New policies a must for globalization

By Djauhari Oratmangun

This is the first of two articles on globalization and the role of the nation states.

JAKARTA (JP): The word "globalization" in recent years has become commonly used as a buzzword all over the world. It has been used to encapsulate several strands and trends of thought in both national and international fora.

The use of this terminology to describe anything and everything as a "global" phenomenon has, however, created more confusion.

Basically, this word tries to create the opinion that everything now has a global dimension and global effects and that this is a natural phenomenon with which humankind is being confronted with all its consequences. Being an unstoppable phenomenon, we need to be ready and prepare to entertain this globalization process.

The process of globalization in these recent years has prompted many scholars and international organizations to reexamine the meaning and, in particular, the dimensions of its impact on the process of development, especially from the economic perspective. And also to see what can be done by nation states, particularly those in the developing world, to meet the challenges it poses in facing the as yet unpacified and tumultuous future.

The terminology of globalization is more meaningful when it is used in an economic context, and in conjunction with the concept of the "integration" of countries and economies into a single world economy whose benchmarks are "interdependence" and "openness".

Globalization, in the economic sense, is used to describe a "process" rather than a "state of being" -- a process of increasing economic activity across national boundaries, so creating an unavoidable economic integration and interdependence between and among countries.

It is often identified or measured in terms of the movement of goods, resources, capital, technology, information and people across nation states.

Indeed, the process of globalization carries with it the opening up of new opportunities as well as positive impacts that hopefully will benefit the development process of many countries, in particular those in the developing world.

This includes increased trading opportunities arising from the conclusion of the Uruguay Round; the readjustment of domestic trade, investment and financial policies to be consistent with the international requirements that many believe will bring prosperity to civil society; the improvement of efficiency in managing domestic trade, investment and financial policies; and an increase in international capital and financial flows.

Some developing countries have already greatly benefited from globalization. Large flows of foreign direct investment (FDI) to these countries and its growing contribution to fixed capital investment as well as to the fast growth in trade and GDP can be taken as examples.

At the same time, the globalization process also brings challenges as well as adverse impacts on the development efforts and objectives of many countries, in particular developing countries, failing to seize the opportunities created by the globalization process.

The United Nations Conference on Trade and Development (UNCTAD) has identified three affected aspects; the loss of policy autonomy in some areas at the national level which restricts or alters the scope of development policies, the risk of instability and disruption resulting from financial openness and, the risk of marginalization of those at the grassroots level.

Here, in more detail, are some of the adverse impacts of globalization. First, the process of globalization has also brought highly uneven disparities and imbalances to the world economy. Most developing countries have been doing their utmost to adjust their domestic economies to meet the requirements of globalization and open their markets to the world economy.

However, the dividends of globalization have gone to the holders of capital and not to developing countries. Therefore, excessive optimism about the development effects of globalization has been replaced by a more pessimistic view in light of the fact that only a small number of developing countries have reached the rate of economic growth necessary to reduce unemployment and allow equitable income distribution.

Second are the dangers of marginalization among and within countries as the result of the process of globalization, and increased competition in a more liberalized world economy. Greater concern over social inequality is therefore called for.

In recent years the least developed countries and other structurally weaker economies have been unable to benefit from, and meaningfully participate in, the globalization process due to supply impediments, commodity dependence, difficulties in attracting FDI, the decline in Official Development Assistance (ODA) from the developed world, and also because of ongoing difficulties with external debt (1996 report of UNCTAD).

Even the recent 1997 UNCTAD Report, while elaborating on the benefits of globalization, stated that the globalization process has unfortunately been particularly characterized by an increase in the widening of the income gap between North and South, and in income inequality within countries.

The logic behind this is that globalization means market- driven economies in which profit takes precedence over social consequences. The result of a market-driven economy is that there will be winners while others will be losers, most of whom will be people in the developing world.

Third, the process of globalization fails to address the undemocratic decision-making process in the international monetary and trade authorities. Therefore only a small portion of activity deployed by the developing countries to safeguard their own interests in multilateral negotiations in such areas as money, finance and trade actually reaches its target.

As a consequence, despite benefiting from the globalization process, developing countries still have very little say in the policy formulation of the world macro economy.

The best example of the adverse impact of globalization is the current financial turbulence besetting Asia, particularly Southeast Asia, which has a political as well as social dimension. There is however, a positive aspect arising from this, namely the need to adjust economic and political structures.

It is, however, to be noted that at the same time the negative aspect costs the wealth of these countries dearly, especially at the grassroots level. The latter will be the hardest hit by the market-driven process of globalization.

One might worry that "the tolerance threshold" of that victimized segment of society will become lower and lower, reaching the point where social upheaval can be easily triggered.

Likewise, if the process of globalization continues to breed inequality, there will be a real danger of a political backlash against it. If this issue cannot be handled properly, the danger of social fragmentation will become unavoidable.

Judging from the adverse impacts which globalization can bring about, the question is: can development objectives be achieved in an era of globalization, or can the latter guarantee that the ultimate development objectives of developing countries are achieved?

Is there any role left for a government to play if it is to continue the development process to benefit its people or civil society in the era of globalization, or should it simply leave it to the "invisible hand of globalization" to correct the situation?

The writer is an international trade analyst.