Global society needs freedom of information

WE DO live in a global economy. But it is characterised not only by the free movement of goods and services but, above all, by the free movement of ideas and capital. This applies both to direct investments and financial transactions.

The globalisation of financial markets has accelerated in recent years, until it reached a point where movements in exchange rates, interest rates and stock prices in various countries are intimately interconnected.

There can be no doubt that global integration has brought tremendous benefits. Not only the benefits of the international division of labour, but also dynamic benefits such as economies of scale and rapid spread of innovations from one country to another.

Equally important are the non-economic benefits: the freedom of choice associated with the international movement of goods, capital and people; and the freedom of thought associated with the international movement of goods, capital, people and ideas. But global capitalism is not without its problems:

The uneven distribution of benefits.

• The instability of the financial system.
• The incipient threat of global monopolies and oligopolies
• The role of the state.
• The nebulous question of values and social cohesion.

First, capital is, generally speaking, in a much better position than labour because it is more mobile. Moreover, financial capital is better situated than industrial capital because once a plant has been built, it is difficult to move it. Multinational corporations enjoy a lot of flexibility in transfer pricing, but their flexibility does not compare with the freedom of choice enjoyed by international portfolio investors.

This brings me to my second point: financial markets are inherently unstable and international financial markets even more so. During the boom period, capital flows from the centre to the periphery, but when confidence is shaken, it has a tendency to return where it came from. What should be done to preserve the stability of the financial system?

Dr Mahathir's suggestion yesterday to ban currency trading is so inappropriate that it does not deserve serious consideration. Interfering with the convertibility of capital at a moment like this is a recipe for disaster. But the recent turmoil in Asian markets raises some thorny issues about currency pegs, asset bubbles, inadequate banking supervision and the lack of financial information which cannot be ignored.

Markets cannot be led to correct their own mistakes because they are liable to overreact and to behave in an indiscriminate fashion. At the same time, I am not entirely in agreement with the prevailing opinion that the best remedy is to open up the domestic financial sector to international competition.

Foreign financial institutions can play a useful role because closed financial systems tend to be inefficient, corrupt and bound up in politics. But foreign capital is notoriously fickle. So the best way to achieve stability is to mobilise domestic savings for domestic capital formation in an efficient fashion.

Instability is not confined to the financial system. The goal of competitors is to prevail, not preserve competition. But whose job is it to prevent undue concentrations of power and to preserve stability in financial markets?

The capacity of the state to look after the welfare of its citizens has been severely impaired by the globalisation of the capitalist system.

Capital will tend to avoid countries where employment is heavily taxed or protected, leading to a rise in unemployment. That is what has happened in continental Europe. Social spending began to decline in the 1980s under the influence of the Thatcher and Reagan governments, but that was more than made up for by a rise in defence spending. But in the 1990s, defence expenditures have also declined and the state has been in full retreat from the economy.

In many ways, this is a good thing, but if social services are cut too far while instability is on the rise, it may well engender popular resentment and lead to a new wave of protectionism both in the US and in Europe, especially if and when the current boom is followed by a bust of some severity.

In countries that were deficient in local capital, the state has helped local business interests accumulate capital. This is against the theory of perfect competition but it has proved successful in Japan, Korea and the various Tigers of South-east Asia. While the model has worked, it raises some important questions concerning the relationship between capitalism and democracy.

Clearly, an autocratic regime is more favourable to the rapid accumulation of capital than a democratic one, and a prosperous country is more favourable to the development of democratic institutions than a destitute one.

So it is reasonable to envisage a pattern of development which goes from autocracy and capital accumulation to prosperity and democracy.

But the transition from autocracy to democracy is far from assured, for those who are in positions of power are likely to cling to their power. In this context, the emphasis on Asian values has served as a convenient pretext for resisting democratic aspirations.

Autocratic regimes which restrict free speech and foster corruption cannot last forever. The moment of truth comes when they fail to sustain prosperity.

Unfortunately, economic dislocation and decline do not provide a good environment for the development of democratic institutions. So the political prospects for the Asian economic miracle remain cloudy at best.

This brings me to the fifth and most nebulous problem area, the question of values and social cohesion. You cannot have global markets without a global society. So, where can we find the shared values that could hold our global society together? I believe that we should look for such values in the idea of an open society which is based on the recognition that our understanding is imperfect and fallible.

Since nobody is in possession of the ultimate truth, we need institutions which allow people with different opinions, different backgrounds and different interests to live together in peace.

We need a market economy but we also need institutions that ensure political freedom and social justice. We have such institutions in individual countries but not in our global society.

I should like to stress one particular aspect of the open society which is of critical importance at the present moment: the freedom of information. The freedom of information is as indispensable in Asia as in the rest of the world.