New policies a must for globalization

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.