Global Policy Forum

by Gonzalo Jurado

Speak of globalization and you immediately provoke a clash of viewpoints. On the one hand, some would say that many Philippine industries have shut down, hundreds of thousands of Philippine workers have lost their jobs, thousands of Philippine households have been pushed into poverty, the domestic market has been flooded with "cheap" imports, the growth of the national economy has been halted, etc. all because of globalization. In this view, the government should "protect" Philippine industries, Philippine workers, households and the domestic market from the ravages of globalization by raising tariffs, decelerating the pace of liberalization, or setting up one form or other barrier to foreign competition. When the government is not doing these it is deemed in betrayal of the national interest.

The other view would argue the opposite: that globalization is a good thing; that it would accelerate the development of our economy, raise the people's incomes, etc.

Perhaps this time is as good as any to carefully discuss what globalization is all about. Carefully discussing the issue does not mean trying to stop the debate; it only means attempting to clarify terms so that reasonable people can have a basis for consensus.

Globalization is the contemporary term given to that old stuff called international economics. Though it can be used to refer to the process of spreading any activity across the globe, its main reference is to economic activities, or, more precisely, to participation in the economic activities of the global community for the purpose of benefiting from the diverse products of the global market place. In practice participation means the sale or export and purchase or import of products, services, technologies, etc. to and from countries that offer the most advantageous terms.

Clearly, the most advantageous terms for an exporter are the highest prices for his exports; and for the importer, the lowest prices for his imports, whether the export or import is a commodity, a service, a technique, etc. We export our microchips to the United States because that's where we get the best (i.e., the highest) price for them. We import our textile from China because that's where we get the best (i.e., the lowest) price for them.

Successful exports of Philippine computer chips to the United States means the creation of jobs and more jobs in the Philippine computer chips industry and in the industries linked directly or indirectly to it. This means the earning of incomes by an increasing number of Philippine workers, perhaps their liberation from the clutches of poverty, the acceleration of their march toward prosperity.

The inexpensive textile imports from China means lower prices of textile to Philippine consumers, to the benefit of the Philippine consuming public. It means saving for Philippine households and brighter prospects for them to send their children to higher quality schools, to construct that long dreamed of additional room in the house, etc.

It also means, however, the degradation of those Philippine producers of textile that are unable to successfully compete with the Chinese. These establishments may well close shop, lose their investment, lay off workers, etc. Entities linked to them may well suffer the same fate.

If we generalize this example to the rest of the economy, we see the export sector and the various other sectors linked to it as expanding in production and employment, generating output for the economy and incomes for workers and their households. At the same time we see the consuming public as enjoying the benefits of lower-priced imports, saving money and investing this in the education of their children, in the improvement of their physical surroundings, etc.

We see something else of course: industries disappearing from the industrial landscape because they have been unable to successfully compete, workers losing their jobs and incomes and their families sinking into destitution, etc. And, of grievous importance, the exposure of the economy as a whole to the vagaries and crises of one form or another of the world economy, and the dislocations and disruptions that these shocks bring about.

Is globalization then good or bad for the economy and the people? Not just theoretical demonstration but empirical evidence gathered from studies covering the vast majority of countries show that on balance the impact of globalization on an economy as a whole is unambiguously favorable, that is, overall economic growth is faster with globalization than without, more output is produced under globalization than lost, more jobs are created than extinguished, more incomes are increased than decreased.

Two issues can be properly raised with regard to globalization, however, the first of which is: what are we going to do with respect to industries that are slowing down or closing shop because of globalization? One answer will be to extend them "protection" by raising tariffs on competing foreign products so that these foreign products must raise their prices in order to recover the tariff and thus enable the inefficient local industry to continue surviving. Obviously, this response will only encourage the perpetuation of the domestic industry's inefficiency, the production of poor quality products at high cost, to the prejudice of the rest of the population.

The better way to deal with the problem is to provide incentives to distressed industries to either relocate to other sectors where they can be more successful or else raise their productivity so that they will survive or, better yet, defeat the global competition. Incentives can take the form of those currently offered by the Board of Investments to pioneer or necessary industries. With respect to dislodged workers, they must be provided with adequate safety nets, i.e., skills upgrading and livelihood programs to enable them to transit comfortably to the next job.

The second issue is somewhat more intractable: how to counter the perils of crises and shocks that emanate from the global economy? One way will be to get out of globalization and withdraw into glorious national isolation. Not only is that operationally non-workable; it is also theoretically untenable, a sure way of courting stagnation and decay.

Perhaps a better approach will be to strengthen those institutions in the national economy that are in direct contact with the destabilizing forces of the global system to enable them to withstand and perhaps neutralize the adverse impacts of pernicious external forces. This is a complicated idea that cannot be fully explained here. An elaboration can be made in later columns.

The conclusion is clearly that globalization can be a powerful stimulus to growth in the Philippine economy and to improvement in the well being of our population. If, while dramatizing its beneficial impacts, we acknowledge its adverse consequences and act to minimize them, those of our countrymen and countrywomen who are today skeptical or hostile to globalization will be persuaded that this process is indeed in our best interest.

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