Nowhere to Run
ABDALLA F. HASSAN | Business Today | December 1998
A market-driven global casino of commodities, currencies and exchanges circles the globe from Cairo to Montreal, Paris to Beijing, Manhattan to Tokyo to London and back again, 24 hours a day, seven days a week. It’s one sign of the emerging phenomenon called globalization.
An economic engine transforming the world, globalization was the subject of passionate debate during a two-day economic symposium held in October at the Goethe Institute in Cairo and sponsored by Al Habashi General Contracting. The march toward globalization—i.e., regional or super-national integration—can be seen in the creation of regional trading blocks and, in the case of the euro, the formation of a common currency zone. One aspect of globalization is the expansion of world trade. Goods, especially those that are technology intensive, are now being produced and assembled in different countries.
Why the big fuss over globalism?
In a global economy, forces of trade and finance give many people a sense that the world they knew has changed. Workers in developed countries suspect that globalization will alter their living conditions through greater competition. “Germans will compete with Egyptians, who have lower incomes and lower social protections,” explains Paul Bernd Spahn, professor of public finance at Goethe University in Frankfurt, Germany, “but could do as good a job as German workers provided they have the same skills and access to information.”
The precise contours of the global economy are also rather elusive. “Globalism is a fully decentralized system without any power center,” explains Spahn, who describes a world where market forces dominate. Ideally, he argues, the forces of globalization are not controlled by any individual, government or institution.
Proponents of globalization argue that the process gives Arab states an opportunity to integrate into the world economy, promoting economic growth, creating more employment opportunities and improving living standards. Technology, liberalization of trade, and increased capital flows and direct foreign investment are benefits globalization offers developing countries, says Heba Handoussa, professor of economics at the American University in Cairo and the managing director of the Economic Research Forum for Arab Countries. “The role of the state has changed from producer and planner to arbitrator,” she explains.
In order to successfully compete in an era of globalization, governments must be more effective in creating infrastructure and providing education, training and health care services, which would attract investment. In addition, the move of transnational corporations to low wage economies may eventually mean an equalization of wages worldwide. “Developing countries must not be afraid of being exploited for cheap labor,” she asserts, believing the transition will give more citizens an opportunity to work and acquire the skills they need to compete in the global marketplace. The cost of labor in Egypt is lower than any other country in the Middle East and North Africa region. As Handoussa points out, 7 percent of the Egyptian population earns less than $1 a day.
There are other advantages. Globalization makes nations dependent on each other. “Nations that are dependent on each other don’t opt for war or armament,” says Harald Schumann, journalist and co-author of the international bestseller The Globalization Trap. “They prefer negotiation in case of conflict.” More importantly, economic integration has a potential to help developing countries catch up to the industrialized world on the basis of imported technology and capital, he adds.
That’s the good news.
“The bad news is that so far this integration process is so poorly politically managed and regulated,” argues Schumann. Referring notably to the countries of Southeast Asia, he adds, “Most of the countries that take part in this process became politically and economically unstable. The most important reason for this is the growing inequality in the distribution of income.” Although economies are getting richer, a large percentage of the population does not reap the benefits. This results in greater political turmoil. Schumann realizes that economic analysis of globalization generally neglects the political dynamics of countries and regions.
Moreover, globalization has resulted in a huge number of cross-border transactions occurring continually, making economies sensitive to short-term currency speculation. Individual countries may face greater risks due to the massive movements of capital occurring virtually overnight. “The first thing to be done is to re-regulate the international financial markets,” suggests Schumann. “We have to tame these short-term capital flows.”
As some economists see it, globalization chronicles a major power shift in world affairs, from the public to the private, and from national governments to transnational corporations and international financial agencies. During the 19th and early 20th centuries, the search for raw materials as well as pressure to protect or increase markets drove colonial expansion and promoted the birth of transnational corporations.
Today, burdened by debt (Egypt’s foreign debt is LE 150 billion), low commodity prices and unemployment, governments throughout the less-industrialized world have sought to liberalize investment restrictions and privatize public sector industries as a way of attracting technology, capital and jobs. For multinationals, less-industrialized countries offer the potential for market expansion, lower wages and fewer health and environmental regulations than in Western Europe and North America.
“The era of colonial exploitation is over,” says Spahn, who argues that globalization presents an opportunity for developing countries. “You now have sovereign governments that can say ‘no’ or ‘yes.’ The market may have no morals; it’s not an ethical institution. But the market at least gives you the freedom to say ‘no.’’’
Samir Amin, director of the Third World Forum in Senegal, calls globalization a “political strategy” and derides the notion of a self-regulated market. “Markets do not exist in the air. In reality, markets are always regulated.” And the process of deregulation is nothing more than “secret regulation.” The decision-makers of this capital market have not been democratically elected, he says, but by their influence in the marketplace they have become a quasi world government.
Transnational corporations, among the world’s largest economic institutions, are the real power center, he argues. Regional trading blocks, the General Agreement on Tariffs and Trade (GATT) and global institutions such as the International Monetary Fund (IMF) and the World Bank work to the benefit of multinationals, eroding national decision-making powers, says Amin. Through tax breaks, subsidies and fewer restrictions, governments have liberalized their trade and economic policies to attract these foreign investors.
To take an example, Amin points to the IMF bailout of South Korea. The source of Korea’s financial woes, according to the International Monetary Fund, is the monopolistic tendencies of indigenous conglomerates. How Amin views the solution proposed by the IMF: “Ugly monopolies in Korea should be sold to ugly monopolies in the U.S. or Japan.” The end result, he believes, is the dismantling of potentially competitive systems of production.
The two sides of the debate are clearly drawn out. Is globalism economically beneficial to developing countries through increased trade and investment? Or does it merely serve the interests of organized capital? As economists search for answers, investors trade trillions in global markets and the forces of globalism grind forward.