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					Citation: "Globalization." Issues and Controversies, 27 September 2002. FACTS.com. Facts On
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Issue Date: September 27, 2002

Globalization
AP/Wide World

Of all the changes that have taken place over the last few decades--technological, medical and
societal--analysts say that perhaps none has been as powerful or done as much to fundamentally
change the way that the countries of the world relate to each other than globalization. In fact, the
other innovations have served to further cement globalization's place as a dominant force for
change around the world.

Globalization, in its simplest terms, refers to the integration of economies around the globe via
the removal of restrictions on trade and finance. In essence, globalization means that money--as
well as labor, materials, technology and production--can flow between countries with relative
ease. It also refers to the exchange of culture and ideas.

Globalization is so pervasive that even when it is not directly mentioned in the news, it is a major
force shaping the world. The problem of combating terrorism around the world, for example,
may be discussed without specific references to globalization. But, analysts say, globalization
underlies many of today's hottest domestic and international topics of debate such as terrorism,
poverty, development and international relations.

Globalization is a phenomenon that affects all countries, from the richest to the poorest. The U.S.
is part of the same global economy as such extremely poor nations as Sudan and Bangladesh.
This presents some problems, analysts say, because the interests of disparate nations are often
quite different. But since the larger, more influential countries are better able to advance their
own interests, they usually win policy debates about globalization.

Some people are totally opposed to globalization, claiming that, among other ill effects, it
hinders the efforts of poor nations to climb out of poverty. They believe that the process of
opening borders to trade and the free flow of money and ideas should be abandoned. But, some
analysts say, fewer and fewer people are continuing to share this attitude, which is now viewed
by most of those involved in the debate as marginal and out of step with reality.

For those in the power structures of government and business, the question is not whether
globalization should proceed, because it is assumed that it will. Rather, the question is how it
should proceed. Within this group, there is vigorous disagreement about the way globalization
should take shape and evolve. On the one hand are those who say that the present course of
globalization is progressing nicely. But another group contends that globalization has largely
failed the world's poor, and that a new paradigm for globalization is needed, one involving more
equitable distribution of resources.
One of the central tenets of globalization is the concept of free trade. Unsurprisingly, experts say,
free trade is also at the center of the debate about the future of globalization. Although free trade
means that policies that protect a country's industries--such as high trade tariffs on imported
foreign goods--are abandoned, in theory at least, the truth is that, for rich countries, that is often
not the case. As evidence, analysts cite the signing in early 2002 of a steel tariff bill by President
Bush (R) and a farm subsidy bill that Bush signed in May 2002. If, analysts say, trade were truly
free, then protectionist measures like the steel and farm bills would not be passed and goods
would be allowed to flow freely without the burden of tariffs.

Proponents of the status quo say that globalization is a positive force that is making the world a
better place. In fact, they say, economic and social indicators--such as poverty rates, infant
mortality and education--show that the world's people are better off than they were before
globalization, even if they are still very poor. The solution to economies that are not sufficiently
open to trade is more globalization, in the form of free trade, not less, they say.

Globalization, supporters say, not only lifts people out of poverty, but is also the best method of
bringing democracy and freedom to many parts of the world that currently lack them. Once
people begin to acquire some economic sway, in the form of money from better wages, they will
begin to demand better education systems, adequate health care and basic democratic rights like
the right to have a representative government that is responsive to the people, they say.

Critics, however, contend that, as practiced, globalization has been more of a way for the rich
countries of the world to maintain their position of dominance than a way for the poor to rise out
of poverty. The indicators that proponents rely on for statistical evidence in support of
globalization are conflicting, opponents say, with some indicating that people are now better off
and others indicating the opposite.

Furthermore, critics say, the success stories that supporters often point to do not apply in today's
world because the rules of international trade that allowed those countries to prosper are no
longer in effect. In fact, they say, the methods once used by countries to gain rapid wealth--
which supporters tout as proof that globalization is a success--are now against the rules of
international trade. If poor countries today were given the same opportunities that formerly poor
countries, including a number in East Asia, were given 30 years ago, they might be able to rise
out of poverty, they argue.

Is the present course of globalization the correct one? Or does globalization as it is currently
being implemented hurt the world's poor?

Globalization through History

Although the common perception is that globalization is a new phenomenon, some economists
and historians say that it has been taking place for centuries. Similarly, while many critics of
globalization claim that it is simply a way for Western countries, specifically the U.S., to spread
their cultural and economic principles, the process is not the exclusive domain of Western
cultures.
Take, for instance, the state of the world at the beginning of the 10th century, says Nobel laureate
and Cambridge University economics professor Amartya Sen. At that point in time, the flow of
information, technology and ideas came from regions that are typically seen as being on the
receiving end of such transfers today:

The high technology of the world of 1000 A.D. included paper, the crossbow, gunpowder, the
iron-clad suspension bridge, the kite, and the rotary fan. A millennium ago, these items were
used exclusively in China--and were practically unknown elsewhere. Globalization spread them
across the world.

In much the same way, Sen says, the decimal system, which was developed in India between the
second and sixth centuries, spread to Europe. "The agents of globalization are neither European
nor exclusively Western, not are they necessarily linked to Western dominance," Sen continues.
"Indeed, Europe would have been a lot poorer had it resisted the globalization of mathematics,
science and technology at that time."

For the U.S., as well as the rest of the world, the era of free trade as the dominant economic
philosophy began just after World War II (1939-45), with the signing of the General Agreement
on Tariffs and Trade (GATT) in 1947. GATT operated as an international trade forum that
sought to reduce or eliminate tariffs. In 1995, GATT became the World Trade Organization
(WTO), which now has more than 120 member nations and functions, in much the same way that
GATT did, as a way to promote trade through reduced tariffs.

The U.S. has also acted to dismantle trade barriers within its own hemisphere. In 1993, the U.S.
signed the North American Free Trade Agreement (NAFTA), which eliminated trade barriers
between the U.S., Mexico and Canada. And in 1998, the leaders of the Western Hemisphere
nations began formal negotiations for a Free Trade Area of the Americas (FTAA), a free trade
zone that would encompass the entire region. Negotiations on the FTAA are still ongoing.

Globalization Sparks Protest

While it may be true, as Sen says, that globalization has not historically meant Western
domination, some people continue to define globalization as a way for the West to dominate the
rest of the world. On several occasions, those critics have rallied thousands of other like-minded
individuals to demonstrate at meetings of the organizations that make up the world financial
structure, such as the WTO, the International Monetary Fund (IMF) and the World Bank.

It is that financial structure that controls the flow of loan money and development funds to
developing countries around the world. And the protesters say that the way those organizations
treat the developing world--requiring borrowing nations to divert money from education or
public health programs to debt-reduction programs, for example--keeps a large part of the
world's population in poverty. Among other things, the protesters have called for relief of the
multibillion-dollar debt that the developing world owes, a greater respect for indigenous cultures
and more consideration for the environmental impact of globalization.
In December 1999, protesters interrupted a WTO summit in Seattle, Wash. Thousands
demonstrated against what they said was the unfair way that the WTO enforces trade regulations
around the world. After a peaceful start, some of the rallies turned violent, as protesters clashed
with police for several hours.

A few months later, in April 2000, protesters again gathered, this time in Washington, D.C., to
protest a joint WTO, IMF and World Bank meeting. The following summer, in July 2001,
protesters clashed with police in Genoa, Italy at a meeting of the Group of Eight, or G8, whose
members are Britain, Canada, France, Germany, Italy, Japan, Russia and the U.S. This time, one
protester was shot and killed by police.

The September 2001 meeting of the WTO was not accompanied by any protests outside the
meeting itself because it was scheduled at a secluded mountain resort in the Canadian Rocky
Mountains, which put it out of reach of the protesters. Analysts say that future meetings of the
world's financial elite are expected to draw similar protests because the grievances raised by the
protesters have not yet been addressed.

Supporters Say Globalization Is a Positive Force

As globalization has swept around the world over the last few decades, the plight of the world's
poor has improved, supporters say. They concede that there are still millions of people living in
poverty around the world. But that number would undoubtedly be higher and the level of poverty
deeper if not for the advances, such as open economies and technology transfers, brought about
by globalization, they argue.

"Yes, factories pay low wages in Third World countries. But workers in them have neither the
education nor the skills to be paid First World wages," says Doug Bandow, a senior fellow at the
Cato Institute, a libertarian policy group. "Their alternative is not a Western university education
or Silicon Valley computer job, but an even lower-paying job with a local firm or
unemployment."

In fact, supporters say, those countries that have opened their economies the widest, which
means dropping tariffs and blockades to trade, have had the best-performing economies, while
those countries that continue to cling to protectionist policies have been largely left behind. It is
clear, they say, that the answer to poverty around the world is more economic openness, greater
access and more participation in the global economy by those poor countries, not less. To pull
back from the project of globalization now--if that is even possible--would be disastrous, they
claim.

Supporters point to a 1995 study by two Harvard University economists, Jeffrey Sachs and
Andrew Warner, that showed that open economies grew much faster than closed ones. Of the
117 countries that the pair studied, the countries that maintained the most open economies during
the 1970s and 1980s saw their economies grow at an average annual rate of 4.5%. Those
countries with closed economies grew at an average annual rate of just 0.7%.
A 1998 Organization for Economic Cooperation and Development (OECD) study showed
similar results. According to the OECD, countries that are more open to trade grow twice as fast
on average as those that are more closed.

Supporters say those studies show that opening economies is the best way to achieve growth.
And since growth is the accepted precursor for development and improved living standards for
people in developing countries, they say, increasingly free trade will lead to better living
conditions around the world.

For further evidence, supporters point to the experience of many South American countries in the
1970s and 1980s. During that period, several South American countries tried to implement what
became known as import substitution industrialization (ISI). At its core, ISI entails creating
goods for the domestic market rather than for export to other countries. The goal of ISI was to
create a solid manufacturing infrastructure in countries that had previously lacked one, and
thereby make those countries self-sufficient, or at least less dependant on foreign goods. But in
order to do that, governments had to borrow huge sums of money to build that infrastructure
because they simply did not have the money themselves.

In the end, ISI proved to be an unsustainable experiment. As countries began to fall further and
further behind on their debt payments, the lines of credit that had once been open to them were
shut because no banks wanted to loan money to such high-risk borrowers. As a result, many
South American economies stagnated for much of the 1980s, and some are still struggling to find
a place in the global economy.

At the other end of the spectrum, supporters say, is the example of the "Four Tigers" of East
Asia: Hong Kong, Singapore, Taiwan and South Korea. Those four territories, which before the
1970s had levels of poverty rivaling those of South American countries, took a different route
and have prospered as a result, supporters say. Rather than shun foreign investment, they based
their development on export businesses while using foreign money to create the infrastructure
necessary to make those industries feasible.

"In contrast to [the failed policies in South America], certain countries have managed to
dramatically improve their living standard by deregulating their domestic economies and
opening up to global markets," says Daniel Griswold, the associate director of the Center for
Trade Policy Studies at the Cato Institute.

The advantages that globalization offers to developing countries, supporters say, are numerous
and substantial. Reducing poverty in the developing world is a real possibility with globalization
and free trade, supporters say. And in practice, the countries in which the greatest poverty
reduction has taken place have been countries that are following the trend toward openness, they
say.

"Between 1993 and '96," Griswold says, "the number of people living in absolute poverty--what
the World Bank defines as less than $1 per day--declined in [East Asia] from 432 million to 237
million." That decline, supporters say, is proof that globalization as it exists today is a positive
force.
"My research on income mobility suggests that globalization has brought substantial benefits and
opportunities for upward mobility for large numbers of low-income individuals in the emerging
economies," says Carol Graham, vice president and director of governance studies at the
Brookings Institution, a public policy think tank.

In addition to alleviating poverty, by raising the standard of living, globalization aids in the
spread of democracy, supporters say. Once people begin to earn a decent living, they will begin
to demand better education, proponents contend. And, they point out, a better-educated
population is a population less likely to accept political oppression. It is not an overnight process,
supporters acknowledge, but it is a real effect of free trade.

Analysts point to Taiwan and South Korea as examples of the democratizing effects of global
trade. Twenty or so years ago, those two countries were practically dictatorships, supporters
point out, but today they are governed by elected officials who are responsible to the people.
There are exceptions to that trend, specifically India (which is democratic but maintains a closed
economy) and Singapore (whose economy is open despite autocratic rule), but they are isolated
exceptions, supporters say, and do not refute the idea that open economies lead to democracy.

On another front, acquiring the level of technology necessary to compete in a global market is
greatly facilitated by globalization, proponents say. When a company sets up a manufacturing
facility in a country that has very little technology, a process called technology transfer takes
place, in which local workers are indoctrinated in the use of technology and can then offer their
expertise to other employers. In this manner, supporters say, local populations become more
attractive to prospective employers because they are technologically literate.

As countries open their economies more fully and become a functional part of the global
economy, they retain their national sovereignty, but have trade partners to answer to. The result
is that globalization "encourages governments to follow more sensible economic polices," says
Griswold. While countries are free to do as they please, when they are a part of the global
economy they have many other parties to answer to and must suffer the consequences of unwise
economic choices. For instance, if a country takes action that causes its currency to become
devalued, companies might no longer wish to operate within that country and could pull their
money out.

The present form of globalization has offered other advantages to developing countries,
supporters say. One of the most important, they assert, is the spread of modern medicine, which
has had a huge positive impact on the quality of life of millions of poor people. With the
exception of decreased life expectancy rates in countries most ravaged by the AIDS virus
(generally in Africa), the life expectancy in developing countries rose to 65 years in 1997, from
55 in 1970. That substantial increase is attributable, at least in part, to improved medical care
made possible by globalization, Griswold says.

Supporters acknowledge that globalization as it exists in the world today has created some pain
along with its positive effects. But, they say, that is a function of development, regardless of how
it occurs. "The process of development, of moving traditional, agricultural societies into the
Industrial and Information age, is extraordinarily painful," says Bandow. "But that pain must be
endured to achieve a better life." The fact that many countries are trying to develop so quickly,
compounds the problem. "It was difficult enough for Western societies, which took hundreds of
years to develop," Bandow says. "It is even harder for today's developing states, which are
attempting to telescope the process into a few decades."

Globalization Has Failed the Poor, Critics Charge

To date, globalization has failed to deliver the promised benefits to the world's poor, critics
charge. There have been marginal improvements in certain areas, such as health care and infant
mortality rates in some parts of the developing world, they concede, but, overall, the vast
majority of wealth and opportunity still goes to a disproportionately small percentage of the
world's population.

The result, critics say, is that there are still hundreds of millions of people living in utter poverty
across the globe at a time when the rich have never been richer. "All globalization, it seems, is
local, the rules drawn up by, and written to benefit, powerful nations and powerful interests
within those nations," says journalist Tina Rosenberg.

But that is not to say that critics of the current form of globalization believe that the entire project
should be discarded. "No sensible person is 'against' globalization," says Robert Kuttner, founder
and co-editor of the American Prospect. "But a surprisingly large number of otherwise well-
informed commentators are mindless to the fact that there are political choices to be made, often
pitting the many against the few."

Those choices, critics say, have led to globalization being implemented unfairly and its benefits
being distributed unevenly. "The central issue of contention is not globalization itself," argues
Sen, "but the inequality in the overall balance of institutional arrangements--which produces very
unequal sharing of the benefits of globalization."

In other words, those critics argue, globalization can be a good thing--because it can produce
wealth that is desperately needed by poor countries. But most of the wealth that is produced ends
up in the pockets of the rich, rather than of the poor, because of the mechanisms that govern
global finance and trade. And it is those mechanisms, rather than globalization as a concept, that
need to be fixed so that everyone can benefit, critics say.

Although critics acknowledge the potential benefits of globalization, they say that blind
allegiance to the type of globalization that has transformed the world is misguided. They point
out that experts from all political persuasions disagree about the efficacy of globalization at
eradicating poverty. For instance, according to Rosenberg, the number of people living on $1 per
day has dipped slightly over the past 15 years, but the number living on less than $2 per day is
slightly up. The growth rate of developing countries, excluding China, in the 1990s was lower
than it was in the 1970s, when the supposedly harmful closed markets were prevalent, Rosenberg
says. And for Latin America, the growth rate in the 1990s was roughly half that of the 1960s. So
what, critics ask, has really been gained, and why should the current form of globalization
continue to be accepted?
Critics are quick to point out the difference between themselves and those who have protested
against globalization at meetings of the World Bank. The protesters, critics say, often fall into the
trap of romanticizing the plight of world's poor by saying that trade itself is the enemy. This is a
misguided position, critics say. "To embrace self-sufficiency or to deride growth, as some
protesters do, is to glamorize poverty," Rosenberg says. "No nation has ever developed over the
long term without trade."

However, while agreeing that globalization and free trade should not be abandoned, critics do
charge that globalization, as it is practiced, is not benefiting the poor because the conditions
under which nations have to develop today are vastly different than the conditions under which
the U.S. and Western Europe developed centuries ago. While the U.S. and Western Europe were
free to place steep tariffs on imported goods--thereby protecting their domestic manufacturing
sectors--developing nations today cannot follow the same course because international trade laws
forbid those types of protectionist policies.

In fact, opponents claim, the conditions are also quite different from those that the Asian Tigers
faced just three decades ago. Supporters of globalization often point to the success of the Asian
Tigers as an example of how an embrace of free trade leads to an increase in wealth. However,
critics say, while it is true that those countries have done well, at the time they became major
players in the global economy they were allowed to use tactics--such as tariffs and other
protectionist policies--that are no longer permissible under international trade regulations.

"Unfortunately, the rules of global trade now prohibit countries from using the strategies
successfully employed to develop export industries in East Asia," Rosenberg says. Today,
countries are forced to drop all protectionist policies as a condition of receiving much-needed
money from the IMF and World Bank. So the fact that jumping headlong into global trade
worked for several countries 30 years ago, when the rules were different, does not mean that
countries today can expect the same results from globalization, critics contend.

Furthermore, while developing countries cannot implement protectionist measures such as
tariffs, developed nations can still employ them at will. The difference, critics say, is that a
country like the U.S. does not need any money from the IMF or World Bank, and can therefore
flout global trade regulations at will. But countries that do need loans cannot afford to do the
same thing, critics say, which puts them at a huge disadvantage.

Critics also downplay the impact that globalization has on the spread of democracy. The fact that
democratization has sometimes followed the opening of a country's economy, critics say, should
not be taken to mean that there is a causal relationship between the two. In fact, conditions
imposed by international lending agencies often act as an impediment to creating better
educational systems. The terms that those organizations impose on loans often include diverting
money from public education projects toward infrastructure improvements or other areas that are
often more useful to the corporations doing business in a country than to the citizens of that
country.

According to Sen:
Global capitalism is much more concerned with expanding the domain of market relations than
with, say, establishing democracy, expanding elementary education, or enhancing the social
opportunities of society's underdogs. International business concerns often have a strong
preference for working in orderly and highly organized autocracies rather than in activist and
less-regimented democracies, and this can be a regressive influence on equitable development.

Globalization in the Future

Any effort to halt globalization would be futile, analysts say, because the mechanisms of
globalization are so firmly in place. But there is still a healthy debate over just how globalization
should be implemented, and whether today's version of it is the one that should be followed in
the future.

However, recent events have raised some concern over the long-term viability of globalization
and the consequences of too closely linking the world's economies. In 2001 and throughout
2002, several U.S. corporate scandals came to light that shook the confidence of investors as well
as the economy. Enron Corp., a Texas-based energy trading company, was the first company to
fall after being charged with illegal and fraudulent business practices. Other U.S. companies--
such as WorldCom Inc. and Dynegy Corp.--were also rocked by stock fraud claims and charges
of corporate malfeasance.

The U.S. economy was already struggling with a recession, and the corporate scandals sent stock
prices tumbling and further hampered economic recovery. Given that globalization creates ever-
stronger ties between national economies, observers wonder what effect future Enron-style
scandals, and the resulting fall in stock prices and depressed economic activity, might have on
the world economy. In particular, they say, the economies of developing nations are vulnerable
to such downturns and would bear the brunt of such scandals in the future.

"Enron," writes Walden Bello, executive director of Focus on the Global South, a group that
advocates better treatment of those in the developing world, "strips the veil from what Wall
Street used to call the 'New Economy,' which showered rewards on sleazy financial operators
like Enron while sticking the rest of the world with the costs, not least of which is shaping up to
be the worst global downturn since the 1930s."

Bibliography

Bandow, Doug. "Globalization Serves the World's Poor." Cato Institute (April 25, 2001)
[accessed August 21, 2002]: <www.cato.org>.

Graham, Carol. "Stemming the Backlash Against Globalization." Brookings Institution (April
2001) [accessed August 21, 2002]: <www.brookings.org>.

Griswold, Daniel. "The Blessings and Challenges of Globalization." Cato Institute (September 1,
2000) [accessed August 21, 2002]: <www.cato.org>.
International Monetary Fund. "Globalization: Threat or Opportunity?" International Monetary
Fund (April 12, 2000) [accessed September 5, 2002]: <www.imf.org>.

Rosenberg, Tina. "The Free-Trade Fix." New York Times Magazine (August 18, 2002): 28.

Sen, Amartya. "How to Judge Globalism." American Prospect (January 1, 2002) [accessed
September 12, 2002]: <www.prospect.org>.

Stiglitz, Joseph. "Globalism's Discontents." American Prospect (January 1, 2002) [accessed
September 12, 2002]: <www.prospect.org>.

Wright, Richard. "A Real War on Terrorism: Does Globalization Cause Terrorism or Cure it?"
Slate.com (September, 11, 2002) [accessed September 11, 2002]: <www.slate.com>.

Additional Sources

Additional information about globalization can be found in the following sources:

Aristide, Jean-Bertrand and Flynn, Laura. Eyes of the Heart: Seeking a path for the Poor in the
Age of Globalization. Monroe, Maine: Common Courage Press, 2000.

Friedman, Thomas. The Lexus and the Olive Tree. New York City: Alfred K. Knopf, 2000.

Contact Information

Information on how to contact organizations that are either mentioned in the discussion of
globalization and the poor or can provide additional information on the subject is listed below:

Focus on the Global South
c/o CUSRI, Wisit Prachuabmoh Building
Chulalongkorn University
Bangkok 10330, Thailand
Telephone: (66-2) 2187363-65
Internet: www.focusweb.org

World Trade Organization
Rue de Lausanne 154
CH-1211
Geneva 21, Switzerland
Telephone: (41-22) 739 51 11
Internet: www.wto.org

				
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