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Globalization and Development: Partners or Competitors?
Javier A. Elguea
Globalization and Development
Globalization and development have been the subject of long discussions and fierce debates for several decades, underscoring their importance. Yet issues of national economic growth and global integration are centuries-old processes. Some authors argue that globalization and the world economy were born in the 16th century, by which time trade linked Europe, the Americas, Asia, and Africa.
In the 21st century a more relevant debate has emerged around a series of development and globalization questions that concern almost everybody: how far have they progressed? If there has been progress, who has benefited? Are globalization and development zero-sum games that result in millions of prospering winners and billions of impoverished losers? Or are they really the key to an overall improvement of the human condition?
Globalization proponents view globalization as an unmixed blessing, with the potential to boost development and living standards everywhere. Their argument is that a globally integrated economy can lead to a better division of labor between countries, one in which they exploit their competitive advantages: low-wages, geography, technology, culture, and so on, using their resources and workers in more productive ways. From a multi-national perspective, it will allow firms to exploit bigger economies of scale, and with global networks, capital can be moved easily to whatever country offers projects with higher returns.
Opponents of globalization (also known as “globalophobics”), however, take two gloomier and sometimes contradictory views. On the one hand, they argue that globalization is the new face of a very old imperialism by which rich economies are taking over the developing world markets and cultures. On the other hand, they predict that increased competition from low-wage developing countries will destroy jobs and push down wages in today’s rich economies.
Given these contradictory views, it is necessary to define precisely what we mean by globalization, how far it has proceeded, and what are its implications for economic growth in the developing world.
Background on globalization and development
Two forces have been driving these increased flows of goods and money, which are the essential components of an empirical definition of globalization. The first is technology. With the costs of transport and communication falling rapidly, the natural barriers of time and space that separate national markets have been falling too. The second driving force has been liberalization. As a result of both international negotiation and unilateral decisions, almost all countries have lowered barriers to foreign ideas, capital, and trade. Although liberalization has proceeded at different speeds in different places, this is a worldwide trend.
We know now that economic development in poor countries depends on a relatively small number of basic variables. First, ever since the days of the late Walter Rostow’s “take off” theory of growth, specialists have emphasized the importance of sound economic policy, namely economic freedom, taxes and the cost of government, inflation control, openness to trade and innovation, monetary policy and exchange rates, savings, and other factors. Second, others like professors Francis Fukuyama and Robert Fogel have added the importance of spiritual resources: values, education and human capital, trust and social capital, cooperation, work ethic, and so on. The most important basic variable, however, appears to be the building of institutions that are conducive to growth, such as democracy and political stability, legal systems, property rights, education systems, and free flow of information.
There is ample evidence that when this group of basic variables is in place, economic growth follows. Let me offer some empirical evidence. The Economic Freedom of the World report, an annual publication of the Fraser Institute that aims to measure economic freedoms in more than a hundred countries, ranks each country according to how seriously a combination of various factors are taken, including small government and low taxes, protection of private property from expropriation and monetary debasement, and the ability to trade freely with other countries. Predictably, in 2002, Hong Kong, Singapore, and the United States are the top three. At the bottom come such impoverished states as Guinea Bissau, Myanmar, and Congo. In general, the countries with the greatest economic freedom saw much higher growth rates between 1990 and 2000 than their less free peers. It should come as no surprise that these variables correlate with wealth and economic growth, but it may be a surprise that they also correlate with strong institutions and a considerable amount of spiritual resources.
There are three key areas of development theory, research, and practice that are related to the future of globalization in less developed countries: the effects that science and technological innovation have on productive processes, the free flow of ideas, goods, and people, and the distribution of spiritual resources.
Science and Technological Innovation
Regardless of how old the origins of globalization are, the speed and range at which economies and societies from all over the world are converging has no precedent. This accelerated convergence is only made possible by technological innovation and change.
The popularized view is that rich countries innovate with ever increasing speed and, as a result of that, the five billion people who live in developing countries are left behind. It is true that countries vary hugely in their ability to produce new technology, but it is no mystery why this is so. According to a report by the United Nations Development Program (UNDP), the industrial nations that make up the Organization for Economic Co-operation and Development (OECD), with only 19 percent of the world’s population, accounted for 91 percent of the patents issued in 1998. That year, OECD countries spent $520 billion on research and development, more than the combined total economic output of the world’s 30 poorest countries. It is a truism to say that technology makes the rich richer. What is not so obvious is that it also can make the poor richer, not to mention healthier, better fed, longer-lived, and provided with more education. Consider the most dramatic indicator of well being: staying alive. Roughly speaking, people from developing countries can now expect to live almost twice as long as in 1900. Of course, people are living longer in the developing world for many reasons, including better food, cleaner water, more effective medicines, and increases in average annual incomes. However, some form of technological innovation has supported every one of these advances. So far, the strongest force propelling human progress, no matter how unequally distributed, has been the swift advance and wide diffusion of technology. There are three fields where technology holds particular promise for the poor. The first is agriculture, where despite the controversies surrounding the science of genetic modification, it is a fact that improvements in crop yields could feed the world in one generation. The second is medicine, where advances in medical research continue unabated in rich countries, but to reach the really poor will require re-allocations of public funds. The third is information and communication technology. Despite the dethroning of the “new economy” in 2001, information technology is spreading faster than anyone expected, and is disseminating other technologies as well. Finally, it is important to acknowledge how developing countries are trying to catch up and start innovating for themselves. Brazil’saviation industry and India’s software development industry are good examples of this trend.
A number of specialists, educators, and government officials are concerned with the infamous “digital divide.” Usually thought of in terms of access to computers and the Internet, the digital divide has access to basic telecommunications services as a backdrop. However, half the people in the world have never made a telephone call. Africa as a continent has less international bandwidth than the city of Miami. How can the poor get connected?
Some argue that there is no point in giving people computers when they have no electricity, includ-ing—notably—Bill Gates himself. He is probably wrong. The usefulness of information technology may have been exaggerated, but it has made a mark in the world’s economic environment. It may be true that people in poor countries need food and medicine before they learn to “chat” over the World Wide Web, but information technologies could help them acquire both of these more easily. Communication costs are going down. Any task that can be digitized can now be done or transacted at a distance, which creates all sorts of opportunities for developing countries.
Timely information is useful in almost any field. Research at the Center for Digital Culture in Mexico has made some advances focusing on health care. The Internet is the quickest and cheapest way yet devised for disseminating medical research or creating public medical databases. On top of that, the Internet is spreading around the whole world faster than the telephone did a century ago. Developing countries, for the first time, are not missing out on this revolution. According to the UNDP, in 1998 only 12 percent of Internet users were in non-OECD countries. By 2000, only two years later, this proportion had almost doubled to 21 percent.
Countries with poor infrastructure can leapfrog to the next wave of technology. When setting up a telephone system, they can go straight to fiber optics and mobile telephones. Some developing countries, like Mexico and Chile, have built a better communications infrastructure than many rich countries enjoy. In other words, some developing countries are moving through the same transitions that Europe, America, and Japan made earlier, only faster.
And as current technologies lower their costs, they will spread. As the Internet helps to keep scientists and practitioners in Africa, Asia, and Latin America informed of current developments in their fields, they will start to produce more scientific and technological breakthroughs themselves.
For some time now, “globalophobics” have claimed that poor countries are losers because of global integration. Regardless of whether they are critics of globalization or advocates, there is a widespread acceptance of the belief that global inequality is getting worse.
New evidence from a variety of sources proves otherwise. If one divides poor countries into those that are “more or less” globalized (with globalization measured simply as a rise in the ratio of trade to national income) one finds that on average the more globalized poor countries have grown faster than rich countries, while less globalized countries have seen income per capita fall.
For example, a World Bank study (World Bank, 2001) argues that from 1945 to 1980, economic integration was concentrated among rich countries. Since 1980 this situation has changed. Manufactured goods rose from 25 percent of poor-country exports in 1980 to more than 80 percent in 1998. This level of integration was concentrated in two dozen countries including China, India, and Mexico. Over the past two decades, these countries have doubled their ratio of trade to national income. In the 1990s their GDP per capita grew by an annual average of five percent. Notoriously, life expectancy and schooling levels increased in all of them.
In the rest of the developing world, the story is rather different. In these “less globalized” countries, including much of Africa, the ratio of trade to national output has fallen. In the past decade, income per capita has shrunk, and inequality has risen. In short, the poor countries that are in the biggest trouble are those that have globalized the least.
The past two decades have seen progress in enhancing human welfare thanks to the globalization of trade. This is especially true in the most populous countries of the world, China and India, mainly due to those countries’ decisions to globalize their economies and to open their borders to more trade and investment. Such globalization has already narrowed the overall gap between North and South. But some countries, such as Sudan and North Korea have chosen not to take part in that process, and misery there has increased. Others, particularly in southern Africa, have been so ravaged by war or disease that they have been unable to take part.
There is, however, a fly in the ointment. Rich countries are particularly protectionist in many of the sectors where developing countries are best able to compete, such as agriculture, textiles, and clothing. When poor farmers and workers in the developing world scream for “trade, not aid” they have their numbers right, for unfair trade practices impose a big burden on poor countries. The United Nations Conference on Trade and Development (UNCTAD, 2002) estimates that poor countries could export $700 billion more a year by 2005 if rich countries did more to open their markets.
Over the next five decades, world economic output could quadruple, to $140 trillion, while the world’s population increases to nine billion, with humans mainly an urban species for the first time in history. If in the next decades we rise to the challenge of eliminating widespread poverty these trends could be good news too. For a start, the real news on world population is that its growth rate is moderating. As a result, the coming years will see a boom in people of working age. Economic growth deriving from this will create an enormous stock of new assets that can be shared with the world’s poorest. Even migration will be positive, if we allow it to happen, for it means the poor can share in the new jobs, educational opportunities, health, and housing to come. Thanks to globalization and the liberalization of trade we could have an opportunity to make growth and development more inclusive and sustainable.
For the past century or so, the pattern of migration has changed repeatedly, with government policy changes playing a key role. Until 1914 governments imposed almost no controls. Between 1914 and 1945, partly reflecting security concerns, migration was curtailed on openly racist grounds. In spite of accelerated growth during the 1990s, the more restrictive immigration regime continues to apply. The sad news for advocates of globalization and freedom in general is that while product and capital markets have become increasingly integrated, labor markets have not. Before and especially during the 19th century, there was an international labor market without which the United States could not have expanded like it did. Nowadays, however, the severity of restrictions is such that there is no real market.
A common current view is that immigrants compete for jobs that would otherwise have gone to nationals, reducing wages and/or employment prospects for the indigenous workers. However, more often than not immigrants hold jobs that natives are unwilling to accept at almost any wage, and in spite of their usually low wages, migrants are also a source of wealth for their original countries. The sums that migrants send home to developing countries each year are astonishing: some $60 billion through official channels and perhaps another $15 billion in various unreported ways. The inflow of remittances to developing countries doubled between 1989 and 2000. Reported remittances alone were about 20 percent more than official development aid over that period. And the gap is widening: official aid is dwindling while remittances are still growing. There is no empirical evidence on this matter but one could easily argue that remittances are far more productive and better allocated, for the host and the country of origin, than foreign aid.
It will be impossible to separate progress and the globalization of trade and capital from the global movement of people. This explains why many trade economists argue that humanity as a whole benefits enormously from migration. Economist Alan Winters (2002) has tried to quantify these gains. He concludes that, if the rich countries raised the number of foreign workers that they allowed in temporarily by the equivalent of 3 percent of their existing workforce, world welfare would improve by more than $150 billion a year. Amazingly, that amount is larger than the gains from any imaginable liberalization of trade in goods.
Just as reducing the constraints on trade in goods made parts of the world richer in the second half of the 20th century, reducing the constraints on the movement of people could also be a powerfully enriching force in the first half of the 21st century. Countries that accept migrants will be rewarded with a more diverse, fast changing, and better-off society, even if they have to accept adaptation and social transformation. Freer migration policies could enrich humanity in many ways.
The Distribution of Spiritual Resources
Because economic development is about enhancing human well-being through time, it not only helps people to improve such things as their net worth, life expectancy, or literacy, but also helps their ability to improve their self-worth and to lead a meaningful life.
As Robert Fogel (2000) defines it, “…selfrealization is a particularized creative project of individual growth that requires a commitment in the struggle to create a better world.” It would be foolish not to recognize the enormous material gains made over the last half century as a result of globalization and advances almost all over the world in the struggle against chronic poverty. However, we should not forget that the principal characteristic of those afflicted by the most intractable chronic poverty in both rich and poor nations is their spiritual alienation from the rest of society. Although income and material assistance are important elements in the struggle to overcome spiritual alienation, such assistance will not be properly targeted if one assumes that improvement in material conditions naturally leads to fulfillment and spiritual improvement.
According to Fogel (2000), a sense of purpose may be the most important spiritual resource. Opportunity cannot be identified or realized if individuals do not have a sense of a virtuous purpose in life. Discipline is a learned pattern of behavior that is also indispensable for success. Assimilation of these and other spiritual resources requires self-esteem, a belief in one’s capacity to succeed in an undertaking. One aspect of self-esteem is the capacity to overcome the repeated failures that usually accompany ambitious goals.
Francis Fukuyama (1999) maintains that another group of poorly distributed spiritual social resources relates to solidarity and trust understood as the ability to cooperate and a sense of community with others outside the immediate family. The issue of trust and cooperation becomes a crucial one for developing countries whose weak legal systems and poor enforcement offer little assurance to big and small entrepreneurs. In this environment trustworthy handshakes and a hard-earned reputation are valuable spiritual resources.
For many individuals self-realization is achieved, to a considerable degree, through an occupation. Success in occupations requires a work ethic. That ethic embraces the idea that work is a duty, that if a task is worth doing at all, it is worth doing well, and that diligence is both moral and pleasurable. The execution of a work ethic requires a sense of discipline. Joanne Ciulla (2000) argues that work offers instant discipline, identity, and worth. It structures our time and imposes a rhythm on our lives. It gets us organized into various kinds of communities and social groups. And perhaps most important, work tells us what to do each day. This concern with the unequal distribution of spiritual resources gives unemployment an altogether different dimension. Beyond its impact on productivity and GNP, steady work may be the best way to give poor people a larger share of badly distributed material and spiritual resources.
We can use creatively the abundant resources that information technology puts in our hands. For example, the Internet offers virtually free access to a huge amount of information and expert advice on a wide variety of subjects, some of them related to the distribution of spiritual resources. While the Internet has so far done very little to increase productivity and therefore material wealth (with a few notable exceptions), anyone exchanging email messages with family and friends has been spiritually enriched. And the Internet has even greater potential for spiritual enrichment. A single Internet connection can be shared by many, for example, giving ethnic minorities and women access to spiritually enriched individuals, or giving teachers access to each other and to the world’s top libraries, museums, and other resources. The Zapotec virtual community newspaper project is another example of how the Internet can connect a group of native wise men in the Oaxaca mountains with their diaspora in the United States and in their own indigenous language. [Editor: see Gándara article page 17.] Internet-based counseling services, advice, education, tutoring, and other forms of interaction through electronic mail, chats, and discussion forums are yet to be systematically explored as tools for spiritual redistribution.
Conclusion: Rising to the Challenge
Globalization and development are processes directed by human preferences. The direction they take and the outcomes they generate are not immune to specific intervention if information and experience are used to guide them to more desirable ones. What we know so far about the impact of technology in these two processes suggests that there are several steps that can be taken to address many of the world’s problems, and thus improve the well being of billions of people. Foremost, we should stress that the current comparative advantage of poor countries resides in their abilities to adapt and apply technologies from rich countries, not develop them. An intelligent and well-managed process of technology transfer is all we need for the time being.
Before we become overly optimistic about the impact of information and communication technologies in poor countries, we should remember that there is nothing simple or automatic about the process of reducing economic, political, and social gaps. The intelligent and well-managed use of technology may increase the opportunities for developing countries to narrow the gaps—digital and otherwise—with rich countries. Yet that is only the beginning of a long process. Technology is not a panacea that allows countries to avoid doing all the hard work of opening markets to international competition and investment, liberalizing barriers for the free flow of people, consolidating institutions, creating and respecting property laws, ensuring free and democratic forms of government, and improving education and spiritual values. It is fairly clear that to reap the full benefits from the transfer of technology, developing countries need to start a minimum of economic, institutional, and social reforms as well.
The challenge facing those of us in rich countries and in decision-making positions is to be forces of change. Eliminating poverty around the world is not a panacea anymore but an achievable goal through the implementation of policies by rich and poor countries that have the improvement of the human condition as their priority. Any countries that get left behind should also look at themselves, not only blame globalization.