Globalization and economics

Globalization and economics

By Makmur Keliat

SURABAYA (JP): The term globalization has become increasingly
popular among Indonesians. It is not unusual to hear that high-
ranking Indonesian government officials have attributed the
depreciation to increased globalization. Likewise, some
legislators, on occasion, have aired similar arguments in their
explanation of the ongoing monetary crisis. But does everyone
really understand the term?

The man on the street, for instance, often twists the word
into "gombalisation", a Javanese word derived from gombal meaning
a piece of old fabric that is no longer used except for dusting
shoes or cleaning kitchen utensils. Therefore the term may be
used as the symbol of silent protest.

Globalization refers to the intensification of human global
consciousness. This has been implicit in the emergence of various
new slogans such as new world order, universal human rights,
international labor standards, free trade and so on. Since they
are considered to be globally shared symbols, such phrases have
become popular among us and are a subject of intense debate.

The emergence of CNN symbolizes that geographic boundaries
between nation-states have become artificial. As a result the
concept of national jurisdiction and sovereignty needs to be
redefined.

However, it is worth noting that the creation of these
globally shared symbols is not totally undertaken with a sense of
impartiality. This so-called globalization is primarily shaped by
the people who are in possession of the communication technology
and information. Therefore, the symbols that come along with the
terms cannot be considered as fully objective.

In fact, as Mark D Aleyne shows in his book News Revolution,
Political and Economic Decision about Global Information (1997),
the quantity of news flowing from the richer countries of the
North to the poorer countries in the South greatly exceeds the
quantity going in the other direction. In consequence it is the
North that has taken a leading role in building global symbols,
while developing countries display their role primarily in
emulating them. Accordingly, it seems fair to say that impressive
progress in communication technology has generated "uneven
globalization".

Uneven globalization has brought about a new dimension in the
business world, the supplying of finance information. Reuters is
a case in point. Through GLOBEX, one of its business units, and
in cooperation with the Chicago Mercantile Exchange and Marche a
Terme International De France, it gained 73 percent of its
revenue in 1995 from transaction products. By using information
supplied by Reuters, many fund managers in international finance
markets can rapidly and efficiently run their currency trading.

One of the consequences of this new development has been that
economic measures taken by national governments at a regional
level, with a view to stabilizing their currency, are bound to be
tardy, as opposed to the prompt reactions shown by private
players in international finance markets.

The reason lies in the fact that decisions made by national
governments are generally time-consuming as they proceed
according to the standard operating procedures evolved through
bureaucracy.

This also implies that there have been certain limitations to
the effectiveness of macroeconomic policy launched by national
governments -- especially for developing countries which opt for
an open policy toward external dynamics -- when making efforts to
stabilize their economy.

Such limitations become more conspicuous if one compares the
amount of capital transactions in international finance markets
with the total value of world trade and with that of foreign
exchange owned by major countries. A study by Andrew Walter in
his book World Power and World Money (1995), for instance, has
revealed that while capital transactions of the Eurodollar at the
London finance market in 1986 amounted to US$ 75 trillion per
year, the value of world trade in the same year only totaled US$
3 trillion.

This means that there has been a sharp increase in capital
transactions in proportion to world trade. While it was only six
times greater in 1979, it became 25 times greater in 1986.

In relation to foreign exchange, Walter has further pointed
out that the total amount of foreign exchange owned by Japan, the
United States and the United Kingdom accounted for about US$ 800
billion in the mid 1980s. According to Walters, this figure was
equal to only two days of total capital transactions in
international finance markets.

One of the inevitable consequences of this situation is that
in regulating exchange rates for currency stability, the
influence of international finance markets, which are primarily
managed and controlled by private players, is far more powerful
in terms of quantity than that of national governments.

Therefore, intervention by a central bank in financial
markets, or even joint intervention by several central banks, may
not be fully effective in countering continuous attacks staged by
currency speculators. And especially for developing countries,
they will be in a more vulnerable situation if there is a crisis
of confidence in the government.

Viewed from political communication, a crisis of confidence
occurs if people start doubting all official statements released
by the government. A crisis of confidence does not exist in a
vacuum. It is basically the outcome of a long process. It is a
product of wide discrepancy between government words and deeds.

In a crisis of confidence, any statement released by the
government with regard to economic fundamentals will be
interpreted in a total different way. People look for the news
behind the news. It is likely that under these circumstances, a
government's efforts to stabilize its currency would become
counterproductive.

The reason lies in the fact that in this kind of situation the
government is faced with two kinds of resistance. One is from
currency speculators, who are built into the era of
globalization, and the other is from the people it governs. In
other words, in this era of globalization, attempts to restore
people's confidence in the government should be developed first,
before seeking to restore confidence in the national currency.

If not, a monetary crisis could lead to a crisis of
legitimacy. As such, the lesson we can learn here is that social
and political variables are of no less significance to
understanding the present monetary crisis. They should be taken
into consideration if the government seriously wants to resolve
the crisis.

In this context, it is noteworthy that before the monetary
crisis occurred, many suggestions had been raised by Indonesians
regarding transparency, fair play and the elimination of nepotism
and monopolies. All these suggestions are in fact the sole
prescription to restore people confidence.

It is also interesting to note that the government has stated
that a crisis of confidence is one of the factors responsible for
the ongoing monetary crisis. Accordingly the remaining question
that people desperately want to have answered is does the
government sincerely want to restore the people's confidence? It
seems nobody knows. Only time will tell.

The writer is a teacher at the Department of International
Relations, Faculty of Social and Political Sciences, Airlangga
University, Surabaya.