GLOBALIZATION AND POLITICS: THE EFFECTS OF GLOBALIZATION ON HUMAN LIFE ASPECTS
Mohammad Abo Gazleh
International Conference on Malaysia and Globalization, Kuala Lumpur: University of Malaya, 2001.
Globalization has today become a major sort of debate among academicians, policy makers and NGOs. Its impact is profound. Despite the continuing emphasis on promoting global prosperity and achieving a more “just world,” negative aspects of globalization remain rife in our globe. Poverties, inequalities, injustices, starvations, backwards and marginalizations are all serious problems many societies are still experiencing. The purpose of this paper is to examine the positive and negative aspects of globalization and realize how one could successfully deal with the challenge it poses. The study shows that though globalization is a process by which capital, goods, services and labor cross national borders, and acquire a transnational character, it is often accompanied by the flow of related lifestyles, tastes, ideas, and even values across boundaries which help reshape local political institutions, cultural patterns and social relations. It also creates new opportunities for many peoples to increase their wealth and enhance their prosperities. On the other hand, the potential for people of different cultural and religious backgrounds to know and understand one another owing to this process is greater than ever before. Therefore, it is important that one not reject it totally. Instead, as a short and medium-term strategy one should try to inject ethical and moral considerations into some of the dominant economic institutions, activities and goals associated with the process.
Many peoples in this world have hoped that they would enter the 21st century with more equality and less poverty. They thought, with the rapid growth of world economy and the vast development of productive technology associated with the process of globalization terrible features of our globe would be eradicated or remarkably reduced. Many international conferences have been held, a large number of approaches have been adopted, and scores of studies has been produced, but not much has been achieved. In spite of all calls launched here and there to achieve a peaceful and ‘just world,’ negative aspects of globalization remain rife in our globe. There is also a common fear that attempts to create a globalizing ‘modern life’ will involve displacing the poorest and the most powerless societies to make way for ‘new roads and buildings’ for the rich. The problem in fact lies in the sharp differences and inequalities between haves and have-nots. This process in its current features and aspects presents not only a moral crisis, but also the potential for economic disaster and civil unrest in many areas in the world. The purpose of this paper is to examine the process of globalization and to explore its effects on the various aspects of human life.
I. The Concept of Globalization
Globalization is an ambiguous term. It means different things to different people. It may mean different things to the same person. So what does globalization mean? Is it a new stage in human civilization that goes beyond national borders or native cultures? Could it lead to a universal entity within which criteria of race, color, religion, class, language … etc, would disappear? Or is it just another transformation in world economy? Is it a means of dominance or another face of neocolonialism intending to control people’s minds and lifestyles, or to make their future dependent upon the actions and behaviors of market whales and business groups?
With the rise of Japan and Germany as main economic powers in the beginning of 1960s, scholars started to deal with the term as a merely economic phenomenon (Soubbotina & Sheram, 2000). But after the “withering” of Communism and the end of the Cold War, the term becomes the ‘buzzword’ of our time and its meaning remains elusive. It is now no more an economic phenomenon or a merely mental state as perceived during the Cold War, but it transforms into a movement being enhance through concentrating on (a) global common principles such as democracy and human rights, (b) growing interdependence between states, and (c) unprecedented revolution in information technology (Pilger, 2002: 1-5). The quantitative and qualitative effects of this process are seen in many aspects of human life. Within these perspectives, globalization becomes a process of reshaping human life through globalizing certain values which include economic patterns related to free trade, production, consumption and distribution; cultural patterns related to entity, language, and lifestyle; and political patterns related to democratic process and human rights.
II. Instruments of Globalization
There are many instruments by which globalization is being promoted and enhanced. But the most important instruments influencing this process are the multinational corporations and the new revolution of information technology.
1. Multinational corporations are main instruments of globalization. They possess huge capitals and assets. As profit maximizers, they establish their factors in many developing countries where cheap workers and raw materials are found. Because of their size and their contributions to national economies in terms of taxes and employments, they influence decision-making processes in those countries. Once they established, none has the ability to stop them from withdrawing their investments or moving their capitals from country to another whenever it is in their advantage to do so. In spite of their contributions, the given privileges are not without price. Their activities usually leave serious effects on many host economies; they even sometime create civil unrests. This is because these companies control not only markets, but also peoples (Wooldridge and Micklethwait, 2000).
2. New Information Technology, which is a product of the industrial revolution, is another instrument of globalization. Its aspects, in particular the Internet and multimedia, remarkably contribute to the spread of globalization due to their rapidity, easiness and availability. In spite of its huge benefits, the revolution is still possessed and controlled by some advanced nations, which might use it as a means of cultural influence and informational hegemony.
III. Globalization as a Process to Reshaping Human Life
With the end of the Cold War, liberalist nations have become more interested in promoting the free trade principle, where market mechanisms must be dominant, and governments must not interfere in economic activities. The economic and military strengths of these nations assist them to pursue this objective through convincing many other countries to conduct structural changes in their economic, political, cultural and social spheres. As a result, this process has brought profound impacts on the various aspects of human life in many societies, particularly of those involved. Not only it changes many types of lifestyles, but also involves the bridging of temporal, spatial, and cultural distances in new ways, and that these processes tend to be driven by the revolutions in transport technologies, communications, the internationalization of capital notions of the world system, and post industrialism.
In spite of all these changes associated with globalization, a large number of peoples and scholars do not trust this process. Some, who may be described as conservatives, are skeptical about the role of globalization in human life, and view it as a phenomenon which may bring destructive effects on all human beings. Radicalists, on the other hand, argue that the process is not without great benefits to all peoples; its effects may reach all spots of the earth. Still others view this process as any other historical human experience which may have its positive and negative affects. (Yaapar, 2001: 2)
Regardless of these stands, it is wrong to view the process from an economic perspective only because it is increasingly involving political, cultural and technological fields and is remarkably being reinforced by the huge development of communications and information technologies. The significance of these developments does not only lie in the rapid communications or flow of information among peoples, but also in its role in changing the nature of the lives of all social classes, ‘the rich and the poor.’ Therefore, its importance manifests in the fact that its effects are not limited to the ‘macro’ social systems such as economic or financial systems, but exceed that to affect other social sub-systems such as family structures and individual private patterns (Giddens, 2000: 50).
Positive and Negative Affects of Globalization
The previous introduction shows that globalization has both positive and negative effects on the various aspects of human life.
A. Positive Effects of Globalization
There are some positive effects brought with the process of globalization:
1. In the education field, some of the new communication and information technologies, which are of course linked to the globalization process, have enabled students, researchers and young people in distant and to access ideas and information from the best libraries in the world. They are able to peruse through libraries in different countries without having to travel. Globalization from this point of view assists people in the dissemination of values related to knowledge, and in the promotion of values related to health care etc.
2. Globalization has made communication much easier and cheaper than before. The number of subscribers and users of the Internet are now increasing remarkably.
3. The potential for people of different communities, countries, cultures and religions to know and understand one another is greater than ever before. Knowing and understanding each others are very important to promote and establish common values among people of different communities. Globalization also makes it possible for people to demonstrate their sympathy and compassion for the victims of natural calamities and man-made tragedies all over the world regardless of religions, lands, languages, colors, cultures etc. (Muzaffar, 1998: 181-182 )
4. Globalization has also brought to the fore issues such as the rights of women and children.
All these aspects promote globally certain common values such as equality, human rights, justice, democracy and moral values.
B. Negative Effects of Globalization:
While there are some positive aspects of globalization, its negative effects are ‘overwhelming.’ It almost affects all aspects of human life.
1. Globalization and culture: Globalization affects human cultures from various perspectives:
a. Globalization represents a challenge to cultural and local languages. United Nations’ study (Al-Jazeera, 2001) shows that half of local languages in the world are expected to disappear. This could lead unenthusiastically to marginalizing many local cultures. Scientific and economic superiority of the US and the flow of information technology assist in imposing certain languages in particular English as a second language in some developing and developed countries, and as a first language in some others. There is no doubt that language has significant impact on cultures and, therefore, the dominance of English could contribute to the emergence of a global and intercontinental culture which may wipe out traditions, customs, and values of many societies and marginalizes their cultures .
b. Globalization has significant impact on local entities. Its complexity takes decisive dimensions in particular with regard to its effects on labor immigration from the South to the North. In many cases this problem not only has political reflections, but also social dimensions. For example, when the Algerian football player Zaindeen Zaidan has appeared as a star in the French team in World Cup 1998, French Right Wing started to criticize the presence of non-aboriginal French in the national team (Mittelman, 2000: 71). At the same time, Algerians in both France and Algeria were so pleased and looked at Zaidan as an Algerian hero, despite the fact that he was born in France and still resides there. So globalization in this sense is reshaping the identity of many peoples particularly migrants.
2. Globalization and developing countries: Globalization has serious effects on many developing countries:
a. Although developing countries contribute in away or another to this process, yet they do not yield the benefits of this contribution. Indeed, they remain far away from what we might call ‘the impact point’ to influence its truck or contribute to its direction. In contrast, the process destroys many aspects of life in these societies. The irresponsible behavior of some multinational corporations toward the environment of those countries, or more dangerously marketing expired products and other illegal goods are examples of this destruction. So globalization in this context changes the world to become a “global pillage instead of being a global village” (Giddens, 2000: 50).
b. The widening gap between the North and the South at international level, and between haves and have-nots at national level is another serous aspect of globalization. In fact, the real test to globalization is through its success in reducing the gap between the rich and the poor at local, national and global levels.
c. Globalization has forced many countries in various parts of this world to regulate to a lower league the most fundamental needs of their peoples (Muzaffar, 1998: 183). The equitable distribution of food, adequate health care facilities, and the quality of education are no longer priority concerns the political agendas of the governments in these countries.
All these indicate that poor societies in the third world not only remain far away from benefiting from globalization, but also they continue to suffer from its calamities, pitfalls and misfortunes. It then contributes to laying the foundation of injustices and social inequalities, and moreover preventing the growth of new markets in these countries because they are unable to compete with the advanced markets. Here, competitiveness seems to be unequal and its result under all circumstances remains in favor of the strong and those who control international markets. So instead of filling up the gap between the rich and the poor, globalization in its present formula widens this gap (Aulakh, 2000: 123).
3. Globalization and religions: Although globalization might benefit religions through the easier exchange of information and different opinions about these religions, it however represents a source of harm to many religious and spiritual values (Falk, 2001). Globalization, through its cultural and informational aspects and the promotion of consuming patterns and value corruption, challenges religious systems (Aulakh, 2000: 233). In fact, it is gradually replacing these values with pure secular systems within which certain religious values will lose their influence on peoples’ behaviors.
4. Globalization and morals: The immoral character of globalization is becoming even more serious and its negative impacts in this context have different aspects:
a. Globalization has internationalized crimes. Drug trafficking and the trafficking of women and children have become much more difficult to control because of their international character. Not only crimes are globalized, but also disease (Muzaffar, 1998: 186).
b. Another aspect of this problem is that most users of Internet in cyberspaces are adults and they waste a lot of time using the Internet for unnecessary purposes. One of the most dangerous effects of globalization on young people is the immoral usage of the Internet. Studies show that the number of adults and young people who use web sites containing immoral materials are increasing in particular among schools and universities’ students.(Yaapar, 2001: 3)
5. Globalization and international politics: The collapse of the Soviet Union has led to the US control of the global system and international relations. This provides the US with many opportunities to defend its own national interests globally and to challenge international legitimacy through marginalizing the role of the United Nations and ignoring the international law. Power and interests become the main characteristics of interstate interactions.
6. Globalization and economy: Globalization as an economic movement has significant effect on national and global economies. Although many trade blocs were established and many industrial and economic nations have emerged as a response to this process, the rules of this process have contributed to the collapse of many national economies. The emergence of what can be called ‘electronic trade’ though the Internet is another negative aspect of globalization. Piracy is also reinforced by this process.
7. Globalization and science: Although globalization contributes remarkably to new scientific revolutions in many fields including computer and space sciences, these revolutions are accompanied by new sciences that may be used for immoral purposes or to damage the dignity of man whom the Almighty God honors. Example of these sciences is Genetic Engineering Science, which leads to the emergence of Cloning Science.
8. Globalization and societal structures: The free economy and the development of technology have negative impact on laborers. As known, twenty percent of the world population is producing the needs of all population in this world, while most of the rest 80% are unable to find a suitable source of income. This is serous because underprivileged people are expected to revolt against their bad conditions. This is possible with the growing decline of state’s power to the favor of private sectors, on one hand, and to the growing decrease of the governmental expenditures on social and public services such as heath, education etc., on the other (Barlow, 2000: 7). In this, globalization is a source of social instability and class disparity. Figure (1) shows the global strata according to World Capitalist-System theory.
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Figure (1): Global Strata according to the World Capitalist-System Theory.
9. Globalization, motivated by economic and technologic progress, has also popularized a consumer culture among people due to the flow of goods and products. Since the desire to consume more and more can never really be satisfied, the consumer becomes addicted to shopping to a point where the spiritual, moral and intellectual dimensions of his/her personality do not grow or develop. These are actually due to the business corporations, which produce the wide array of consumer goods and the media, which advertise them. This aspect could eventually create what is called “homogeneous global culture” and, therefore, lead to the decline of diversity and variety among peoples.
10. Globalization and prosperity: Globalization poses serious questions about peace and prosperity: Is there any relationship between the process and peace or prosperity? Could the implementation of free market principle globally enhance international peace and security or prevents wars, as globalists argue? Prosperity, welfare and economic progress which market economy is expected to achieve could enhance or create some opportunities for political stability; but it does not necessarily ensure peace or social stability. It is true that market economy has contributed to social and political stability in liberal states and to peace among them, but it does the opposite in many developing countries. Asian economic crisis of 1997 is a case in point. The free market forces allowed manipulators to control stock markets and to transfer large amount of money just to maximize their profits, while they were destroying the economies of many Asian countries. Indeed these activities have destroyed the social structures of those societies, and furthermore, created what might be called potential social unrests in the region. That is why globalization in its current formula does not necessarily ensure social and political stability, and therefore will not lead to a more peaceful world, particularly if market forces continue to dominate the mechanisms of power without restrictions. There is also no guarantee that economic crises and social unrests will not spread to advanced nations. The largest demonstrations against globalization are usually held in these countries.
All these negative aspects of globalization pose real challenges not only to many developing countries as usually emphasizes, but also to all human beings who should, if they have to manage these problems, inject religious, ethical and moral considerations, activities and objectives associated with the globalization process. Indeed, peoples should globalize themselves within the religious sphere and common values to build a more just world.
Globalization emerged as an economic phenomenon in the 1960s. But with the development of communications and the vast technological revolution brought by liberal systems, it has become an extension to the world capitalism, which seeks to create a liberal global community within which liberal values prevail. If we are to reflect upon the credit and debit sides of the process, we would realize that whatever advantages have come out of it, they are to a large extent accompanied with unintended effects of a process the basic motivation of which is the expansion of market economies, the accumulation of wealth and the maximization of profits. While the current mechanisms of globalization provide certain opportunities to achieve technical progresses, and might push toward democracy and political rights, or even open unprecedented ‘horizons’ for the freedom of information, the process, on the other hand, paves the way for injustices and inequalities in the distribution of wealth among and within societies. The most serious effect of this process on human life lies in its role in widening the gap between the poor and the rich, not only at global level, but also at local/national levels. Therefore, injustices and inequalities associated with this process, and its various consequences on societies, religions, cultures, moral systems, and even sciences, could undermine its claim that it is a harbinger of a new age of global solidarity. In contrast, the process in its current formula could destroy the social systems of less power societies and threaten the future of human civilization. However, and regardless of our attitudes toward globalization, it is our moral responsibility, as proponents or opponents; individuals or groups; NGOs or governments, to rethink the process of globalization in a manner that enhances its advantages and reduces or eradicates its negatives.
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Al Jazeera www.aljazeera.net accessed on 10 February, 2001.
Globalization has become a familiar enough word, the meaning of which has been discussed by others before me during this conference. Let me nonetheless outline briefly what I understand by the term. I shall then go on to consider what has caused it. The bulk of my paper is devoted to discussing what we know, and what we do not know, about its consequences. I will conclude by considering what policy reactions seem to be called for.
It is the world economy which we think of as being globalized. We mean that the whole of the world is increasingly behaving as though it were a part of a single market, with interdependent production, consuming similar goods, and responding to the same impulses. Globalization is manifested in the growth of world trade as a proportion of output (the ratio of world imports to gross world product, GWP, has grown from some 7% in 1938 to about 10% in 1970 to over 18% in 1996). It is reflected in the explosion of foreign direct investment (FDI): FDI in developing countries has increased from $2.2 billion in 1970 to $154 billion in 1997. It has resulted also in national capital markets becoming increasingly integrated, to the point where some $1.3 trillion per day crosses the foreign exchange markets of the world, of which less than 2% is directly attributable to trade transactions.
While they cannot be measured with the same ease, some other features of globalization are perhaps even more interesting. An increasing share of consumption consists of goods that are available from the same companies almost anywhere in the world. The technology that is used to produce these goods is increasingly standardized and invariant to the location of production. Above all, ideas have increasingly become the common property of the whole of humanity.
This was brought home to me vividly by a conference that I attended four years ago, where we discussed the evolution of economic thought around the world during the half-century since World War Two (Coats 1997). We debated whether the increasing degree of convergence in economic thinking and technique, and the disappearance of national schools of economic thought, could more aptly be described as the internationalization, the homogenization, or the Americanization of economics. My own bottom line was that economics had indeed been largely internationalized, that it had been substantially homogenized, but only to a limited extent Americanized, for non-American economists continue to make central contributions to economic thought, as the Nobel Committee recognized by its award to Amartya Sen a few weeks before this conference took place. Incidentally, the nicest summary of the change in economic thinking over the period was offered by the Indian participant in that conference, who remarked that his graduate students used to return from Cambridge, England focusing on the inadequacies of the Invisible Hand, while now they return from Cambridge Mass. focusing on the inadequacies of the Visible Hand! In the same vein, one of the more telling criticisms of my phrase "the Washington Consensus" was that the (substantial though certainly incomplete) consensus on economic policy extends far beyond Washington.
However, there are areas where globalization is incomplete, even in the economic sphere. In particular, migration is very far from being free. Highly skilled professionals have a relatively high degree of mobility, but those without skills often face obstacles in migrating to higher-wage countries. Despite the difficulties, substantial proportions of the labour forces of some countries are in fact working abroad: for example, around 10% of the Sri Lankan labour force is now abroad.
Moreover, globalization is much less of a reality in other fields than it is in the economic one. Culture still displays strong national, and even regional and local, variations. While English is clearly in the process of emerging to be a common world language, at least as a second language, minority languages are making something of a comeback, at least in developed countries. Sport is still very different around the world: the Americans have still not learnt to play cricket, and most of the rest of us have still not learned to understand what they see in baseball. Although the nation state is far less dominant than it used to be, with significant powers being devolved both downwards to regional and local authorities and upwards to international and in Europe to supranational institutions (and although "interfering in the internal affairs of another state" is less frowned on than formerly), politics is still organized primarily on the basis of nation-states.
What explains this globalization? It is certainly not attributable to conquest, the source of most previous historical episodes where a single economic system has held sway over a vast geographical terrain. The source lies instead in the development of technology. The costs of transport, of travel, and above all the costs of communicating information have fallen dramatically in the postwar period, almost entirely because of the progress of technology. A 3-minute telephone call from the USA to Britain cost $12 in 1946, whereas today it can cost as little as 48 cents, despite the fact that consumer prices have multiplied by over eight times in the intervening period. The first computers were lumbering away with piles of punched cards in the early postwar years, and telegrams provided the only rapid means of written communication. There was no fax or internet or e-mail or world-wide web, no PCs or satellites or cell-phones. Today we witness phenomena that no futurist dreamed of half a century ago, such as Indians with medical degrees residing in Bangalore who earn a living by acting as secretaries to American doctors by transcribing their tapes overnight.
It is clearly the availability of cheap, rapid and reliable communications that permits such phenomena, just as this is the key to the integration of the international capital market. I presume the same factor is important in nurturing the growth of multinational corporations, since it is this which enables them to exploit their intellectual property efficiently in a variety of locations without losing the ability to maintain control from head office. But in this context I would surmise that other factors are also at work, such as the spread of consumer knowledge about what is available that comes from travel and from advertising, itself encouraged by the communications revolution and its children like CNN. The reduction in transport costs is also a key factor underlying the growth in trade.
Of course, it needed a reasonably peaceful world to induce economic agents to exploit the opportunities for globalization presented by technological progress. But the technological basis for the phenomenon of globalization implies that, barring an end to the "Pax Americana" or else extremely vigorous conscious actions to reverse the process, globalization is here to stay.
Globalization certainly permits an increase in the level of global output. Whether as a result of the old Heckscher-Ohlin theory of the basis of comparative advantage as lying in different factor abundance in different countries, or as a result of the new trade theories that explain trade by increasing returns to scale, trade will increase world output. Likewise FDI brings the best technology, and other forms of intellectual capital, to countries that would otherwise have to make do without it, or else invest substantial resources in reinventing the wheel for themselves. It may also bring products that would otherwise be unavailable to the countries where the investment occurs, which presumably increases the quality, and therefore the value, of world output. And international capital flows can transfer savings from countries where the marginal product of capital is low to those where it is high, which again increases world output.
Globalization must be expected to influence the distribution of income as well as its level. So far as the distribution of income between countries is concerned, standard theory would lead one to expect that all countries will benefit. Economists have long preached that trade is mutually beneficial, and most of us believe that the experience of widespread growth alongside rapidly growing trade in the postwar period serves to substantiate that. Similarly most FDI goes where a multinational has intellectual capital that can contribute something to the local economy, and is therefore likely to be mutually beneficial to investor and recipient. And a flow of capital that finances a real investment is again likely to benefit both parties, since the yield on the investment is expected to be higher than the rate of interest the borrower has to pay, while that rate of interest is also likely to be higher than the lender could expect at home since otherwise there would have been no incentive to send it abroad. Loose talk about free trade making the rich countries richer and poor countries poorer finds no support in economic analysis. Nor is there any reason for supposing that the North benefits itself at the expense of the South by imposing import restrictions like non-tariff barriers or agricultural subsidies: standard theory says that, while this does indeed impoverish the South, the public in the North also suffers, and it loses more than the producers gain. This suggests that a promising strategy for eliminating such barriers is to seek a coalition with Northern consumers, rather than to engage in North-bashing which will simply alienate potential Northern allies.
The effects on domestic income distribution are less clear. Standard theory says that trade will tend to hurt unskilled labour in rich countries and to help it in poor ones, since the poor countries will be able to export-labour-intensive goods like garments to rich countries, thus increasing the demand for unskilled labour in the poor countries and decreasing it in the rich ones. That is, within rich countries, there is a good analytical reason for arguing that trade will tend to make the rich richer and the poor poorer. There has in recent years been a lively debate among economists in the developed countries as to whether the increase in imports of labour-intensive goods has been a major factor in causing the fall in the relative (and sometimes absolute) wages of the unskilled in these countries: the majority of economists seem to have concluded that it is a contributory factor, but that the major part of the explanation lies instead in the skill-intensive form of technological progress (Cline 1997).
It seems more difficult to doubt that exports of labour-intensive goods have been a factor that has done something to increase the demand for unskilled labour, and therefore to equalize the income distribution, in the exporting countries like Sri Lanka. Hence I find it betrays a sad lack of concern with the prospects of the poor to hear, as I have during this conference, garment exports being denigrated as likely in some unexplained way to bring negative impacts. On the other hand, some of the effects of the communications revolution must surely have had a disequalizing effect on income distribution in these countries: think of the Indian doctors who are acting as secretaries to American doctors rather than treating Indian patients, thereby earning more for themselves and also tending to pull up the pay of other doctors in India, who are relatively affluent by Indian standards. Similarly, differential mobility of skilled versus unskilled labour tends to pull up the salaries of the skilled in developing countries toward world levels, thereby leaving less for the immobile poor. The same result will occur if the owners of highly-mobile capital are able to evade taxes by investing abroad, and also if governments are induced to avoid imposing high tax rates on internationally mobile capital, or on those who might be prompted to emigrate, in the hope of keeping these factors at home. Thus the net effect of globalization on income distribution within developing countries seems to me distinctly ambiguous.
What impact is globalization likely to have on the long-term possibilities of economic growth in developing countries? My vision of the growth process is that it takes off when the elite in a developing country comes to understand the opportunities of applying world-class technologies within their country, and introduces institutional arrangements that permit individual pursuit of self-interest to serve, in general, the social good. Once that happens the country is able to grow at a rapid rate, unless some political accident obstructs the process, until it catches up with best-practice technology, and therefore attains the living standards of the developed countries. Globalization is tending to make the technologies and the knowledge for this process to occur more readily available, and therefore to enable the process to be telescoped in time. (Singapore may be a small country, but there is no previous case in history of any country that did not enjoy massive resource discoveries going from stark poverty to affluence in under 30 years.)
But it is surely also true that globalization is bringing new dangers. The virulence of the East Asian crisis was primarily a result of countries exposing themselves to the full force of the international capital market before they had built up an unquestioned reputation for being able as well as willing to service their debts come what may, which meant that when investors became concerned about their potential vulnerability as a result of the Thai crisis there were no other investors willing to step in and provide stabilizing speculation even after exchange rates and interest rates had clearly overshot. Of course, one can argue that this increased vulnerability to external shocks has to be weighed against a decreased vulnerability to internal shocks: think how much more Bangladesh would have suffered this year (1998) if the international community had not provided aid to partially offset the cost of the floods, let alone how much more hunger, or even starvation, there would have been had Bangladesh been unable to import additional rice. But this does not justify dismissing the increased dangers from external shocks. Moreover, I might note that Professor Indraratna offered you a much longer and more imaginative list of dangers than I have here identified, which looks beyond narrow economic questions and considers the role of globalization in spreading such unsavoury phenomena as drugs, the sex trade, crime, and terrorism.
If I am right in arguing that globalization stems from technological developments rather than policy choices, trying to reverse it would be rather like playing at King Canute. It would be more productive to seek to maximize the benefits it offers and minimize the risks it creates. Let me discuss what I see that involving, while restricting myself to the narrow economic questions.
It will be clear from what was said above that I see little reason to doubt that the citizens of a developing country can expect to benefit from being open to trade and FDI. This gives them the advantages of being able to make relatively good use of their abundant unskilled labour and being able to access world-level technology. However, if they rely simply on exploiting unskilled labour, they will never be able to advance far beyond the living standards of their poorest competitors, who will be exporting similar goods. In order to raise living standards progressively over time, it is at least as important to raise educational standards as it is in a relatively closed economy. To a first approximation, one may summarize the policy advice of how to prosper in a global economy as: give one's citizens a relevant set of skills through education, and then let them get on with the job of producing whatever is useful to the world economy.
However, a second approximation requires one to recognize also the increased risks of full exposure to the world economy. Are there ways of reducing those risks? I am convinced that there is at least one important dimension in which prudence suggests that developing countries are well-advised to limit their integration in the world economy, and that concerns the liberalization of short-term capital flows. If one asks what distinguishes those countries that suffered contagion from the East Asian crisis from those that escaped it, the answer seems to me very clear: that the victims were those that had built up a substantial stock of short-term dollar-denominated debt as a result of having established capital account convertibility, while those who escaped catastrophe were those that had been cautious in liberalizing their capital accounts at the short end. Since there is no persuasive analytical reason or empirical evidence (Rodrik 1998) for believing that freedom of short-term capital flows is a significant factor in contributing to economic growth, let alone distributional equity, I conclude that prudence suggests seeking to postpone rather than accelerate this particular bit of liberalization.
Furthermore, one needs to ask whether there are mechanisms that can protect individuals when risks to the economy actually materialize. The recent experience in East Asia is again instructive: the World Bank has put a lot of effort into a crash course in developing social safety nets in the countries that fell victim to the crisis in the past year. I am sure that many of you will recall that in the past the Bank has been critical of Sri Lanka for having put too many resources into too wide a safety net, but I do not see any contradiction: the Bank was concerned that Sri Lanka was trying to provide a safety net more expensive than the economy could afford, and so indiscriminate that it eroded incentives. Those considerations need to be taken into account, but at the same time, as Dani Rodrik's (1997) work has emphasized, an open economy has a particularly compelling need for an adequate social safety net. I hope that you will find some reassurance that the Bank is not unmindful of the concerns that motivated your generous welfare policies by the fact that we have recently been so active in promoting the cause of social safety nets in East Asia.
Is there any way of ameliorating the potential negative effect on income distribution through increased possibilities of tax evasion and a consequential incentive to limit taxes on mobile factors that I discussed above? One can certainly envisage such measures, although they will require extensive international agreements, in the form of tax-information sharing and potential withholding of taxes on income earned by foreigners. It is my hope that such issues will become a part of the future agenda for international negotiation. A globalized world is going to have to deal with a broader policy agenda than simply liberalization if the outcome is to be reasonably equitable.
I have argued that globalization has a technological base and is therefore here to stay. Sensible policy involves asking how one can get the most out of it while limiting the risks that it brings. The answers on the economic level, I have suggested, involve educating citizens with relevant skills and opening up to trade and FDI while maintaining controls on short-term capital flows, constructing an appropriate social safety net, and seeking international actions to reverse erosion of the tax base.
Cline, William R. (1997), Trade and Income Distribution (Washington: Institute for International Economics).
Coats, A.W. (1997), The Post-1945 Internationalization of Economics (Durham, N.C. and London: Duke University Press).
Rodrik, Dani (1997), Has Globalization Gone Too Far? (Washington: Institute for International Economics).
____ (1998), "Who Needs Capital Account Convertibility?", in Essays in International Finance no. 207 (Princeton: International Finance Section).
1. The author is indebted to Bhaskar Kalimili for research assistance and to Marcus Miller for comments on a previous draft, and to a number of the participants in the conference.
2. Let me register my disagreement with Sir Alan Walters' contention that unilateral free trade is in general to be preferred to the achievement of regional free trade. What his analysis overlooks is that, when trade barriers are already fairly low, something like 80% of the gains from freeing trade come from better access to export markets, and only a relatively small part from undistorted access to imports. This suggests that, if Sri Lanka can gain unimpeded and guaranteed free access to the Indian market through SAARC (or, indeed, through a bilateral free trade arrangement), then it is not only possible, but quite likely, that the regional strategy will dominate unilateral free trade from a Sri Lankan standpoint.
3. There is a much stronger case for arguing that the intellectual property rights provisions of the WTO that were agreed in the Uruguay Round involved an enrichment of the North at the South's expense.