Globalization Requires Safety Net, U.N. Says

Sharply rising prices for many commodities have led to food riots in developing countries, including Somalia.
Sharply rising prices for many commodities have led to food riots in developing countries, including Somalia. (By Mohamed Sheikh Nor -- Associated Press)
By Michael A. Fletcher and Christopher Twarowski
Washington Post Staff Writers
Wednesday, July 2, 2008

Greater government intervention is needed to moderate the severe economic swings and inequalities that seem to be an unavoidable byproduct of globalization, according to a United Nations report released yesterday.

Pointing to food riots in dozens of poor countries whipsawed by soaring prices for wheat and other staples, and to the rising income inequality that has become a too-common feature of economies in the developed world, the report says that no one is immune from the sometimes cruel consequences of global economic forces. But governments should do more, both individually and collectively, to protect people from their harshest impacts, it says.

The U.N.'s 2008 World Economic and Social Survey calls for greater regulation of international capital flows, more generous foreign aid and perhaps the guarantee of a minimum income to the world's poorest residents. Domestically, countries should do more to cushion their citizens against economic changes that have left them less secure. In poor countries, the insecurity can take the form of hunger and food shortages; in developed nations it often means stagnating wages and growing income inequality.

"Markets cannot be left to their own devices in respect of delivering appropriate and desired levels of economic security," the report says.

Global competition, which erodes the security of businesses, unstable capital flows, which crimp investment and growth, and food shortages are sometimes viewed as beyond the ability of governments to control. But the report says that is the wrong response. What is needed, it says, is "more active policy responses to help communities better manage these new risks."

The U.N.'s assessment was echoed in a separate report published yesterday by the International Monetary Fund.

The IMF study warned that the recent sharp increases in food and fuel prices have had serious global impacts, and that import-dependent poor and middle-income countries were the most adversely affected. The report also said that food and fuel prices were likely to remain high and ease only gradually, raising inflation, and worsening poverty in these countries.

"Some countries are at a tipping point," IMF Managing Director Dominique Strauss-Kahn said at a news conference announcing the release of the study. "If food prices rise further and oil prices stay the same, some governments will no longer be able to feed their people and at the same time maintain stability in their economies."

A number of factors have contributed to the price spikes. In recent years, sustained global growth, especially in emerging and developing economies, has brought about greater demand for many commodities, including oil, metals and food. "At the same time, supply has been slow to respond to the demand impetus, notwithstanding rising prices," the IMF report said. "The food price surge is expected to take longer than usual to unwind."

"We expect continued upward pressure from demand," said Thomas Helbling, an IMF adviser. "We see no reason to not see these trends continue."

The IMF called for a multilateral approach to address the situation, involving broad cooperation among the countries affected, donors and international organizations.

C. Fred Bergsten, director of the Peterson Institute for International Economics, agreed with recommendations for a more activist role by governments in easing the pain caused by globalization. He said more attention should be paid to regulating capital flows and bolstering international aid. Domestically, he said, the focus should be on helping individuals hurt by the process.

While global trade has been a plus to the U.S. economy, Bergsten said, "the dislocating effects on American workers, impact on job insecurity, wage stagnation, worsening income distribution, require a substantial showing up of domestic safety net programs."

Without attention to that, support for globalization, which tends to grow shaky as economies cool, would be further undermined. "Where the country as a whole benefits substantially from globalization, there are certainly individuals who are losers from the process and then they therefore oppose it," he added.

The U.N. report calls for a range of interventions to provide support, including greater public investment in agriculture for poor countries and "a better balance of economic and social policies." It also said that even during economic booms governments should remain mindful of the downturns that can strike quickly, and set aside money to deal with them.

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