Globalization: A Panacea for World Economic Development?

(http://www.worldpress.org/Africa/2738.cfm)

Dr. Ravinder Rena
Eritrea Institute of Technology
April 3, 2007

Globalization is a buzzword that has gained increasing importance all around the world. A very significant feature of the global economy is the integration of the emerging economies in world markets and the expansion of economic activities across state borders. Other dimensions include: the international movement of ideas, information, legal systems, organizations, people, cuisines, cultural exchanges, etc. But the movement of people, even in this age of globalization since the 1970's, is strictly regulated in many places in the aftermath of September 11, 2001.

More countries are now integrated into a global economic system in which trade and capital flow across borders with unprecedented energy. However, globalization has become painful, and rather controversial to the developing world. It has produced increasing economic interdependence through growing volume and a variety of cross-border flows of finance, investment, goods and services, and the rapid and widespread diffusion of technology.

A World Bank study, Global Economic Prospects: Managing the Next Wave of Globalization succinctly discusses the advantages of globalization. Driven by the growth in global trade, since 1974 exports have doubled as a proportion of world economic output to over 25 percent, and on existing trends will rise to 34 percent by 2030. World income has doubled since 1980, and almost half a billion people have climbed out of poverty since 1990. As currently projected, the number of people living on under $1 a day will halved from today's one billion by 2030. This will result from growth in South and East Asia, whose share of the poor will be cut in half, from 60 percent, while Africa's share will rise from 30 percent to 55 percent.

The scale, benefits, and criticism of globalization can all be exaggerated. On the contrary, compared to the immediate post-war period, the average rate of growth has steadily slowed down during the age of globalization — from 3.5 percent per annum in the 1960's to 2.1, 1.3, and 1.0 percent in the 1970's, 1980's, and 1990's respectively.

The growing economic interdependence is highly asymmetrical, as the benefits of linking and the costs of delinking are not equally distributed. Industrialized countries (the European Union, Japan, and the United States) are highly interdependent in their relations with one another. The developing countries are on the other hand, are largely independent in economic relations with one another, and highly dependent on industrialized countries. Indeed, Globalization creates losers as well as winners, and entails risks as well as providing opportunities. An International Labor Organization (ILO) blue-ribbon panel noted in 2005 that the problems lie not in globalization per se but in the deficiencies in its governance.

Some globalization observers have noted that there has been a growing divergence, not convergence, in income levels, both between countries and peoples. Inequality among and within nations has widened. Assets and incomes are more concentrated. Wage shares have fallen while profit shares have risen. Capital mobility alongside labor immobility has reduced the bargaining power of organized labor. The rise in unemployment and the accompanying casualization of the workforce, with more and more people working in the informal sector, has generated an excess supply of labor and depressed real wages.

Thus globalization has spurred inequality, both in the wealthiest countries as well as the developing world. China and India compete globally, and yet only a fraction of their citizens prosper. Increasing inequality between rural and urban populations and between coastal and interior areas in China could have disastrous consequences in the event of a political transition. Forty of the poorest nations, many in Africa, have had zero growth during the past twenty years. Their governments followed advice from wealthy nations and World Bank consultants on issues ranging from privatization to development, but millions of people continue to suffer in poverty. Ironically, the wealthiest people benefit from the source of cheap labor. The policies of the West reinforce a growing divide between the rich and poor.

Nearly three-fourths of the population of Africa lives in rural areas, contrasted with less than ten percent in the developed world. Globalization has driven a wedge between social classes in the rich countries, while in the poor world the main divide is between countries — those that adjusted to globalization and, in many areas, prospered and those that adjusted badly and, in many cases, collapsed.

As the Second World collapsed and globalization took off, the latter rationale evaporated and a few countries, notably India and China, accelerated their growth rates significantly, enjoying the fruits of freer trade and larger capital flows. Although the two countries adapted well to globalization, there is little doubt that their newfound relative prosperity opened many new fissure lines. Inequality between coastal and inland provinces, as well as between urban and rural areas, have skyrocketed in China.

Another large group of Third World countries in Latin America, Africa, and former Communist countries, experienced a quarter century of decline or stagnation punctuated by civil wars, international conflicts and the plight of AIDS. While the rich countries grew on average by almost two percent per capita annually (1980-2002), the poorest forty countries in the world had a combined growth rate of zero. For large swaths of Africa, the income level today is less than $1 per day.

For these countries, the promised benefits of globalization never arrived. Social services were often taken over by foreigners. Western experts, and technocrats arrived by jets, stayed in luxury hotels and hailed the obvious worsening of economic and social conditions as a step toward better lives and international integration. Indeed, for many people in Latin America and Africa, globalization appeared as a new, more attractive label put on the old imperialism, or worse as a form of re-colonization. The left-wing reaction sweeping Latin America, from Mexico to Argentina, is a direct consequence of the fault lines opened by policies designed to benefit Wall Street, not the people in the streets of Asmara or Kampala.

The rapid growth of global markets has not seen the parallel development of social and economic institutions to ensure their smooth and efficient functioning, labor rights have been less diligently protected than capital and property rights, and the global rules on trade and finance are unfair to the extent that they produce asymmetric effects on rich and poor countries.

The deepening of poverty and inequality — prosperity for a few countries and people, marginalisation and exclusion for many — has implications for social and political stability, again among as well as within nations. It is in this context that the plight and hopes of developing countries have to be understood in the Doha Round of trade talks. Begun in 2001, the Doha Round was supposed to be about trade-led and trade-facilitated development of the world's poor countries. After five years of negotiations, the talks collapsed because of unbridgeable differences among the European Union, the United States and developing countries led by India, Brazil, and China.

From the developing countries' perspective, the problem is that the rich countries want access to their resources, markets, and labor forces at the lowest possible price. Some rich countries were agreeable to deep cuts in agricultural subsidies but resisted opening their markets, while some others reversed this. Developing countries like India, China, and Eritrea inter alia are determined to protect the livelihood of their farmers. In the countries like India, the farmer suicide has been a terrible human cost and a political problem for state and central governments for some years and become a threat to the rural development. This is essential for social stability as well as the political survival of governments in the developing world.

The rich countries' pledges of flexibility failed to be translated into concrete proposals during the negotiations. They effectively protected the interests of tiny agricultural minorities. By contrast, in developing countries, farming accounts for 30-60 percent of GDP and up to 70 percent of the labor force. This is why labor rights protection is at least as critical for developing countries as intellectual property rights protection is for the rich.

Developing countries were promised a new regime that would allow them to sell goods and trade their way out of poverty through undistorted market openness. This required generous market access by the rich to the products made by the poor, and also reduction and elimination of market-distorting producer and export subsidies, with the resulting dumping of the rich world's produce on world markets. Thus Europe launched its "Everything but Arms" initiative whereby it would open its markets to the world's poorest countries.

The initiative foundered on too many non-tariff barriers, for example in the technical rules of origin. The United States seemed to offer "EBP" - everything but what they produce. Under its proposals, developing countries would have been free to export jet engines and supercomputers to America, but not textiles, agricultural products or processed foods.

Elimination of rich country production and export subsidies and opening of markets, while necessary, would not be sufficient for developing countries to trade their way out of underdevelopment. They also desperately need to institute market-friendly incentives and regulatory regimes, increase their farmers' productivity and may require technical assistance from international donors to achieve this through investment in training, infrastructure, and research.

The failure of the Doha Round is also, finally, symptomatic of a much bigger malaise, namely the crisis of multilateral governance in security and environmental matters as well as trade. In agriculture as in other sectors, problems without passports require solutions without borders.

To convince Africans about the benefits of globalization, we must take a more enlightened view of liberalizing trade, services and labor-intensive manufacturing in which African countries are competitive. Trade is not only a means to prosperity, but also a means of peace building. We need to devise an enlightened approach in approaching negotiations over the reduction of harmful gas emissions, intellectual property rights, life saving drugs and transfer of technologies that help to combat poverty.

All in all, globalization has increased the gap between poor and the rich. It also creates distortions in the global economy. Therefore, it's not a panacea for the global economic development.

In the article, the author argues how globalization has become “painful” and controversial to the developing world. Without doubt, Globalization has resulted in the interdependence of each countries’ economy, as they seek to strengthen bi-lateral ties for economic cooperation through a variety of flows of finance, investments, goods and services as well as the rapid diffusion of technology. The facts are all laid out. The author states that since 1974, exports globally has doubled as a proportion of world economic output to over 25 percent and it will rise to 34 percent by 2030, that world income has doubled since 1980 and half a billion people have been out of poverty since 1990…etc. Many of the figures shown has proven that Globalization has brought about much change, and possibly development throughout the globe.

However, despite the belief that globalization would bring about closer ties between countries through the economy, the fact is that only industrialized countries are highly interdependent in their relations with each other, and these include the European Union, Japan and the United States. The developing countries are instead largely independent in economic relations, depending only on highly Industrialised countries, and this has resulted in inequality, between the rich and poor countries, and also the rich and poor in the countries who are experiencing rapid development.

For example in China and India, their economic development has been nothing short of being a phenomenon, but at the same time, it has increased the inequality between the rural and urban populations within the country. Despite the fact that the two countries have adapted well to globalization and has managed to enjoy rapid economic growth, the fact is that the rich in these countries get richer and the poor get poorer, increasing the gap between the poor and rich.

Even between countries, the poor countries do not develop, or some even get poorer, but the rich counterparts continue to enjoy economic growth and the gap between the poor countries and rich countries increases. This is not good for the world, and cannot be considered a global economic development, since some countries are left behind in the process.

This goes to show how flawed the idea of globalization is, and many of the beliefs that the advocates for globalization states are in truth, far from reality. Advocates for globalization belief that globalization could create job and result in economic growth in developing countries willing to open their economies to foreign investment, as they feel that open economies could result in the creation of more jobs, higher wages and better standards of living. However, the truth is that globalization exploits cheap labour and natural resources in developing countries and the protection of the workers are weak, or sometimes even non-existent.

The idea of globalization also promises economic growth through investment capitals, as Globalized capital markets are able to attract investor to the most favorable financial market and economies and therefore allowing investor to maximize profits. Yet, the reality is that, despite the benefits that investment capitals can bring, it brings about another risk. That is, if there is a rapid movement of capital out of these countries’ economies, devastating economic effects would result and this would also have knock on effects around the world. An example of this was in 2000, where the Asian financial crisis occurred.

There is also a belief that more goods and services would be made available at lower costs to a larger group of people if economic markets become global. More access to economic markets would also lead to a rise in consumer demand and will improve standard of living. The globalization of economic markets would also lessen the impact on inflation on economic growth, as global competition and cheap imports will keep prices steady. However, the actual fact is that globalization does this at the expense of the workers. The demand of products are created through massive advertising campaigns and very often, these products are luxuries that are only available to the richer people, as the poor people cannot afford these products. Thus, the material comforts of the richer would get better, but that of the poor remains more or less the same.

The idea of free trade would ultimately benefit the whole world, as believed by many, and that owes to the fact that free trade open the access to goods, services, capital, people, information and technology, providing countries with many opportunities to develop and advance. However, the truth is globalization is based on a system that would ultimately factor the wealthy and Industrialised countries as they are able to control the rules and they also impose trade barriers that suits them best, without consideration and at the expense of the poorer countries

On the whole, the idea of globalization, about bringing countries together and developing together, is flawed. In fact, only the developing countries are developing, reaping profits day by day, and they are in fact the only ones who remain in touching distance with each other economically, as they try to overtake each other in terms of economic development. In the meanwhile, the poorer counterparts, and the countries on the losing end of globalization are left behind, cruelly, and do not experience real development, and sometimes, even decline in economic growth. Although facts and figures can be cited to prove that economic development has actually taken place, as in the case of China and India, we must take a deeper analysis with regards to the development of these countries, as the segregations between the rich and poor in these countries gets wider. Thus, the idea of globalization is flawed, and very often, it has resulted in the inequalities among the rich and poor.

Future Perfect; Economic Expert 11:35 PM

Monday, April 16, 2007