9781402073298

The Bridge to a Global Middle Class compiles a unique series of papers originally commissioned by the Council on Foreign Relations in the wake of the financial crises of 1997-1998. This thought-provoking retrospective culls the views of economists, international financial institutions, Wall Street, organized labor and varying public-interest organizations on the issue of how to fortify our global financial infrastructure. Their effort is the culmination of an 18-month study - The Project on Development, Trade, and International Finance - that seeks to encourage the evolution of middle-class oriented economic development in emerging market countries. In addressing the world economic problems that led to the crises and examining methods to improve the workings of the world's financial markets, they offer ideas, policy recommendations, and suggest the concrete forms these might take, in the drive to transition the world economy toward strategies that offer the developing world an improved standard of living. These papers make a convincing case for middle-class-oriented economic development as the key to global prosperity and stability. U.S. and international policy-makers will find these insightful discussions valuable in forming new policy and providing the appropriate stimulus for economic development in emerging economies.

Table of Contents

vii

Note from the Editors

Contributors

Acknowledgments

xxi

A Financial Architecture for Middle-Class-Oriented Development (Mead and Schwenninger)

(84)

Executive Summary

(5)

The Case for Middle-Class-Oriented Development

(17)

Obstacles to Middle-Class-Oriented Development

(21)

Toward a New International Financial Architecture

(29)

Conclusion: The Politics of International Financial Architecture

(6)

Appendix: Making Dollarization Work

(4)

Private Capital Flows, Emerging Economies, and International Financial Architecture (Yago)

(40)

Introduction

(7)

Contagion as Metaphor

(6)

The Integration of Global Capital Markets

100

(7)

Deconstructing Global Financial Architecture Proposals

107

(18)

Building the Financial Infrastructure for Middle Class Emerging Economies (D'Arista)

125

(44)

Introduction

127

(2)

Building on Past Structures and Programs

129

(9)

Building on Existing Structures and Trends

138

(7)

Structuring Pension Funds in Emerging Economies for Growth and Development

145

(11)

Reforming the International Monetary and Financial Architecture to Promote Domestic Demand-Driven Growth in Emerging Economies

156

(10)

Conclusion

166

(3)

Capital Flows and the International Financial Architecture (Eatwell and Taylor)

169

(50)

Capital Flows and the International Financial Architecture

171

(3)

Liberal Capital Markets in History

174

(4)

The Breakdown of Financial Regulation

178

(2)

Actual and Potential Problems in Industrialized Economies

180

(3)

The Performance of the Private Sector

183

(2)

The Performance of the Public Sector

185

(1)

Governments in Search of Credibility

186

(2)

The Position of the United States

188

(3)

The American Predicament

191

(3)

External Dangers?

194

(2)

Developing and Transition Economies

196

(3)

Exchange Rates

199

(5)

Dealing with the Problems At Hand

204

(2)

Bands

206

(2)

Capital Controls

208

(2)

Managing Global Financial Risk

210

(1)

A World Financial Authority

211

(1)

Macroeconomic Regulation and Risk Management

212

(2)

Microeconomic Regulation and Risk Management

214

(1)

The Way Forward

215

(3)

Bibliography

218

(1)

Solving the Currency Conundrum (Eichengreen)

219

(40)

Introduction

221

(2)

Going to Extremes

223

(8)

The Backlash

231

(4)

Which Alternative?

235

(7)

Monetary Union

242

(4)

Achieving Greater Flexibility in Emerging Markets

246

(7)

G--3 Target Zones

253

(4)

How the International Monetary System Will Look in Twenty Years

257

(2)

The Diminishing Returns to Export-Led Growth (Blecker)

259

(40)

Prologue: The Sudden Collapse of the Export-Led Economies

261

(6)

The Hypothesis: Statement and Qualifications

267

(8)

Literature Survey: Studies of Exports, Growth, and the Fallacy of Composition

275

(14)

Empirical Plausibility: A Preliminary Look at Export Growth Trends

289

(6)

Policy Implications: Which Way Out of the Dilemma?

295

(4)

The American Stock Market as a Financial Risk: A Discussion of Historic and Demographic Risks (Dugger, McNally and Medley)

299

(62)

Introduction

301

(5)

Trade, Development, and the Post-Cold War Transition

306

(20)

Household Balance Sheets and Generational Deleveraging

326

(8)

Macroeconomic Forecasts Including a Major Market Decline

334

(6)

Concluding Comments

340

(3)

Bibliography

343

(3)

Appendix

346

(15)

Reforming and Deepening Mexico's Financial Markets (Lopez-de-Silanes)

361

(78)

Introduction

363

(4)

Legal Protection for Investors

367

(9)

Enforcement of Laws

376

(2)

Consequences of Investor Protection

378

(9)

Reforms for Deepening Mexico's Financial Markets

387

(20)

Conclusion and Policy Implications

407

(2)

Tables

409

(25)

Bibliography

434

(5)

Economic Crisis and Corporate Reform in East Asia (Woo-Cumings)

439

(74)

Economic Crisis and Corporate Reform in East Asia

441

(7)

Northeast and Southeast Asia between the State and the ``Sib-Fetters'' of the Economy

448

(9)

Corporate Governance in Korea

457

(11)

Concentration and Diversification in the Korean Chaebol

468

(5)

Family Governance, Trust and Rule by Regulation

473

(6)

Family Governance: Part of the Problem or Part of the Solution?

479

(4)

Efforts at Corporate Reform in Korea

483

(7)

The Politics of Ethnicity and Corporate Governance in Southeast Asia

490

(9)

Conclusion

499

(6)

Bibliography

505

(8)

Cultural Contradictions of Post-Communism: Why Liberal Reforms Did Not Succeed in Russia (Khrushcheva)

513

(50)

Introduction

515

(9)

Russia's Bottom: The Culture of Envy

524

(15)

Russia's Top: Privatization Russian Style

539

(9)

Russia's Middle: Voices of Reason

548

(5)

Conclusion

553

(4)

Bibliography

557

(6)

Korea's Comeback: The Government's Predicament (Root)

563

(38)

Introduction

565

(3)

Financial System Reform

568

(10)

Business Reform

578

(10)

Labor Reform

588

(10)

Bibliography

598

(3)

Sustainable Development and the Open-door Policy in China (Galbraith and Lu)

601

(38)

Introduction

603

(2)

Budget Deficits and Cultural Revolution

605

(2)

Bottlenecks and Heavy Industry

607

(2)

The Agricultural Reform

609

(2)

Auxiliary Reforms in Light Industry and Commerce

611

(1)

The Second Phase: Urban Economic Reform 1984--88

612

(2)

The Transitory Period (1988--91): Adjustment and Crisis

614

(1)

The Third Round of Reforms: 1992--97

615

(4)

The Open Door Policy -- What Was It?

619

(2)

The Role of the Open Door Policy

621

(2)

The Crisis of the 1990s

623

(4)

The Outlook and What is Required?

627

(9)

Bibliography

636

(3)

The Paradox of Free Market Democracy: Indonesia and the Problems Facing Neoliberal Reform (Chua)

639

(17)

Introduction

641

(1)

Background

642

(5)

Indonesia

647

(9)

Policy Implications

656

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The Bridge to a Global Middle Class

1402073291

Summary

Table of Contents

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