Globalization needs international regulations

The globalization process is making the national economies
of both developing and industrial countries more difficult
to manage and international regulations are needed to enable
developing countries to maximize the benefits and minimize
the costs of integration into the world economy. These views
emerged at a panel discussion at the 44th session of
UNCTAD's Trade and Development Board.

by Chakravarthi Raghavan

GENEVA: The globalization processes, including freedom of
capital mobility was making national governance more
difficult, for developing and industrial countries, and there
is a need for international regulations to minimize costs, and
also enable developing countries to undertake gradual
strategic integration into the world economy.

This view was advanced at a panel discussion at UNCTAD's
Trade and Development Board (TDB), though a minority seemed to
favour the "big bang" approach to trade and investment
liberalization, blaming the failure to adapt, for countries
lagging behind in enjoying the benefits of globalization.

Other issues thrown up in the discussions and comments
included questions about falling prices and adverse terms of
trade, deflationary forces as symptomised by excess supply
capacity in key sectors including electronics, and the role of
the State in promoting capital accumulation - an
interventionist role or a hands-off role, and allowing foreign
capital and competition to achieve this objective.

An activist role for State

Indian academic, Deepak Nayyar, said that the market-driven
processes of globalization, integrating national economies
into a world economy, is an asymmetric one, with some winners
but many losers, and widening the economic disparities among
nations, and income disparities among peoples, even as it
creates aspirations for consumption patterns and life-styles
that cannot be sustained socially, culturally, politically or

Mr. Nayyar, a former chief economist of the government of
India and now Professor at the Jawaharlal Nehru University
(New Delhi), said the State has to play an activist role -
though this could be different in different societies and
depends on their stages of development - in order to maximize
benefits of globalization and minimize the costs of
integration into the world economy.

Nayyar, one of the expert panelists who participated in the
UNCTAD Trade and Development Board's informal discussions on
Globalization, Income Distribution and Development, challenged
the plea of many governments, who rationalize their own
"compromises" by pointing to globalization and advancing the
"there is no alternative" arguments.

Rules of the game need modification

In order to ensure long-term sustainability, avoid social
upheavals and breakdowns, and also a "prisoner's dilemma"
outcome of environmental degradation and insecurity as a
result of unsustainable global patterns of production and
consumption, the international rules of the game need to be
modified and provide an accommodating (global economic)
environment to the developing world, he argued.

Other panelists and experts at the informal discussions,
spread over three sessions in two days, included economic
historian, Prof. Paul Bairoch, Cambridge academic, Prof.
Robert Rowthorn, former WTO Director of the Research Unit, Mr.
Richard Blackhurst, and Mr. William Pfaff, columnist of the
International Herald Tribune.

Blackhurst, and later, the IMF representative, advocated
the "free-market-free-trade" dogma, and a "big bang" approach
to liberalization to defeat protectionist lobbies, and saw
benefits in "markets" punishing governments for bad macro-
economic policies, but interventions and comments from other
panelists underscored the need for the excesses of the market
to be corrected and regulated by the State.

Markets alone, Nayyar argued, don't bring prosperity to
all, but exclude a significant proportion of people from the
process of development; and to the extent that globalization
is a market-driven process, it is highly asymmetric and
uneven. Hence, a proactive and reactive State policy, and
combinations of them, are necessary to ensure equitable

Markets are inherently stratifying - since individuals
enter the market with different resources, assets and
capabilities - competition, creating winners and losers, could
not only result in a virtuous circle, but also vicious

This market-driven globalization - with social, political
and cultural, as also the economic dimensions - is creating
two worlds. For those included, "the world is their oyster"
and for the many who are excluded, there is rising frustration
and social discontent in societies, that is making national
governance impossible even as there is no international
governance to cope with the problems.

Exclusion in market societies

Exclusion is inherent in market societies: those with
insufficient purchasing power, or are in inaccessible
locations (urban slums and the rural landless and
dispossessed) can't obtain goods through private markets nor
enjoy public good that the rich and the asset-holders can
(whether it be clean water, power, transport or other such).
People without purchasing power are excluded both as producers
and consumers, and so are those who don't conform to the
market-culture, such as indigenous peoples. The exclusion in
developing societies is exacerbated by output losses due to
enforced structural adjustment policies (of the Fund and the
Bank), the general weakening of State structures and
withdrawal of public services. But the globalization of rich-
country consumption patterns was engendering frustration -
with a potential in all countries for the rich to "secede"
from the rest of society, no longer needing the poor within
their borders. But the analog of this would be the poor and
countries being excluded.

Corrective and proactive national actions should include
measures to ensure that people have assets and capabilities,
systematic efforts to make the unemployed "employable" and
create employment opportunities, and provide the poor with
assets - all of which require a large role for public
investments. Equally important are "interventions" by the
State to correct market failures and locational disadvantages,
as well as the provision of social safety nets.

In presenting a long-term overview of historical changes,
in the currently affluent industrial societies, and
particularly in terms of poverty and income-distribution and
population changes, Prof. Bairoch said, there had been major
cyclical swings in inequality throughout history, that long-
term factors like population growth have had different impacts
at different moments in history and in different countries. In
this perspective, Bairoch said that State policies can make a
difference in achieving distributional goals, and this has
been essentially due to the willingness of governments to
adopt proactive policies to achieve such ends.

Presenting data on the Organization for Economic
Cooperation and Development (OECD) manufacturing, exports and
North-South trade, Rowthorn said, while the world balance of
manufacturing output was shifting, and projections suggest
that the current dominance of the OECD countries will be
reduced by 2025, it was incorrect to say that the North-South
trade and imports of manufactures from the South and/or
migration of industries from the North to the South are
responsible for de-industrialization and increasing
unemployment in the North.

North-South interaction

While import of manufactures from the South into the North
was rising, this was far exceeded by exports from the North.
A new kind of specialization in manufactures and exchanges was
taking place, the surplus of the North in manufactures trade
had not disappeared. There has been a decline in the North's
low-value added and less skilled industries. But technological
changes have been as important, if not more for the decline.

The North-South exchanges, in terms of hours of work,
suggest that one hour of labour in the North is being
exchanged for 4-5 hours of labour from the South - with the
North concentrating on goods containing high-value added.
North-South trade itself has only a small impact on
manufacturing sectors as a whole, though there has been a big
job loss in some sectors such as clothing.

But North-South competition and the new division of labour
is not a major factor behind the present high unemployment in
the OECD. Most of the job declines in the North is the result
of the "normal process of growth" - higher productivity. At
the same time, growth in services employment has been growing.
The differential trends in manufacturing and services
employment is a historical trend. If one examined the
employment trends in the Newly Industrializing Countries
(NICs), there too, manufacturing employment is declining. The
unemployment and the rising inequality are due to the OECD
countries' macro-economic policies and performance, "a case of
mismanagement since the time of the first oil-shock", Rowthorn

Richard Blackhurst said that a survey done inside WTO of
press clippings showed that those criticizing globalization
and blaming it for the widening gap among nations were not
economists. He suggested that those countries lagging behind
were those who had been slow to undertake reforms and
liberalization and that globalization was increasing the costs
for countries, of bad policies. Blackhurst cited the case of
the US to argue that while jobs were being lost in some
industries, the jobs gained in the export sectors paid 17%

But proponents of the benefits of globalization and
universal free trade and corporate behavior, columnist Pfaff
countered, based themselves on economics, "which is no
science, but only a theory", and did not reflect societal
values and experiences. The canonization of Adam Smith and
David Ricardo and their theories of free trade as a solution
to current economic problems, will not lead to a happy ending.

Free trade may only benefit equally placed countries

Free trade may be beneficial among countries who are more
or less equally placed and there is a closed system with a
fixed quantity of labour. But with large and growing labour in
the developing world, the outcome could be the Ricardian maxim
of the "iron law of wages", based on the Malthusian views of
his time, about labour wages being just above subsistence - an
outcome that would have serious ethical and political
consequences. Those arguing for a deregulated world economy
should bear in mind that many of the regulations were put in
place in order to tackle the excesses of the laissez faire
doctrines of industrial society.

While benefits of free trade within groups of countries at
similar levels of development were obvious, it had some
disturbing consequences in exchanges among societies at
radically different levels of development, Pfaff said. For the
latter, gradualism and structured changes seemed highly

On the question of labour mobility and migration, Rowthorn
said that the industrial countries should help and provide aid
for the development of the developing countries, and also
accept their exports and enable these countries to earn and
invest. But he did not think it would be socially and
politically possible to accept unrestrained migration.
European welfare societies and systems would collapse if
people could migrate and claim the benefits of welfare. Europe
and industrial countries would never agree to migration and
this was a political reality, he added.

Nayyar said, in a world of unequal partners, it was not
surprising that the rules of the game for globalization are
unequal in construct, and inequitable in outcomes. The strong
had the power to set the rules and invoke them, but the weak
had neither.

As a result, national boundaries do not matter for trade
flows or capital flows, but do matter for technology flows and
regimes as in TRIPs or in terms of labour flows.

Labour mobility

If the globalization argument is in terms of orthodoxy of
economics and efficient utilization of resources, it was
difficult to accept that a priori labour mobility was not
possible. The 19th century globalization had in fact involved
vast labour mobility - 30 million people or 40% of the
European work force had migrated to America. In the period
after abolition of slavery, 50 million people left China and
India as indentured labour, a substitute for slavery. Even
today, there is labour mobility, but it is illegal, and the
labour importing countries closed their eyes to it - whether
in the Middle East or East Asia or even in Europe. It was time
to recognize that labour mobility is part of the process of
globalization. If not legally recognized, market forces will
still create them.

The current WTO agenda however, is partisan - providing for
a multilateral framework on investment, but not on labour
mobility or on controlling the Restrictive Business Practices
(RBPs) of TNCs.

The chief of UNCTAD's global interdependence and
development division, Mr. Yilmaz Akyuz said that labour
mobility was different from free migration. Labour mobility
would mean that just as one could bid for a project or
procurement contract in UK, one should be able to apply for a
job in the UK or elsewhere. Such an issue needs to be brought
on the agenda of global negotiations.

Nayyar noted that in the 200 years or so of the free trade
doctrine, adherence and departures from the doctrine have been
justified by the strong and the powerful. The advocacy of free
trade came from Britain, then moved to the US and later, to
Japan. But what they had in the WTO after the Uruguay Round
was not free trade but mercantalist reciprocity. If people
believed free trade is best, then it is a unilateral act and
not a negotiable one. But the world was too complex for such
simplistic views. Countries in the pursuit of national
development objectives had to recognize their stage of
development, and engage not in a market-driven integration,
but a selective strategic integration into the world economy,
for which trade is an opportunity.

While national governments had and could undertake several
measures, there has to be an enabling international
environment to enable countries to maximize benefits and
minimize costs of integration into the world economy. For
this, it was necessary to think anew about the notion of
special and differential treatment for developing countries,
which was in Part IV of the old GATT, but has almost
disappeared from the WTO. The old Part IV envisaged exceptions
to rules or some extended times for the developing countries.

"The time has come to think of a new paradigm whereby
countries that are part of the WTO system should have same
rights, but their obligations will vary and will be a function
of the stage of their development," he said.

Labour mobility for services should be distinguished from
migration. Just as there is a right of establishment and
commercial presence for capital, so should labour have a right
in terms of temporary presence for a specific purpose or a
finite period across national boundaries. This could be as
individuals or corporate entities. There were too many
restrictions now on labour movements that were contrary to the
globalization process, and these should be negotiated and be
subject to WTO rules.

The freedom of movement of capital has made things
difficult not only for developing countries, but even for the
industrial economies. This is an area without a national
regulatory system, and hence the need for international

Globalization had made national economies more difficult to
govern. One must begin looking ahead and construct
international governance and regulations in this regard.
Otherwise, it may give rise to public bads, with each country
pursuing its own self-interest to the best of its policy,
giving rise to the problem of free riders and prisoners'
dilemmas where ultimately everyone is worse off. (SUNS4077)

Chakravarthi Raghavan is the Chief Editor of the South-North
Development Monitor (SUNS)from which the above article first appeared.