dimanche 24 avril 2011

Review: Frederic Mishkin, The Next Great Globalization: How Disadvantaged Nations Can Harness Their Financial Systems to Get Rich


While Globalization has been hardly reproached on deepening the disruptions in the financial system such as the case of financial contagion of several crises, Frederic Mishkin explains conversely how it can help to lift poor countries out of poverty if it goes along the lines of his next great globalization vision. He argues that Globalization and economic growth are associated as a result of causality. In fact, countries who have taken advantages of globalization by increasing their financial openness either by developing their trade sector or by motivating the foreign capital flows have witnessed spectacular economic growth. He put forward some historical examples of nations were considered in the past half century as the poorest in the world with low incomes, minimal engagements in international trade of good and services and with subordinate movement of capitals yet become one of the prosperous and richest nations though they increased their economic involvement in the world market. In India and China Globalization has led more than 1bn people out of extreme poverty.
Nevertheless, Mishkin thinks that the right implementation of globalization requires a sound financial system. According to him, the financial system is the key driving force for the Globalization and therefore for the development. He deems that financial system can and should be shaped to the benefit of all, especially the disadvantaged nations most in need of growth and prosperity. In this vein, he draws arguments to caution that wrong institutional policies and governmental mismanagement have impeded the financial globalization of most developing countries. He investigates therefore the financial crises in Mexico, South Korea and Argentina and he elucidates in detail their circumstances, how the authorities reacted to it and how well they have been able to work it out. He believes in fact that these financial crises are relatively "homegrown" and the external links are just "accelerators".
He uses cautiously these arguments to demonstrate how better policies can help them to open up their economies properly to catch up with developed countries. He explains indeed the conditions required for the better functioning of the financial system: effective property rights, efficient legal system, strong financial supervision and regulation which include indeed transparency, banking regulation, accounting practices, corporate governance and so on.
Mishkin if ever think to update this edition, he would discuss the latest global financial crisis, although it stems from a developed state, it might be a concrete example to judge the next great globalization: How well regulated has been the financial system during the late crisis? How well implemented the financial globalization? Whom to blame, the financial system and/or the Globalization?
What Mishkin tells in this book is not exactly new, but he touched an important yet confusing topic. To conclude, this book could be summarized in the few final words: "the next great globalization is financial". But as long as there are countries who believe that wealth can be created without any of the necessary requirements listed in Mishkin's book, it should remain compulsory reading for everyone.