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OECD countries -- what are they worth now?
Wednesday, 02 November 2011 04:52

The end of the Cold War was a massive victory for OECD countries -- and above all, a victory for their principles of market economy, pluralist democracy and respect for human rights.

Thus, it is ever so regrettable that they have made such a mess of the globalization game these past two decades.

The Cold War between the OECD countries of the West and the Communist countries of the East was a war of idelogies, values and principles.  Victory by the OECD countries did not always seem assured.  There were periods when the former USSR and other communist countries seemed to be doing well. 

But in the end, communist politics and economic planning produced paper tigers which fell apart faster than anyone could have imagined. 

Most developing countries aligned themselves politically with either the West or the East.  But in terms of economic policies, most followed inward-looking, state-directed development strategies, which were similar to the communist countries.  In some countries, such policies also seemed to work for a while.  But again, most developing countries, except for the Asian tigers, experienced poor economic performance.

Thus, at the end of the Cold War, the Western countries, which had huddled together at the OECD, could proclaim the victory of their principles of market economy, pluralist democracy and respect for human rights.

The OECD (or Organisation for Economic Cooperation and Development) could be best described as a "best practices institute".  Countries get together to compare notes on what is happening and what works and what does not work.  This is important because in today's global economy, all of our destinies are linked.  It also provides the opportunity to elaborate "best practice policies", especially in the financial area, the most dangerous dimension of globalization.

The OECD has been in the best practices game for a very long time.  Its Code of Liberalisation of Capital Movements and Code of Liberalisation of Current Invisible Operations are more than 50 years old.  They constitute legally binding rules, stipulating progressive, non-discriminatory liberalisation of capital movements, the right of establishment and current invisible transactions (mostly services).

In the two decades since the end of the Cold War -- the era of globalization -- the OECD launched itself into a veritable flurry of activity, developing all sorts of best practices and "international rules of the game". 

They include: Guidelines for Multinational Enterprises on responsible corporate behaviour; the OECD Anti-Bribery Convention; OECD Principles of Corporate Governance; OECD Recommendation on Financial Education; and OECD Principles for Transparency and Integrity in Lobbying.  

And not only does the OECD elaborate all these principles, it holds Member countries' feet to the fire through peer review and multilateral surveillance.  This means that each Member country is pressured by the others to play by the rules, to follow the principles.

What's more, for a country to be accepted as a Member of the OECD it has to accept all these principles, even though it did not participate in their elaboration.

"Wonderful", you might say. 

There is however one big problem -- many OECD countries broke virtually every rule in their own rule book in creating the global financial crisis, the European sovereign debt crisis, and the corporate governance crisis in Japan provoked by the scandals in Olympus and Tokyo Electric Power Company.

These crises represent a moral and ethical crisis for the OECD member countries whose moral authority over the global economy was once riding high, but is now shot to pieces. 

Fundamentally, it is a crisis of governance.  Manifestly, we have very deep difficulties in governing our countries.  Not only that, the faliure to satisfactorily conclude global trade talks, climate negotiations, and global financial governance reform, as well as the failure of manage the Euro, also demonstrate our incapacity or unwillingness to take global governance seriously.

For Europeans to now go, cap in hand, to China asking for financial assistance is the ultimate in political humiliation for the old continent.  I don't need to remind you that China is not democratic, does not respect human rights, and with its dominant state-owned enterprises is barely a market economy.

The real problem in all of this is the grave risks that it poses for the future of globalization which, if well managed, has enormous potential for creating prosperity and reducing poverty. 

The risks for globalization are not abstract.  Protectionist pressures are rising, and global trade talks are now being abandoned.  Citizens are protesting against social injustice, such as through the Occupy Wall Street Movement.  Anti-migrant feelings are rising.  And extreme right politics hold a simplistic attraction to far too many people.

The world has entered a very dangerous phase caused by the hubris of OECD countries.


OECD website -- www.oecd.org

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