20 December 2006
The safety limits of globalisation
More and more, we note the job insecurities and income disparities that are consequences of globalisation. Clearly, as markets and corporations become global, there are downsides that need to be addressed, but how effective are governments that are only local? Full essay.
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It might interest you that in Scandinavian countries they have found a formula that somehow balance market economics and social welfare.
In Sweden, for example, they have liberalise the employment laws, in other words, make it easy for companies to hire and fire. Whilst they have promise not to cut unemployment benefit. This has the effect of making Scandinavian countries a business friendly place and I think compare to Singapore, they have been able to generate more startup companies.
The problem european countries, namely Germany and France, have failed largely, because they have not liberalised the labour market whilst maintaining high unemployment benefit. However, I need to qualify the term 'fail' to say that it is in terms of employment rate. But in terms of Total Productivity Factor, these countries are much better than Singapore. In other words, for every dollar spent on labour cost, they generate more value than say compared to Singapore, and in some cases, Japan.
In Singapore cases, productivity is driven by input factor and not output factor. This means that for every dollar invested, we are getting less in output than France or Germany, even less when compared to Scandinavian countries.
I believe its not really the problem with globalisation. Globalisation is not the panacea for all evils. There needs to be hard policy decisions to be taken alongside. Of course, this could mean political suicide to the rulers who thrive on vote banks. The bane of China today is not that there is not adequate growth. China has done brilliantly with regards to globalisation, but who benefited from the 20 years of sizzling 10% plus growth? The ordinary citizens of China have no stake in the growth. Pray, how does a country of 1 billion and of that size have a rule where ordinary citizens cannot own the land. Where a farmer can be uprooted from his land just because the govt plans a factory in its place. In China, the government owns the land.
This is where India has done better. It has got democratic institutions, a robust financial sector and a world class private industry in place and no matter how lousy the govt is and never mind the "red-tapism", the spoils of growth is shared by the common man on the road. Yes, the growth is yet to be seen as the real benefits of liberalisation started in 1991 is just starting to sink in. But people have to be patient. 50 years of mismanagement takes time to be set right.
It needs to be emphasised again that true globalisation is where the common man earns the spoils and not the governments or a few public sector organisations. This is where China will lose out one day.
Dear Mr Au,
A very insightful piece of work. I am particularly struck by your observation that the current working conditions of cheap labourers in China are not unlike those took place in the West a century ago.
When one continues to examine this issue, it will eventually lead into the sphere of philosophy or religion. Whatever it is, we know for sure that countries in the world, including Japan, US, China, Singapore and etc are led by a bunch of short sighted politicians who are more keep to keep and maintain their grip of power than anything else...
Hope more people like you can engage in this very enlightening piece of work.
Your sincere reader
A lot has been said about globalisation and recently its down side has been discussed. George Soros who had made billions out of exploiting global financial market has written a book "Open Society: Reforming Global Capitalism". It makes interesting reading and throws light on some aspects of globalisation. A short review of one of the readers can be found in this link
Another book by the renowned Nobel Prize Laureate economist who had served under Clinton administration is also interesting: Globalization and Its Discontents by Joseph E. Stiglitz. A short review can be found here .
I am glad that globalisation is getting the right kind of attention in your blog.
To Philip -
You said, "I believe its not really the problem with globalisation." I'm not clear what the "it" refers to. I believe you're referring to widening income inequality.
You are right that globalisation does not in principle result in that. (When we speak of globalisation, we generally mean removal of trade and non-trade barriers between previously protected national markets.)
It is true that some national markets, well before market opening, had obscene degrees of income inequality - Latin American economies come immediately to mind. So this proves that it does not need globalisation to produce inhuman social conditions.
Likewise, in the US, where in 1965, CEO pay was about 26 times that of the average worker in his company, by 1980, it had grown to 40 times. In 1989, it was 72 times, by 1999, it had reached 310 times. Today, it is reported to be about 500 times. See this book abstract. No one should pretend that a trend like this is not produced by an imbalance of political power within the American democracy, in the last 4 decades.
So to begin with, there is something extreme about the American model of remuneration.
Globalisation only came in in the last 10 - 20 years to further exaggerate the trend.
With the opening of Mexico (NAFTA), China, Central Europe, and now India, vast numbers of cheap labour is available to global corporations. But management expertise and technology still remain scarce commodities. The natural laws of demand and supply thus depress the wages of the worker and boost the "value" of the executive and the corporation's intellectual property.
So it's no surprise that market-merging (with mostly cheap labour suppliers coming onto the scene) exaggerates the income gaps.
If in a different universe, market-merging involves economies with abundant executive knowhow and technology coming onto the scene, while workers remain few, then of course the effect of market-merging ("globalisation') would be to depress the prices that management expertise and knowhow can command, and increase the "value" of the ordinary worker, thus narrowing income differentials. But which universe would that be?
Given that in our universe, corporations and the global investor wield power through their wealth and scarcity value, how does the worker and his family rebalance that power to ensure some degree of social equity? It should be through the political process. But, in a world short of global governance, that political process is fragmented into separate, competing national governments. This is conundrum.
It is a fallacy, perpetuated by the world bank and such, to believe wealth, through globalisation, will help alleviate poverty. Wealth, by nature, is both divisive and destructive - environmentally, the human psyche irrespective rich or poor. As such, the so little good attributed to wealth does not really justify the evil that it derives. It is a wrong or corporate war path subscribed by the elites and mostly in their interests, verified in remumeration. Wealth thus, is a vallainous force against common values(someone must compromise if not, all) and eventually, results in greater bloodshed,death and injustices than what hitler,stalin,osama etc could possibly conjure( we are only beginning to scrape its stealthy front).
Spoke to one German guy about the 'evils of capitalism'. He's of opinion that with the emergence of MNCs and their clout of transnational economic prowess, the hands of any government are really tied. So, my German friend feels the average citizen will need to look to NGOs to save their world. Looking at what's happening at UN in the last couple of years, many will be tempted to discount the possibility of arriving at effective global governance. But I tend to hold a different view. The fact that UN has been taking so much heat from some of their member nations is proof enough of an anxiety amongst some of the world's so-called 'superpowers' of the emergence of a supra-nation governing body.
I'd love to hear from our dear host, Alex and any other interested members your further views on how we can protect the interests of everyday man and woman in a capitalistic global economy.
Very well written article, Alex. I think this is one of my favourite pieces from you.
I just want to add that the notion of globalisation that we tend to hear of today in the media, both local and foreign, tend to be in reference to neoliberal globalisation (free markets, unrestrained capitalism et al). It is this assumption that this form of globalisation is one that is "inevitable," and the "only" form that tend to lead many to think that "there is no other way." While globalisation per se is inevitable, its form is not predetermined. Rather than a prioritising of the markets and capital, why can there not be an alternative form of "globalisation from below", where there is a focus on the environment, labour rights and human rights? Perhaps using these as a yardstick might lead to a more humane form of globalisation, as opposed to the one today that is benefiting a minority at the expense of the majority?
It is interesting to note by the way, that not a single country, including the advanced industrial societies were got to where they are today through the implementation of neoliberal policies that is held to be sacrosanct by institutions such as the IMF and the WB, and propagated by the capitalist elites around the world.
In addition as you have stated, the emphasis that is placed on economic growth rates is one that is almost hysterical, and seems to be taken as the sole measure of a country's progress. But growth need not necessarily correspond with a betterment of the living standards of people. China has been experiencing fantastic growth in the last decades, but a great number of its people are still languishing in poverty as the income gap continues to widen. On the other hand, Brazil may be experiencing slower growth rates, but it is able to bring about a more equitable redistribution of wealth.
To me Individual Freedom is the highest value of all.
Globalisation — i.e. a totally integrated global economy — is the best recipe for rewarding individual enterprise by creating wealth and empowering individuals with freedom.
Any "regulation" for e.g. "welfare statism" is essentially anti-freedom, due to the attack on individual rights and private property rights.
So as far as I'm concerned, let there be NO LIMITS to global commerce and the international division of labour.
Laissez faire means everyone gets to choose, voluntarily.
To illustrate how the international division of labour works to mutual benefit, I suggest having a look at I, Pencil by Leonard Read
Online version here
PDF version (168kB) here
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