OPPORTUNITIES AND CHALLENGES OF

GLOBALIZATION FOR ARGENTINAJoseph Stiglitz

B.A.

May 31, 2007

Opportunities…

• Global markets– Mean that any firm that succeeds in making a

better product has almost unlimited sales– Supply bottlenecks at home are less important

—global access to inputs– Firms can draw upon a global talent pool– And sometimes, can draw upon global capital

markets

Challenges and risks…

• There are large numbers of competitors– One has to run to stay still

• New risks– Access to international markets reduces

reliance on domestic market• Reduces risk in this dimension

– But increases risk in others• Changing international prices• New competitors• New international rules

Argentina has experienced all the dimensions of globalization

• East Asia crisis/global financial crisis of 1997/1998 led to higher interest rates, that helped bring on the Argentine crisis

• Policies pushed by IMF contributed greatly to the crisis

• Changed policies (exchange rate) enabled Argentine to take advantage of global markets

• Argentine benefited from global commodities boom

Putting globalization in perspective

• Impacts of globalization are important• But sometimes exaggerated

– Service sector increasingly important– Only small fraction of service sector “globalized”– Small and medium sized firms often major source of

growth and job creation• They rely on local capital markets

• And impacts depend critically on policies and programs

Policies and programs

• Need to enhance ability to take advantage of globalization

• And help insulate country from downside risks– Full capital market liberalization not associated with

higher growth, but with higher volatility– Most countries around the world are facing increasing

inequality• Globalization only one of factors• But it is an important one• And one which is politically salient

Taking Advantage of Globalization

• Enhancing productivity of labor force

• Enhancing productivity of firms

• Redesigning and strengthening social protections

Taking Advantage of Globalization: people

• Education– Globalization will require faster change– Globalization forces faster adaptation of new technologies– More educated people are more adaptable, more capable of

doing well with new technologies– Life-long learning

• With school focusing on learning on how to learn• Reshaping curriculum

– In global competition, Argentine will have to do better• Of 41 countries in OECD Student Assessment, Argentine ranked 35

in reading, 34 in Math, 37 in Science• In combined primary, secondary, and tertiary enrollment, Argentine

ranked 29th of 172 countries in UNDP Human Development Report

Taking Advantage of Globalization: people

• Active labor market policies– Training people for jobs that exist– Macro-economic policies that ensure full

employment

• Enhancing productive employment for all Argentinean people, including women– Child care facilities

Taking Advantage of Globalization: firms

• Technology is key to success– Research universities play a central role– Private sector will underinvest in research because of high

risk and spillovers (externalities)– Important role for government, through partnerships– Well designed programs leverage off of entrepreneurship in the

private sector– Manufacturing extension services

• Adapting an idea that worked well in the nineteenth and twentieth century to the twenty-first

• Especially important for small businesses, the locus of dynamism and job creation

– Support of place based and industry based producer cooperatives, especially for small businesses

• A model that has worked well in Italy• Linked to research universities

Taking Advantage of Globalization: firms and financial markets

Important to strengthen financial markets, with a focus on expanded credit availability and better risk sharing

Remedying a market failure—access to credit and imperfect risk markets

• A new generation of development banks• Strengthening local and regional banks• Expanding small business lending

• Youth entrepreneurship program– Giving opportunity for those without inherited wealth – Using one of our untapped resources, the energy and

dynamism of our youth

Taking Advantage of Globalization: firms and the social pillar

• Allowing firms to focus on what they should be doing—producing—and not providing social services

• Assumption of responsibility for social protections by the government

• Facilitate labor market mobility—helping to embrace change, increasing labor market efficiency

Globalization and social protections

• Responding to globalization requires strengthening social protections, not stripping them away– Evidenced by most successful countries

(Scandinavia)– But how these are provided will have to change– Increasing personal security—not job security—will

not only increase individual and family well-being, but will contribute to productivity.

– Individuals that are more secure are more willing to take higher risks

– risk-taking is key to success in the world of globalization and new technology

Poverty in Argentina

• Mixed Picture• Among developing countries, poverty ranking

#3, behind Uruguay and Chile, above Costa Rica

• But in health indicators, it does not do as well– Probability of not surviving past 40—ranked 55th

– Percentage of children underweight—25th

• People without access to improved water—18th

(Albania, 17th, Botswana, 19th)

Globalization and social protections

• Strengthened unemployment benefits—in return for a commitment to retrain: a new social compact

• Enhancing opportunity– Through education, training, and retraining

• Including through Enhancing Financial Accessibility to Higher Education– Through youth entrepreneurship program– Through commitment to full employment

• Reducing the strains on families will enhance productivity– Health care security– Employment (not job) security– Child care/paternity-maternity leave– Enhanced financial for higher education– A new government mortgage program—variable rate mortgages with

fixed payments (variable maturity)

Globalization and social protections

• Standard theory says that globalization, liberalization may (if well managed) enhance GDP

• There are large winners• The winners could compensate the losers• But they seldom do• Unless social policies are put into place, the losers could

be far more numerous than the winners• And there will be a political backlash• There is a growing global problem with globalization as it

has been managed

Argentina is poised to take advantage of globalization

• Performance in last four years has made it one of best performing economies in the world

• It now faces the challenge of moving from a world in which aggregate demand has been the constraint to one in which aggregate supply is the constraint

• The agenda of enhancing productivity of Argentine’s workers and of its firms, combined with enhanced social protections, is designed to enhance productivity, leading to sustainable and equitable growth.