Global Policy Forum

By Nitin Desai

In recent months, practically every major meeting of trade and finance officials has had to run the gauntlet of anti-globalization demonstrations. Whether one agrees with the demonstrators or not, one must try and understand the what and why of these protests.

To begin with, consider the dimensions of globalization. Fifty years ago the world traded around a billion dollars per day. Today, a billion dollars of goods and services are traded every ninety minutes. Two billion dollars a day move as foreign direct investment, which means that the six to eight billion dollars that Africa gets is the flow of four days of foreign direct investment. Foreign exchange markets operate now at the level of 1.5 trillion dollars a day. These are the economic dimensions of globalization.

There is a technological dimension in the rapid decline in transport and communication costs. The cost of air travel has decreased by a seventh from before the second World War. A three-minute transatlantic phone call before the War would have cost something in the region of $250.00. Now, if you pay full rate, it will cost you around $3.00, and if you don't pay full rate, it could be even cheaper.

The interconnectivity of people is in some ways the most powerful product of globalization. Air travel has increased a hundred fold. Every day, two million people cross national boundaries. And there is another part of this interconnectivty in the growing interaction of people in the form of global and multinational activist, interest and pressure groups. According to the Union of International Organizations, the number of international nongovernmental organizations or NGOs with a presence in at least three countries has gone up from something in the region of 985 in 1956 to 23,000 in 1998.

There is, of course, a flip side to the expansion of trade, finance and people to people contact in the explosion in narcotics trade, money laundering, trafficking in people and other forms of transnational crime are also a manifestation of globalization.

Finally, there is the ecological dimension. Interactions between national economies are having an impact on national eco-systems, through climate change, ozone depletion problems, hazardous waste, damage to fisheries and increased health risks.

What then is the nature of the problem that we have to address? First, paradoxically, the problem is "incomplete" globalization. Many of our problems arise from the fact that the basis of integration varies from area to area.Take the example of trade. While the tremendous expansion of world trade, the opening of barriers, liberalization, the reduction of tariffs are well known, in areas of particular interest to poor countries, like agriculture and textiles, we have not had that same pace of opening up or of liberalization. While capital markets have opened up to foreign flows, we have not had the same degree of liberalization when it comes to the movement of natural persons, a factor of particular importance with the growing importance of services in national economies. Many of the concerns that are expressed today arise from this "incomplete" globalization.

The international policy agenda reflects the main concerns of wealthy countries, but important aspects of particular interest to poor countries are not receiving the same attention, and are in fact are not being liberalized in the same way. It is for these and other reasons that we have a backlash. What are the reasons?

First, there is clearly a concern about the fact that the processes of globalization are adding to global inequalities, both between and within countries. Many of the protestors in Seattle, in Washington and in Prague were not people who are being marginalized by globalization; they were people who are part of the new integrated global economy but who felt that their gains were significantly less than others. The numbers are well known. Twenty percent of the world's population commands 80 percent of its income.

The difference between the income level of the top 20 percent and the bottom percent has been widening and is now around 1 to 37. When you look at the very top and the very bottom the gap is even greater. And when you have inequality, even the person who is gaining perceives a sense of unfairness and injustice when somebody else is gaining far more. This major area of concern, the focus on inequality, has received little attention in public policy both at the national level and at the international level.

Second, there is deep concern about the persistence of poverty and deprivation. It is widely accepted that globalization has expanded the potential of the world economy, and has generated additional jobs and income in many parts of the world. It is precisely because globalization is generating new possibilities of growth, of production, of income, of solidarity, that the persistence of poverty, the 1.3 billion who live on less that $1.00 a day, seems less and less acceptable. A related area of concern is the fact that the positive contributions of globalization are not necessarily getting reflected in the actual flows of support and assistance for anti-poverty programs. Even though the fiscal situation of donor countries has improved dramatically in the nineties. The spectacle of large budget surpluses and declining official development assistance is truly extraordinary.

Third, there is a weakening of social cohesion as a result of the increasing inequality and the persistence of poverty. Inequalities associated with groups which acquire political salience, can translate into social stress and anarchy. Unemployment, particularly youth unemployment, has social consequences which manifest themselves in civic disorder. It is the young unemployed who are the fodder for extremist movements.

A part of the backlash arises from vulnerability, the fact that growing integration exposes economies to greater uncertainty. This is a complex area. Take trade, for instance. In many ways the vulnerability of an economy to trade may even decrease as it opens, expands and diversifies. The real vulnerabilities of trade may arise more in countries which have not fully integrated and depend only on one or two products and on one or two markets. Nevertheless, there are vulnerabilities which arise from growing integration, particularly on the financial side. There is also a feeling that the rules of the game as they have been defined for trade, finance and other areas do not pay sufficient regard to ecological vulnerabilities.

Where do we go from here? How do we meet these concerns? First, we must recognize that the concerns that arise from marginalization and from the persistence of poverty require growth. The greatest justification of globalization is economic growth and employment generation. It is therefore vital that we address the question of how to revive the processes of growth. While growth is central, we need to have an assessment of what type of growth will address the disparities, the vulnerability, the ecological consequences which have provoked the backlash against globalization. If globalization means simply reproducing some of the social inequalities which exist in some places on a widespread scale, that backlash will continue.

However, revived growth with an attention to disparities, with an attention to vulnerability, to ecological consequences is vital - but not enough. We also have to recognize that there is a "governance deficit" and a related "democracy deficit" in the management of globalization. The governance deficit arises partly because of the shift in power, if you like, from governments to the private sector, and most particularly to transnational corporations, which have increased to over 50,000 with 450,000 foreign subsidiaries. We have not found a way to influence activities of transnational corporations which operate in multiple jurisdictions. We have, of course, the emergence of certain standards in global trade law, environment law, commercial law and other areas. But we need something more, something which influences the mindset of corporations, so that they internalize the concerns about the social and the ecological dimension which have driven the protests in Seattle, Prague and Washington.

Another area of governance which is widely recognized as a problem is that of policy coherence. Given the interconnections between trade and finance, between these areas and the ecological dimension, and the concerns about poverty, we need a mechanism to ensure greater policy coherence so that decisions about interest rates and fiscal policies, about ODA, debt relief and trade concessions are taken in a coherent way. At the present, the responsibility for these areas of policy is spread amongst several often antagonistic entities both at national and global levels.

Even more important, there is a perceived "democracy deficit"- a feeling that whatever processes of governance that do exist for trade, finance, technology and other areas, are mechanisms which are not fully democratic, do not reflect adequately the perceptions, concerns and interests of all countries, small and large, rich and poor. We need a system which reflects and gives a greater voice to small and poor countries. Equally important, we have to create the space for nongovernmental organizations. These perceived deficits are in the minds of groups outside governments, which is precisely why those groups are increasingly demonstrating outside council chambers, in the streets, as they did in Seattle, Washington, and Prague.

In some ways, the very fact that we have these protests is itself a product of globalization, of the improvements in interconnectivity and communication that globalization has made possible. Development cooperation is in some ways a product of globalization. Globalization itself generates the tools with which we can address the concerns that we have. So the answer does not lie in saying globalization should end. The answer lies in understanding how the potentials generated by globalization, not just in the economic sphere, but more importantly, in the political sphere, can be used to address these concerns.

The Millennium Summit has focused attention on the potential of the United Nations, which in many ways was ahead of the curve in identifying, the need to integrate the social, the environmental and the economic dimensions of policy. The United Nations has the democratic structure and the breadth of mandate to provide the world with the type of political process necessary to manage these processes of globalization. The challenge now is to use this potential effectively, in the forthcoming event on Financing for Development and other processes in the General Assembly. The future of globalization depends on this.

The author is Under-Secretary-General of the United Nations. This essay is based on his opening statements at the Second and Third Committees of the General Assembly in October, 2000.

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