Journal Issue

Monetary and trade conference: Panelists agree technology developments are driving continued global economic expansion

International Monetary Fund. External Relations Dept.
Published Date:
January 2000
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Technologies: The Force

Driving Global



William C. Dunkelberg

Chair, Global

Interdependence Center

Anthony M. Santomero

President, Federal Reserve

Bank of Philadelphia

Lawrence R. Klein

Benjamin Franklin

Professor of

Economics, Emeritus,

University of Pennsylvania

Ronald J. Naples

Chief Executive Officer,

Quaker Chemical


Michael Merrill

Director of Education and

Training, New Jersey State


Catherine L. Mann

Senior Fellow, Institute for

International Economics

Philip L. Swan

Director of International

Economics, IBM

Michael Mussa

Economic Counselor and

Director of Research, IMF

James R. Barth

Senior Finance Fellow,

Milken Institute

Lee A. Congdon

Senior Vice President for

Strategic Initiatives,

National Association of

Securities Dealers

Stephen J. Kobrin

William H. Wurster

Professor of Multinational

Management, Wharton

School, University of


Howard V. Perlmutter

Professor of Social

Architecture and

Management, Emeritus,

Wharton School,

University of Pennsylvania

After much of the world was rocked in the 1990s by financial and economic crises, recovery began to take hold in late 1998 and became widespread in 1999. The outlook for the world economy in the near future is generally favorable, with the rate of expansion expected to slow slightly to a more “comfortable” pace, according to panelists at the Nineteenth Annual International Monetary and Trade Conference, sponsored by the Global Interdependence Center in Philadelphia on November 13. They noted that any discussion of the increasingly interdependent global economy must consider how communications technologies are transforming human activities and contributing to ongoing economic growth. Conference participants debated the opportunities and challenges for labor and management, the economic impact of investment in technology, the governance of electronic commerce, and visions of how technology can transform both developing and developed economies.

World economic outlook

Setting the stage for the discussion, Lawrence Klein described the current state of the world economy and the implications of communications technology for its continued expansion. Among the countries that did not succumb to crisis in the 1990s, he said, are Australia, Canada, New Zealand, the United Kingdom, and the United States, which are all performing well. The United States, in particular, he said, was able to keep crisis from engulfing the globe during the 1990s by lending stability to, and providing the engine of growth for, the whole world. What permitted the United States to grow uninterruptedly for 115 months was new technology. Even if world growth slows somewhat, Klein said, the U.S. economy can continue to expand and share the benefits of technology with the rest of the world.

Already, he said, a number of other countries are participating in the technology boom, including Finland and Sweden, which invest heavily in research and development and are well advanced in wireless technology, and Ireland, which has an abundant supply of young, well-educated workers. Countries outside of Europe traveling down the information highway include India, which has a well-educated, English-speaking workforce, and Israel, which is blessed with highly educated immigrants from the former Soviet Union. In Asia, Taiwan Province of China and Korea are leaders in technology and in the creation of hardware. China has less experience with a modern economy but is catching up quickly. According to Klein, the United States will not dominate information technology much longer.

Michael Mussa fleshed out the picture that Klein had sketched of the world economy and its prospects. According to the IMF, he said, we are seeing the strongest results in a decade, with growth registering 4½–5 percent and expected to be reasonably well sustained in 2001. The economy is “hitting on all cylinders.” Europe is picking up, Japan is doing better, and developing countries are performing well. However, he noted, there is evidence that growth is slowing. In Europe, growth bounced back after dropping off in late 1998 and 1999, but industrial production is now slowing. Consumer and business confidence are leveling off and even declining modestly. He mentioned that the uptick in inflation—to 2½ percent—caused by the increase in oil prices is one source of concern.

In the United States, Mussa noted that the growth of employment is slowing, although there is as yet no sign that the economy is in danger of falling into a recession. Contributing to the U.S. slowdown are a weakening of consumer and business confidence and a slowing of investment spending. There is also some concern that inflation might creep upward—wages and salaries have already done so, and world oil prices have more than tripled over the past 18–20 months. Equity prices have bounced around since early in the year, Mussa noted, and, although credit markets are calmer, private credit conditions are looking “less hospitable” than earlier in the year, with credit costs increasing.

Investing in technology

Discussing the economic impact of investment in technology, Philip L. Swan reiterated that spending on information technology was still a U.S.-based phenomenon, but it was spreading. Although other countries, including Scandinavia and some other European countries, are investing more in information technology, a capital investment gap still exists between the United States and Europe. For its part, Asia must encourage such investment, promote competition, enhance security for ecommerce, and help developing countries nurture their information technology industries, Swan noted.

In the United States, information technology is linked to positive economic trends, Swan said, including improved business productivity, a higher average GDP growth rate, and steady employment growth, with declining unemployment.

On the level of the firm, returns are related to organizational architecture, Swan explained. Firms benefit from advances in technology only if they restructure to obtain them. Those firms that restructure will have higher returns if they decentralize decision making, install an incentive-based reward system, and establish an education-intensive culture. Most of the benefits come with networking. For global enterprises, this means that the workforce is decentralized; customers, suppliers, and partners are all linked; and markets compete 24 hours a day, 7 days a week. Swan also observed that the date rollover on January 1, 2000— the so-called Y2K bug, which after much hype turned out to be a nonevent—was an impetus for firms to focus on computing and on how they could use their computers to better effect.

Catherine Mann centered her discussion on the impact of technology on U.S. growth and on the sustainability of U.S. external imbalances. She concluded that a scenario that included greater investment in technology and a more liberalized global trade environment would be more stable than a scenario that did not. In Mann’s high-tech scenario, the U.S. current account deficit did not appear to be an issue through 2001, while the capital account surplus could be more problematical, particularly if the growth in international wealth were to slow or if investors decided to keep most of their wealth in home assets.

Management and labor

Presenting a micro perspective—that of labor management—Ronald Naples introduced himself as a “practitioner speaking to thinkers.” Going global, he said, is a natural evolution of business theory but has serious implications for people. What, he asked, does globalization as a business model mean for progress? While international, multinational, and global firms all operate around the world, only global firms operate as a single company in which integration is the core value. To accomplish the firm’s goals, workers from disparate cultures must find common ground in different perceptions about risks, challenges, business practices, benefits, and compensation. Globalization, Naples concluded, is at a crossroads. Organizations must turn change into progress, and communication, through technology, allows this to occur.

Speaking from the perspective of labor in the new high-tech environment, Michael Merrill discussed what U.S. workers think about globalization. Since 1970, he said, wages have fallen, and working conditions and benefits have deteriorated. Firms are more productive than ever, thanks to new technologies, but workers who are let go when firms downsize cannot find other jobs. Merrill also noted the widening income and experience gap between the top third and bottom two-thirds of the population. Workers attribute these disparities to globalization and consider it the source of their problems.

Merrill, however, disagreed that globalization was to blame for workers’ ills. In his view, workers would benefit from more globalization, from institutions of social solidarity that would not leave “every man for himself.” He likened the present moment to the end of the nineteenth century, when people had to come to terms with changes brought about by nationalization. He said that new forms of upheaval could emerge if we did not figure out how to spread the benefits of globalization more widely. He was optimistic about the outcome, however, predicting “a positive learning curve.”


James Barth asked whether every country needs its own currency, stock exchange, and banking system. He noted that of the world’s 200-some countries, 182 of them are IMF members, and two-thirds of these have experienced a banking crisis since 1980. The problem for most countries is that their debt is denominated in foreign currencies. When a country experiences a sudden reversal of capital flows, the results can be disastrous. Every country does not need its own currency, Barth concluded. Fixed rates encourage too much foreign currency borrowing, while floating rates diminish trade. In fact, a hot debate today is whether the world should do away with all but three currencies—the dollar, the euro, and the yen—and move toward currency boards, which facilitate trade. In Barth’s view, countries would be better off either adopting a currency board or another country’s currency (such as the U.S. dollar or the euro) as their own, as some have already done.

Nor do countries necessarily need their own banking system, in Barth’s view. New Zealand, which outsourced its entire banking system, is one of a handful of countries that have performed well in recent years, largely unaffected by the crises of the 1990s. This phenomenon, Barth said, can be attributed to globalization.

Lee Congdon described changes occurring within Nasdaq. Its goals, to be accomplished within the next few years, are to make trading securities digital, global, and accessible “24/7.” Electronic markets are preferred, Congdon said, because they obviate the need to bring people together physically. This is one reason the overall number of stock exchanges, despite new entries, is declining.

Technology and Internet access are increasing worldwide, Congdon said. In some areas where wired access will not be available for some time, wireless technology will become the paradigm of the future. While technology and the broad access to information are driving global equities markets, he said, there are factors that could potentially inhibit them. These include differences in disclosure and transparency standards, regulations, and business laws; hours of operation; clearance, settlement, and currency; and taxation issues.

Global transformation

With activities moving from traditional markets to cyberspace, governance takes on new meaning. Stephen Kobrin observed, however, that although e-commerce is revolutionary, it is still a market. The Internet, he said, will be regulated and taxed, although it is still unclear how and by whom. Jurisdiction can also pose a challenge because, in digital commerce, there is no location for buyer or seller. How, Kobrin asked, does a regulatory authority know when a transaction occurs? As for taxation, he argued that it was not fair or equitable to exempt digital transactions because people who are not wired would be penalized.

The Internet is heavily international, and governance must also be international, Kobrin maintained, but he noted that there are problems of sovereignty. While he doubted the U.S. Congress would be willing to relinquish taxing rights to an international entity, he did believe the United States was beginning to recognize that regulation could not be left entirely to the markets. At the same time, Europe is learning that government regulation alone will not work. A hybrid scheme appears to be emerging, Kobrin said, and whatever form cybergovernance takes, it will have to be international and nonterritorial and involve governments, businesses, and civil society.

Summing up the day’s sessions, Howard Perlmutter suggested “transformation” as a catchword to describe the emerging global cybercivilization. In his view, global interdependence has both a dark side and a light side, with the vast digital divide between villages and industrial urban centers embodying the dark side. He described two possible scenarios for the future. In the first, the digital divide becomes wider and the world looks as it does today, with islands of wealth dotting seas of poverty. In this scenario, Perlmutter said, the digital divide is considered unbridgeable, the poorest continue to receive aid and charity, and we hope for the best.

In the second scenario, the digital divide is being bridged. The global economy is truly interdependent, and there is a dialogue between rich and poor. The poor are connected to the cyberworld and are part of a partnership in which everyone learns from each other.

How, Perlmutter asked, can we design institutions that embody human values in this changing world? The answer is to design equipment that can allow the dialogue between rich and poor to take place. This, he concluded, should lead to a global vision to develop a strategy for global governance.

Ian S. McDonald


Sara Kane

Deputy Editor

Sheila Meehan

Senior Editor

Elisa Diehl

Assistant Editor

Sharon Metzger

Senior Editorial Assistant

Lijun Li

Editorial Assistant

Joann Wheeler

Staff Assistant

Philip Torsani

Art Editor/Graphic Artist

Jack Federici

Graphic Artist

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