Living with globalisation

By S. Ambirajan

AFTER ALL the sound and fury in Seattle not so long ago with the gladiators returning home empty-handed but with brave words in their mouths, the question arises about the meaning of it all. While one can read many meanings into the events, the one unmistakable effect has been a severe setback to extending the reach and depth of globalisation. For some, it is a matter of great regret, and for a few others it is something wonderfully exhilarating. However for most people - including economists supposedly in the know of things - constantly bombarded with the loud noises and suffering (or occasionally benefiting) from ill- understood economic forces, globalisation is a bewildering phenomenon with the Seattle event yet another game in which our politicians/bureaucrats/intellecutals in positions of power play with their counterparts elsewhere.

To make some sense of this process of globalisation which seems to have received the imprimatur from almost everyone, one must try to understand on what philosophical basis the edifice stands. Looking at the big names in economics supporting globalisation, the unlettered layman could easily believe that it is all based on esoteric but sound theories which lead us to the ultimate truth. At its core is the orthodox economic reasoning of the neo- classical variety which believes in the following fundamental principles: (a) the way economies behave is solely dependent on the actions of individual economic agents who take decisions independently; (b) the individual is a rational actor taking all decisions carefully with self-interest in mind and (c) the actions and reactions of individual economic agents tend towards an equilibrium which brings benefits to everyone.

The institution of unfettered market enables the achievement of this desirable outcome because it is where uncoordinated but fully informed individuals - who though individually by themselves lack any power to influence - lead the economy to adjust at a desirable level. Given the strong and precise assumptions on which it stands, this thesis, nurtured by some of the most brilliant theorists such as Kenneth Arrow, Gerard Debreau and Frank Hahn, is unassailable. But real life is very different from this artificial construct, and where it differs makes all the difference. Individuals cannot always take decisions solely in their own interest because of informational barriers and institutional compulsions. More often than not, key decisions are taken to suit not individuals but groups defined by criteria as varied as religion, caste, community, locality and gender. Freedom to take decisions is not evenly distributed but is determined by those who have the levers of political power. Often individuals and even groups become helpless spectators when key decisions that involve them are taken willy-nilly. Markets embedded as they are in a social milieu are seldom unfettered. Despite all the brouhaha about vanishing national boundaries, they are guarded zealously because the nation-states have not shown any intention to give up their power over their citizens.

Globalisation is a process of rearrangement of the world's resources between people and countries. In this process, there are winners and losers. While some countries as a whole may lose out and others gain, in general the losers and the winners are individuals and groups. Let us take two examples. In a study of foreign entry in the domestic banking market worldwide during 1988-95, three World Bank economists, Claessens, Demirguc-Kunt and Huizinga, have shown that in developing countries foreign banks as a rule have greater profits, higher interest margins and higher tax payments than do domestic banks. On the contrary, in industrial countries, it is the domestic banks which have the upper hand in terms of profits, interest margins and tax payments. Does this mean foreign entry in the domestic banking market is altogether harmful? They argue that it need not be so because the entry of foreign banks can make national banking markets more efficient by compelling the domestic banks to meet the competitive challenges with vigour. Take import of second- hand cars. How should we judge this policy? The beneficiaries in the short-run are the consumers and in the long-run, the second- hand exporting countries. The losers are the local manufacturers in the short-run and the importing countries in the long-run because the ultimate environmental effects of the disposal of old cars are borne by the importing countries.

Such situations lead not only to struggles between potential losers and prospective winners, but also among competing nations. The merit of the globalisation process is that to some extent the concentration of power in certain nations and groups is rendered less harmful to the powerless. This is achieved through multilateral negotiations, rule-based arrangements and institutional mechanisms to settle disputes, made possible by the existence of the World Trade Organisation. For example, even the United States, which used to act as a ``judge, jury and prosecutor'' using its Section 301 of the 1974 Trade Act to punish countries which were not willing to accommodate its interests, cannot do so at present because all countries have to operate within a multilateral framework.

This, of course, does not mean that the playing ground has become absolutely level for all players. Economically weak and vulnerable nations cannot afford to forget the essentially political character of globalisation which comes through an aggressive advocacy of some policies by some countries and some groups. To secure the beneficial effects of the globalisation process for the majority of the weak and powerless, nations will have to learn to operate effectively in the new multilateral scheme of things. This will involve individual countries avoiding bilateral arrangements and going in for multilateral agreements. Second, nations must make determined efforts to clarify the rules of the game for settling outstanding trade disputes. The WTO has on the whole been even-handed in its treatment of contending parties. Indeed the dispute settlement system of the WTO has been far more effective than what the GATT had, because of its inability to curb the de facto power the U.S. had in imposing its will. The WTO ruled both for and against the U.S. in the past, and hence its dispute settlement system cannot be dismissed as a mere proxy for U.S. interests. Third, it is far easier to argue against social clauses, human rights and environmental issues in a multilateral negotiating arena than leave it for powerful trading nations such as the U.S. or the European Union to be intimidated by an unholy alliance of big business and trade union protectionists, on the one hand, and wealthy NGOs championing pet causes, on the other. Fourth, the international regime could be made to keep trade-related issues separate from other items of concern.

Thus, the WTO could be used to contest the abuse of economic sanctions to achieve foreign policy agendas such as preventing nuclear proliferation and supporting democracies, or applying trade restrictions to support domestic legislation which have no place in a global framework. And finally, poor nations such as India with a complex economy and varied vested interests need to arrive at a clear consensus before going to any multilateral negotiating table. The old shibboleths of developed versus developing countries dichotomy or North-South divide are no longer relevant. The ultimate aim should be to get the best for our own people rather than aligning ourselves with all and sundry for economically irrelevant reasons.

Sad to say, we are not living in an ideal world because those who are powerful will always try to dominate the weak. What should be done? As the economist Albert Hirschman said in a different context: ``Do we exit or do we voice?'' In other words, do we opt out of the globalisation process based on multilateral relationships or do we voice our concerns by maintaining partly rivalrous and partly cooperative relations with the rest of the world? Facts and logic seem to support the second alternative.

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