is of the utmost importance if people are to feel that they can gain from globalisation, rather than being bypassed by it.
Issues to consider
- What should be the aims and objectives of different levels of government in response to globalisation?
- What are the real limits to different levels of government’s capacity to respond – proactively or reactively – to the impact of globalisation?
- To what extent and in what forms should multinational companies be regulated? Should ‘state-owned’ funds which are effectively organs of overseas governments being treated differently to other multinationals?
June 2nd, 2008 at 4:01 pm
Q. 7: “Should ’state-owned’ funds which are effectively organs of overseas governments be treated differently to other multinationals?
Answer: No, because we already have in place a regulatory framework put in place in 1961 that allows free movement of capital while recognising the right of governments to act in protection of national security and public order: the OECD’s Code of Liberalisation of Capital Movements. The United Kingdom is a founder member of the OECD and so has been legally bound by this Code from the outset.
The Code establishes the principle of free movement of capital while allowing governments to list sectors which are closed to foreign investment. So, for example, many countries do not allow foreign investment in nuclear weapons, for understandable reasons of national security.
The Code includes Liberal principles: non-discrimination, transparency, progressive liberalisation and unilateral liberalisation.
SWFs have been in existence since 1954, when Kuwait decided to invest its copious oil revenues to ensure that its economy had a future after the oil ran out, with few concerns expressed about their activities.
The recent interest appears to have been stimulated by the birth in 2007 of the China Investment Corporation at a time when China’s foreign exchange reserves exceeded USD 1.5 trillion, equivalent to more than USD 1,000 per head. Other emerging market economies, including India, are considering establishing SWFs. The fears expressed by politicians and publics in the United States, Europe and Japan over the activities of SWFs mirror those seen recently over acquisitions–or attempted acquisitions–of large companies in these countries by Chinese or Indian investors, including the fear that a foreign government might use the economic muscle resulting from such an acquisition to achieve a political goal.
However, in the past year SWFs, and even publicly-owned companies, from emerging markets have been seen instead as saviours of debt-ridden or failed companies. Notice has been taken of SWFs now seen as virtuous, like Norway’s state pension fund, with its relatively transparent corporate governance and well-established mechanisms of public accountability. SWFs are now understood to have provided a much-needed means of recycling surpluses and providing a cushion against recession in the global economy, not least by stabilising the economies of natural resource based economies.
Nevertheless, there are legitimate concerns about potential bad behaviour by SWFs, just as there are legitimate concerns about the activities of national governments. It therefore makes sense to develop codes of good practice which SWFs can use to reassure the citizens of their investment target countries. These are now being developed under the leadership of the IMF.
At the same time, the SWFs need reassurance that other countries will not raise protectionist barriers against them on spurious grounds. Guidelines for maintaining investment openness towards SWFs are being developed by recipient countries under the leadership of the OECD.
What is now needed is a re-assertion of the principles underlying the OECD Code of Liberalisation of Capital Movements and a set of guidelines that match current needs. This might include, for example, regulatory proportionality, i.e. defining the national security concern as precisely and narrowly as possible, using the most appropriate means of defending it, and doing so only as a last resort. All restrictions should be as transparent as possible.
The United Kingdom government, as a Member of the OECD, is therefore part of the process of maintaining an open investment environment in the face of public disquiet over the potential activities of SWFs. Rather than treating this as an issue to be kept under wraps while discussions continue, it should publicly welcome the IMF-OECD process, which complies with Liberal principles of maintaining freedom of investment alongside the right to protect the public interest.
September 17th, 2008 at 8:54 am
Please could you send me any paper on the impacts of globalisation on African political institutions