The citadels of the global economy are yielding to China's battering
ram
A key appointment at the World Bank shows the im****tance of Beijing to
the institutions it will soon come to dwarf
Martin Jacques
The Guardian,
Wednesday April 23 2008
http://www.guardian.co.uk/commentisfree/2008/apr/23/imf.china
Art
In June Justin Lin Yifu, a Beijing professor, will take up the post of
chief economist at the World Bank. Nothing could be a clearer sign of
the times. This is the number two job in one of the two major
international economic institutions, the other being the International
Monetary Fund. Earlier in***bents have included the Nobel prize winner
Joseph Stiglitz, the former US treasury secretary Lawrence Summers and
the UK's Nicholas Stern. Previously the top jobs in these two outfits
have always been shared between Americans and Europeans. Lin's
appointment thus marks a major break with political tradition.
Hitherto there have been hardly any appointments of Chinese to senior
positions in the major international organisations. China's burgeoning
im****tance, however, is set to change this state of affairs, with
Lin's appointment likely to set the tone for the future.
In the past the World Bank, like the IMF, has been the tame captive of
US and European governments, never straying from the prescribed
western free-market orthodoxy. The very public disagreement at the
time of the Asian financial crisis between Stiglitz and his
counterpart at the IMF, Stanley Fischer - with the World Bank man
strongly critical of the IMF's disastrous policy towards the crisis,
and sup****tive of Malaysia's tem****ary imposition of capital controls
- was highly unusual. But the appointment of a Chinese chief economist
takes us into an entirely new realm.
The east Asian countries have never subscribed to the neoliberal
economic agenda, eschewing sweeping privatisation, a minimalist role
for the state and wholesale market liberalisation. At the centre of
Chinese policy remains a highly interventionist state and state-owned
firms. Lin himself has written that the government is the most
im****tant institution, determining whether development is successful,
and argues that privatisation is neither necessary nor sufficient for
making Chinese state-owned enterprises more efficient. Imagine such
sentiments being expressed by the Bush or Clinton administrations, or
Gordon Brown for that matter.
Of course, the chief economist of the World Bank does not enjoy the
same kind of authority as its president - at present a Bush appointee,
Robert Zoellick. Previously US deputy secretary of state, Zoellick
succeeded the high-profile neoconservative Paul Wolfowitz, whose reign
ended in ignominy. Nonetheless, Lin's appointment is a clear
indication that China can no longer be ignored, notwithstanding the
fact that it espouses policies at variance with western free-market
orthodoxy. China, by virtue of its growing economic power, is in the
process of barging its way into the citadels of global economic
governance. Western governments are faced with a difficult dilemma:
either they can choose to hold China at arm's length until it can no
longer be ignored, or alternatively they can usher China into the
corridors of power before that decision becomes, in effect, a question
of force majeure. Lin's appointment suggests that in this case a more
far-sighted approach is being pursued. Foot-dragging and inertia,
however, remain the predominant response. Last Friday Gordon Brown
uttered timid words about "reframing the international architecture",
suggesting institutions such as the World Bank and IMF were built for
a bygone era, but there was nothing concrete, merely a further round
of platitudes.
The entry of the Chinese into the highest echelons of the World Bank
parallels the extraordinary turn of events at the back end of last
year when - following huge losses as a result of their exposure to the
US sub-prime market, and in desperate need of massive injections of
capital - major Wall Street investment banks such as Bear Stearns,
Merrill Lynch and Morgan Stanley were forced to turn to Chinese banks
and the China Investment Cor****ation, among others. The financial
pillars of Wall Street, as a consequence, are now significantly
underpinned by Chinese money. Wall Street paid the price for its
willingness to live at the outer edges of risk in the cause of greed,
while the Chinese have reaped the benefits of being the world's
biggest savings machine. Like the appointment of Lin, these events
herald the arrival of China not only at the centre of the global
economy, but in the very heartlands of American financial power. With
the American economy now facing the prospect of a prolonged recession
and the Chinese economy likely to escape its worst effects, the
process of US decline and China's rise is likely to be foreshortened.
It would be naive to think that Lin's appointment will result in a
major ****ft in the policies of the World Bank. The latter will still
be a creature of Wa****ngton. But nor will it be possible for Lin's
voice to be ignored. And if that is true now, it will become
increasingly the case in the future. There is a growing crisis of
representation in the major bodies of international economic
governance - the IMF, World Bank and G8. The western countries that
dominate them, along with Japan, account for a declining share of
global economic activity, and, with the rise of countries like China
and India, that pro****tion is destined to fall rapidly over the next
two decades. But if these countries are to be allowed their voice, as
surely in time must happen, then the priorities and policies of these
bodies are bound to change as greater weight is given to the interests
of the developing world, rather than the developed world. Escalating
food prices and their impact on the world's poor would be a good place
to start. The World Bank, like the IMF, is likely to become the site
of growing rivalry between the developing and developed worlds.
However, in the longer run it is not at all clear what will become of
the World Bank or the IMF - as opposed to the G8, which could easily
change by at some point ditching those who have little case to be
there (for example, Italy and Canada), and adding China and India
(and, in due course, Brazil and South Africa). A key question,
however, is how China will perceive the World Bank and the IMF in the
longer term.
Already its own aid programme for African countries considerably
outdistances what the World Bank contributes to the continent. As the
Chinese economy grows ever larger, its potential for offering economic
aid to Africa, and indeed other parts of the developing world, could
far exceed the parsimonious contribution on offer from the World Bank.
Over the past decade, China has shown great eagerness to be seen as a
fully fledged member of multilateral bodies, but what will happen when
China, because of its immense economic power, comes to dwarf these
bodies? Will it seek to transform them in its own image, or bypass
them while still making a contribution, or perhaps establish entirely
new and different bodies, or even a combination of all three? These
questions might still be some way off, but they demonstrate just how
fundamentally China's rise will change our western-made world.
ยท Martin Jacques is visiting research fellow at the Asia research
centre, London School of Economics
martinjacques@[EMAIL PROTECTED]
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