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.