Challenges

Challenges

A. THE GOOD NEWS: Globalization has many positive, innovative and dynamic aspects, all related to the increased market access, increased access to capital, and increased access to technology and information which have led to greater income and employment opportunities. There is no dearth of examples: The world as a whole is definitely more prosperous and more healthy, with average per capita incomes tripling in the last fifty years, child mortality rates halving and life expectancy increasing by ten years since 1965. Trade flows also increased 12-fold in the past fifty years as a result of the removal of natural and rtificial barriers. Exports are now US$7 trillion a year, with more than a fifth of the world’s goods and services being traded. Capital flows expanded even faster, with Foreign Direct Investment amounting to US$400 billion in 1997, seven times its real level in the 1970’s and portfolio and other short-term capital flows amounted to US$2 trillion in gross terms, three times what they were in the ‘80’s. These in turn pale in comparison with what has happened in the foreign exchange markets, where volumes increased over a hundred times between the mid-70’s and the mid-90’s, with a US$1. trillion daily turnover

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in 1998. At the same time, international bank lending grew more than sixteen times, from US$265 million in 1973 to US$4. 2 trillion in 1994. The Uruguay Round of the General Agreement on Tariffs and Trade (GATT), which has given globalization greater impetus in the last decade, is expected to increase global income by an estimated US$212-US$510 billion (from trade and efficiency gains and higher rates of return on capital) by 2001. Movements of people have also increased. Tourism more than doubled between 1980 and 1996, from 260 million to 590 million travellers a year.

Despite tight restrictions, international migration continues to grow, and workers’ remittances amounted to US$58 billion in 1996. In the information and communications area, time spent on international telephone calls more than doubled between the first and second half of the last decade – from 33 billion minutes in 1990 to 70 billion minutes in 1996. At the same time, travel, the internet and the media have stimulated an exponential growth in the exchange of ideas and information: 28,000 international NGO’s in 1993 where there were less than 600 in 1964, As of mid-1998, there were an estimated 139 million internet sers, with the number of new subscribers doubling every year. The revolution in information and communication technology, for example, have allowed people in the remotest villages access to the most modern medical advice, while the potential for education is tremendous. CHAllenges THE DISTURBING NEWS: While the world as a whole has benefited from globalization, there are negative and marginalizing aspects of globalization. These are what have led to a backlash, as reflected to a certain extent in the demonstrations by civil society accompanying recent international onferences, and by increasing expressions of dissatisfaction at the governmental level. 1. Unbalanced Distribution of Benefits: Between Countries. The first negative aspect of globalization is that its gains are not equally distributed, both between and within countries. Examples of the badly skewed distribution among countries of the benefits of globalization can be gleaned from the following data from the period1980 to 1997: While world per capita income increased, per capita Page 4 of 10 income contracted in fifty nine countries, widening income disparities.

Exports of goods and services grew at less than 5% annually in 46 countries, and at less than 1% a year in 9 countries. Insofar as financial flows are concerned, the majority (58%) of flows of foreign direct investment in the ‘90’s went to developed countries. 85% of the FDI that went to developing and transition economies went to only 20 countries, with the bottom sixteen of these receiving less than what the top two got. And for nine countries, the flows have been negative. The distribution of portfolio and other short-term flows is even worse: 94% of these went to only 20 ountries in 1997, with the bottom 13 of these countries receiving less in total than the top two. Finally, only twenty-five developing countries have access to private markets for bonds, commercial bank loans and portfolio equity. The benefits from the Uruguay Round are also expected to be unbalanced, with 70% accruing to the developed countries and 30% to the developing countries. Among developing countries, China is expected to get the lion’s share (27% of the 30%). The most excluded from the benefits of globalization are the Least Developed Countries (LDCs) and Sub-Saharan Africa. They are actually xpected to lose as things stand – US$600 million and US$1. 2 billion a year respectively. What all these mean is that while the world has shrunk into a global village, the gap between the rich and the poor in that village is widening. Hundreds of millions of people are being excluded from the benefits of globalisation. The information and communication technology revolution, which is regarded as the newest sinew of globalization, has created a gap of its own – the so-called digital divide. The exponential growth of internet users adverted to earlier masks tremendous disparities: In 1998, industrial countries ccounting for 15% of the world’s population had 88 per cent of internet users. In contrast, SouthAsia, home to 20% of that population, had less than one per cent of the internet users, while Sub- Saharan Africa, with 9. 7% of the world’s people, had only 0. 1 per cent connected to the internet. 2. Unbalanced distribution of benefits: Within Countries. The benefits of globalization are also badly skewed within countries, both developing and developed. Income inequality is rising in many countries, particularly in the OECD countries. Worse, job and income insecurity is increasing, particularly for nskilled labor, although corporate restructuring has also meant job insecurity for professionals. Within developing countries, the increased world agricultural prices expected to result from the Uruguay Round should benefit those in agriculture. The urban poor will suffer when food prices rise, but will gain from employment in new export industries. Young women hired by multinationals are likely to benefit most – their incomes increase, with a concomitant increase in their household status. Consumers also gain from the reduction in local prices due to increased competition from abroad. 3.

Financial Volatility: Unbalanced benefit flows are not the only negative aspects of globalization. Globally integrated markets have financial volatility as a permanent feature, the frequency of financial crises increasing with the growth in international capital flows. The human costs of such financial volatility can be very high, as shown by the effects of the Asian crisis – bankruptcies, poverty increase, rising unemployment, reduced schooling, reduced public services, and increased social stress VI. Making the Most Out of Globalization A. THE CHOICES: Given this picture of globalization, warts and all, is it worth keeping?

What is to be done? As mentioned at the outset, there are three alternatives: one is to maintain the status quo – that is to say, the present situation is to continue, a globalization that is exclusive and marginalizing, that increases human insecurity and vulnerability, even as it opens tremendous opportunities. Judging from the increasing volume of protests heard around the world, this alternative is becoming more and more unacceptable. A second alternative would be to move the clock back, as it were, at least to pre-WTO, and even pre- Uruguay Round era –that is to say, to abolish the WTO, which has become the symbol of globalization.

Those who favor this alternative argue that WTO is too powerful and has encroached upon the sovereignty of different countries by forcing them, for example, to accept free-trade rules over other legitimate concerns such as food safety; Or they argue that WTO was completely dominated by industrialized countries and therefore beyond repair. Those who are attracted to this alternative, however, will probably be brought up short when they realize that flawed as it is, the WTO still represents a rule -based system with a system of dispute settlements that has been successfully used, albeit infrequently, by small countries against larger, more owerful ones. They will be giving this up for one which is based on old-style power politics in trade negotiations, with very little means of redress for the poorer players — where the golden rule is that “he who has the gold, rules”. Clearly, if the present situation is beginning to result in a backlash, but the alternative of switching back the clock may put the world in a worse situation than before, the only truly acceptable alternative is to manage globalization better, so that its downside – inequality, instability, insecurity, can be minimized, and its benefits maximized.

Fortunately, the negative trends are not inevitable. They can be reversed. B. GOVERNANCE IS THE KEY. A closer look at the downside of globalization strongly suggests that underlying all these negative results is a failure of governance – either at the national level, or at the global level, or both. By governance is meant not mere government, but the framework of rules, institutions and established practices that set limits and give incentives for the behavior of individuals, organizations, and firms. It is the lack of good governance at the national level that contributes to bad policy. It is the lack of ood governance at the international level that has contributed to bad terms and bad rules. And finally, it is the lack of good governance at both levels that has contributed to financial volatility which has led to contagion, and in some cases, civil conflict, the international spread of crime and disease, and the rise of other forms of human insecurity. This is not a surprising conclusion. Basic economics teaches us that the magic of the market — the most efficient allocation of resources — works only under very stringent conditions: pure competition, Page 8 of 10 no externalities, mobility, and information.

Absent any of these, market failures occur. Government’s role is to correct those market failures. But even without market failures (which is not the case in global markets) , even with the most efficient outcomes – the magic of the market gives no assurance of equity, stability, and growth, which are at least equally important goals. Government must use its visible hand to ensure that these objectives are met. Good government, that is, because there is danger of government failure as well. At present, while there are no formal institutional arrangements, the current de facto situation is that a ew developed country governments (G-7 and even G-1) directly and through multilateral institutions controlled by them (e. g. , the World Bank, the IMF, the Bank of International Settlements), have the reins of international economic governance firmly in their hands. It is this governance that has failed to get the most from the opportunities and avoiding the pitfalls of globalization, because of the paucity and inadequacy of institutions, norms of conduct, and regulatory frameworks to address issues of inequity, instability, and responsibility in the international economy.

The challenge lies in reforming global governance so that global competition and free market approaches can be harmonized with human development and human rights in all countries. Always acknowledging, of course, that even with good global governance, lack of good local governance a developing country will still find itself excluded and marginalized from the benefits of globalization. In brief, good global and national governance go hand in hand, with both placing people, not just profits, squarely in the center of policy and action. C. AGENDA FOR ACTION: There is no dearth of solutions” to the problems of globalization, requiring either national or international action or a combination of both. While they may differ from country to country depending on the cultural and historical contexts in which they take place, certain key elements common to all can be highlighted: At the national level, appropriate economic and social policies are needed to capture global opportunities trade, capital flows and migration, and to protect people against the vulnerabilities that globalization creates. For example, national governments can manage trade and capital flows more arefully; invest in human capital and in more flexible sets of workers skills, which are of prime importance; foster small enterprises – these will contribute to job-creating growth; manage new technology; and provide safety nets. It must be noted that this already tall order is made more difficult because governments are faced with a resource squeeze: they collect less revenues because of lower tariffs and import duties, tax competition with other countries, the globalization of the tax base (increasing transnational operations) and the growth of the informal economy. At the same time, they are faced with greater demands on ublic resources. At both the national and global level, the governance challenge is to reduce the threats of financial volatility, which have become increasingly common, and all their human costs. The costs of governance failures in this arena are very much larger than generally perceived. The East Asian crisis and its global repercussions resulted in output losses (over a three-year period) estimated at nearly US$2 trillion, while the human costs include civil conflict, rising unemployment and declining school Page 9 of 10 attendance, erosion of the social fabric, more crime, more violence in the home.

At the national level, emphasis should be given to liberalizing the capital account more carefully, subjecting financial institutions to greater transparency and accountability, integrating macroeconomic management and social policies. At the international level, the focus should be on strengthening international action to regulate and supervise banking systems, developing better systems of early warning and crisis management, and establishing an international lender of last resort. At the global level, stronger action must be taken to tackle global threats to human security (crime, isease, environmental degradation), reverse the marginalization of poor, small countries, remedy the imbalances in the structure of global governance with new efforts to create a more inclusive system, and build a more coherent and democratic architecture for global governance in the 21st century. Again, it must be noted that the difficulties of reinventing or reforming global governance is extremely difficult, because it involves changing the status quo, which tends to meet with stiff opposition from those (in this case, the wealthy countries) who benefit from the status quo. l