Globalization and its Discontents
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Globalization and its Discontents. The Driving Forces of Globalization. Increased international trade and specialization enable countries to gain more from int’l trade and exploit more their comparative advantage.

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Globalization and its discontents

The Driving Forces of Globalization

  • Increased international trade and specialization enable countries to gain more from int’l trade and exploit more their comparative advantage.

  • Larger flows of capital, partly due to direct investments of multinational corporations.

  • Greater mobility of individuals and companies across countries

Globalization and its discontents

The Driving Forces of Globalization

  • Changing economic policies:

  • Tariffs on manufactured goods in most countries were reduced, partly within the framework of global and regional trade agreements: WTO, EU, NAFTA.

  • Many developing countries undertook major trade reforms and liberalizations, partly to promote trade and attract foreign investors and partly under the pressures of the int’l development organizations, primarily the WB and the IMF.

Globalization and its discontents

The Driving Forces of Globalization

  • Rapid technical progress in transport, information and communication (“Death of Distance”).

  • Containerization and air-freight.

  • Since W.W.II:

    • 70%Reduction in cost of ocean freight transport;

    • 80% Reduction in air transport costs;

    • Reduction in 3-minutes telephone call overseas from $60 in 1960 to $0.40 in 2000 {to the price of a local call in the near future}.

    • Internet; mobile phone, etc.

Globalization and its discontents

The Driving Forces of Globalization

  • Low transport costs and new information and communications technologies facilitate management and control of geographically dispersed supply chains.

  • Transition from central production to decentralized supply chain and production of separate components.

  • Production tailored to specific demands.

  • Transfer of technologies between countries.

Globalization and its discontents

The Driving Forces of Globalization: In the South

  • A transition from production of import substitutes for the domestic market to production for exports.

    • {Possible exceptions: Infant industries}.

  • A huge burden of foreign debts forced countries to make major reforms, including comprehensive trade liberalization--under the supervision and incentives of the int’l development organizations.

  • Globalization and its discontents

    The Driving Forces of Globalization: In the South

    • The rise in the power of the international capital markets, large investments in {selected} developing countries and massive privatization of public enterprises reduced the central power and controls of the state over the economy in developing countries.

    • In most countries this was not accompanied, however, with more democracy.

    • The loss of central controls have led to spiraling corruption.

    Globalization and its discontents

    The Driving Forces of Globalization: In the South

    • The shift in power away from the state, driven by the global financial markets, increased the power and influence of the multinational corporations.

    • These corporations are less accountable to the state authorities in their home countries or in the countries in which they invest.

    • The increasing size and influence of the multinational corporations is making them less accountable and increase the need for multi-national supervising authorities.

    Globalization and its discontents

    The Driving Forces of Globalization: In the South

    • The rise in political influence of the IMF, World Bank and WTO ushered structural adjustments, privatization, tariff reduction and a strategy of export-led growth.

    • Main stages in the approach of the WB and the IMF to strategies of development:

      • 1970s: Main emphasis on growth.

      • 1980s: Growth and distribution.

      • 1990s: Globalization and market-led growth = the ‘Washington Concensus’.

      • 2000s: Diverging views on globalization.

    Globalization and its discontents

    The Driving Forces of Globalization

    The collapse of the centrally planned economies and the Soviet Union led to the introduction of market-driven economic changes and the integration of the ‘transition economies’ into the world markets.

    Globalization and its discontents

    The Driving Forces of Globalization

    A web of bilateral, regional and global

    international trade and investment agreements, culminating in the creation of the World Trade Organization in 1995.

    New round of trade agreement has been under planning for several years (the Doha Round) and was expected to be concluded by 2004 -- but the failure in Cancun raises doubts about the prospects

    Globalization and its discontents

    Growth of world GDP per capita 1960-1996

    World: +78%

    Developed countries:+130%

    East Asia:+257%

    SSA: +36%

    Growth in developing countries
    Growth in Developing Countries

    GDP Per Capita in the Main Regions 1960-1996.

    (In PPP exchange rates in 1985 prices)

    Region___#Countries_Population_ GDP/capita_ ____Growth (%)

    1960___1980___1996___60-96 80-96

    South Asia 6 1,105 $ 781 $ 935 $1,333 1.5 2.2

    East Asia 18 1,671 $ 630 $1,242 $2,251 3.5 3.8

    SSA 45 478 $ 761 $1,130 $1,036 0.9 -0.5

    LAC 32 421 $2,447 $4,537 $4,480 1.6 -0.1

    Developing* 136 4,206 $1,177 $2,147 $2,959 3.0 2.0

    Developed 28 858 $6,205 $11,347 $15,159 2.4 1.8

    World* 164* 5,064 $2,250 $3,806 $4,003 1.6 0.3

    Globalization is pro poor
    “Globalization is Pro-Poor”

    Growth rates of the poorest and of the most affluent quintiles

    Income growth rate 1960-801980-97

    Poorest Quintile(1) 1.9 3.2

    Richest Quintile(1) 4.0 1.9

    SSA(2) 0.9 -0.5

    Source: (1) Dollar (2002b); (2)HDR (1999)

    Poverty in developing countries
    Poverty in Developing Countries

    World Bank’s World Development Report (WDR) (2000/2001)

    • EA: Steep decline in poverty in from 27.6% in 1990 to 15.6% in 1998;

    • SSA: Stagnation; Around half of the population remain poor. The number of poor increased from 242 million in 1990 to 291 million in 1998.

    Poverty in developing countries1
    Poverty in Developing Countries

    Trends in World Poverty during the 1990s*

    1990 1998

    millions Poverty rate millions Poverty rate

    EA 450 27.6 280 15.6

    LAC 74 16.8 78 15.6

    SA 495 44.0 522 40.0

    SSA 242 47.7 291 46.3

    World** 1276 29.0 1200 24.0

    *Source: World Development Report 2000.

    ** Includes also MENA and the Ex-Centrally Planned Economies

    Poverty in developing countries2
    Poverty in Developing Countries

    • Nearly all the reduction in poverty was in EA.

    • Some reduction in SA since 1990 -- mostly in India.

    • The reduction in poverty was mostly in urban areas.

    • Stagnation in SSA and LAC.

    Impact on the world s poor
    Impact on the World’s Poor

    • Globalization promotes economic growth and, on average, economic growth increase the incomes of the poor.

    • · Infant mortality rates in developing countries declined from 109 per thousand in 1970 to 50 per thousand 1999;

    Impact on the world s poor1
    Impact on the World’s Poor

    • · Life expectancy since 1960:

      • o in China doubled to 70 years;

      • o in India rose by 20 years to 64 years.

    • · Adult illiteracy rates declined by 30% since 1960 in China, Ghana, India, Korea, and Mexico:

    Trends in global income inequality
    Trends in Global Income Inequality

    Measures of Inter-country Income Inequality -- 1960-1998

    (In PPP exchange rates in 1985 prices)

    1960 1970 1980 1990 1998 % Change: 1960-1998

    GDP Ratios

    Developed/EA* 9.85 9.62 9.14 8.27 6.95 -29.5

    Developed/SSA* 8.15 9.18 10.04 12.26 15.13 +85.6

    EA/SSA* 0.83 0.95 1.10 1.48 2.18 +162.3

    Inequality Measures

    Gini Coefficient 0.63 0.63 0.62 0.60 0.58 -8.1 The ratio between the average GDP per capita in the two groups of countries.

    Trends in developing countries
    Trends in Developing Countries

    World Bank’s report

    • “The long term trend of rising global inequality and (absolute) poverty was halted and perhaps even reversed”

    Trends in developing countries1
    Trends in Developing Countries

    IMF report (2002):

    • Developing countries increased their share of world trade–from 19 percent in 1971 to 29 percent in 1999, but with large differences among countries.

    • “Reliable property rights, strong rule of law, and macroeconomic stability are all associated with more trade and FDI.”

    Main trends in ssa
    Main Trends in SSA

    The SSA countries have little trade with the rest of the world.

    The reasons:

    • Poor road infrastructure;

      • The density of rural road network is only 55 kilometers per thousand square kilometers, compared to over 800 in India.

    • Lack of institutions that regulate and develop trade;

    Main trends in ssa1
    Main Trends in SSA

    • Inefficient and Undeveloped telecommunication

      • One-tenth the telephones per capita of Asia.

    • Lack of adequate agricultural R&D&E organizations

    Main trends in ssa2
    Main Trends in SSA

    • Ø Freight rates by rail are on average double those in Asia.

    • Ø Port charges are higher. Air transportation is four times more costly than in East Asia.

    • Ø Much of international transport is cartelized, due to the regulations of African governments.

    Diverging views on globalization
    Diverging views on Globalization

    • Trade gives the developing countries comparative advantage in Labor-Intensive Production

    • With trade they can promote Labor-intensive industries and production technologies.

    Diverging views on globalization1
    Diverging views on Globalization

    “Globalization promotes broad-based growth by:

    • Making intensive use of unskilled labor

    • Increasing productivity with advanced technologies.

    • Providing new opportunities (new crops; new technologies; new markets).”

      “Growth increases the incomes of the poor.”

    Diverging views on globalization3
    Diverging views on Globalization

    “Countries that have opened up to trade, privatize government companies and established market conditions have done better than those that have not.”

    Washington Consensus

    Diverging views on globalization criticism on the washington consensus
    Diverging views on Globalization Criticism on theWashington Consensus

    • Lumping all “developing countries” together;

    • Advocating ‘one-size-fits-all’ strategy;

    • Fail to recognize country-specific constraints (specific geographic, socio-economic and political conditions).

    • Oversimplifying blueprint of actions.

    • Priorities do not reflect country’s priorities and needs.

    Diverging views on globalization4
    Diverging views on Globalization

    “Globalization improved growth rates, increased productivity, enhanced technological capability, but redistributed wealth and income in favor of the non-poor.”

    Diverging views on globalization5
    Diverging views on Globalization

    “With the opening of our market, our country has become a supermarket of foreign goods, which are cheaper, killing our local industries, rendering many more jobless.”

    Diverging views on globalization6
    Diverging views on Globalization

    “The main cause of poverty is the market, not market failure; markets fail to address strategic interests like food security.”

    Diverging views on globalization7
    Diverging views on Globalization

    • “The North has imposed a money-based economic system that have destroyed the traditional and local ways of wealth distribution in favor of a cash economy ruled by international forces.”

    Diverging views on globalization8
    Diverging views on Globalization

    Joseph Stiglitz

    {Globalization and Its Discontents (2001)}

    “Many developing countries lack solid institutions of governance and they failed to adopt market-based policies, free trade, and privatization.”