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Globalization With a Human Face James H. Weaver American University Abstract This paper has six parts. The first part defines globalization. The sec- ond discusses globalization eras. The third discusses the irreversibility and inevitability of globalization. The fourth section discusses the benefits and costs of globalization. The fifth section asks what is to be done. The sixth section con- tains my conclusions. Definition I start by defining globalization as the rapid increase in the quantity and speed of movement of four economic factors: goods and services, ideas and technology, capital, and labor across national borders. Globalization Eras There have been at least three periods in the modem era when we had such a rapid increase. The first was Columbus' voyage of discovery and the creation of European colonies around the world. The second was the Industrial Revolution and the spread of European imperialism. This period saw great technological developments and truly massive movements of goods, labor and capital. This period of integration ended with the outbreak of World War I. The third beginning point was the early 1970's and the modification of the Bretton Woods system. This brought about the end of fixed exchange rates and the end of capital controls. This was accompanied by a great increase in capital move- ments and the adoption of the neo-liberal economic strategy in the UK, the US, the World Bank and the Intemational Monetary Fund (IMF). Finally, the collapse of the Soviet Union and the breaking down of the economic and political walls that divided the world during the Cold War has further increased this recent burst of globalization. This paper deals with the last 25 years, when we have had a dramatic increase in the quantity and speed of movement of capital, goods and services, and tech- nology. This has been accompanied by a great burst of technological innovations in transportation, communication, and information. A critical point has been -43-

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Page 1: Globalization with a human face

Globalization With a Human Face

James H. Weaver American University

Abstract This paper has six parts. The first part defines globalization. The sec- ond discusses globalization eras. The third discusses the irreversibility and inevitability of globalization. The fourth section discusses the benefits and costs of globalization. The fifth section asks what is to be done. The sixth section con- tains my conclusions.

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Definition

I start by defining globalization as the rapid increase in the quantity and speed of movement of four economic factors: goods and services, ideas and technology, capital, and labor across national borders.

Globalization Eras

There have been at least three periods in the modem era when we had such a rapid increase.

The first was Columbus' voyage of discovery and the creation of European colonies around the world.

The second was the Industrial Revolution and the spread of European imperialism. This period saw great technological developments and truly massive movements of goods, labor and capital. This period of integration ended with the outbreak of World War I.

The third beginning point was the early 1970's and the modification of the Bretton Woods system. This brought about the end of fixed exchange rates and the end of capital controls. This was accompanied by a great increase in capital move- ments and the adoption of the neo-liberal economic strategy in the UK, the US, the World Bank and the Intemational Monetary Fund (IMF). Finally, the collapse of the Soviet Union and the breaking down of the economic and political walls that divided the world during the Cold War has further increased this recent burst of globalization.

This paper deals with the last 25 years, when we have had a dramatic increase in the quantity and speed of movement of capital, goods and services, and tech- nology. This has been accompanied by a great burst of technological innovations in transportation, communication, and information. A critical point has been

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reached where the country source of a product is indistinguishable; where the global economy is essentially integrated. And, for good or ill, we now have one super power, the US, making the rules and enforcing them, and one dominant ide- ology, neo-liberalism.

The Irreversibility and Inevitability of Globalization

It is frequently asserted that globalization is irreversible and that further global- ization is inevitable. But, this is clearly not so. Paul SWeeten (34-35), has pointed out that the international economy was far more integrated before World War I than it was after the War. Direct foreign investment as a share of total investment is smaller today than it was in 1914. There was as much international trade as a percentage of world output as there is today. International economic integration was reversed by World War I, and further reversed during the Great Depression and World War II. So, international economic integration has been reversed and can be reversed again.

Those people advocating a reversal of globalization should review this histo- ry. Many would argue that it is better to endure the present system of globaliza- tion than to endure another world war or Great Depression. So far, those have been the only ways globalization has been reversed.

Further globalization is not inevitable. Our globalized economy is a human construct, built according to rules that were created by people and it can be reversed or altered by people.

The Benefits and Costs of Globalization

Next we look at the benefits and costs of globalization, and at who enjoys those benefits and bears those costs.

Benefits 1. The first benefit, which immediately leaps to mind, is the cheaper goods and services consumers buy all over the world as a result of globalization.

2. Some argue that countries that are economically integrated are less like- ly to go to war with each other. This was the theory behind the establishment of the European Common Market after World War II. It was hoped that if the French and German economies could be integrated, this would make another war impossible.

3. Globalization gives us greater choice. There is great diversity of goods and services, food, and culture. New medicines that save lives are introduced into poorer countries. A whole new world has opened up to us. The quality of goods is enhanced by competition from imports, particularly in countries that were previously following import substitution industrialization strategies.

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Globalization With a Human Face

The following benefits occur primarily in the developing countries. 4. Developing countries that have globalized (defined as countries in which

trade as a share of GDP has increased the most and in which tariffs have gone down the most) have grown faster than non-globalizing countries.1 This is cer- tainly consistent with what economic theory teaches us: Increased exports, increased capital flows, and imports of technology should all increase growth.

5. Jobs have been created in developing countries. There is evidence that multinational corporations pay more and provide better working conditions than local companies in developing countries.

6. There has been a reduction of poverty in those countries that have expe- rienced more rapid growth. 2

7. Insofar as incomes go up and countries become richer, we would expect there to be a move toward greater democracy and respect for human rights. There is a positive correlation between high per capita incomes and democra- cy and human rights. Almost no poor countries are democratic, except India, which is a huge exception. There is some evidence that democratic countries are less likely to go to war with each other than are non-democratic countries. Also, richer countries do a better job of providing for the basic needs of their people than do poor countries. Finally, as countries grow and become richer, they pollute more. But, as they get rich, they have the resources to make a start at cleaning up the environment.

8. Globalization opens and diversifies markets for exports from develop- ing countries.

9. There is a freer flow of information worldwide and this communications technology may make it harder for tyrants to tyrannize. Access to communica- tions may empower citizens in developing countries.

Costs 1. People feel powerless. They can't influence multinational corporations that control their lives. These organizations are not subject to democratic control. They have no elections, no public forum for debate.

2. The globalization system has produced great economic instability. We now have two trillion dollars sloshing around international capital markets every day, 98% of it speculative. 3 International capital wants to go where it wants to go and to leave when it wants to leave and at present it is free to do so. Massive capital outflows in the casino called a financial market, have, in the last decade, produced severe economic, political and social crises in Mexico, East Asia, Russia, Brazil, Argentina, and Turkey. Millions of businesses folded, hundreds of millions lost their jobs and were pushed back down into poverty.

3. It may not be true that globalizing countries have grown faster. It depends

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on how you look at it. Rodrik found that globalizers grew more slowly in the 1980's and 1990's than they did in the 1960's and 1970's. Dollar and Kraay include China and India in the globalizing group. But, China started growing rapidly in the 1970's, before it opened to the world economy, and China is not exactly a model of an open market economy today. Neither is India. Both these countries have trade restrictions that are among the highest in the world. 4

4. Weisbrot et.al (2), examined growth rates in 1960-1980 (before the global- ization system was so well developed and before neo-liberalism and structural adjustment were the order of the day), and found that developing countries expe- rienced per capita income growth of 83%. In the period 1980-2000, after the glob- alization system was in place, we find that per capita income in developing coun- tries grew 33%. During this second period, per capita incomes in Latin America grew only 6% and in Sub Saharan Africa, per capita incomes fell.

5. Global income inequality is growing. Almost all (98%) of capital move- ments go to the richest 20% of countries. Few capital movements go to the poor- est 20% of countries. This exacerbates income inequality. Most capital moves between rich countries. 5 Human capital movement follows the same pattern. Many college graduates from Africa, Asia, and Latin America work in Europe and North America. Only a few countries, mainly in Southeast and East Asia have managed to narrow the gap. It reminds us of the first development economist, St. Matthew, who wrote in Mt 25:29: "For unto everyone that hath shall be given, and he shall have abundance: but from him that hath not shall be taken away, even that which he hath." In Arkansas, where I grew up, they have a pithier way of saying this: "Them as has, gits?'

6. There is little protection for workers employed by multinational corpora- tions in developing countries. It is feared that this will lead to a race to the bottom as countries compete with each other to provide the least burdensome regulations on multinational capital.

7. There is little protection for the environment in developing countries. And again a race to the bottom is feared as countries compete to make their ecological system available to multinational capital.

8. The World Trade Organization (WTO) rules on intellectual property rights protect drug companies' profits while millions in developing countries are dying of AIDS and other diseases because they cannot afford the drugs.

The following costs are experienced primarily in the rich countries 9. Income inequality has increased dramatically in the United States. There

has been a loss of jobs and downward pressure on wages in the industrialized countries as jobs have moved to developing countries. In the US, average real weekly wages rose 60% during the 26 years before 1973. In the 26 years after

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Policy Guidelines for Providing Telecommunication Access in Developing Economies

1973, these wages fell by 14%. 6 On the other hand, between 1980 and 2000, real stock prices, as measured by the S&P Composite Stock Price Index, rose seven fold. 7

10. Globalization has produced a weakening of unions in industrialized coun- tries, which reduces their ability to lobby for social policies that benefit less well off citizens, such as minimum wage increases and national health insurance.

11 There has been a loss of power on the part of the nation state. Governments can no longer shape their own economic policy. They must do what international capital dictates. Nation states can no longer protect people from the vicissitudes of an open trading system because corporations will move abroad if governments tax or regulate them heavily. Dani Rodrik (1997), has illustrated that economic integration can lead to social disintegration.

12. Emblematic of this loss of state power over corporations, the share of total US taxes paid by US corporations has fallen from 27% in 1965 to only 15% in 1999. 8 The IRS estimates that, through the use of tax havens, transfer pric- ing and other creative accounting techniques, multinationals avoid paying $77 billion a year in US taxes. Thus, the state is unable to capture the gains capital realizes from globalization in order to redistribute part of those gains to the losers from globalization. We are reminded that Enron paid no taxes in four of the last five years of the 1990's.

13. Some fear a homogenization of cultures. The whole world is coming to look like a Los Angeles strip mall. It is true that globalization is another word for Americanization. Anti-Americanism is growing around the world. At the same time, millions and millions of people all over the world would give most anything to be able to migrate to the US.

14. The last cost is that rapid economic change can be tumultuous and desta- bilizing. The breakdown of borders is threatening to people. They feel their iden- tity is being lost. Much of the reaction against increased immigration around the world reflects this feeling. This can lead to violence

What Is To Be Done?

The Special Responsibilities of US Citizens The United States is the only remaining super power. We are far more powerful, in relation to other nations, than other imperial powers in the modem era, such as Spain, France or England. We spend more on our military each year than all other nations combined. Our economy is twice as large as the next largest economy. Thus, we have special responsibilities for the state of the global economy and for its reform.

Criteria for Judging Reforms 1. Freedom. We want a globalization system that is morally defensible. The present one is not.

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What values should we affirm? A.K Sen sums them up in his call for develop- ment as freedom. Being free includes civil and political rights such as the right to life; the right to not be tortured; freedom of movement; free speech; the right to practice one's religion; freedom of assembly; the right not to be discriminated against because of race, ethnicity, religion, gender, or sexual orientation; the right to vote for those who govern you.

In addition to political rights, there are social and economic rights that are nec- essary in order to be free. These include the fight to a livelihood; the right to food, clothing, housing, health care, and education. These human rights are incorporat- ed in the Universal Declaration of Human Rights. The criterion for judging the globalization system is: does the system promote these basic human rights? We find that the globalization system as presently constituted fails in many ways to meet this test.

2. Democratic Decision Making. Dani Rodrik (2001, 1), has pointed out that we allow the market to dominate decision making rather than relying on demo- cratic decision-making. This is wrong. Democratic decision-making should be encouraged. Governments should be accountable to their citizens, not to interna- tional markets. International financial institutions push countries to adopt policies that will be viewed sympathetically by the market. If decisions are to be made democratically today, this means that they need to be made at the nation state level. And there is more than one way to organize societies to achieve their goals. We should allow room for diversity. The international financial institutions should not promote international integration per se. Instead of asking "how can we max- imize the flow of goods and services and capital around the world?" we should ask "how can we ensure that all countries simultaneously prosper within their own social arrangements?"

It is useful to remember the often-quoted passage from Keynes (767), that "Ideas, knowledge, art, hospitality, travel-these are things which should of their nature be international. But, let goods be homespun whenever it is reasonably and conveniently possible; and, above all, let finance be primarily national. ''9

Four Reforms How can we modify the globalization system so that it increas- es human freedom? I will focus on only four of the many issues that cry out for reform and regulation. I have picked these, not necessarily because they are the most important issues, but because they are issues about which something might be done in our lifetimes.

1. Labor Conditions. Labor conditions in the globalization system are still high on the agenda. Protesters today demand an end to child labor in developing coun- tries and an end to sweat shops.

There are at least two ways to do this. One is to attach a labor standards clause to the WTO agreement. I support that. We have a right as a country to say we will

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not buy products made by children working in sweatshops. Until that comes about, however, I would support an attempt at global collective action that might end child labor sooner.

Former Senators McGovern and Dole have proposed that the rich countries subsidize free lunches for children in developing countries. This should be done. It wouldn't cost much more to add a small daily subsidy to children who attend school. Parents don't want their children to have to work and miss school. If there were a subsidy and a free lunch, parents would then be able to send their children to school instead of to the factory. This would increase human freedom.

2. Global Warming. A second concern we must take seriously is global warm- ing and the environmental damage we are inflicting on our planet. One way is to add a clause to the WTO treaty stating that the signatory countries will not trade with countries that do not protect their environment. This is not going to happen soon. As an alternative, we could engage in global collective action as was done in the Montreal Protocol that established provisions for phasing out chlorofluoro- carbons. This seems to be working. Let's try the same approach to dealing with C02 emissions.

3. Regulation of Multinational Corporations. Another reform we might make is to get agreement between the US and European Union on antitrust rules and procedures. At present, the two regulatory authorities often reach different con- clusions. Multinationals need to be regulated and it is probably going to be a long time before an international system of regulation can be created. In the meantime, we could coordinate the US and European Union systems and begin a serious move toward regulating multinationals.

4. Debt and Bankruptcy. Finally, there is the possibility now for some type of mechanism to deal with sovereign debt. We need an international bankruptcy court or a bankruptcy arbitration procedure now.

If these reforms can be made, we will have moved ever so slightly toward a more just, a more sustainable, and a more democratic globalization system.

Conclusion

The title of this paper is "Globalization With a Human Face." If we could put a human face on globalization, it would look like the face of John Maynard Keynes at Bretton Woods, New Hampshire in 1944, working to create a new international political economic order that would prevent another Great Depression and world war; the face of a woman in Vietnam who has gotten a job in a Nike shoe factory; the face of Jody Williams and the Non Governmental Organizations who got most nations in the world to sign a treaty to ban the use of land mines; the faces of peo- ple around the world protesting the environmental damage and the economic injus- tice of the present system. These are the human faces of globalization.

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Notes

I Dollar and Kraay, 1. 2 Ibid. 3 Streeton, 37. 4 Rodrik (2000), 2. 5 Easterly, 58-59. 6 Economic Report of the President (1977), 227; (2002), 376. 7 Shiller, 6. 8 Wachtel, 2.

References

(1977, 2002). Economic Report of the President. Washington, D.C.: U.S. Government Printing Office.

Dollar, David and Art Kraay. (2001). "Trade, Growth and Poverty." World Bank Working Paper.

Easterly, William. (2001). The Elusive Quest for Growth. Cambridge: MIT Press.

Keynes, John Maynard Keynes. (Summer 1933). "National Self Sufficiency." Yale Review. 20: 755-769.

Rodrik, Dani. (1997). Has Globalization Gone Too Far? Washington, D.C.: Institute for International Economics.

(2000). "Comments on Trade Growth, and Poverty by D. Dollar and A Kraay." Boston: Harvard, typescript.

(2001). "Four Simple Principles for Democratic Globalization." Boston: Harvard, typescript.

Sen, A.K. (2000). Development as Freedom._ New York: Vintage Books. Shiller, Robert. (2000). Irrational Exuberance. Princeton: Princeton University

Press. Strceton, Paul. (June 2001). "Integration, Interdependence and Globalization."

Finance and Development. 34-37. Wachtel, Howard. (2001). "Tax Distortions in the Global Economy."

Washington, D.C.: American University, typescript. Weisbrodt, Mark, et al. (2000). "The Emperor Has No Growth." Washington,

D.C.: Center for Economic Policy Research.

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