www.wairaka.net/ubinz/IR/items/1999-2_CommonwealthCurrentsFraser.html

The world has changed dramatically since the early days of the Commonwealth. Some of the changes are as yet only dimly understood. We are all going to be confronted with many challenges to the whole concept of government and to the role of the nation state as we move into the next century.

There are two principal aspects to these changes. Globalisation of the world economies is sharply limiting the independence of action of the nation state. In addition, we are only just beginning to understand what the existence of one superpower, supreme militarily, financially, means to the evolution of world diplomacy and world politics.

These remarks are directed to the first aspect.

Governments are now losing influence. Private enterprise, capitalism, summarised as 'the market', is gaining power. Privatisation is a keyword. Across the political spectrum, liberal, conservative and formerly socialist parties have all accepted the downsizing of government, the privatisation of many activities and the reduction of government debt. Governments in crisis in the developed or in the developing world have been left in no doubt about what they should do.

The International Monetary Fund and the World Bank have made it clear that assistance would not be available to countries in distress unless appropriate policies were put in place, and IMF prescriptions often involve substantial and detailed microeconomic reform within a country with considerable hardship for its people.

Meanwhile, competition for international capital has become much more severe.

In the early independence years, Commonwealth countries believed they could write their own internal rules about the performance and behaviour of capital. Now those rules have to be rewritten to maximise international attraction. The relationship has to be competitive, the rules have to be friendly to capital. This is a totally different environment from the one in which most Commonwealth countries gained their independence in the immediate post war years.

The new global organisation of industry has significant consequences for social policy. Many governments would have conducted policies designed to see that workers gained a fair share of the returns or an enterprise. With the globalisation of industry, such policies are no longer possible. Governments now tend to argue for lower wages, for smaller workforces, to maximise the competitiveness of their particular country as a home for global corporations. This has consequences of enhancing the profit share as opposed to the wage share of a particular enterprise.

One direct consequence of these changes is a significantly growing disparity in wealth between rich and poor in all countries worldwide. This may not matter so much if the poor were also becoming better off compared to their own earlier standards but in many cases this is not so. The idea of a living wage is no longer relevant. Workers in some countries are often paid a wage which could not support even the smallest of families. In this day, if that is what the marker determines, then that is what must happen.

In today's world, governments must fashion their policies to meet the wishes of the international market-place. There are fundamental differences from earlier times.

The global organisation of industry in which national boundaries become irrelevant is certainly new. Some aspects of information technology can operate much faster and with more devastating effect than the old cable system of the last hundred years. This has led to an explosive growth in financial markets.

The volume of money traded each day is huge (and) through modern communications, this finance has great mobility. And as Peter Drucker put it in an article in Foreign Affairs: "It serves no economic function and finances nothing. This money also does not follow economic logic or rationality. It is volatile and easily panicked by rumour or unexpected events.

We all know enough of markets to know that they favour the powerful, the united and the strong and that markets can overwhelm and destroy smaller players. Sometimes smaller players are entire nations.

Those who suggest that the markets alone must be allowed to determine economic outcomes favour a world in which the large will do much better than the small. So far as countries are concerned, most Commonwealth countries are in the smaller category in a world in which large financial institutions and manufacturing corporations operating globally will dominate trade and commerce.

For most countries, banks and financial institutions, which are part of the culture of that country, will become a matter of the past. Banking services will be American, European, Japanese or perhaps Chinese. The consequences of this market dominance are clear. Corporations need a global spread and many national rules for the good order and conduct of business and commerce will no longer be relevant.

For the world as a whole, the most serious problem is volatility, possibly leading to systematic breakdown. Since the Asian economic problems of 1997, there has been a great deal of discussion about the present system and about changes that need to be made.

For a while it appeared that the United States really was going to move the reform process forward but now the tendency seems to be 'it's all right, we have escaped, leave well enough alone'.... There is a need to reform the system, to establish much tougher international rules for prudential supervision and control. The IMF has demonstrated time and time again that it is not interested in avoiding crises, it is only interested in picking up the pieces after they have occurred. If this is its charter, it certainly needs reviewing. The IMF's present operations are inadequate.

Since governments have seemingly lost significant power to corporations and to financial markets and since they do operate within an increasingly globalised framework, individual governments are not capable of undertaking this task. The task is international and global. Whether it is a reformed IMF or a new institution is a matter for debate.

At their last meeting the Commonwealth Finance Ministers pointed to a number of changes, most of which are desirable, but there was no sense of great urgency, no sense oft dynamism. They spoke of a need for new financial market architecture but nobody has tried to spell out what that means.

There are two specific tasks: how to preserve some form of equity and reasonable competition in a globalised market-place and how to establish stability within the financial markets themselves....

The IMF's financial resources should be strengthened as a means of averting crises through the provision of contingency funds. Immediate access to adequate funding can be essential for this purpose if crises are to be avoided. Finding a way to encourage the IMF to help avert crises instead of just reacting to crises after they have occurred is a most important requirement.

In any liquidity arrangement, assisting a country in distress, the IMF should take care not to absolve lenders of their responsibility. In some cases INIF bail outs have done more to help the lenders than the countries themselves. The lenders need to carry their own risk.

For Commonwealth countries, how to protect themselves and advance the welfare of their own people in an unpredictable world is a major challenge and very often a major problem. Apart from moves to establish greater stability designed to avoid systematic breakdown within the world's financial system, there also need to he urgent moves to establish an international body to establish rules for fair trading in a globalised environment. Middle ranking and small countries would have most to gain from such an innovation.

The Commonwealth, as an institution whose significant purpose is to advance the interests of its member states, devotes special interest not only in watching but in influencing the development of these changes. If the Commonwealth itself could be given a seat in the forums and discussions in which these changes are to be put in place, it could significantly balance the interests of major states with the needs and requirements of much of the rest of the world.

Major states do not like sharing power but the Commonwealth as an institution represents over 50 countries worldwide, some rich and many poor. With its experience and wisdom it could add much to the debate.