OPPORTUNITIES AND CHALLENGES OF GLOBALIZATION FOR ARGENTINA

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OPPORTUNITIES AND CHALLENGES OF GLOBALIZATION
FOR ARGENTINA

• Joseph Stiglitz
• B.A.
• May 31, 2007

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Opportunities

• Global markets
• Mean that any firm that succeeds in making a
  better product has almost unlimited sales
• Supply bottlenecks at home are less
  importantglobal access to inputs
• Firms can draw upon a global talent pool
• And sometimes, can draw upon global capital
  markets

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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

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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

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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

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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

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Taking Advantage of Globalization

• Enhancing productivity of labor force
• Enhancing productivity of firms
• Redesigning and strengthening social protections

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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

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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

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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

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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 failureaccess 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

12
Taking Advantage of Globalization firms and the
social pillar

• Allowing firms to focus on what they should be
  doingproducingand not providing social services
• Assumption of responsibility for social
  protections by the government
• Facilitate labor market mobilityhelping to
  embrace change, increasing labor market efficiency

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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 securitynot job
  securitywill 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

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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 40ranked 55th
• Percentage of children underweight25th
• People without access to improved water18th
• (Albania, 17th, Botswana, 19th)

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Globalization and social protections

• Strengthened unemployment benefitsin 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 programvariable rate
  mortgages with fixed payments (variable maturity)

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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

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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
  Argentines workers and of its firms, combined
  with enhanced social protections, is designed to
  enhance productivity, leading to sustainable and
  equitable growth.