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"From the editor's desktop" by William Watson Sorry, the summary of this article is not available. Interview: Paul Martin on new global financial architecture Since before the Halifax G-7 summit in 1995, Finance Minister Paul Martin has been talking about the need for new ways of managing the world's financial system. Not many countries were listening then, but in the aftermath of the Asian crisis "new architecture" is getting a second look. Policy Options editor William Watson interviewed Mr. Martin at his home in Montreal in early May. In addition to international problems, they talked about two current domestic preoccupations, productivity and taxes. Here is an edited transcript of their conversation. "Financial re-globalization" by James Tobin Large-scale movements of capital are nothing new. In fact, the foreign investment flows observed today still haven't reached the proportions that were typical at the end of the last century. The increasing integration of capital markets does affect national policy, however. Countries can have only two of the following: a fixed exchange rate, complete convertibility into other currencies or gold, and a national monetary policy. Recent experience shows that pegged currencies are a bad idea. The only viable exchange rate regimes are freely floating rates or permanent fixes. The Tobin Tax is still a good idea, in spite of what the lords of international finance believe. "Must financial crises be this frequent and this painful?" by Joseph Stiglitz Over the last 20 years, financial crises have become more frequent and more costly. The economic theory of information provides good reasons to suppose that simply "letting international financial markets" work is unlikely to reverse this trend. By contrast, measured interventions, both by national governments and by international organizations, stand a reasonable chance of preventing at least some crises and reducing the harm done by those that still take place. "For less destruction, reduce government power" by David Henderson The countries that got into the most economic trouble in the 1990s are those in which, however much they may have liberalized, government still plays too large a role. Capital inflows are good for poor countries - unless their financial sectors are regulated in ways that limit downside risk and therefore encourage unwise investment. IMF bailouts have the same effect and should therefore be stopped. The best way for rich countries to help crisis-stricken economies is to keep their own markets open. "What to do with the IMF?" by Wendy Dobson The world financial crisis of the last two years has prompted some of the most damning criticism ever of the Bretton Woods institutions, and particularly the International Monetary Fund. Should the Fund be razed, re-built or renovated? Renovation seems the most likely course. Three areas need attention: the Fund's role in crisis prevention and management, its approach to exchange rate regimes and its ways of governing itself. On the first, it should pay more attention to micro matters; on the second, give up on pegged rates; and on the third, become more flexible and representative. "Economic crisis won't halt Latin America's reforms" by Susan Kaufman Purcell The Asian crisis hit Latin America's economies hard. But in most countries economic crisis has, if any-thing, strengthened the commitment to market-based reforms. On the other hand, it has also generated widespread interest in a new round of reform, one focusing on ways to make sure the gains from priva-tizing, de-regulating and opening up the region's economies are more widely shared. "Capital controls: Capital folly or capital idea?" by Barry Eichengreen Open capital markets and full currency convertibility are the hallmarks of economic development and the destination toward which developing countries should always be heading. Until their domestic capital markets and regulatory systems mature, however, they may need to control capital movements. There is also a case for capital controls both as a prudential measure when standard, developed-country measures are not effective, and as a transition during the structural reform that is the only long-term solution to chronic capital flight. "The Tobin Tax: A bad idea whose time has passed" by A. R. Riggs and Tom Velk In reality, the short-term capital movements that are blamed for market volatility often serve to keep markets functioning and stable. That's the historic role of the "market specialist," whose socially crucial function would be attacked by a Tobin-style tax on short-term trades. Fortunately, modern money mar-kets offer myriad ways of escaping such a tax, and governments themselves could be depended upon to cheat on any international tax agreement so as to siphon off more of the action for themselves. "The disaster of Nunavut" by Albert Howard and Frances Widdowson Nunavut cannot be the answer to Inuit social problems because it is economically and culturally unviable. The racially defined territory's existence will depend almost entirely on federal transfers, and attempting to artificially retain Inuit culture will isolate Inuit people further from the modern world. Nunavut will even harm the privileged native elite who benefit financially from the new arrangements, since Inuit social pathologies can be solved only through policies that facilitate their participation in an increasingly global economy and society. The Donner Prize speech: Thomas J. Courchene This year the Donner Canadian Foundation inaugurated the Donner Prize, a $25,000 award for the best book on public policy published in the previous year. The inaugural winner was Queen's University economist Thomas Courchene, with Queen's Ph.D. student Colin R. Telmer, for From Heartland to North American Region State: The Social, Fiscal and Federal Evolution of Ontario, published by the University of Toronto's Centre for Public Management as part of its monograph series on public policy. The award was presented at a dinner in Toronto on May 13, at which, as a condition of winning, Prof. Courchene gave a short talk about his book. Here is the text of his remarks. "Does Canada need a productivity budget?" by Daniel Trefler Canada's productivity performance in low-end manufacturing is actually pretty good, thanks to the Canada-US Free Trade Agreement. At the high end, however, we trail the Americans in product innovation. The solution is more funding for basic research conducted in a fully open way. The integrity of the patent system could also be restored at little budgetary cost. The only productivity policy that would cost lots is a tax cut to stem the brain drain. A social policy focused on keeping our cities livable would help accomplish the same end. Book review: Dan Usher reviews Walter Hettich and Stanley L. Winer's Democratic Choice and Taxation Sorry, the summary of this article is not available. |
