Economic revolution: Hope or delusion? (1)

This is the first of two articles examining major shifts in today's global economy.

By Paulus Usmanto Njo

PERTH, Western Australia (JP): The national borders for financial capital are dissolving. World trade liberalization is moving forward. Multinational corporations are becoming more prominent than ever. Labor, both skilled and unskilled, is increasingly more mobile worldwide. Could it be that the true, global capitalist revolution is underway?

The course of the revolution was hampered in the past by contending ideologies and the various barriers to trade, investment and capital flows erected by numerous countries. The fall of the Berlin Wall marked that ideological victory. If global economic liberalization is truly an irreversible trend, the most crucial precondition for the capitalist revolution has been achieved.

Within a few decades the world may undergo massive shifts in regional economic muscle. It also can be expected to experience unprecedented surges in global trade and output. Thence, Britain's industrial revolution in the late 18th century and America's wonder capitalism of the 19th century may come to look like modest occasions.

The early symptoms of economic globalization and liberalization are intriguing. Finance has been leading the way, with trillions of dollars traded daily in currency and capital markets around the world. Since the 1980s, deregulation, innovation and progress in information technology have set capital free to roam around the world in search of better returns. Financial transactions have consequently expanded with dizzying rapidity.

The levels of "foreign" direct investments, led by multinational corporations, also has been rising rapidly and sustainably, as more and more countries are opening doors and competing directly for capital. In fact, it has become increasingly difficult and irrelevant to identify the structures of corporate ownership based on the citizenships of the numerous shareholders.

Heightened demand for capital explains the upward trends in portfolio investment, equity investment and currency exchanges. Capital flows have been liberalized in order to attract much needed funds. Today, according to a recent survey by Australia's Business Week, the developing countries of Latin America and East Asia and Southeast Asia alone are sucking in more than US$140 billion annually -- triple the amount they needed in the late 1980s.

Meanwhile, the Asian Development Bank figures that between now and the year 2000, the growing economies of Asia will require a staggering US$950 billion of funds to quench their capital- thirsty plans of infrastructure development. Many Asian countries -- such as China, Indonesia, Thailand, the Philippines, Vietnam and even Taiwan -- now feel the disruptive strains in their power, transportation and telecommunication facilities. They need to sort this out in order to maintain the growth momentum of their respective economies.

The trends in merchandise trade have by no means been lackluster. The world is making painful progress in tariff reduction, mainly through GATT's Uruguay Round, but also through regional free trade agreements like AFTA and perhaps APEC. As a result the trends in merchandise trade have been on the rise. Once a freer global trade environment is achieved, economists generally believe that the benefits from trade creation will far outweigh the costs, in certain countries, associated with trade diversion.

In the meantime, after all, the trends have been encouraging. Rising exports in many countries have been accompanied by rising imports, and both developing and developed countries have gained through this.

The International Monetary Fund (IMF) predicts that world exports will more than double between 1986-1995, reaching about $4 trillion in 1995. Exports from developing countries themselves will almost triple, from $441.5 billion in 1986 to $1,236.5 billion in 1995. As a share of total world exports they will increase from 23.5 percent in 1986 to 31.1 percent in 1995.

Needless to say that the diversities of the Third World have masked the exceptional performances of several Asian export- oriented economies. In the IMF's estimate, exports from Asia as a whole ($785.6 billion) will account for 63.5 percent of total Third World's exports ($1,236.5 billion) in 1995, rising from 49.2 percent in 1986.

On the labor front, the 1970s and 1980s have seen Indian engineers writing software in Silicon Valley, Turks cleaning hotel room in Berlin, Algerians assembling cars in France, and Indonesian and Filipino nurses working in American or Saudi Arabian hospitals. Labor specialists have predicted that the world's work force during the 1990s and beyond will become even more mobile and employers will increasingly reach across borders to find the skills they need. These massive relocations of people -- be they immigrants, temporary workers or visitors -- will be primarily driven by a widening gap between the world's supply of labor and the demands for it.

Window 1:

Today, the developing countries are sucking in more than US$140 billion annually -- triple the amount they needed in the late 1980s.