WHEN Peter lost his job with the multinational corporation where he had worked for 20 years, the dismissal notice put the blame squarely on "the globalization of the economy." When Thailand's currency, the baht, lost more than half its value, the finance minister of that country went on TV castigating "globalization." When the price of rice increased by 60 percent in a country in Southeast Asia, headlines at the news kiosk announced: "It's the Globalization!"
What exactly is the globalization of the economy? How and why does it affect your country as well as the money in your pocket? What is behind this trend?
What Is Globalization?
As an economic phenomenon, globalization is a shift from distinct national economies to a global economy. In today's "global village," the production of goods has been internationalized, and money flows freely and instantly across borders. It is virtually trade without borders. In this system multinational corporations wield vast power, while anonymous investors can foster material prosperity or cause devastating depression in any part of the world.
Globalization is both a cause and a result of the modern information revolution. It is driven by dramatic improvements in telecommunications, incredible increases in computing power, and the development of information networks, such as the Internet. These technologies are helping to overcome the barriers of physical distance. With what results?
According to its proponents, globalization can be a whirlwind of trade and investment that builds economies and spurs development in even the world's poorest countries. For example, during the 1990's alone, foreign investors have poured one trillion dollars into developing economies. This phenomenal increase in international investment has made the building of roads, airports, and factories possible in poorer nations. Globalization has indeed been a force that has raised living standards for some across the world. Peter Sutherland, chairman of the Overseas Development Council, says that "until recently, it took at least two generations for living standards to double, but in China, living standards now double every 10 years." Globalization is perceived as bringing unprecedented opportunities to billions of people. The staggering expansion of world trade has induced a wave of productivity and efficiency and has created new jobs.
Its critics, however, counter that globalization can also bring down economies overnight. A few clicks of a computer mouse can devalue a national currency very quickly, washing away the life savings of millions of breadwinners. Ominous words from the mouth of an influential Wall Street analyst can instantly cause a herd of panicked investors to sell their stocks in Asia, creating a huge capital vacuum that could eventually drive millions into poverty. A board of directors can decide to close a plant in Mexico and open up one in Thailand instead—creating jobs in Asia while condemning hundreds of families in Latin America to destitution.
Many point out that globalization has made life more difficult for large segments of human society and that it threatens to leave part of the world behind. "It is no coincidence that the disappointing economic performance in much of Sub-Saharan Africa reflects a failure to integrate into the world economy and, thus, to trade successfully and attract investment," said Sutherland.
Contagious Effects That
Can Make You Rich or Poor
How does this concern you? Local, national, and regional economies have become interlocked and interdependent. Thus, disease symptoms in one economy may quickly spread to infect others—including your country's. For instance, the global financial storm that devastated Asia in 1997 and Russia and Latin America in 1998 and 1999 now threatens to inflict significant damage on the prosperity of the United States, countries in Europe, and many other financially stable nations. Economies that looked healthy one moment have become seriously ill the next—apparently not because of any new development within their own borders but because of a shock from abroad. Economists call this phenomenon "financial contagion." Says Lionel Barber of the Financial Times: "The financial shocks are occurring simultaneously and in many instances are mutually reinforcing. Contagion is no longer a risk; it is a fact of life."
All over the world, therefore, globalization has increasingly stitched lives into a single economic quilt. Regardless of where you live, such contagion affects you in more ways than one. Consider the following examples. When Brazil floated its currency in January 1999, Argentine poultry farmers were shocked to realize that Brazilians were selling chickens cheaper than theirs to supermarkets in Buenos Aires. Moreover, the international economic slump had already slashed the price of Argentine wood, soy, fruit juice, beef, and cheese. Low prices and reduced demand led to the closing of dairies there, leaving hundreds unemployed.
Meanwhile, hog farmers in Illinois, U.S.A., found that while they had enjoyed good pork exports to booming Asian countries in the past, now they had to lower their prices, since demand was low and competition was fierce. "We've never seen this heavy a loss in the pork industry, not even in the Depression," lamented one farmer. In the same country, steel workers were laid off, as their companies were facing a deluge of steel imports from China, Japan, Russia, Indonesia, and other countries—all of them with weak currencies that made their exported goods very cheap. Because of a lack of Asian buyers, unsold grain piled up in the United States, to the dismay of farmers in that country.
The implications of globalization are further compounded by the fact that banks and pension funds in wealthy countries have lent to or invested heavily in "emerging markets"—a euphemism for some economies in the developing world. Thus, when such economies collapsed during the 1997-99 financial crisis, this had a direct bearing on ordinary citizens who either were pensioners or had savings in banks that had suffered losses. Almost everyone has felt the cold shiver of loss, directly or indirectly.
For Richer, for Poorer
A closer examination of the globalization process reveals that it has created expanding islands of wealth in poor countries and swelling seas of poverty in wealthy countries. How so? David Korten partly answers this question in his book When Corporations Rule the World: "Rapid economic growth in low-income countries brings modern airports, television, express highways, and air-conditioned shopping malls with sophisticated consumer electronics and fashion labels for the fortunate few. It rarely improves living conditions for the many. This kind of growth requires gearing the economy toward exports to earn the foreign exchange to buy the things that wealthy people desire. Thus, the lands of the poor are appropriated for export crops. The former tillers of these lands then find themselves subsisting in urban slums on starvation wages paid by sweatshops producing for export. Families are broken up, the social fabric is strained to the breaking point, and violence becomes endemic. Those whom growth has favored then need still more foreign exchange to import arms to protect themselves from the rage of the excluded."
Universally, globalization has placed great pressure on working people as governments force down wages and labor standards in an attempt to attract foreign investment with the promise of low costs. While some newly industrialized countries have profited from increased exports as a result of freer global trade, poorer nations have been largely excluded from the feast.
How grave has global inequality become? Just consider a single statistic quoted by Korten: "There are now [in 1998] 477 billionaires in the world, up from only 274 in 1991. Their combined assets are roughly equal to the combined annual incomes of the poorest half of humanity—2.8 billion people." The culprit? "This is a direct consequence of an unregulated global economy."
Driven by Greed—A Healthy Trend?
What is globalization's basic flaw? Commenting on the financial crisis of 1997-98, editor Jim Hoagland said that future historians "will find a trail of missed opportunities, flawed international cooperation and human greed." Some people ask: 'Can there be global peace and prosperity with an economic system that pits a wealthy minority against a poverty-stricken majority in a life-and-death struggle? Is it ethical for a small number of winners to enjoy extravagant wealth while a much larger number of losers are forced into humiliating deprivation?'
Truly, insatiable greed and moral deficiency have created a world of tremendous financial inequality. What a lawyer said 2,000 years ago is still true: "The love of money is a root of all sorts of injurious things." Are human governments prepared to deal successfully with such inherent flaws in man's imperfect character? Fernando Cardoso, president of Brazil, voiced his concerns: "The task of providing a human dimension to development in the era of Globalization has become a major challenge, since all of us have to deal . . . with the ethical vacuum which the idolatry of the marketplace has caused."
"Epic Struggle of Power and Values"
In a lecture to the 22nd World Conference of the Society for International Development, Korten expressed his doubts about some of the beneficial effects of the global economy. He stated that there is "an epic struggle of power and values between people most everywhere and the institutions of the global economy. The outcome of this struggle will likely determine whether the 21st century marks the descent of our species into an anarchy of greed, violence, deprivation, and environmental destruction that could well lead to our own extinction. Or the emergence of prosperous life-centered civil societies in which all people are able to live without want in peace with one another and in balance with the planet."