Quick Link

for your convenience!

Globalization For the Benefit of All

Notes for an address by Hon. David Kilgour
Secretary of State (Latin America and Africa) and MP Edmonton Southeast
to the closing session of the 7th World Summit of Young Entrepreneurs
September 1, 2000
World Trade Centre, Manhattan, New York

When your Secretary General asked me to participate in this session of entrepreneurs from approximately 100 countries, I was delighted. Let me be candid from the outset: I’m reasonably confident that many of your fellow citizens, like Canadians aplenty, fear globalization. Many say it brings the decay of social values, cultures and the environment; I would argue that the main challenge is not to decide whether globalization is good or bad, but rather to ensure that a "walled-down world" provides more fulfilled lives for all. Globalization can be an agent for good, a force to create unprecedented growth and opportunity for those who embrace it.

Economists have talked about globalization for many decades even if the term itself emerged only recently. Many speak of a borderless world, but that is a far from today’s reality where boundaries are still very real. Too often the term is thought of as synonymous with unbridled capitalism where any entrepreneur can raise money anywhere in the world, make anything and sell it anywhere. But globalization is also about the free flow of ideas, the exchange of culture and values, the greater attention now being given to issues such as human rights, environmental protection and technological advances which have brought people closer together than ever.

Benefits of Globalization

Virtually all economists agree that the large majority of residents of our shrunken planet are considerably better off through the growth of markets and the efforts of the GATT and its successor, the WTO, to keep them open. With ever expanding technology comes new markets, increased demand for products but also greater competition. There are now more people with computers connected to the world who are investing than ever before. As Klaus Schwab of the Davos World Economic Forum observed: "We have moved from a world where the big eat the small to a world where the fast eat the slow." More than $1.5 trillion is now exchanged in the world’s currency markets each day, and nearly a fifth of the goods and services produced each year are traded.

Consumers of goods and services in all countries are one huge community who benefit from trade for reasons which include increased competition, comparative advantage, economies of scale and access to a greater range of products and services. There are also those likely to gain less than others from globalization.

Lower inflation is often cited as a favourable consequence of globalization because increased competition makes businesses more reluctant to boost prices/wages unless warranted by productivity increases. Another possible benefit is faster technological and productivity growth because increased international competition has obliged business generally to innovate more rapidly since the ’70s.

Social Tensions

Dani Rodrik of Harvard has singled out three sources of tension between global markets and social stability:

1) Globalization makes the services of large segments of working populations more easily substitutable across boundaries,

2) Trade can unleash forces that undermine norms in national practices, for example when child labour in Honduras replaces workers in South Carolina or cuts in pension benefits in France are called for in response to the requirements of the Maastricht treaty,

3) Globalization and its competitive pressures make it more difficult for governments to carry out the important functions of providing the social programs which since World War II helped to maintain social cohesion and domestic support for liberalization.

Successful Globalizers

Rodrik concludes from the experience of both Europe and Asia that successful globalizers have had "market-friendly but pro-active governments, adequate social insurance and have integrated into the world economy on their own terms. This lesson contradicts much of today’s conventional wisdom that globalization requires small government, that welfare states have to be cut down to size, and that there is a single (read Anglo-American) model on which all countries will reasonably converge." He asserts that it is the overall quality of a society’s domestic institutions - respect for the rule of law, human rights, good governance, social and political stability, adequate infrastructure and a skilled labour force- rather than labour costs or taxes that determines where most investments go.

Few question that unprecedented freedom in many markets has resulted in spectacular economic growth; international trade since 1988 alone has doubled to almost US$7 trillion. Quite a number of countries around the world are experiencing rapid overall growth, and some currently enjoy record low unemployment rates. In the case of a uniquely export dependent country like Canada, where about 43 per cent of our gross domestic output now is exports, I believe virtually all of us have benefitted from more open economies worldwide.

NAFTA

When the North American Free Trade Agreement (NAFTA) began in 1994 for Canada the United States and Mexico, there were more than few skeptics. Six years later, the figures speak for themselves: total merchandise trade across North America surpassed $752 billion in 1998. Canada’s merchandise trade with Mexico doubled over the same period, reaching $9 billion a year. In the last four years an estimated 1.5 million new jobs have been created in Mexico alone. Since NAFTA there were 15,883 new Mexican export firms created.

There was also fear that NAFTA would lead to environmental degradation in Mexico; environmental regulations would be relaxed in an attempt to woo investors. Mexican President Ernesto Zedillo put some of those fears to rest in comments earlier this year. Since 1994, he explained, Mexico’s enforcement of environmental standards has become stricter; he added that new employment opportunities offered by international trade have made it possible for highly polluting activities to be replaced by environmentally friendly ones.

Developing World

Many are concerned about the impact globalization is having on developing countries. Consider these statistics from the 1999 UN Human Development Report:

• The income gap between the fifth of the world’s people living in the richest countries and the fifth living in the poorest was 74 to 1 in 1997, up from 60 to 1 in 1990.
• By the late 1990s the fifth of the world’s people living in the highest income counties had:
  • 86% of world GDP, while the bottom fifth, just 1%,
  • 68% of foreign direct investment, and the bottom fifth, just 1%
  • and,74% of world telephone lines, the bottom fifth, just 1.5%
• And most striking of all, the assets of the top three billionaires are more than the combined GNP of all least developed countries and their 600 million people. This has contributed to the perception that globalization benefits only the rich, leaving the poor behind.

Recently, countries in Sub-Saharan Africa have begun to experience the benefits of globalization, and some have led the world in percentage economic growth. Angola, Uganda and Botswana already stand among the ten fastest growing economies globally. The IMF forecasts that Africa’s overall GDP should grow by 5% in 2000, a significant improvement from 3.1% in 1999.

Botswana and Mauritius are shining examples of the positive effects of globalization. Both experienced exponential growth as they embraced foreign investment on their own terms and married their economic success with good governance and generous budget allocations for education and health care. Botswana, often cited as a major African success story, was one of the poorest countries in the world at independence, but has evidently been the fastest growing economy on earth since 1965. While such successes may continue to be the exception rather than the rule in Africa, other economies can do well too.

Much of what separates the developed and developing worlds today is the knowledge gap. In many developing countries, resources and people are abundant; it is the relative lack of experience in good economic, social and political structures that hurts their ability to compete. In 1998, the Internet had more than 140 million users and that number is expected to surpass 700 million by 2001. However South Asia, home to 23% of the world’s population, has less than 1% of Internet users.

Dissemination of ideas through the Information Highway, television or satellites introduces ideas about the environment, democracy, human rights and even wealth creation. I would suggest that one of the best effects of globalization is that information technology has brought attention to the need for more democratic development worldwide and the protection of human rights everywhere. The BBC World Service, TV-5, CNN and other television broadcasters are the principal vehicles of instant communication, which has revolutionized our understanding of the world. At the same time, many worry about the growing exports of American films, music and commercial television programs.

Whither Globalization?

The European financial problems of the early 90s, the Latin American crisis, beginning in Mexico in the mid 90s, and the East Asian flu which also hit Russia and Brazil in 1998-99, were highly destructive of many livelihoods. If the sudden removal of capital from these countries caused financial instability, it should be added that their access to global investments helped them to prosper earlier and for most of them to recover much faster then expected. Could not these crises have been avoided through better regulation of financial markets by international organizations and national governments?

In the case of the WTO, critics should note that its dispute settlement mechanism is much better than the one in the GATT, which curiously required the unanimous agreement of all members, including the offending member country itself. The WTO requires a unanimous decision to block a dispute panel report. Even large countries have thus stopped dealing with important trade complaints outside the GATT/WTO, which should benefit smaller economies.

Labour Standards/Environment

The WTO also promises to phase out over 10 years the Multi-Fibre Agreement, which limited exports of textiles and apparels from developing countries to developed ones. Some initial steps have been taken to include agriculture by converting market barriers to tariffs as a first stage in negotiating them downwards. A parallel agreement on services (GATS) hopes to do for services what the GATT has done for goods.

Three areas where the WTO has not extended its authority in a significant way is labour standards, human rights and the environment. I understand that the WTO does permit some uses of trade policies, including economic sanctions, for human rights abuses. The issue is more complicated for labour standards. Prohibiting slave labour and exploitive child labour is obvious, but what of issues such as minimum wage levels? If it is mostly better paid employees in OECD countries who lose from the WTO’s present exclusion of labour standards from trade policy, is it not understandable that developing countries see the issue as protecting job-holders in highly developed countries?

The Future

The way ahead is certainly unclear judging from the fairly recent protests at the IMF and World Bank meeting in Washington DC. The next US President will probably have to obtain fast track legislation from the new Congress before any new trade negotiations can make substantive progress. Greater participation by NGO’s in trade negotiations might help win public support. Developing countries should be represented formally in WTO decision-making, perhaps through a steering committee having permanent members from developed economies and rotating reps from small/developing countries.

The alternative to managed globalization could be painful if we recall what happened to the pre-1914 short-lived victory of free markets and liberal democracy over mercantilism and nationalism. Globalization today must be complemented by social programs, safety nets and more investments in education/ training. We ignore at our peril the challenge to build genuine legitimacy in each of our countries for more open economies.

Many people I talk to in Canada and elsewhere think the momentum today is with the anti-globalization forces. If Fred Bergsten of the Institute for International Economics is correct that on trade matters you either move forward or fall over - the bicycle theory - there is real work to be done by all of us. It is clear that globalization is a force of great change and not simply a spectre on the horizon. Through technology, communications and economics, globalization and our increasing interconnection with each other are inevitable. Time and distance are shrinking: globalization is a reflection of that reality. That is why I question those who wholly condemn the phenomenon. Countries cannot succeed in isolation today. A poor country that closes its borders to investment is likely to stay poor. Globalization can champion stability, democracy and greater sharing around the world.

Action Needed

Here are four areas in which Bergsten thinks you and I should be active in our own countries:

1. Public education above all, which will require better analyses of the real consequences of globalization, including all of its benefits,

2. An honest admission that there are costs and losers with globalization, together with creating better safety nets and education/training programs in many countries for those dislocated by globalization or related factors,

3. Reviewing efforts to reform the international financial institutions to help prevent crises, including approving capital controls in certain cases, more effective early warning systems, better co-ordination of exchange rates among the big economies, and engaging the private sector more systematically in rescue operations, and

4. Restarting the truly multilateral liberalization of the global trading system, which should address the key issues of the critics, including food trade, labour agreements and the environment.

As successful entrepreneurs, the world is counting on you to ensure that globalization is for the benefit of people everywhere. I wish you every success.