Global Policy Forum

By Mohammad Nurunnabi Chowdhury

Globalisation has become a magic word these days. Some people have been led to believe that by its magic touch a country can become rich. Incessant propaganda emanating from interested quarters has produced this blinding effect on them. They believe that all you need to do is to throw your country open and by some mysterious process wealth will flow in. This mystical faith is unaware of the fact that globalisation has always existed since mankind was able to move from shores to shores with the development of navigation and other accompanying technical developments that made long ocean voyages possible.

What has happened at the present stage of international economic development is a much greater intensity of economic intercourse among nations made possible by technological and other complementary changes of significance. As a result global trade has attained a huge magnitude and investments across nations and playing a much greater role than before. Take a peep into our own history. The East India Company officials took home from Bengal 6 million pounds sterling in bribes alone in 8 years since the Battle of Plassey in 1757. This sum is equivalent to more than $ 25 billion in today's purchasing power. This was the bribe only to officials of the company. The loot of gold and silver was taken to England in a thousand ships from the Murshidabad Treasury of the Nawab. The bribe should have been enough to put that nation on its feet.

Economic historians believe that it was this wealth from Bengal that provided the necessary finance for the Industrial Revolution in England in 1760 – the revolution that brought about machines in the multiplication of wealth at an enormous rate. This was the revolution that made the world we see today. And that was made possible by transfer of resources, albeit by loot and plunder from Bengal to England. This event of misappropriation of wealth was a by-product of the scramble for lucrative trade with the East. Wealth did pour in from Bengal through trade of the time. That was another story of plunder and extraction from the Bengal peasantry. If globalisation is economic relations by trade and investments conducted by any means, it existed then as it does now.

Globalisation, which is understood with reference to a country's foreign trade to GDP ratio or by composite criteria of ratios of foreign trade and foreign direct investments to GDP ratios, is said to have certain benefits to the globalising country. Here is a confusion of cause and effect. An analysis of the forces at work does not reveal benefits flowing from the single source of globalisation. As a matter of fact, globalisation appears more an effect rather than the cause of economic growth. At any rate it has to wait upon the development of those domestic forces which create the favourable climate for economic growth. It has an accelerating effect on growth at an advanced stage of development. These are well-known forces of good governance, favourable investment climate, development of financial institutions, and the development of physical and social infrastructures. In other words, the country desirous of globalising to a higher level has to develop its own domestic economy to benefit from globalisation. The economic benefits to a country from globalisation may rightly be viewed as economic benefits generated by economic growth primarily with own steam. It has to be self-generating process that links up for global benefits.

The economic integration of a country attempted by lowering tariff and non-tariff barriers may have certain curious effects to a less developed among the developing countries. The rapid opening up of the domestic market by such means will permit foreign goods to invade the domestic market that is protected. These plants which are usually small and medium in size will ultimately go to the walls. They will soon be closed down by the onslaught of cheaper imported goods. What is more for a country like Bangladesh, smuggled goods through the long porous borders can appear in the domestic market under the shadow of officially imported goods. Domestic plants, which had hitherto enjoyed good protection and profit, will now be faced with losses and closure without a breathing time.

This is exactly what has been happening in the country in the last few years. The policy planners in Bangladesh did not realise at all that trade liberalisation could help only when it was implemented in conjunction with other supporting economic policies. The investment climate has to be made favourable to the entry of numerous new small and medium plants export manufactures. The liberalised tariff regime has made primary and intermediate goods cheaper and easy to import without earlier restrictions. This allows new export plants in numerous sectors to be built. What has happened in Bangladesh is the freer entry into her domestic market without a compensating entry into the markets of other countries. That did not occur because the investment climate was not simultaneously made favourable neither to domestic investments nor to foreign direct investments. Investment climate is all about good governance – relatively corruption-free, easy regulation, customer-friendly public service delivery, reliable infrastructure facilities, needed skills for the new manufactures and the like. It is certainly not tax breaks and subsidies alone. It has to be more than that. The successive governments had put the cart before the horse. The present woes of the economy have contributed in no uncertain measure to that hasty trade liberalisation.

There had been phenomenal growth of world trade after the advanced communication and transportation made that possible. Before that the world got ready with surplus goods at various corners of the globe. The Industrial Revolution and the spread of the mass production by using machinery and equipment in place of largely manual production of the past created huge quantities of manufactures. This required larger markets outside the domestic markets of the manufacturing countries. This was the driving force behind the growth of world trade in the late nineteenth and early part of the twentieth centuries. The First and the Second World Wars and their aftermath saw world trade losing its earlier momentum. It picked up again in the eighties and is still growing. This development throws up the concerns of the developing countries expressed in the North South Dialogue and in the UNCTAD forums in the seventies.

The developing and the industrially advanced countries of the North got together to understand the nature of the existing international economic order and charter a new international economic order. Numerous studies were made at this time that explained the international economic order. A consensus was reached about it and a new international economic order was aimed at by many arduous negotiations between the two. Many agreements were reached and many pledges were made to build a just international economic order. It was concluded that an unfortunate reverse flow of resources from the developing countries to the industrially advanced countries had distorted the international economic order. One way to correct it was to increase the flow of official aid to a modest 0.7 per cent of the GDP of the industrially advanced countries. Three decades later that pledge has reached nowhere near that target. The richest of them all, the United States of America is providing economic assistance of 0.1 per cent of her GDP now, and that too purely according to her perception of US security. Record of other countries having large GDP is slightly better but still dismally lower than half that modest target in most cases. Political will of these countries right from the beginning was utterly lacking in attaining the target. The situation has further deteriorated. This is the curious world of the poor still financing the rich of the world. How long will it continue, one might ask. Nobody knows the answer for sure.

One of the processes by which reverse flow of resources was taking place was through deterioration of terms of trade. The primary producers had persistently been losing ground against their trade partners in the industrialised northern countries. The international community at the dialogue agreed to set up International Programme for Commodities with the objectives of stocking the commodities at lean period and selling when the going was good and taking other measures. The goal was of course smoothing out the wide fluctuation of commodity prices. The situation with regard to tea and jute, the two commodities of Bangladesh interests, has not improved at all. Jute is languishing and is soon likely to join the rank of endangered commodities.

The essence of economic development is the transfer of technology from the industrially advanced to the developing world. It was argued that knowledge is a heritage of humanity. None should block its spread, as it blocks progress and prosperity particularly for the poor of the world. Not much has happened to cheer in this regard. One of the ways the multinational companies exploit the developing countries is by transfer pricing – showing higher invoice prices of raw materials imported from its own plants elsewhere and thus transfer in hard currency its undeclared profit. Another widely used practice was to produce a good number of commodities and sell the substitute competing products of developing countries at a price lower than the cost of production of the latter's products. Jute and synthetic substitutes were an example of such unwholesome marketing policy. The control and regulation of these multinational companies were urged on the advanced countries for healthy development in trade and investment. It is idle to expect that the reality of the multinational world has undergone any change since then.

The new round of globalisation that we are passing through has got to proceed on lines that the developing and industrially advanced countries agreed three decades earlier but could not see much in concrete actions and results. As for Bangladesh, mere slogan and further liberalisation shall be suicidal. What needs to be done is go vigorously for good governance. There is other feasible alternative to taking essential measures to ensure economy, effectiveness and efficiency in the government, improve the investment climate, reform the financial institutions to be investment friendly, provide reliable utility services, social infrastructure in education, health and needed skills and internal security for progress and prosperity. This simple programme should be our first national priority. Nothing else shall work unless the dysfunctional role of the government is corrected soon. Government must respond to the concerns of the people and serve them, as democracy dictates, and the people demand.

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