New policy a must for globalization

New policy a must for globalization

By Djauhari Oratmangun

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

JAKARTA (JP): There is no doubt that globalization is probably
one of the answers to meeting development objectives in most of
the developing world. As we are all aware, the ultimate objective
of the development policy of most developing countries is to
raise the living standards of their population by eradicating
poverty, increasing the welfare of the people and closing the gap
between the rich and the poor, in short, guaranteeing and
providing a better life for their people.

The globalization process will of course create more
opportunities for developing countries to accelerate their
development program. There are indeed benefits, such as the
lowering of tariff and non-tariff barriers, the mobility of Trans
National Corporation (TNC) and FDI, the reallocation of
industries, the linking of capital markets, the advancement of
information technology etc.

However, globalization has also been characterized by a
market-driven economy which carries the nuance of a "fast train"
in the world economy.

Therefore, if a developing country wants to take the "fast
train" of globalization, it needs to integrate or became an
active passenger on the world economy's "fast train".

To enable it to do so, it will however, have to fulfill
several conditions such as deregulation, privatization, opening
up to the world economy and FDI, apply tight discipline on
monetary and fiscal policies, etc. Experience has shown that an
open market, a strong financial environment, sound economic
policies and public investment are crucial in this respect.

The developing countries that are unable to do this will
certainly fail to become passengers on the fast train of
globalization and, as a consequence, they will be left behind and
hence marginalized.

Economic history shows that the process of liberalization and
internationalization of the economy using market forces has
recognized some failures, in particular during the end of 19th
century and the early part of the 20th century.

In order to correct the situation, the government was called
on to intervene. Therefore, in this recent era of globalization,
the nation state still has a definite role to play to protect
civil society by pursuing a policy of intervention to influence
the market.

This role should ensure that growth and distribution as well
as the quality of development efforts can be achieved through
globalization.

In simple terms, the role of the nation states is to maximize
the benefits of globalization while altering or diminishing its
adverse impact. In this regard, the nation state should take the
dual dimensions of the problem, namely domestic and
international, as globalization is a borderless process.

At the domestic level, the role of the nation states is first
to create the policies and regulatory environment which will
allow their country to take advantage of the rapidly growing
opportunities arising from globalization.

Nation states can create a conducive environment that will
benefit civil society, particularly by providing an appropriate
environment for the private sector as the market player and prime
mover of development to enable the benefit of globalization to be
reaped.

In this regard, special attention must be paid to the small
scale and intermediate industries which need to be guided and
given assistance by the government to enable them to compete in
the global market. Larger industries could be encouraged to enter
much bigger markets and global competition by giving them the
appropriate incentives, taking into account various international
rules that all nations have agreed upon and adhere to.

Second, nation states through government policies have a
crucial role to play in promoting economic growth and ensuring
more fair competition and in aligning these with social
objectives. This role is to complement and regulate rather than
restrict market forces and should of course be tailored to the
circumstances of individual countries.

In this regard, the role of nation states to create the
infrastructure and rules needed to reconcile the creative forces
of the market with the needs of the disadvantaged is essential.
This is due to the fact that stabilization and liberalization of
the macro economy are not sufficient to ensure social progress or
for more successful competition on the global market.

Third, nation states must formulate policies aimed at avoiding
the creation of the dual-economy problem prevailing in the
developing countries as a result of the process of globalization.
We have entered the global market but domestic society is
unfortunately not ready yet.

The reason for this is that economic interdependence among
countries has created a situation in which national policy makers
are unable to make the best of national policies to meet
development objectives at home if they fail to take into account
policies and developments abroad.

In fact, those "external factors" have a considerable
influence on a country's economic development. For example,
national monetary policies have immediate international
consequences, and the other way around. The recent financial
crisis in this region and the policies taken to correct the
situation have proved this again.

Fourth, nation states should implement proactive and reactive
state policy, or a combination of the two, to ensure equitable
growth. A nation's proactive action should include measures to
ensure that people have assets and capabilities, systematic
efforts to make the unemployed "employable", the creation of
employment opportunities, and to provide the poor with assets,
which requires vast amounts of public investment.

In this regard, states should create such a policy to ensure
that globalization does not marginalize civil society, because,
globalization cannot bring prosperity to all civil society
through market forces alone, but excludes many people from the
process of development.

Equally important is "intervention" by the government to
correct the market for investment and localize the disadvantages
as well as to provide social safeguards. State policies can make
a difference in achieving distribution goals, and this requires
the willingness of governments to adopt the necessary proactive
policies.

Fifth, nation states should adopt policies that ensure the
sustainability of development. These policies should be enforced
strictly by intervening in the market if it fails to create
environmental sustainability of economic activity.

In this respect, Prof Dani Rodrik of Harvard University in his
book entitled Has Globalization Gone Too Far? which was
considered by Business Week as "one of the most important
economic books of the decade", is right when he argues that
globalization can succeed and be sustained, as long as
appropriate domestic policy measures are undertaken to cushion
the impact on groups that are adversely affected.

Moreover, he concludes that policy measures must be taken to
equip all sectors of society to take advantage of the benefits of
globalization, rather than be undermined by it.

While at the international level, the nation state should play
the following role. First, adopt a more active role with a view
to achieving greater coherence in world economic policy making
prompted by the IMF, the World Bank and the WTO to promote
development dimensions in international organizations and
agreements through the attainment of a better balance of rights
and obligations. More, and better, coordination among developing
countries to achieve this objective is indeed obligatory.

Second, nation states should also demand that the
international organizations, in particular the United Nations and
its subsidiary bodies, carry out an economic and social analysis
aimed at minimizing global disparities and pinpointing the
prerequisites at the national and international level of the
development process which lead to better distribution of the
benefits of globalization.

This is, of course, in line with the idea of "regulating" the
process of globalization in all its dimensions currently being
pursued by several major developing countries. Globalization has
made national economies more difficult to run for governments,
therefore, there is an urgent need to have some kind of
international government and regulation in this regard.
Otherwise, the excessive adverse impact of globalization will
accumulate.

The above analysis illustrates that globalization, while
bringing adverse impacts to civil society -- has important
implications on the attainment of the development objectives of
developing countries as well.

To ensure that the globalization process will benefit
developing countries and their people, there is recognition of
the continuing importance of the role of nation states in
protecting civil society, particularly the grassroots level, from
suffering the adverse impact of globalization by creating a
better environment for them to maximize the benefits of
globalization.

Of course, nation states cannot govern the market, however
they have the ability to influence markets.

In this regard they should adjust their policies to meet the
changes that globalization carries. Development objectives can be
achieved through globalization in the years to come, if nation
states can properly manage change.

The writer is an international trade analyst.

Window: Economic history shows that the process of liberalization
and internationalization of the economy using market forces has
recognized some failures, in particular during the end of 19th
century and the early part of the 20th century.