In "Global Capitalism," (Special Report, Nov. 6), you assert that market liberalization and more open trade, while essential for sustainable growth and the elimination of poverty, can cause severe damage to poor nations. Our view is different. We believe open trade promotes economic growth when basic institutions such as the rule of law, democracy, and sound monetary and fiscal policies are in place. Open trade cannot work effectively in developing nations that lack these institutions. It is this shortcoming--not trade--on which we should all focus attention.
For example, one study of 150 developing countries finds that every one-percentage-point increase in the ratio of trade to gross domestic product raised income per person by as much as 2%. Another study estimates that workers employed by U.S. multinationals in low-income countries earn more than eight times the average per capita salary in those nations. The challenge is to find ways to develop the necessary economic, political, and social institutions so these nations can share in the benefits of the global trading system.
We agree that multinational corporations should act in a socially responsible manner wherever they have operations, and we believe that transparency and public accountability for corporate performance are essential in assessing economic, environmental, and social impacts. That's why GM's 1999/2000 Steps Toward Sustainability follows the Global Reporting Initiative (GRI) Sustainability Guidelines, a generally accepted, globally applied reporting framework on economic, environmental, and social issues. The GRI is voluntary--and provides a model of innovative governance for global capitalism.
Dennis R. Minano
Environment & Energy
General Motors Corp.
You raise the pertinent question: Why is it that free markets are producing such wildly different results in different countries? Indeed, the balance is far from reassuring, and a backlash due to an erosion of political support for reform cannot be ruled out. You correctly point out that, without good governance, sound economic management, and educated workers, openness to trade and foreign investment is bound to fail to translate into sustainable growth.
If reform programs are unable to deliver sustained productivity growth, erosion of popular support is inevitable. Yet, although first- and second-generation reform programs have brought along impressive strides in macroeconomic stability and better governance to a number of developing countries, many of them failed to attain sustainable growth, even in those cases where a good skill base was available--think of Argentina and Brazil. This has to do with missing links in the development agenda, examined at a recent Venice meeting convened by the U.N. Industrial Development Organization (UNIDO) and attended by high-ranking representatives of the International Monetary Fund, the World Bank, various governments, multinational corporations, and academic researchers.
In a nutshell, such missing links concern the interactions between the incentive and the public-goods supply systems that fuel the private-sector-led mobilization of skills, knowledge, information, and technology--a sine qua non for sustained productivity growth. Only once reform programs start addressing head-on these key dimensions of innovative and entrepreneurial development will the risks associated with a growing gap between developing and developed countries in export capacity and access to markets begin to be offset. Policymakers and international organizations would do well to heed this clear lesson taught by the history of successful catching-up.
Carlos A. Magarinos
The answer to the questions posed is that the establishment of the World Trade Organization, strongly endorsed by corporations that are engaged in international trading, took into account only the fundamental financial principle of capitalism. Neither in design nor in practice have social aspects been considered.
Certainly, America has enjoyed a "cornucopia of affordable goods," but nowhere is there mention that this has been at a price: a trade deficit exceeding $2 trillion. Given that corporations that trade internationally have strong incentives to shift production to wherever in the world costs are lowest, the deficit will continue to increase.
Robert G. Laidlaw