| From Ladakh to Lima and from Beijing to Buenos Aires,
people across the world are adopting similar tastes in dress, food, entertainment and
popular music. But this phenomenon, sometimes referred to as "McCulture," has
not affected everyone everywhere. Either through choice or lack of opportunity, large
groups of people still cling to their traditional ways of life. Similarly, economic integration and trade liberalization have produced an
unstoppable movement toward economic globalization. Most economists applaud the trend,
pointing to the modernization and growing wealth that have resulted. But many countries
have been left on the sidelines or have even been harmed by globalization.
What have been the positive and negative effects of the trend? And
more importantly, since globalization seems certain to continue, what can be done to make
its benefits as widespread as possible?
Growing trade. The Principal cause and effect of global
integration is international trade, which has expanded substantially since World War II as
measured by the ratio of goods. But in the developing world, the benefits of expanding
trade have been concentrated in East Asia, Brazil, Mexico and, most recently, China. The
populous countries of South Asia and Sub-Saharan Africa have generally been left out.
Overall, the bulk of the international flow of goods, services, direct investment and
finance is among the United States, Europe and Japan.
An increase in trade has often been followed by higher economic
growth, although not in all cases. Annual growth rates of gross domestic product in East
and Southeast Asia were 6-8: in Latin America and Sub-Saharan Africa they averaged less
than half a percent per year.
Unemployment. While expanded trade has generally resulted in
more jobs, the parallel growth in competition has forced many companies to shed workers in
order to cut costs, boost efficiency and increase profits. Higher productivity only
becomes a plus for the overall economy if output grows quickly enough to generate
employment for the whole workforce. In the industrialized world, where a number of
countries are currently grappling with the problem of growth without jobs, high
unemployment has become a political issue. Developed countries have been especially
affected by new information and communication technologies that boost efficiency but make
some white-collar workers redundant.
Some less-developed countries have also had to deal with jobless
growth. China, which has experienced an economic boom in recent years, has begun to
struggle with unemployment, particularly in urban areas. The need to cut unit labor costs
to compete in the global market has led to the elimination of guaranteed employment and
over staffed factories. Unemployment has also grown as a result of proliferation of
low-cost imports from low-wage countries. Though these imports are a small part of the
total, they are concentrated in labor-intensive sectors such as shoe-clothing and
toy-making.
Income distribution. Both theoretical and empirical evidence
suggest that increased trade between North and South has reduced income inequality among
skilled and semi-skilled workers in the South while increasing inequality among such
workers in the North. This is because manufactured exports from the South raise demand and
wages for workers with only limited skills and education. But the effect in the North is
the opposite. There the service and technology industries pay top wages to highly skilled
workers but have little use for semi-skilled labor.
Overall, globalization appears to have deepened inequalities in the
international distribution of income, though the evidence is mixed. Between 1960 and 1994
the share of developing countries in the global distribution of wealth declines. This can
partly be explained by the growing impact of multinational corporations that funnel
profits to the parent country and allocate the highest wages to highly trained managers
from industrial nations.
Technology. Some observers worry that new technologies will
deprive developing countries of their comparative advantage in labor-intensive activities
and prompt industries to relocate plants back to the developed countries.
But in fact, the skills required to use many new technologies,
particularly in the field of electronics, can be taught cheaply in classrooms nearly
anywhere. Moreover, the manufacturing technique of flexible specialization, which is
increasingly replacing mass production, is neither capital- nor foreign
exchange-intensive, and is thus well suited to developing countries. |
| Policy pointers. This analysis of
globalization's winners and losers suggests a number of policies that can be adopted to
diminish the liabilities while encouraging the benefits of economic integration: Create transnational institutions to develop and enforce global
anti-monopoly, anticartel and anti-restrictive practices and legislation.
In the developed countries, implement training and education
programs, provide income support for low-wage workers, and adopt tax policies that create
jobs.
In developing countries, change policies that overprice labor,
under-price capital and overvalue exchange rates as a means of reducing unemployment.
Promote world-class exports and improve living standards.
Improve the share of developing countries in the global distribution
of wealth, using their collective bargaining power with multinational corporations to
retain a greater proportion of profits. Use these funds to alleviate poverty, improve
social services and invest in local human capital through education.
Through such measures, developing countries can gradually increase
the domestic value added to their exports and expand the local economy--the essence of
development and one of the major forces behind globalization itself.
Source: THE IDB, Inter-American Development Bank, December 1996. |