Globalization

C

Foreign Aid

Foreign aid from rich countries does little to offset the impact of these subsidized farm exports. Foreign-aid spending by wealthy nations amounts to only a tiny percentage of their incomes and total government spending. The United States gives just 0.15 percent of its gross domestic income (GNI), or about $35 a year per American, in foreign aid. Of this, about one-third goes to just three countries—Israel, Egypt, and Pakistan—which together receive more than twice as much aid from the United States as the poorest billion people in the world do. Europe gives 0.33 percent of its collective GNI and has promised to increase giving to 0.39 percent. Although the United States and Japan, the world’s two largest economies, give the most aid in absolute terms, they are at the bottom of the list of countries based on aid as a share of national income. The most generous are the smaller countries of Northern Europe, including Denmark, Norway, The Netherlands, Luxembourg, and Sweden.

D

Trade Disputes, Rules, and Agreements

Given the importance of foreign trade, one of the most important international agencies is the WTO’s Dispute Settlement Board, which is empowered to settle trade disputes under WTO rules. Winners of such settlement decisions by the board are allowed to retaliate against countries found guilty of unfair trade practices. Smaller, developing countries, however, fear cross-retaliation if they confront larger, more powerful nations.

Critics of the WTO in developing countries charge that the rules do not help them and that they have been forced to bear the harsh adjustment costs to free trade while developed countries have not lived up to their liberalization commitments. According to these critics, the terms of trade have gone against the developing countries. The value of developing countries’ exports has declined relative to the value of their imports. Not only have the prices of such commodities as coffee, copper, sugar, and cotton fallen substantially for decades but also earnings from labor-intensive manufacturing, such as textiles and clothing, have declined as an ever greater number of developing countries compete for the limited amount they can export to the rich countries. At the same time the developing countries have faced increased prices on goods they import, ranging from computer software to airplanes to medicine.

A WTO meeting in November 2001 in Doha, the capital of Qatar, set in motion a multiyear negotiating process aimed at further liberalizing world trade but with a focus on the needs of the developing countries. However, disputes over agricultural subsidies, the definition of intellectual property rights, and whether poor countries were to be entitled to “special and different treatment” were not easy to resolve. The rich countries had the greater bargaining power, and their trade negotiators were under pressure not to make concessions that would hurt people back home.

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In 2003 these issues came to a head as WTO talks in Cancún, Mexico, foundered. Representatives of a group of 21 developing countries withdrew from the talks after the EU and the United States failed to meet their demands for lowering agricultural subsidies. The same countries also resented EU and U.S. proposals that they accept new rules for foreign investment without first agreeing on the issue of subsidies. Some observers believed that the failure of the talks in Cancún made it unlikely that global trade rules could be negotiated by a self-imposed deadline of January 2005.

Critics of the WTO have also charged that the developed countries have obtained a set of trade agreements benefiting their large corporations. The Agreement on Basic Telecommunications, for example, opened world markets to large telecommunications companies based in the developed nations. These companies were previously excluded from these markets by government-owned monopolies. The Financial Services Agreement likewise opened opportunities for banks, insurance companies, and stockbrokers in the developed countries as they sought to expand into new markets.

Instead of increasing economic stability, financial liberalization caused financial crises in most of the world’s economies. An IMF study found that 133 of the fund’s 181 member countries suffered at least one significant banking crisis from 1980 to 1995. The World Bank identified more than 100 major bank collapses in 90 developing or formerly Communist nations from the late 1970s to 1994. Many economists believe that these crises were caused by the IMF-imposed financial liberalization on countries that either lacked regulatory agencies or the experience necessary to oversee the financial sector.

V

The Debate over Globalization

Very few people, groups, or governments oppose globalization in its entirety. Instead, critics of globalization believe aspects of the way globalization operates should be changed. The debate over globalization is about what the best rules are for governing the global economy so that its advantages can grow while its problems can be solved.

On one side of this debate are those who stress the benefits of removing barriers to international trade and investment, allowing capital to be allocated more efficiently and giving consumers greater freedom of choice. With free-market globalization, investment funds can move unimpeded from where they are plentiful (the rich countries) to where they are most needed (the developing countries). Consumers can benefit from cheaper products because reduced tariffs make goods produced at low cost from faraway places cheaper to buy. Producers of goods gain by selling to a wider market. More competition keeps sellers on their toes and allows ideas and new technology to spread and benefit others.

On the other side of the debate are critics who see neoliberal policies as producing greater poverty, inequality, social conflict, cultural destruction, and environmental damage. They say that the most developed nations—the United States, Germany, and Japan—succeeded not because of free trade but because of protectionism and subsidies. They argue that the more recently successful economies of South Korea, Taiwan, and China all had strong state-led development strategies that did not follow neoliberalism. These critics think that government encouragement of “infant industries”—that is, industries that are just beginning to develop—enables a country to become internationally competitive.

Furthermore, those who criticize the Washington Consensus suggest that the inflow and outflow of money from speculative investors must be limited to prevent bubbles. These bubbles are characterized by the rapid inflow of foreign funds that bid up domestic stock markets and property values. When the economy cannot sustain such expectations, the bubbles burst as investors panic and pull their money out of the country. These bubbles have happened repeatedly as liberalization has allowed speculation of this sort to get out of hand, such as in Indonesia, Malaysia, and Thailand in 1997 and since then in Argentina, Russia, and Turkey. According to critics, a strong active government is needed to assure stability and economic development.

Protests by what is called the antiglobalization movement are seldom directed against globalization itself but rather against abuses that harm the rights of workers and the environment. The question raised by nongovernmental organizations and protesters at WTO and IMF gatherings is whether globalization will result in a rise of living standards or a race to the bottom as competition takes the form of lowering living standards and undermining environmental regulation. One of the key problems of the 21st century will be determining to what extent markets should be regulated to promote fair competition, honest dealings, and fair distribution of public goods on a global scale. See also Development Economics.

VI

Regulating Globalization

The debate over globalization focuses in particular on how it can be regulated to address growing income and wealth inequalities, labor rights, health and environmental problems, and issues regarding cultural diversity and national sovereignty.

A

Inequality

By the late 1990s the 20 percent of the world’s people living in the highest-income countries had 86 percent of the world’s income; the bottom 20 percent had only 1 percent of the world’s income. An estimated 1.3 billion people, or about one-sixth of the world’s population, have incomes of less than a dollar a day. Inequality is growing worse, rather than better. More than 80 countries had lower per capita income (income per person) at the end of the 1990s than they had at the end of the 1980s. In 1960 the top 20 percent had 30 times the income of the poorest 20 percent. This grew to 32 times in 1970, 45 times in 1980, and 60 times in 1990. By the end of the 20th century the top 20 percent received 75 times the income of the bottom 20 percent. The income gap is even apparent in cyberspace. The top fifth in income make up 93 percent of the world’s Internet users and the poorest fifth only 0.2 percent.

These inequalities in living standards and participation in the global economy are a serious political problem in an era of globalization. Some countries have been unable to function at even a minimum standard of basic competence in the globalized economy. The only profitable economic activity in some of these countries is linked to criminal behavior, such as the trade in illegal drugs, smuggling, and extortion of various kinds. Governments that are helpless to stop such activity or to collect taxes to meet basic public service needs are characterized as failed states. Sometimes failed states can become havens for terrorists and foreign criminals who use them as bases for activities harmful to other governments and their people. These states may also provide safe haven for mercenary forces that conduct raids into neighboring countries. In parts of Africa, for example, where diamonds and other valuable resources attract criminal despots, mercenary armies have been engaged in mass killing to terrorize local populations into giving them what they want. The international arms trade and easy importation of weapons, which allows such behavior, is a serious problem.

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