GLOBALIZATION: ECONOMIC AND SOCIAL ASPECTS
By Michael G. Papaioannou, PhD. A. Introduction The effects of globalization on economic growth have actively been debated in academic circles for more than a century now, although this issue remains still unsettled. In contrast, the effects of globalization on countries' social structures and value systems have largely been neglected during this long debate, and only recently have gained the attention they deserve. In this note, first, we offer a working definition of globalization and outline briefly the major arguments for and against globalization, with special reference to the cultural and ethical issues involved. Then, we present some general provisions for overcoming the economic and social costs that developing countries often incur in the process of integration into the global economy. These provisions require both national and international initiatives. B. Definition of Globalization It should be mentioned from the beginning that there is no universally accepted definition of globalization. Depending on the audience, globalization maintains a subjective view. The main underlying theme is how to intensify the world integration process. Key features of globalization include the abolishment of barriers, especially the freeing of trade labor migration and capital flows, the promotion of global standards for economic and social development, and the imposition of rules and norms of behavior for the international community. C. Measurement of Globalization In the attempt to quantitatively examine its effects , different measures of globalization have been proposed in the relative literature. These measures are indexes of various economic and social indicators. However,these are usually arbitrary weighted indexes of an often insufficient set of indicators. As explained in Section B, most of these measures cannot be considered objective starting points for debating the impacts of globalization. In any case, since they exert great influence upon the results of any empirical analysis, the choice of indicators and the weighting system in the final index need to be explained thoroughly. D. Historical Perspective Globalization is an old phenomenon. Since the middle of the 19th century, there has been Undertaken significant efforts to move towards a globalized world. Britain, as the leading industrial power then, reduced its import tariff on grain from 70 per cent to 20 per cent, effectively distributing income away from Britain to the rest of the world. Between 1870 and 1913, labor migration increase the U.S. labor force by one-fourth (and by far more in Canada, Australia , and Argentina) while reducing it throughout Western Europe. These labor flows had a big negative impact on wages and income distribution. Capital also became more mobile. By 1850, foreign investoes held around 40 per cent of all U.S. bonds, many of which were actively quoted in European (mainly London) markets. The globalization movement of the middle 19th to early 20th century caused a vigorous opposition that resulted in a political retreat from liberalization policies. As a result of the massive labor migration, land returns in Europe had significantly been diminished, prompting landowners to lobby for higher agricultural tariffs. During the last two decades of the 19th century, agricultural tariffs were substantially raised in Europe, leading to eventual tariff increases almost everywhere. Also by the 1920s, the United States, Canada, Australia and Argentina had passed immigration restrictions that effectively stopped further labor flows. During the Great Depression in the 1930s and the interwar years, trade protection was expanded and labor and capital mobility was widely curtailed through various barriers, thus severely restricting openness and leading to self-sufficient autarky. Since the end of World War II, where the current debate has focused on, international trade has become more free and widespread. In addition, the institutional framework is different, including enhanced legal protection against unfair trade practices and some provisions from countries to assist displaced workers. However, international immigration has remained a thorny issue. New immigrants entering technologically advanced countries add pressure to the declining relative wages of low-skilled workersw, causing calls for limiting immigration and xenophobia tendencies. Moreover, increased capital mobility that has resulted into large capital flows into the high-wage labor- scarce sectors of the advanced countries has aggravated the divergence between skilled and low-skilled wages, creating domestic labor and political frictions. Political coalitions of organized labor, protected industries, and environmental groups have been the main forces against modern globalization. The latest paradigm of globalization and regional integration is the formation of the European economic and monetary union (EMU). The EMU is an example of institutionalized setting of globalization, aiming at enhancing wealth and stability in Europe through free trade and elimination of barriers in the movement of factors of production. E. Driving Forces of Globalization Global integration may be driven by various forces: economic, technological, geographical, historical, cultural, and political. During the globalization era of 1870 to 1914, the driving force is considered to be emerging technological changes in the New World. During the post-World War II era, increased globalization is attributed to further world economic development, continued improvements in the global transportation and communication systems (which has led to a steady fall in trade costs), and active liberalization policy measures to reduce trade and capital restrictions. And, behind the recent European integration process, political determination, along with common history and culture, are considered to be the principal factors. F. Advantages of Globalization 1. Advocates of globalization assert that the benefits of the trade and capital liberalization for both industrial and developing countries can be great. They span from higher income growth and employment to reduce income inequality to better functioning of the monetary and financial system in globalized countries. Furthermore, globalization helps in the wage convergence among the globalized economies through labor flows and trade creation. 2. The positive impacts from globalization are greater in terms of reduced macroeconomic volatility and fewer financial crises when progress is made on opening to both trade and finance. The two reinforce each other, with greater financial integration tending to increase trade, and more trade requiring larger international financing. 3. Recently, advocates stress that policies that promote openness to foreign investors have a positive effect in helping corporations reduce their leverage (debt-to-equity ratios) and extend the maturity of their debts. Of course, they do not deny the heightened risks of exchange rate mismatches. G. Criticisms 1. Opponents argue that most of the reached conclusions about the advantages of globalization are normative. As results have shown so far, it is doubtful that globalization has helped economies to become more (1) stable, (2) economically advanced, and (3) consolidated democracies. Especially, the frequency and intensity od economic and financial crises that the world has recently experienced cast doubt on the forces of globalization, in the form of opening the trade and financial accountsw of developing countries, that have been advocated and implemented in the previous decade. However, advocates assert that some of these problems are mere issues of transition. 2. Globalization entails substantial economic and social costs: a. Globalization, especially when imposed by the terms of accepting aid from th World Bank and the IMF, often requires that countries implement painful economic policies, free trade, and privatization. These measures, however, may have adverse employment and cost repercussions on these economies, as well as negative environmental and ecological implications. b. Especially if industrialized countries protectionism - in the form of tariffs and quotas, farm subsidies, anti-dumping laws, restrictive rules of origin, product standards and other-keeps closed those markets where poor nations could compete, liberalization in developing countries can be extremely disadvantageous. In particular, high levels of support provided to farmers in industrial countries affects developing countries in various ways, including by cutting jobs, depressing the world prices of commodities of interest to poor farmers and by increasing world price variability. According to a recent World Bank study, every industrialized textile job saved by tariffs and quotas translates to 35 lost jobs in developing countries. c. Globalization, often disguised in the name of modernization, is costly and dehumanizing because it robs countries of their cultural souls, their linguistic spines, and religious identities. This lack of respect for cultural and ethical values of countries has prompted Archbishop of Greece Christodoulos to declare: " Oppose the evil forces of globalization that are transforming Greece into a hedonistic, consumerist, and pacifist Western clone." d. Trade liberalization often welcomes aggressive advertisement and encourages consumerism and competition. In order to survive in this environment, working ethics and social norms often need to be sacrificed. To increase the competitive advantage of countries, especially of developing economies, working conditions are often intense (e.g., easy layoffs of "non-productive" workers), working hours are long (e.g., sweat shops), working age is lowered (e.g., child labor) and social and religious values are compromised (e.g., working in weekends-even on Sundays). Frequently, labor laws are bent to accommodate the need for higher productivity. 3. Globalization has not shown any genuine compassion for the poor, i.e., has not contributed to a less unequal world distribution of income. 4. Globalization has raised fears that it may cause the abolishment of the small and less efficient states. 5. Is the metamorphosis to a globalized economy a first stage into the global governance? These criticisms have been often dismissed by advocates as the result of nationalism and the work of irredentist forces. However, these reservations about the path and pace of globalization should not be considered as a clash between the old and the new views of the world. It is simply a matter of priciples, i.e., over the virtues of global economic governance through a new system (globalization). G. Requirements for Optimal / Desirable Globalization 1.In our view, globalization is desirale but only under provisions. In the international economic architectural front,special provisions are needed for a deepening integration of the developing countries with the world economy so as more stable and less uncertain economies emerge. 2. Channels should be developed to help poor countries. Especially, for food-importing poor countries there should be provisions for receiving assistance to mitigate the effects of higher food prices resulting from liberalization. 3.Industrialized countries should be more responsive to the needs of developing economies during the process of globalization. One way to provide a smooth transition is by reducing their huge agricultural support systems. 4.Globalization should promote international economic cooperation and the universality ht to oppose aof social ethics, but not at the expense of cultural identities. The traditions, religion, history, language and ethical values of countries must be respected. In this context, people should maintain the right to oppose any supranational or national move to adopt or impose globalization, if they deem necessary. 5. Care should be taken so as, in the name of globalization and promotion of human rights of minorities, national sovereignty of affected countries is not compromised and countries and regions do not become unstable. 6. Otherwise, the globalization movement can be regarded as another form of exploitation of the poor by the rich countries, a disguised global authoritarianism and, at the end, a brutal global economic dictatorship. H. Epilogue For the future success and well-functioning of globalization, it is imperative that there is (1)uniformity of treatment in dealing with economic and trade issues betweenindustrialized and developing countries, (2) international provisions for well-regulated capital markets both domestically and internationally, and (3) greater understanding and respect for social, cultural, and ethical values of the people (societies) affected by the rules of globalization.
The author is a Senior Economist at the Western Hemisphere Department of the International Monetary Fund
Paper presented at the Plenary Meeting of the Archdiocesan Advisory Committee on Science and Technology (AACST) in Brookline, MA on October 19, 2002, as part of the contribution of the Subcommittee on Energy, Environment, and Economics in the area of "the effects of globalization and the effort of poverty alleviation". References Aninat, Eduardo, 2002, "Surmounting the Challenges of Globalization", Finance and Development, Vol. 39, No. 1 (March), pp.4-7. Bhagwati, Jagdish, 2000, " Globalization and Appropriate Governance," Jubilee 2000 WIDER Lecture, delivered in Helsinki (November). Berg, Andrew, and Anne Krueger, 2002, " Lifting All Boats: Why Openness Helps Curb Poverty," Finance and Development, Vol.39, No.3 (September), pp. 16-19. Boughton, James M., 2002, " Globalization and the Silent Revolution of the 1980s," Finance and Development, Vol. 39, No. 1 (March), pp.40-43. Hausler, Gerd,2002, " The Globalization of Finance," Finance and Development, Vol. 39, No. 1 (March), pp. 10-12. Rodriguez, Francisco and Dani Rodrik, 1999, " Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-National Evidence," NBER Working Paper 7081 ( Cambridge, Massachusetts: National Bureau of Economic Research). Available via the Internet: ( http://ksghome.harvard.edu/~.drodrik.academic.ksg/skepti1299.pdf). Stiglitz, Joseph E., 2002, Globalization and its Discontents, New York: W.W. Norton. Sutherland, Peter D., 2002, " Why We should Embrace Globalization," Finance and Development, Vol. 39. No.3 (September), pp. 20-21.