frederic s mishkin : globalization - a force for good? remarks by mr frederic s mishkin, member of the board of governors of the us federal reserve system, at the weissman center distinguished lecture series, baruch college, new york, 12 october 2006. * * * it is a great pleasure, for very personal reasons, to be here at baruch college to deliver my first speech as a federal reserve governor. my now - deceased father, sidney mishkin, whom i still miss every day, proudly graduated more than seventy years ago from baruch, then called city college. indeed, you might have noticed the sidney mishkin gallery when you came into the building. the gallery was part of a gift that my father made to this institution upon his death fifteen years ago. the education he got at baruch during the depths of the great depression - attending class at night because he had to work to support not only himself but also his parents - helped give him the opportunity to become a successful businessman. i hope that the students here will likewise take advantage of the opportunities bestowed by their education and make important contributions to our economy. now, let me turn to the topic at hand : can more globalization - in particular, financial globalization - be a force for good? the globalization of trade and information over the past half century has lifted vast numbers of the world's people out of extreme poverty. despite the doom and gloom that you often hear, world economic growth since the second world war has been at the highest pace ever recorded. what we are seeing in countries that are export oriented, and thus able to take advantage of the present age of globalization, is a reduction in poverty and a convergence of income per capita toward industrialcountry levels. in india and china, for example, globalization in recent years has lifted the incomes of more than 1 billion people above the levels of extreme poverty. although economic globalization has come a long way, in one particular dimension a€ “ finance - it is very far from complete. as documented in the superb book by maurice obstfeld and alan taylor, global capital markets, financial globalization has made its greatest strides in rich countries. gross international capital flows, which have risen enormously in recent years, move primarily among rich countries. the exchange of assets in these flows is undertaken to a large extent to enable individuals and businesses to diversify their portfolios, putting some of their eggs in the baskets of other rich countries. international capital is generally

globalization of trade in goods and services are not controversial among economists. polls of economists indicate that one of few things on which they agree is that the globalization of international trade, in which markets are opened to flows of foreign goods and services, is desirable. but financial globalization, the opening up to flows of foreign capital, is highly controversial, even among economists, despite benefits of the sort i just mentioned. for example, in his best - selling book globalization and its discontents, nobel laureate joseph stiglitz is very critical of globalization because he sees the opening up of financial markets in emergingmarket economies to foreign capital as leading to economic collapse. even jagdish bhagwati, one of the leading economists defending globalization of trade ( after all, his book is titled in defense of globalization ), is highly skeptical of financial globalization, stating that " the claims of enormous benefits from free capital mobility are not persuasive. " 1 george soros, the prominent financier, opens his book on globalization with a chapter entitled " the deficiencies of global capitalism. " one reason for the controversy is that opening up the financial system to foreign capital flows has led to some disastrous financial crises causing great pain, suffering, and even violence. these crises can arise when bad policies encourage excessive risk taking by financial institutions, policies that rich elites in the developing countries often advance for their own profit. there are those ( including stiglitz and bhagwati ) who put the primary blame for the failures of financial globalization in emerging - market economies on outsiders, specifically on the international monetary fund, or what they refer to as the jagdish bhagwati ( 2004 ), " the capital myth : the difference between trade in widgets and dollars, " foreign affairs 77, no. 3 p 7. wall street - treasury complex. the evidence has brought me to the conclusion that institutions like the imf or the u. s. treasury are not primarily to blame, although neither are they blameless - public and private financial institutions active in the international capital markets have often aided and abetted poorly designed financial globalization, although that was not their intention. another objection to focusing on financial development and globalization as key factors in economic growth is that it is far from clear that emerging - market economies are finance constrained : in other words, they often do not have trouble getting money for investments. but throwing money at investments does not work. indeed, as the experience of recent years