Preface

Over many centuries, human societies across the globe have established progressively closer contacts. Recently, the pace of global integration has dramatically increased. Unprecedented changes in communications, transportation, and computer technology have given the process new impetus and made the world more interdependent than ever. Multinational corporations manufacture products in many countries and sell to consumers around the world. Money, technology and raw materials move ever more swiftly across national borders. Along with products and finances, ideas and cultures circulate more freely. As a result, laws, economies, and social movements are forming at the international level...

First published Fri Jun 21, 2002; substantive revision Fri Jun 16, 2006

Covering a wide range of distinct political, economic, and cultural trends, the term “globalization” has quickly become one of the most fashionable buzzwords of contemporary political and academic debate. In popular discourse, globalization often functions as little more than a synonym for one or more of the following phenomena: the pursuit of classical liberal (or “free market”) policies in the world economy (“economic liberalization”), the growing dominance of western (or even American) forms of political, economic, and cultural life (“westernization” or “Americanization”), the proliferation of new information technologies (the “Internet Revolution”), as well as the notion that humanity stands at the threshold of realizing one single unified community in which major sources of social conflict have vanished (“global integration”). Fortunately, recent social theory has formulated a more precise concept of globalization than those typically offered by pundits. Although sharp differences continue to separate participants in the ongoing debate, most contemporary social theorists endorse the view that globalization refers to fundamental changes in the spatial and temporal contours of social existence, according to which the significance of space or territory undergoes shifts in the face of a no less dramatic acceleration in the temporal structure of crucial forms of human activity. Geographical distance is typically measured in time. As the time necessary to connect distinct geographical locations is reduced, distance or space undergoes compression or “annihilation.” The human experience of space is intimately connected to the temporal structure of those activities by means of which we experience space. Changes in the temporality of human activity inevitably generate altered experiences of space or territory. Theorists of globalization disagree about the precise sources of recent shifts in the spatial and temporal contours of human life. Nonetheless, they generally agree that alterations in humanity's experiences of space and time are working to undermine the importance of local and even national boundaries in many arenas of human endeavor. Since globalization contains far-reaching implications for virtually every facet of human life, it necessarily suggests the need to rethink key questions of normative political theory.

What is Globalization?

The process of transformation of local or regional phenomena ( glocalization ) into global ones. It can be described as a process by which the people of the world are unified into a single society and function together.

This process is a combination of economic, technological, social cultural and political forces. Globalization is often used to refer to economic globalization, that is, integration of national economies into the international economy through Trade .

Historical view

not until the 1990‟s that globalization made its formal appearance and consolidation in the international context. Furthermore, globalization is a complex and multidimensional phenomenon taking place simultaneously in different levels and transforming the political, social, economic and technological scenarios in different parts of the world.

David Held (2000) defines Globalization as a process (or set of processes) which embodies a transformation in the spatial organization of social relations and transactions - assessed in terms of their extensity, intensity, velocity and impact - generating transcontinental or inter-regional flows and networks of activity.

 For Juan Jose Toribio (2000) define Globalization as an accelerated process of the world economies integrated through the integration of the production, trade, financial flows, technological diffusion, information networks, and cultural currents. Both authors show that globalization is a dynamic and global process based on regional integration.

Abhay  Burande (2007) Globalization means increasing the interdependence, connectivity and integration on a global level with respect to the social, cultural, political, technological, economic and ecological levels.

            Globalization started as a general concept among certain specialized academic groups in the middle of the 1980‟s, with reference to regionalism and the rapid development of new advanced technologies. Later, the concept and uses of the word “globalization” started to expand in the universal language, until it

Globalization may not be a particularly attractive or elegant word. But absolutely no one who wants to understand our prospects at the century’s end can ignore it .

ý Globalization embodies particular characteristics which are as follows:

                               i.            First Characteristic of Globalization:                Institutional and Political Reforms,

              The first characteristic of Globalization is the institutional and political reforms based on less public sector participation into the economic activity or market. The institutional focus is supported by the idea to reduce public sector participation into the economic activity under the argument of unnecessary bureaucracy (non-efficient allocation of resources and production factors). The elimination of unnecessary bureaucracy uses the mechanism of privatization based on the sale of assets from the public sector enterprises (products and services) to the private sector. The sell of public sector to the private sector assumes a better performance in the productivity and efficiency of public services and products. The mission of privatization is to look for an efficient allocation of resources into the economy of any country under the private sector management. The new institutional focus and deep political reforms that constitute the first pillar of globalization is based on less public sector participation in economic activity. The idea behind the reduced public sector participation is that unnecessary bureaucracy creates non-efficient allocation of resources and production factors. The elimination of the unnecessary bureaucracy is implemented through the mechanism of privatization, where goods and services from the public enterprises are sold to the private sector. The sale of public sector assets to the private sector is assumed to give rise to higher productivity and efficiency in the public sector. This is in line with the mission of privatization, that is, to achieve efficient allocation of resources in a country's economy. Since the end of the Cold War -- with the collapse of the bipolar order (communism and capitalism) that reigned since 1945, a new phase of reform in the economic, institutional and political arenas has been created. A new institutional world order has been structured under deep political, economic, technological and social challenges (Gaspar, 2000). Indeed, the analysis of post-Cold War regionalization process and international order cannot be separated from the globalization process (Hveem, 2002 and Sideri 2000). The new international order in the political and institutional is supported by the strong promotion of democracy (more participation of the civil society into the democratization process) and human rights.

ii-                Second Characteristic of Globalization: Development of Information Communication Technology (ICT)

                 The second characteristic of globalization is the development of information communication technologies (ICT) tools resulting in the use of advanced technologies. The ICT sector uses technological innovative tools such as Internet services (Web), sophisticated software and hardware, satellite T.V. and satellite mobile phone systems. These tools enable quick accessibility of information and hence, easier business transactions. The present advances in technology have come a long way since the industrial revolution in England. With advanced technology, new Research & Development (R&D) methods and tools emerged, which in turns led to expansion in world production and business. However, the above benefits of technological revolution are mainly enjoyed by high income countries. This results in concentration of high technology amongst high income countries. Therefore, middle income and low income countries continue to be highly dependent on high income3 countries for their technological needs.

ý       Advantages of Globalization

People around the world are more connected to each other than ever before. Information and money flow quicker than ever. Products produced in one part of a country are available to the rest of the world. It is much easier for people to travel, communicate and do business internationally. This whole phenomenon has been called globalization. Spurred on in the past by merchants, explorers, colonialists and internationalists, globalization has in more recent times been increasing rapidly due to improvements in communications, information and transport technology. It has also been encouraged by trade liberalization and financial market deregulation.
Globalization offers a higher standard of living for people in rich countries and is the only realistic route out of poverty for the world's poor. Pro-globalization groups e.g. World Trade Organization and the World Economic Forum believe that globalization helps to reduce poverty and increase living standards as well as encourage a better cultural understanding. Also, due to globalization, there can be international co-operation to solve environmental and social problems.

Technology has now created the possibility and even the likelihood of a global culture. The Internet, fax machines and satellites have swept away the old national cultural boundaries. Global entertainment companies now seem to shape the understandings and dreams of ordinary citizens, wherever they live. Globalization leads to better cultural understanding and tolerance. Because of improvements in travel, more and more people are traveling to different countries, thereby spreading their culture to other parts of the world.

The beauty of globalization is that it can free people from the tyranny of geography. Just because someone was born in France does not mean they can only speak French, eat French food, read French books, enjoy French entertainment etc. A Frenchman -- or anyone for that matter -- can take...

o Goods and people are transported with more easiness and speed.

o The possibility of war between the developed countries decreases.

o Free trade between countries increases.

o Global mass media connects all the people in the world.

o As the cultural barriers reduce, the global village dream becomes more realistic.

o There is a propagation of democratic ideals.

o The interdependence of the nation-states increases.

o As the liquidity of capital increases, developed countries can invest in developing ones.

o The flexibility of corporations to operate across borders increases.

o The communication between the individuals and corporations in the world increases.

o Environmental protection in developed countries increases.

ý Effects of globalization

v  Enhancement in the information flow between geographically remote   locations.

v  the global common market has a freedom of exchange of goods and capital

v  there is a broad access to a range of goods for consumers and companies

v  Worldwide production markets emerge.

v  Free circulation of people of different nations leads to social benefits.

v  Global environmental problems like cross-boundary pollution, over fishing on oceans, climate changes are solved by discussions

v  More transform data flow using communication satellites, the Internet, wireless telephones etc.

v  International criminal courts and international justice movements are launched.

v  The standards applied globally like patents, copyright laws and world trade agreements increase.

v  Corporate, national and sub national borrowers have a better access to external finance.

v  Worldwide financial markets emerge.

v  Multiculturalism spreads as there is individual access to cultural diversity. This diversity decreases due to hybridization or assimilation.

v  International travel and tourism increases.

v  Worldwide sporting events like the Olympic Games and the FIFA World Cup are held.

v  Enhancement in worldwide fads and pop culture.

v  Local consumer products are exported to other countries.

v  Immigration between countries increases.

v  Cross-cultural contacts grow and cultural diffusion takes place.

v  There is an increase in the desire to use foreign ideas and products, adopt new practices and technologies and be a part of world culture.

v  Free trade zones are formed having less or no tariffs.

v  Due to development of containerization for ocean shipping, the transportation costs are reduced.

v  Subsidies for local businesses decrease.

v  Capital controls reduce or vanquish.

v  There is supranational recognition of intellectual property restrictions i.e. patents authorized by one country are recognized in another.

ý Advantages of globalization in the developing world 
                  

                It is claimed that globalization increases the economic prosperity and opportunity in the developing world. The civil liberties are enhanced and there is a more efficient use of resources. All the countries involved in the free trade are at a profit. As a result, there are lower prices, more employment and a better standard of life in these developing nations. It is feared that some developing regions progress at the expense of other developed regions. However, such doubts are futile as globalization is a positive-sum chance in which the skills and technologies enable to increase the living standards throughout the world. Liberals look at globalization as an efficient tool to eliminate penury and allow the poor people a firm foothold in the global economy. In two decades from 1981 to 2001, the number of people surviving on $1 or less per day decreased from 1.5 billion to 1.1 billion. Simultaneously, the world population also increased. Thus, the percentage of such people decreased from 40% to 20% in such developing countries.

Globalization: Markets as Master of Development

Capitalism is a great servant of sustainable development, but a bad master. Historically, many governments have harnessed the power of capitalism to achieve tremendous improvements in the lives of their citizens. However imperfectly, open and participatory governments mediated the rights of different groups — owners of capital, workers, and consumers — and defined public goods, like a healthy population and a clean environment, and provided rules and resources to help achieve them.

The process of globalization flips the relationship between governments and markets, so that markets are the “master” of development and governments are the “servants,” facilitating the flow of capital. For purposes of this brief, “globalization” is described as “a process of greater integration within the world economy through movements of goods and services, capital, technology and (to a lesser extent) labor, which lead increasingly to economic decisions being influenced by global conditions.” Global conditions are mediated by two economies:

• The powerful “speculative” economy. The volume of flows, which arises from trading money in rapidly expanding pooled funds (e.g., pension and mutual funds), is at least a hundred times greater than the volume of flows in the “real” economy. Financial speculation and currency crises erupt when huge amounts of footloose capital (over $1 trillion per day) rush in and out of countries at the push of a computer key. When asked about his image of globalization, an Egyptian said, “We were sleeping on the shore when a big wave came.”

• The “real” economy in which goods and services are produced and traded. Sales of the 500 largest firms in the world nearly tripled between 1990 and 2001. In 2004, there are approximately 70,000 transnational corporations (TNCs) with nearly 700,000 foreign affiliates. Foreign affiliates of transnational corporations (TNCs) account for a tenth of world GDP and a third of world exports. TNCs such as Vivendi Universal (water, media), Pfizer (drugs) and Rio Tinto (mining) have registered the largest increases in foreign assets.

Comparing the sales volume of Wal-Mart with the GDP of nations, the TNC has more economic clout than all but 19 nations in the world. In the intense competition among developing country producers for integration into corporate value chains of production, firms shed unionized workers, reduce the social cost of benefits, and exploit the natural environment.

While “free trade” and deregulation of economies has spawned powerful “speculative” and “real” economies, it has also swollen the ranks of a third economy: the “informal, or shadow” economy where transactions are based on street trading, smallholder farmer production, and the labor of women. The dynamism of informal economies sustains the vast majority of populations in developing countries. Nevertheless, their contribution is invisible insofar as it is not counted in a country’s gross domestic production (GDP). Workers in the shadow economy have no protection against illness or old age.

The 2002 U.S. National Security Strategy states that “free trade” is a “moral principal.” Indeed, “free traders” see globalization as expanding economic freedom, spurring competition, and raising the productivity and living standards of people in countries that open themselves to the global marketplace.” The invention of big, fast cargo ships, the mass production of jet planes, cellular technology, the internet – all of these have compressed the time and cost of moving almost anything. Proponents of globalization celebrate super-efficient production chains — clusters of firms from dozens of countries – that manufacture components for sophisticated, high quality goods sold at affordable prices. No globalization, no I-Pod.

Globalization is not new phenomenon, but in this era, the significant expansion in markets and the rise of corporate power began about 1980, during the administrations of U.S. President Ronald Reagan and U.K. Prime Minister Margaret Thatcher. Then, it accelerated after the collapse of the USSR and communism in 1989.

The international financial institutions (IFIs) – the International Monetary Fund and the World Bank — were formed in 1945 to stabilize the world economy and rebuild Europe in the aftermath of World War II. However, after the independence movements and the fall of communism, their missions changed as membership grew from the original 57 to 184 nations. In 1980, developing country debt crises (accompanied by plummeting prices of commodity exports) led the U.S. and U.K. to use the IFIs — to capture foreign markets and recoup debts with bare-knuckles power. Borrowing governments were required to slash their budgets – e.g., health, education, agriculture, and infrastructure — in order to meet budget targets set by the IFIs and service their debt obligations to the institutions. Since 1995, when the World Trade Organization (WTO) was formed, transnational corporations have increasingly influenced political leaders to push international trade laws in the same direction of liberalization and deregulation.

Originally, the IMF’s mandate involved assisting countries in stabilizing their short-term balance of payments and the exchange rate of their currencies. When, as is true today, the price for Mali’s cotton drips, the IMF steps in and helps to balance the budget by financing a portion of the lost revenue. [The international price for cotton has dropped due to factors, including U.S. subsidies for its 25,000 cotton farmers.]

However, the IMF’s mandate has grown to include long-term financing for development purposes. Poverty reduction was not part of the World Bank or IMF’s remit until 1989 and 1999, respectively. At this point, the IMF micro-manages the budgetary decisions of most developing countries. In the case of Mali, the IMF is requiring the government to cut wages of health and education workers, cut financing for the social safety net, reduce pensions, and cut subsidies for petroleum.

Technically, the IMF has authority over the U.S. economy. However, the U.S. does not heed the IMF’s warnings that it’s ballooning fiscal and trade deficits threaten the global economy.

To comply with IFI policy prescriptions, developing countries have unilaterally liberalized their economies including sectors such as: agriculture, including crop marketing and trade parastatals; services — including health care, education, water; government procurement of goods and services; manufacturing; and intellectual property rights. Such liberalization has opened up economies to foreign investors. At the WTO, trade rules are being negotiated in all of these sectors, plus more. When governments of developing countries liberalize in the context of WTO negotiations, they demand reciprocal concessions such as access to Northern markets. However, when they unilaterally liberalize under IFI auspices, they receive no concessions. This is an enormous benefit to rich countries and their transnational corporations.

The U.S., the European Union and other advocates for “free trade” don’t practice what they preach. For instance, they subsidize agriculture to the tune of about $1 billion per day and dump cheap foodstuffs in developing countries, thus, under-pricing and extinguishing the livelihoods of local farmers. In the current WTO negotiations, the New York Times says, “The European Union and the United States are busily fighting over how little they can get away with when it comes to liberalizing farm trade. Listening to these two economic powerhouses snipe about who should be doing what is revolting; neither is doing anything real.” Just as damaging, the industrialized powers slap manufactured goods from developing countries with tariffs, thus consigning these countries to exporting raw materials for which prices have been on the decline for some 40 years. Just between 1997 and 2001, the combined price index of all commodities (in US$) fell by 53% in real terms in sub-Saharan Africa. That is, the region lost more than half of its purchasing power in terms of manufactured goods.

Whereas the IMF was initially created to help countries manage balance of payment problems and currency fluctuations, its primary role today is to keep fiscal deficits and inflation as low as possible throughout the developing world. Unfortunately, these policies often have a negative impact on economic growth and employment – and ultimately on poverty. With regard to the impacts of budget cuts on rural Africa, economist Jeffrey Sachs says that there is a “silent tsunami… silent holocaust underway with mass death. But, [the IMF and World Bank] don’t say in public that the United States and other donor countries should therefore do more to save the millions of lives that could be saved…. What they say is to the governments, “Well, so sorry you have what you have; now live and in fact die, within your meager means….”

In 1997-98, East Asian governments, in part due to pressure from the IMF, eliminated the “speed bumps” or regulatory controls on the inflows and outflows of speculative capital to the region. Investors prize capital mobility highly. When capital hemorrhaged out of the region, hundreds of million of people were thrown into poverty. Western firms were able to buy up assets in the region at firestorm prices.

Sachs claims that the IMF and World Bank are the “handmaidens of creditor governments,” that do not fairly serve the interests of all of their members. After more the two decades of World Bank and IMF policies, rolling back the state and harsh macroeconomic discipline have failed to turn the tide on poverty. In fact, evidence suggests that economic growth was significantly better under interventionist governments in the two decades before the Bretton Woods institutions adopted their current policy line.

According to Weisbrot, Baker and Rosnick, the rates of growth for countries at all income levels, except the poorest, declined in the era of globalization: 1980-2005 as compared to the earlier period 1960 – 1980. For the poorest countries grew only meagerly. The U.N. Development Program (UNDP) finds that, between 1985 and 2000, 55 countries developing countries grew at less than 2% per year and 23 countries experienced economic contraction. Only 16 developing countries grew at more than 3% per year. Whereas Gross Domestic Product (GDP) per capita in the 20 richest countries has tripled since 1960, it has barely changed in the poorest 20 countries.

As the IFIs have promoted privatization of state assets and services over twenty-five years, state monopolies have become private monopolies and wealth has become increasingly concentrated in the hands of a few. In 2002, the U.S. persuaded the World Bank’s Board to adopt a “Private Sector Development strategy” – aimed at privatizing health care, education and water services — as the overarching strategy of the institution. During 2006-08, the Bank’s private sector affiliate will double its financing for these purposes in Africa. The strategy involves scaling up financing for “high risk” infrastructure, particularly dams. In sectors, such as health care, one commonly finds a two-tiered service supply with a corporate segment focused on the healthy and wealthy and an under-financed public sector focusing on the poor and sick.

Growth in inequality has also been striking. Some 358 billionaires control assets (a wider measure of their power than income alone) greater than those of 2.3 billion people, 45 percent of the world’s population.

Between 1981 and 2001, the number of people living on less than $2 per day grew from 2.4 billion to 2.7 billion. The increase is evident in every region of the world, except for East Asia and the Pacific. With subsidies of $2.50 per day, European cows are richer than nearly half of the world’s population. According to UNICEF (2004), more than 1 billion children are growing up hungry.

Of 73 countries for which data are available, 53 countries with 80% of the world’s population have seen inequality rise; while only 9 with 4% of the world’s population have seen it narrow. In the U.S., the richest 1% of families earned 9.3% of all income in 1980. By 2000, this income share had increased to 19.6%. Correspondingly, the income share of the bottom 90% declined from 66% to 53.9%. According to the September 2005 report of the Census Bureau, poverty rose to12.7 percent of the population last year, its fourth consecutive annual increase.
Inequality is explosive, particularly when “market-dominant minorities,” such as whites in South Africa, Chinese in Southeast Asia, Jews in Russia, or Indians in East Africa, control hugely disproportionate percentages of their countries’ resources. Throughout Latin America, indigenous peoples live at the margins of their societies. As described by Yale Professor Chua, introducing democracy in these circumstances ignites active ethno-nationalist movements demanding that the country’s wealth and identity be reclaimed by the ‘true owners of the nation.’” She goes further in suggesting that the U.S. is the market-dominant minority in the world.

Corporate Governance

Corporations are legitimate stakeholders in debates about economic policy. However, when their interests drive national priorities and global governance, democracy suffers. At present, corporate social responsibility (CSR) standards are purely voluntary. Should they be mandatory? Citizens need to speak out about questions that affect their communities and society, at large:

Under what circumstances should large dams be built? How can sovereign rights of indigenous peoples be protected? Do we believe that market forces rather than governments should provide water, which is essential to lives and livelihoods? Do we want corporations to take responsibility for the standards of their products? Should new corporate accounting principles take the costs of environmental damage into account? Should corporate contracts with governments – even those covering essential services like health care or water — be secret? How can domestic competition laws stop collusion by transnational corporations and guarantee of the rights of foreign consumers to take actions in foreign courts against corporations that abuse their market power (e.g., Universal Foreign Corrupt Practices Act).

Transnational firms like Coca Cola and McDonalds establish brands and distribution networks across the planet, homogenizing consumption and exporting dubious aspects of (mostly US) culture. Capital is increasingly concentrated. If we consider the gross sales of a corporation to be roughly the equivalent of the GDP of a country, of the world’s 100 largest economies, 51 are actually private companies. The combined sales of the world’s top 200 corporations are equal to 28 percent of total world GDP. These same 200 corporations employ only 18.8 million people, less than 1/3 of one percent of the world’s population.

Student Action

Students vs. Coca-Cola. In June 2005, the University of Michigan’s Dispute Review Board found evidence that Coca-Cola may have violated standards of the University’s Vendor Code of Conduct on the issues of high pesticide levels in soft drinks in India and labor practices in Colombia. A student coalition representing 5,000 students in alliances with Indian and Colombian movements was gratified that the University is now requiring a full-fledged investigation of allegations that Coca-Cola has been selling products in India with high levels of pesticides, including DDT, sometimes as high as 30 times those allowed by the US and European Union standards. In Colombia, Coca-Cola’s bottler, Panamco is charged with hiring right-wing paramilitaries to kill and intimidate trade union leaders from Coca-Cola bottling plants.

Students vs. Nike. In April 2005, after five years of pressure by groups, including United Students Against Sweatshops, Nike disclosed its factory locations so that the conditions of factory workers can be monitored. Nike has admitted that its factories are places where physical and sexual abuse, low wages, restrictions on bathroom use and other human rights abuses happen on a regular basis.

Students vs. Big Pharma. Student Global AIDS Campaign effectively organized against pharmaceutical giants that claimed that countries importing generic drugs for treatment of HIV/AIDS violated their patent rights. As a result of such pressure, 31 pharmaceutical companies withdrew their suit against South Africa for exporting generics.

What Future for the World Bank and IMF?

The IMF and World Bank are experiencing a crisis of legitimacy due to the institutions’ lack of democratic governance, adverse impacts of their operations, lack of accountability to those impacted and corruption. IFI expert and Carnegie Mellon University Professor Adam Lerrick declared that the World Bank needs an independent performance audit of its operations…that an auditor would find half of the institution’s project operations don’t even exist. Democratic practice, accountability, and transparency need to be restored from the “base,” or the grassroots of developing countries to the “apex” of the global institutions.

A. ABOLITIONISTS. Below, in their own words, are the voices of leaders from all points of the political spectrum that question or oppose the existence of the IMF and/or World Bank:

*JESSICA EINHORN, former Managing Director of the World Bank, writes in “Foreign Affairs” (January/February 2006) that the World Bank’s window for middle-income countries, the International Bank for Reconstruction and Development (IBRD), “seems to be a dying institution.” She proposes ways that the institution might be phased out. She states, “The whole concept of a lending institution with a big balance sheet tied up in long-term loans has been overtaken by securitization, in which loans are just the starting point for packaging together securities that can be sold and traded in the marketplace…Looking ahead…credit to middle-income countries will be just another derivative financial instrument to be bought, sold and managed in private portfolios.”

*JOSEPH STIGLITZ, Nobel economics laureate (”Financial Times,” 8/21/02) “I used to say that since we are going to need these institutions, it is better to reform them than to start from scratch. I’m beginning to have second thoughts. I’m beginning to ask, has the credibility of the IMF been so eroded that maybe it’s better to start from scratch? Is the institution so resistant to learning to change, to becoming a more democratic institution, that maybe it is time to think about creating some new institutions that really reflect today’s reality, today’s greater sense of democracy. It is really time to re-ask the question: should we reform or should we build from start?”

*DAVID ELLERMAN, a former Senior Economist of the World Bank, states: “Agencies such as the World Bank and IMF are now almost entirely motivated by big power politics and their own internal organizational imperatives. All their energies are consumed in doing whatever is necessary to perpetuate their global status. Intellectual and political energies spent trying to ‘reform’ these agencies are largely a waste of time and a misdirection of energies. Dominant global institutions, like monopolies or dominant oligopolies in the private sector, can be counted on to use the power to maintain their dominance — and yet that dominance or monopolistic power is the root of the problem. (”Helping People Help Themselves: From the World Bank to an Alternative Philosophy of Development,” Ann Arbor, U. of Michigan Press, 2004)

*WALDEN BELLO, Director of FOCUS on the Global South in Bangkok, Thailand states: “Rather than expect the highly paid World Bank technocrats who live in the affluent suburbs of Northern Virginia to do the impossible, designing anti-poverty programs for folks from another planet — poor people in the Sahel — it would be more effective to abolish an institution that has made a big business out of ‘ending poverty’ and completely devolve the work to local, national and regional institutions better equipped to attack the causes of poverty.

*ARCHBISHOP NJONGONKULU NDUNGANE, Capetown, South Africa, “[If] we must release ourselves from debt peonage – by demanding the repudiation and cancellation of debt – we will campaign to that end. And if the World Bank and IMF continue to stand in the way of social progress, movements like Jubilee South Africa will have no regrets about calling for their abolition. To that end, the World Bank Bonds Boycott movement is gaining even greater momentum. (”A World With a Human Face: A Voice from Africa,” Cape Town, David Philip, 2003, p. 31)

*JUBILEE SOUTH: “We reject…any further role or interference of the World Bank or IMF in our countries. We as African civil society organizations need to…mobilize our people to challenge and change the global economic system through campaigns and actions to shut down the World Bank and IMF.” (Pan-African Declaration on PRSPs, May 2001, Kampala, Uganda)

In addition, we see churches, foundations, union, cities and social responsibility funds that have joined in a boycott of the World Bank. TIAA-CREF, the world’s largest pension, sold its World Bank bonds as did cities (e.g., Milwaukee), Progressive Assets Management, Calvert Group, Unitarian Church, the University of New Mexico, and many union pension and investment funds, such as the Teamsters, Postal Workers, Communication Workers of Americ , etc. See http://www.worldbankboycott.org/.

For more information on the abolitionists’ agenda, see http://www.50years.org/ or http://www.focusweb.org/.

B. REFORMISTS

1. Some would radically strengthen the IFIs:

*MERVYN KING, Governor of the Bank of England contends that the IMF is irrelevant. Martin Wolf of the “Financial Times” (2/22/06) responds to Mervyn King, Governor, “Let us be brutal: the IMF is on the brink not just of ‘obscurity,’ as Mr. King suggests, but of irrelevance.” Mr. King believes that the IMF should be an authoritative economic colossus which, among other things, would drive the trade talks.

*In a 2/23/06 letter to the “Financial Times,” FRITZ FISCHER, Former Executive Director at the World Bank called for creating single board for IMF and World Bank, saying that “Such a pooling would not only cut costs at a time when their traditional revenues from interests to loans are shrinking. It would also reduce duplication and – above all – guarantee consistent advice for the clients.

2. Others would shrink the IFIs and refocus their role in the world.
*YILMAZ AKYÜZ, would radically overhaul the IMF. See his paper, “REFORMING THE IMF: BACK TO THE DRAWING BOARD,” (Third World Network, November 2005):

The paper recommends that the IMF should focus on short-term counter-cyclical current account financing and policy surveillance and withdraw from its involvement in development and trade policy as well as bail-out operations in emerging markets. Rather, it suggests that the IMF should help preclude the need for bailouts by working with emerging markets to manage unsustainable capital inflows by promoting appropriate measures, including direct and indirect controls. Finally, the paper urges the IMF to pay greater attention to destabilizing impulses originating from macroeconomic and financial policies in major industrial countries.

While the paper calls for changes in IMF policies and modalities, it concedes that any reform designed to bring greater legitimacy would need to address shortcomings in the institution’s governance structure. It holds out little hope for change in this regard. The paper contends that governance reform would require that the IMF end its dependence on a few countries for resources and that its engagement with countries be independent of bilateral arrangements.

Reformist campaigners call for:

*ending the IFI practice of imposing policy conditions on financing, unless conditions relate to strengthening fiduciary capacity – that is the capacity to spend resources for the intended purpose. As agents of globalization, the IMF and World Bank derive their clout from the practice of attaching policy conditions to their financing of governments. Such conditions supplant democratic practice, often requiring that borrowing countries to pass laws acceptable to the IFIs and compliant with the WTO. In 2004, a World Bank loan to Mozambique required that the President of that country issue seven decrees, thus bypassing the parliament altogether. Executives in many borrowing countries become more accountable to the IFIs than to their own citizens.

*withdrawing the IMF from its role as head of a “policy cartel.” The IMF has a unique role in the global economy insofar as it modulates the flow of financing to governments based upon its assessment of their performance. If the IMF declares that a government is “off track,” or not in compliance with the institution’s policy conditions, most financiers will withdraw from the country. Operating as head of such a policy “cartel,” the IMF effectively closed the spigot on most financing to the government of Malawi from January 2002 until August 2005, when the country was gripped by famine. The IMF often punishes the most vulnerable countries, while “blinking” as strategic countries such as India or Pakistan flout its mandates. The U.K. has already declared that it will no longer automatically follow the IMF’s “signals;” the U.S. should do likewise.

*eliminating the requirement that national strategies be shaped and endorsed by the IFIs. In 2000, the IFIs began requiring the governments of low-income countries to produce national development strategies (i.e., Poverty Reduction Strategy Papers (PRSPs)) for endorsement by the institutions’ Boards. Governments prepare these documents with input donors and creditors as well as citizens in order to provide a framework for external assistance. However, citizens are excluded from discussions of key policies, for instance, those related to trade and privatization of basic services. External actors should withdraw from the process of preparing these strategies. Independent countries should not need to have their development strategies endorsed by their creditors.

*supporting efforts by the U.S. Congress to curb corruption at the World Bank. In particular, it is important to call for independent audits of the institution’s operational performance.

*requiring that the World Bank comply with “best practice” with regard to environmental and social performance. This would entail reversing the recent weakening in environmental policies (e.g., the removal of the ban on clear-cutting forests); compliance with the guidelines of the World Commission on Dams and conclusions of the Extractive Industries Review. As a public institution, the World Bank should be a trend-setter for the private sector.

*encouraging the formation of regional institutions, such as the Asian Monetary Fund, which can usefully supplant a global “control center” for macroeconomic policy.

*increasing democratic governance of the institutions. In each institution’s 24 member executive board, votes are distributed to governments based upon their financial holdings in the institution. Industrialized countries control approximately 62% of votes in the IMF and World Bank, with the U.S. alone holding veto power. Countries where the institutions operate have insufficient “voice” in their decision-making.

The World Bank states that it never forces policies upon its member governments. In fact, the World Bank, like the IMF, negotiates the terms and conditions of its lending arrangements with the Finance Ministers of borrowing nations. For the most part, citizens and their representatives in parliament have little role in influencing these deals. Hence, it is not surprising that, under contract to the World Bank, Princeton Survey Research Associates, surveying over 2400 opinion leaders in every region of the world found that “Most opinion leaders think the World Bank forces its agenda on developing countries. This finding is consistent and overwhelming in all regions and in virtually all countries.” In reaction to policy conditions, such as those that eliminate subsidies for basic staples, there have reportedly been 238 incidents of civil unrest involving millions of people across 34 countries, according to the U.K.-based World Development Movement.

Globalization and its Implications: The Size and Location of

Manufacturing Sector Export firms in SC

         There are basically five sets of changes that have been at the heart of the globalization process that has been building since the late-1970s and that became the leading international economic force in the 1990s:

1. MARKET LIBERALIZATION. Liberalization of markets WITHIN countries is the tricky and often under-appreciated part of the globalization picture. Globalization is usually thought of as integrating ACROSS national markets (i.e., global market liberalization). However, it makes little sense to liberalize across markets when the internal markets that are to be linked together are burdened by regulatory and other inefficiencies. The process of internal market liberalization started first (1970s) and was overlapped beginning from the mid-1980s by the broadening drive for globalization of these markets (Indicative of this is the fact that the first of the emerging market funds—the Korea Fund—was established in 1986).

      2. NATURAL BARRIERS. Reduction in the natural barriers to moving information, money, things, and people between different locations, whether across a border or not. This is primarily the issue of “transport costs” for these various items. Some of the cost reductions during 1960-2000 (reviewed below) were based on technological developments, while others were based on efficiency-improving market liberalization.

3. ARTIFICIAL BARRIERS. Reductions in the artificial barriers to moving information, money, things and people across borders (reviewed below). This is primarily the issue of government policies that limit movements of the above items across borders. This is almost totally a market liberalization phenomenon, though it gets much support from technological developments as well.

4. INSTITUTIONS. Institutional integration, including the move to formalized and mutually-consistent rules of social and business association. This is the issue of reducing the risks and the costs associated with people in two nations entering into (fairly and consistently) enforceable contracts with each other. It is also about creating social support systems that allow firms in different countries to compete on the same cost bases (e.g., How do the unemployment insurance programs of the respective countries affect the cost accounting of competing firms from different countries?)

     5.STANDARDS. Standardization of specifications, terminology, management processes, and contracts. [In practice, institutional integration easily could have been included under the heading of standardization.] Standards and standardization represent another of the often-unrecognized changes underlying globalization. Examples include international standardization of cargo container specifications, of definitions of pharmaceutical terms, and of weights and measures. Profoundly important to the present paper is the standardization of management processes by ISO 9000 and ISO 14000. The problem with globalization, of course, is that you can’t just integrate national markets into a global economy without affecting a lot of other things. Take, for example, the issue of institutional integration. The French do not object to having an economy that makes France a rich and powerful country. But most French citizens have little interest in doing so by using Anglo-American institutions such as the case law that is said to be better at adapting to the ever-changing demands of commercial transactions. Nor do most Frenchmen want to integrate their agriculture into a competitive global economy that might drastically change the way that rural and urban landscapes interface and that might force their vineyards to consolidate into larger operations. By the same token, many aspects of standardization also raise French ire. We know how most French feel about the issue of standardizing on the use of American English for business transactions and on the move to franchised food and entertainment— for now, perhaps the penultimate consumer experience in global standardization. But then, some American businesses are not thrilled about standardizing on the metric system as a replacement for the feet, pounds, and miles measurements that long ago were inherited from the British. Reluctant Europeans that they are, the Brits themselves have made only a partial conversion to the metric measurements used on the European continent, though these measurement systems have been officially specified by both the EU organization for standardization (CEN – Comité Européen de Normalisation) and the International Organization for Standardization (ISO).

So it is not just the French who oppose some or other aspect of globalization.

Otherwise, how could those large crowds be raised to disrupt meetings of such Globalism advocates as the World Trade Organization, the World Bank, and the International Monetary Fund? To understand this rather large opposition to globalization, one really needs to understand the difference between globalization and Globalism in a way that many opponents of globalization/Globalism often do not.

While globalization is a phenomenon, Globalism is a philosophy. In simplest

terms, Globalism can be defined as the advocacy of globalization as an economic phenomenon. Globalism is promoted by the so-called “Washington Consensus” that is said to consist of the U.S. Treasury Department, the International Monetary Fund, the World Bank, and the Institutes for International Finance and for International Economics.

 Why would these economic organizations be proponents of globalization as a phenomenon? Well, because economic models generally show that what is true about market liberalization at the single-economy level is even more true for market liberalization at the global level. Market liberalization tends to increase the efficiency with which things get produced, and it tends to increase the efficiency with which choices can get made. The more broad the liberalization and the greater the number of liberalized markets that get integrated together, the greater the potential for economic efficiency.

Economists are fairly unified in their belief that the record shows that market

liberalization increases the rate of growth of real per capita income. As a philosophy of national and international economic development, Globalism

took on steam between 1985 and 1999 as a replacement for the old approaches to economic development that ruled during the decades of the 1950s through the 1970s. The old approaches sought to achieve growth and development by deepening the physical investments within national economies that were not closely integrated with each other.

In the old system, a developed country got richer by saving and investing internally. Poor countries were to be helped along towards economic development by having the rich countries make targeted transfers of official development assistance that were to go into capital investments via “projects”. This system gave rise to the bilateral aid programs of

USAID, British ODA (now DFID), Canadian CIDA, etc. It also gave rise to the multilateral aid institutions of the World Bank Group, the UN agencies such as UNDP, and the regional development banks such as Asian Development Bank (ADB), Inter- American Development Bank (IDB), African Development Bank (AfDB), and Caribbean Development Bank (CDB). These were largely projects-based organizations for much of their history. The spreading philosophy of Globalism is now forcing all of these organizations to alter their approaches to development assistance. This includes a shift from primarily handing out money for investments towards using that money to cajole changes in not only policies but also institutions of public and private governance, legal systems, social safety net systems, etc.

The old approaches to growth, development and economic management arose during the Post-War environment of the Bretton Woods economic system (put together in 1945 at the Bretton Woods, NH, conference by the Englishman John Maynard Keynes and the American Harry White). A prime objective of the Bretton Woods system was to promote international economic stability while allowing each country to pursue policy autonomy—i.e., to de-link their own economies from the global economy so that they could have internal economic and social policies that were different from those of other countries. Thus, the old Bretton Woods approach was not only much more tolerant of inter-country differences, it practically celebrated these differences. Of course, the Bretton Woods system began to fall apart in the 1970s, with the landmark event being the US abandonment of the fixed link of the dollar with gold in 1973. It is taking more than two decades for the fall of the old system to result in a new system for managing national and global economies, however. And, as we seek to show in Part I, we do not yet have unanimity on this new system that is being pushed by the world’s leading economic management organizations.

 This involves the interface between the high theory of the most arcane area of technical economics— general equilibrium theory—with the real world of growth and development. In practice, it boils down to an issue of coming closer to achieving “complete” markets for all kinds of contingent and other claims on resources. By liberalizing existing markets, and by connecting more of these markets together, one can presumably come closer to achieving the “general equilibrium of a competitive economy with complete

markets” that underlay the Arrow-Debreu (1954) model. There is much discussion amongst high theorists about equilibrium with complete markets versus equilibrium with incomplete markets, but this need not concern us in the practical kind of a paper we are attempting here. If it does concern any of you, then a good place to begin the study of these issues is with Magill and Quinzii.

Globalism embodies an almost diametrically opposed approach to the policy

autonomy that underlay the Bretton Woods system. Globalism is primarily about integration of markets into a larger economy. Global integration of markets takes away much of the scope for national political autonomy. The starkest example of this diminution of policy autonomy comes in the form of the currency boards now used in a number of countries to achieve exchange rate stability. These boards achieve that stability by completely taking out of the hands of local politicians the ability to affect the national money supply.3 The countries that have adopted currency boards basically have

emasculated their central banks. No longer can a central bank in a currency board country “accommodate” the loose-purse-strings policies of politicians who would create one new spending program without thinking about what else has to be cut back to pay for that program. Do otherwise in today’s globalizing economy, and global capital markets will give your currency—and your domestic economy—the lashing that most economists

would say that you yourself actually deserve. Given that the old Bretton Woods system allowed policy autonomy while globalization does not, it is not difficult to imagine that many in the LDCs are not terribly fond of Globalism as an approach to economic development. This lack of fondness is particularly pronounced amongst the old-line politicians and bureaucrats in those countries who benefited from privileged access to the official development assistance flows. Thus, many people in the LDCs and in the old development establishment join the French and others in opposing Globalism as a socioeconomic philosophy and globalization as an economic force. But, as we suggested above, the opponents of these two things are not always clear in separating those parts that are natural outcomes of technological change versus those that are subject to philosophically based policy decisions and are thus mutable rather than immutable forces. By the same token, many individuals in the developed countries are not fond of globalization’s tendency to diminish the scope for policy autonomy. People in industries that previously were protected from global competition by tariff barriers, for example, tend not to favor either Globalism as a philosophy or globalization of markets as a phenomenon. So one might expect that, as the tariff barriers that separate markets have been lowered by GATT and the WTO during the past forty years, there would be an emerging tendency for the previously-protected to push for non-tariff barriers to replace the old tariff barriers. Indeed, this tendency is observable. And, of course, globalization—with or without acceptance of Globalism—forces a pace and a scope of institutional change that challenges both the private and the public

 Most of these currency boards resemble the old “specie” standards in which gold or silver backed all currency units. In the currency board arrangements, a country generally must have a US dollar or some other international reserve currency in hand before the currency board will allow it to issue a specified number of units of that country’s own currency. Steve Hanke of Johns Hopkins University is one of the most outspoken among economists favoring currency boards or outright use of one of the world’s reserve

currencies: “[A]lmost 70% of all dollars and 35% of deutsche marks are held and used outside their home countries. There are 31 political entities that officially use foreign currencies in lieu of their own, including

Liechtenstein, Panama and Monaco. Of these, 13 have adopted the dollar as legal tender and 10 have adopted one European currency or another. The remaining 8 nations have adopted other currencies.” Steve governance systems of countries that are not yet up to the market institutions standards

set by the Americans and the Brits. For example, the Asian financial crisis of 1997-99 was made worse (if not precipitated) by the over-reliance on bank lending relative to equity sources of finance and, in parallel, by the absence of markets for securitizing the bank loans. As a result, capital asset prices in these countries were not able to adjust fluidly to changing prices of materials and products and to changing conditions in global capital markets. So the adjustment came in the pent-up form of a crisis instead of a constantly shifting set of financial asset values. Many of the countries caught up in the Asian financial crisis of the 1990s were among the most successful of the so-called emerging market economies (Korea, Thailand, Indonesia, Malaysia), not to mention Japan which was hailed in the 1980s as the new global economic power. But these countries—even Japan—did not have the kinds of equity and security markets that the Americans, the Brits, and—to a lesser

extent—continental European countries have. And if these countries have had difficulty achieving the scope and pace of change in policies and the institutions required by globalization, just imagine the problems faced in the poorest of the less developed countries (LDCs) and in the formerly planned economies (FPEs) of the Soviet Union and Eastern Europe! We can begin our wrap up of Part I by summarizing four sources of opposition to Globalism/globalization:

       1. Those who oppose the social and institutional changes that must be made in order to efficiently integrate markets together.

      2. Those who profited from the distortions that separated markets in the old system of policy autonomy and want to continue to benefit from these overall economic inefficiencies.

      3. Those who fear that the pace and the scope of institutional change can not be made to accommodate the currently rapid rate of globalization.

      4. Those who simply do not understand either Globalism or globalization and, thus, are talking from beliefs and perceptions that simply do not match the current reality. Now, where does the foregoing leave the state of South Carolina as we seek to define the economic development strategies that are most likely to succeed in the first decades of the 21st Century? Well, first of all we start out by recognizing that South Carolina reacts to what is happening in the big world outside—we do NOT get to determine what is happening, for the most part. So we simply accept Globalism and globalization as probable realities. This means that we need to understand the philosophy (theory) of Globalism and the phenomenon of globalization; and we need to understand their implications for South Carolina and for the world at large in both general and specific terms; and then we must design appropriate investments and policies to deal with these implications.

                

                                      Prepared by :

                     Esmaiel Abul Naga  Shaaban Abul Naga