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Globalisation -- No shortcut to development

S. Venu

AS THE debate on globalisation proliferates, it gets more confusing. Is globalisation a source of economic growth and prosperity, as most economists and many in the policy community believe? Or, is it a threat to social stability and the natural environm ent, as a curious mix of interests ranging from labour to environmentalists -- and including the unlikely trio of Ross Perot, George Soros, and Sir James Goldsmith -- argue?

Is it no more than a buzzword with an exaggerated impact?

There are good reasons to be concerned about the quality of the globalisation debate. What we are witnessing is more a dialogue of the deaf than a rational discussion. Those who favour international integration dismiss globalisation's opponents as knee-j erk protectionists who do not understand the principle of comparative advantage and the complexities of trade laws and institutions. Globalisation's critics, on the other hand, fault economists and trade specialists for their narrow, technocratic perspec tive. They argue that economists are too enamoured with their fancy models and do not have a good handle on how the real world operates.

Under the umbrella of the `Global Village', `Global Reach' and other catch-call phrases, trade and investment have been the final yardstick for judging the economic policies of developing countries. Forget the slum-dwellers or rural poor, who live amidst crime and poverty throughout the developing world. Mention ``investor sentiment'' or ``competitiveness in world markets'' and policy-makers will come to attention in a hurry.

Underlying this perversion of priorities is a remarkable consensus on the imperative of global economic integration. Openness to trade and investment flows is no longer viewed simply as a component of development strategy; it has mutated into the most po tent catalyst for economic growth known to humanity. Predictably, the World Trade Organisation (WTO), the International Monetary Fund (IMF), and other international financial agencies incessantly repeat the openness mantra. In recent years, however, fait h in integration has spread quickly to political leaders and policy-makers around the world.

The oft-repeated case against globalisation is that it promotes `consumerism' or American values. This premise, however, rests on the weakest foundations. Videos, cars, Disneyland fantasies, and the like, are end-products that cater to the urban and rura l upper-income classes. Yet, in their manufacture, many people of the lower-income groups are employed. The linkage (output) and multiplier (income and employment) effects of the end-products for the affluent society are considerable, as indicated by emp irical studies of FDI.

Contrary to the impression one gets from listening to the opponents of globalisation, life is significantly better for the vast majority of peasants who now toil in Malaysian or Chinese and Indian factories. Moreover, it is generally not the case that fo reign-owned companies in the developing countries provide working conditions that are inferior to those available elsewhere in the particular country; in fact, the reverse is more often true.

The more serious criticism is that it concentrates on developing the financial sector to the detriment of primary education, health, social welfare and basic infrastructure. The share of expenditure on the above sectors has been static or has declined.

Most studies by international and national agencies have also revealed that in the 1990s, the distribution of income and wealth between the `haves' and the `have-nots' in developing societies has either worsened or remained static. The poor have not star ted inheriting the fruits of growth to any tangible extent. The accelerated development of East Asian countries took place in regulated and protected regimes with selective public intervention!

World Bank economist Michael Finger has estimated that a typical developing country must spend $150 million to implement requirements under just three WTO agreements -- Customs valuation, sanitary measures and trade-related intellectual property rights.

While the budgetary burden of implementing financial codes and standards has never been fully estimated, it undoubtedly entails a substantial diversion of fiscal and human resources as well. Should governments in developing countries train more bank audi tors and accountants, even if those investments mean fewer secondary-school teachers or reduced spending on primary education for girls?

Unions have taken to the streets to protest against the relaxation of firing restrictions. Has anyone considered the effects on total factor productivity (TFP)? In China, social safety nets have been abolished in the plethora of industries that have been shut down, leaving a trail of millions unemployed. It would be a mistake to conclude from this evidence that globalisation is irrelevant. Due to the increased importance of trade, the options available to policy-makers have narrowed appreciably over the last three decades. The imperative of maintaining ``international competitiveness'' now looms much larger and imparts a definite bias to policy-making.

Economists and proponents of trade have either neglected or pooh-poohed some of the broader complications associated with international economic integration. Consider the following question: Are the distributional implications of globalisation -- and cer tainly there are some -- reconcilable with domestic concepts of distributive justice? Does trade with countries that have different norms and social institutions clash with and undermine long-standing domestic social bargains? To what extent does globali sation undermine the ability of national governments to provide the public goods their citizens have come to expect, including social insurance against economic risks?

World markets are a source of technology and capital; it would be silly for the developing world not to exploit these opportunities. But globalisation is not a short-cut to development. Successful economic growth strategies have always required a judicio us blend of imported practices with domestic institutional innovations. Policy-makers need to forge a domestic growth strategy by relying on domestic investors and institutions. The costliest blunder of the `globalise' faith is that it crowds out serious thinking and efforts along such lines.

Receding governance, deregulation and the shrinking of social obligations are the domestic counterparts of the intertwining of national economies. Globalisation could not have advanced this far without these complementary forces at work. The broader chal lenge for the 21st century is to engineer a new balance between the market and society -- one that will continue to unleash the creative energies of private entrepreneurship without eroding the social bases of cooperation.

Globalisation today has become a faith. But it is still on fragile foundations.