Global Policy Forum

By Alice H. Amsden

As the world's corporate and political leaders meet in New York at the World Economic Forum, globalization has never been greater. Business between countries was briefly paralyzed right after Sept. 11, but today's volume of international trade and investment is huge by historical standards. Yet globalization remains provincial, as will be apparent over the course of the forum. A smattering of rich countries exercise leadership in international organizations and world markets, despite the principle of a level playing field.

The United States appoints the president of the World Bank and fights with Europe and Japan over the directorship of the International Monetary Fund. The World Trade Organization is more democratically governed, but its power structure nonetheless allows rich members to retain barriers against other members' exports of textiles, agricultural products and steel. These global institutions are, at their highest levels, surprisingly parochial. Globalization's locomotive, the multinational firm, has similar limits. Its novel technologies and famous brand names conquer the planet's consumers, but the top management and advanced scientific researchers of most multinationals remain headquartered in roughly a dozen high-income countries.

The World Economic Forum's announced theme, "Leadership in Fragile Times," could not be more appropriate. The fragility of the times might be reduced by a broadening of global leadership. Forum participants need to find how to include more people from semi-industrialized, middle-income countries in the ranks of international business leadership.

Three groups of developing countries coexist today. The poorest have too few skills to create professionally managed firms and are in dire need of poverty alleviation - one of the forum's core concerns.

The richest group, which includes countries like South Korea and Taiwan, started the postwar period with manufacturing experience. This history helped them build domestically owned enterprises that behaved more entrepreneurially than many stodgy multinationals.

Examples of companies on the road to becoming global, with thousands of small local suppliers that have been taught modern business techniques, include Embraer in Brazil (aerospace), Vitro in Mexico (glass), Legend in China (computers), Wipro in India (software), Giant in Taiwan (bicycles), the Siam group in Thailand (cement) and Samsung in Korea (electronics).

The great majority of developing countries occupy a middle ground - they now have manufacturing experience, and they want their companies to emulate those of the successful developing nations. What enabled those successful companies to grow and flourish? In their countries, business and government worked closely together to strengthen domestic industry. Foreign enterprises were discouraged, by deliberate red tape, from entering certain industries, so that national companies could get a head start. State-owned banks lent money at subsidized rates to help local firms acquire the technologies and capital equipment they needed. Where corruption existed, it tended to be confined to raw materials industries. In much of manufacturing, subsidies were allocated by professional bureaucracies according to relatively transparent procedures. State support for business was often tied to strict performance standards and closely monitored. Advanced economies have watched the rise of these companies with admiration and alarm. So types of promotional measures used successfully by countries like Taiwan and Thailand no longer have the support of international organizations. These measures are called protectionist and unfair.

To join the international trading system, nations must now agree to the radical notion of a level playing field and, toward that end, must disallow government intervention in the economy beyond establishing certain minimal norms, like standard accounting procedures and contract law. The World Trade Organization's Multilateral Agreement on Investment, for example, will, if passed, void members' rights to regulate multinationals and promote domestic businesses.

For the large aspiring middle group of developing nations - countries like Tunisia, Nigeria and Vietnam - the advantage of accepting the doctrine and rules of a level playing field is access to world markets. The disadvantage is a loss of the freedom to subsidize company formation and the necessary learning process. That freedom has been critical to most economic modernizations that have had any lasting success. A level playing field may thus entail a false equality.

The World Economic Forum's members should consider whether the one-size-fits-all principle is too rigid to allow newcomers to enter the world trading system and prosper in it. If the forum succeeds in bringing flexibility to the system by recognizing the benefits of different government policies for countries at different development levels, the result may be a more inclusive globalism, one less likely to be passing through "fragile times."

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