Two decades of globalisation

THE brief period of 50 years, that corresponds between the Great Depression and the oil-shocks of the 1970s, marked the height of consensus regarding the value of social democracy. The period was noted for progressive social reform of capitalism. Several countries strove to create basic social safety nets by introducing such measures as anti-discrimination laws, minimum wages and collective bargaining, unemployment insurance, pension plans, state-sector provision of utilities, education, public health and environmental regulations.

This attempt to guarantee a measure of social justice within the boundaries of states was built around Keynesian macro-economics. However, it could not ensure inclusive development and growth with social justice. As a long-term initiative, the safety net measures proved unsustainable.

There was a return to free-market economics all over the world because social democracy did not work. This historical context explains the origin of globalisation.

Globalisation gained wide currency following the collapse of the Soviet Union in 1991. The term denoted a measure of triumph because capitalism no longer faced any large-scale barriers to its expansion. The potential of any viable alternative being erected at the level of the nation-states was completely missing.

Globalisation also carried the connotation of advances in transportation and telecommunications, mobility of people and expansion of markets on an unprecedented scale. Consumer choice had widened and this implied expanded levels of generalised prosperity. The question is whether globalisation has actually transformed the world for the better. Economists, who advocate extending globalisation in its current form and those who are critical of this concept and call for reforms to make globalisation work, argue that it is the only path to a more prosperous and peaceful world.

Globalisation has created increasing economic inter-dependence of national economies across the world through a rapid increase in cross-border movement of goods and services, technology and capital. It has resulted in increasing economic integration between countries leading to the emergence of a global marketplace. Multinational companies manufacture products across many countries and sell them all over the world. Money, technology and raw materials have broken international barriers. The developed economies are integrating with the less-developed through foreign direct investment, reduction of trade barriers, economic reforms and in many cases, immigration.

Globalisation has increased the flow of investments from developed to developing countries, and the money that is invested can be used for economic reconstruction.

China started opening up its economy in the 1980s. It has now attained a degree of openness that is unprecedented among large and populous nations. Foreign direct investment has helped to improve quality, technology, knowledge and standards, especially in heavy industry. China’s experience supports the assertion that globalisation enhances the wealth of poor nations. Shanghai boasts one of the world’s busiest ports. Some observers have noted that China’s ascendancy and the relative decline of the USA is a direct fallout of globalisation. America contends with a high trade deficit. Going by the figures of 2011, China was on track to overtake the United States by 2025.

In India, economic reforms were initiated in 1991. It has been estimated that in 2010, about 300 million people — equivalent to the entire population of the United States — had been spared extreme poverty. India’s GDP increased by more than 9% in 2007-08. Subsequently, however, the growth-rate declined.

Even after globalisation, the condition of agriculture has not improved. It is still at the subsistence level and suicides by farmers are reported frequently. India has to overcome these hurdles to reap the benefits of economic integration. Business process outsourcing would be the engine of the country’s development over the next few decades, contributing to a growth in GDP and employment, and reduction in poverty.

Certain demographic changes in the developing world in the aftermath of economic liberalisation and international integration resulted in a marked increase in welfare. This reduced inequality. In the developing world as a whole, the infant mortality rate declined from 107 per thousand to 55 in 2007 thanks to the improvement in standards of living and health conditions. Relatively prosperous and educated parents with fewer children have chosen to withdraw their children from the labour force to give them school education. To an extent, this has addressed the problem of child labour.

Despite unequal distribution of income within these developing countries, globalisation has brought about better living standards for the population as a whole.

It is commonly believed that globalisation alone can generate wealth and the state should abrogate its authority in favour of corporations. This has given rise to a measure of anxiety. Globalisation now carries with it the disturbing imagery of deforestation, desertification, the decline of small producers in both agricultural and commercial sectors, primacy of foreign direct investment and transformation of economies to create the right investment climate. This could work out to the detriment of labour, sidelining of unions or making them illegal, a drop in real wage rates in the formal sector, increased participation in the informal sector, increase in child labour and a return to human trafficking.

Globalisation, therefore, can have an impact on the human condition. It can fly in the face of an egalitarian society. Multinational corporations with immense financial resources can dictate terms to nation-states, thereby subverting legislation and formulation of policy. Foreign direct investment in a labour-surplus but capital-scarce economy is ethically wrong, though economically justified. It is a serious issue and more so in smaller developing countries. As long as the profit-motive remains the sole principle of the production process and capital accumulation, the world will face rising unemployment and poverty. Violence, sparked by unfulfilled needs, will persist.

Even the staunch advocates of globalisation concede that some of the concerns of pessimists are legitimate. They have called for the creation of institutions to make globalisation function better and in a manner that leaves the most vulnerable members of society less exposed to the vagaries of the international market. Prof. Jagdish Bhagwati has recommended that institutions to mitigate the increased economic insecurity must develop in parallel with globalisation. Joseph Stiglitz claims that the right kind of regulation is preferable to an unfettered market.

Indeed, the trend towards ethical considerations is quite a recent paradigm shift and a radical departure from economic theories that tend to ignore the question of ethics. If the collapse of the Soviet Union is taken as the cut-off date, globalisation as an economic concept has a history of only 20 years. It has evolved as an alternative economic system as social democracy could not deliver the desired results. In a sense, globalisation was a historical necessity.

In this short period, it cannot be subjected to a rigorous test. Globalisation also has a political and managerial dimension. The dynamics of international relations, such as changing geopolitical relations and tensions among states keen to build and preserve economic competitiveness, will exert considerable influence on the prospects of more effective economic integration beyond the confines of nation-states.

At the global level, enduring asymmetries of power, resources, institutional capacity and access to technologies mean that the critical issues of inequality and justice require attention. Total return to free-market economics, which is called neoliberalism, is not possible on a global scale. Governments of sovereign states, depending on their resource mobilisation and ability, will have to continue with their safety nets and social welfare schemes to protect large sections of the society. Social democracy has not lost its relevance. All economic stakeholders ought to be given sufficient rights of co-determination and co-existence. This is the lesson of globalisation.

Source: The Daily Star