Global Policy Forum

By M. Monwarul Islam

Words have power and some words, such as freedom and democracies, evoke in our mind emotional images that far outweigh their practical meanings. To many of us globalization sounds like a great idea. One may be forgiven for thinking that globalization would bring about the end of narrow nationalism, selfish isolationism and the reckless pursuit of commercial and economic interests. A whole array of multilateral institutions, think tanks and the prevailing media have been fostering the notion that globalization is the way of the future and the there can be no return to the old order. In fact, even though we may not have realized it, we are already part of the globalization process. It is thus natural to ask what the future holds for us. Like poor relations it is also natural for us to wonder if what our rich relations of the so called global village tell us about sharing and caring for each other is the whole truth. Close linkages and relationships are fine, but by themselves they mean nothing. One must ask what these relationships are, who drives the process and to what extent the sharing of the benefit is fair and equitable to all, large and small, rich and poor.

Global trade, exchange and networking are not new phenomena. However, in the last three decades, several developments have provided powerful impetus to the acceleration of the process and all of these have their origin in the rich countries of the industrialized world. First the spurt in technological progress raised productivity in the west at a time when their markets had become saturated. The population had. aged and the working population started to decline. The economy stagnated. It was clear that markets had to be found abroad. Naturally, the urge was felt most immediately by large corporations who started by trading abroad, but soon followed up with local manufacturing. Second, the developed economies, with high level of savings, generated enormous funds that were looking for investment opportunities all over the world. A huge and complex network of banks and financial institutions came into being to facilitate the global flow of private capital. Third, revolutionary progress in Information Technology, with microprocessors, communication satellites, fiber optics etc., made it increasingly practical to establish global business, manufacturing, financial and technology networks and to manage them effectively from a central command center. The age of globalization had arrived.

The process itself and the speed at which it has spread were facilitated by a parallel development of multilateral agreements on international trade rules aimed at opening up markets abroad. Economic theory, based on certain simplistic assumptions, says that the freer the trade the greater will be the gains for the partners each of whom can export the products in which they have a competitive edge. Many developed countries experiencing unemployment, inflation and low growth were convinced that the key to addressing these problems was a more open trading system. This explains why the Tokyo Round (1979) and the Uruguay Round (1994) were negotiated. From our point of view the crucial difference between the two is the inclusion of services (for example financial and telecommunication services), investment and intellectual property in the latter. Negotiations were aimed to reduce tariff and non-tariff barriers to trade on a reciprocal basis and. agreements could be reached when at last the parties felt they had received comparable concessions from each other. It goes without saying that such negotiations can be meaningful only among equals or near equals. In reality, agreements were reached first among developed countries. The developing countries were presented with a near final agreement The two concessions they wanted most, greater market access for clothing and labor services, were ignored. There was no dismantling of the restrictions on the import of textiles and clothing in the developed country markets nor did the developed countries agree to the free movement of labour. On the contrary, developing countries that signed up had to agree to open up their markets for almost everything of export interest to the rich nations.

We may draw some important conclusions from this brief review of the world trading system that now promotes the globalization process. first the system is highly biased in favor of the rich countries in whose interest it is really designed. For the foreseeable future it is this group of countries that will be exporting high value products, services, capital and technology for which developing countries will provide a lucrative market. In the meantime, developing countries will have the markets for their labor intensive products effectively restricted. Pledges by the developed countries to phase out the MFA (Multi-fiber Agreement) over a few years have fallen by the wayside. Instead new barriers are being erected to market entry by far-fetched regulations in the name of technical specifications, inspection procedures, health issues, environmental hazards and labor standards. In recent years such regulations have proliferated, aimed at curbing exports from poor countries. Again and again the developed countries invoke the safeguard and antidumping clauses of the WTO Agreement to limit the import of items in which developing countries happen to show signs of competitive advantage.

There is a dispute resolution mechanism in the WTO and an aggrieved country can submit complaints to this office. However, this is a complex, protracted and expensive process. A major reason for the helplessness of the poor countries is their lack of leverage. They are in no position to impose retaliatory measures. Many poor countries affected by such arbitrary action of the rich have neither the technical expertise nor money to mount an effective challenge. The present world trading system is fair in its shape and unfair in its impact, because it makes no marked distinction among its members in terms of their ability to play the game.

Many reputable economists have lent their voice to the call for a more open trade as the best way for poor countries to generate a higher rate of growth. The literature on how trade can act as the engine of growth is still expanding. But it is often forgotten that when trade is constrained by declining terms of trade, quotas, non-tariff walls of the kind we have seen and administrative regulations of powerful nations little can be expected in terms of the benefit of trade for the poor.

Empirical evidence is cited to show how some countries have attained a higher rate of growth when they opened their market. I have two comments on these cases. First, even if it were true for some countries it cannot be automatically relevant for others caught up in a different situation, Second, one can also point to many countries that have historically attained very high rates of growth without throwing open their market for all manner of import. The prime examples are Japan, and South Korea. It may be misleading to focus exclusively on the ratio of trade to GDP. It is also necessary to look at the level and composition of exports and imports separately in order to come to a sense of what is happening to savings, investment and structural change in the economy. We will revert to the issue of trade liberalization in poor countries at a later stage.

We have noted that the core players in the globalization process are the large corporations of the rich countries. They alone have a global reach because of the technical and financial resources available to them. They direct their investment in developing countries principally in consideration of the market, security and profitability. Naturally, the lion's share of the foreign direct investment has gone to countries that meet these criteria including China, Brazil, India, Chili and Mexico. It is estimated that the Least Developed Countries (LDC), numbering about 50, mainly in sub-Saharan Africa, receive less than 2 per cent of foreign direct investment in developing countries. It is common knowledge that the bulk of the foreign direct investment in the LDCs, who have a small domestic market, is in the extraction of natural resources such as oil, gas, minerals, timber and fishery. Not much processing or local value addition is involved in these undertakings, with consequently little contribution to national income and employment.

On the other hand, they deplete the resource base and degrade the environment. The LDCs thus face a serious dilemma. They badly need investment that brings in capital and technology. But despite every conceivable incentive and concession foreign investment flows in a trickle and ‘goes to activities that undermine long- term sustainable development.

The trade in services, growing rapidly and amounting to USS 1.4 trillion in 2001, is again another area where developed countries have an overwhelming edge. Large corporations and financial giants of the rich countries have targeted the banking, insurance and telecommunication services in the developing world. Poor countries are being persuaded to privatize these sectors and open them to foreign investment. Although these measures will likely bring in more capital and better technology, improve efficiency and reduce cost, it would require a substantial deregulation of the foreign exchange market with unpredictable risks. Given the recent experience of financial crisis in several Asian and Latin American countries it is doubtful if poor countries with weak and fragile economic base can withstand the shocks transmitted through the freely operating global financial network. In the face of opposition by financial giants who operate this network with trillions of dollars it may not be feasible to impose even a modicum of discipline on the so-called hot money.

Perhaps more ominous are the pressures being brought by large corporations on poor countries to withdraw any preferential treatment of national enterprises in the sectors where the corporations are interested. ‘This is often done indirectly through their governments or multilateral financial institutions in the name of structural adjustment or non-discriminatory treatment as agreed in the W70 agreement. The call for a level playing field for everybody sounds so convincing as to make us often forget that a fair game in a level playing field can only be held among comparable players, and not between giants and dwarfs.

The pressures are all arbitrary and one sided. Poor countries are persuaded to withdraw subsidies on agricultural inputs and on the export of non-traditional products while rich countries do not just subsidize agricultural production but also export, thus taking away poor countries' potential markets. Rich countries erect tariff and non- tariff barriers on whatever excuse is found convenient. Poor countries are endlessly pressed to remove trade barriers and expose their market to ruthless competitors from all over the world. If this kills their small and weak agriculture and industry It is to be taken as the process of structural adjustment to a market economy. Never mind the staggering adjustment cost in terms of mounting unemployment and social distress. Where will these people go? Where are the fresh capital and skills to be found? How can any sector be safe from the vicious capture of the market by the large corporations?

Agricultural subsidies paid out to farmers by the United States and the European Union cost the poor countries more than US$ 250 billion a year in lost market or more than five times the sum of all the aid they receive. Yet in the recently held United Nations Aid Conference in Monterrey, Mexico, it was said that if the United States was to open its wallet, poor nations must open their markets. The question is, how can the poor nations open their markets and face the competition of the rich nations in agriculture when subsidies and other support to farming in the rich nations amount to about US$ I billion a day? And yet the poor nations are told they would lose aid if they fail to remove the subsidy on fertilizer needed to boost production and possibly achieve an exportable surplus.

Highly subsidized farm exports from the rich countries have led to long term damage to agriculture in poor nations. Onions from France have swamped Senegal. Corn from Iowa has damaged the market in Mexico. Milk powder from the European Union has sealed the prospects of the dairy industry in Asia and Africa. Many African cities now increasingly depend on imported wheat and corn from the rich nations while the traditional African food crops, Cassava and Yam, steadily recede from the market.

The food scarcity syndrome in poor nations is symptomatic of the growing impoverishment and inequality within these countries as globalization spreads. Just as globalization is widening the gap between rich and poor nations it is also increasing social inequality within each nation. Relatively speaking, the poor everywhere are becoming poorer. That is why we witness so many protests and demonstrations against globalization in rich and poor countries alike, spearheaded by those who are losing out in the great game of the twenty first century.

We are on the threshold of a knowledge-driven age. The globalization of the knowledge industry appears to be a boon for all. In this area some developing countries, such as India, have done remarkably well. Software export from India amounts to billions of dollars. But whether others can follow India's example depends on what they do with their knowledge industry. Many poor nations are unable to make the necessary investment and will slide back in the global race. Globalization of the culture of the rich, marked by extravaganza and lack of social commitments, is deeply troubling for the future of the poor. The mirage of an amoral, cynical and affluent lifestyle, constantly beamed and wired to the world, is fast destroying the moral fabric of economically poor, but culturally rich societies and endangering the peaceful advancement of human civilization.

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C íŸ 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.