Liberal Ideas

Globalization - Can Pakistan be a winner?

Aniq ZafarAniq Zafar

Globalization has been increasingly under question after the recession of economy that hit the world in the year 2008 and is predicted to continue in the year 2009.  For most the term globalization only evokes economics and hence many apprehend that the current economic recession may force the states to look more inwardly and these will turn more protectionists and financial and capital markets will not be able to function as freely as they have in the last few decades. Others still argue that the world is so intertwined now that it may not be feasible for any state to look inward only and hope to get out of the economic recession. There are others who see globalization in a much wider context and believe that other aspects of globalisation like Information highways (internet), cultural influences and migrations will continue to play their role in making the world a global village.

To understand the globalization debate one needs to understand what is meant by Globalization. In simpler terms “Globalization in its literal sense is the process of transformation of local or regional phenomena into global ones. This process is a combination of economic, technological, sociocultural and political forces. (Wikipedia)

Globalization is off course often referred to as economic globalization, that is, integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and the spread of technology.

Or  in the words of World Trade Organization's Director-General Pascal Lamy “Globalization can be defined as a historical stage of accelerated expansion of market capitalism, like the one experienced in the 19th century with the industrial revolution.”

Borrowing yet another definition from Professor Erich Weede one can say Globalization refers to an increasing international division of labor and more trade between economies, to cross-border investment and rapid transfers of technology between nations, to global capital flows and to a lesser degree to increasing labor mobility

The term "globalization" itself started being used by the by the economists in the1980s although it was used in the social sciences in the 1960s, however, its concepts did not become popular until the latter half of the 1980s and 1990s.

Globalization is a centuries’ long process that continued in its various forms with the expansion of human population and the development of the civilization. In the last few decades though this process has seen extraordinary expansion, and its impact is far more widespread than the earlier periods of globalization. Some sociologist and economists claim that the early forms of globalization existed during the Roman Empire, the Parsian empire, and the Han Dynasty, when the Silk Road started in China, reached the boundaries of the Parthian empire, and continued onwards towards Rome.

Despite this historical background the first part of the 19th century is recognized as "The First Era of Globalization."  This was the period when European powers were colonizing in Asia, Africa and in Americas. The First World War however ended that era with all the states turning more protectionists for their markets.

Modern period of globalization in the post World War II is somewhat the result of the sustained efforts on part of economists, business interests, and politicians who understood that there were costs associated with protectionism and declining international economic integration. Hence the agreements like General Agreement on Tariffs and Trade (GATT), culminating into World Trade Organization (WTO). This process enabled promotion of free trade and reduced tariffs; creation of free trade zones with small or no tariffs , and containerization for ocean shipping. Reduction or elimination of capital controls, reduction, elimination, or harmonization of subsidies , Harmonization of intellectual property laws across the majority of states, supranational recognition of intellectual property restrictions. (Wikkipedia)

Another important aspect of the globalization debate is the cultural aspect of this process. It was facilitated first with the advent of television and film and in the last decade of the 20th century it was further spurred on with the introduction of internet, computers and satellite television. Initial reactions were somewhat skeptical as most people thought that this would lead to development of a single culture in the world that will be predominantly American and ultimately the traditional diversity and indigenous cultures will suffer. But soon it became clear that the local uniqueness, individuality, and identity would survive and in fact many movements will be born to protect the same. Also the reverse process of influence on more developed societies was also evident.

In short there are number of aspects of the Globalization that affect the world in a host of several different ways. These are Industrial, Financial, Economic, Political, Informational, Competition, Cultural, Ecological- Social (International cultural exchange) Technical and Legal/Ethical.

Some of the benefits of globalization can be counted as

  • Economies of countries that engage well with the international economy have consistently grown much faster than those countries that try to protect themselves. Well managed open economies have grown at rates that are on average 2 ½ percentage points higher than the rate of growth in economies closed to the forces of globalisation.
  • Countries which have had faster economic growth have then been able to improve living standards and reduce poverty. India has cut its poverty rate in half in the past two decades. China has reduced the number of rural poor from 250 million in 1978 to 34 million in 1999. Cheaper imports also make a wider range of products accessible to more people and, through competition, can help promote efficiency and productivity.
  • Improved wealth through the economic gains of globlisation has led to improved access to health care and clean water which has increased life expectancy. More than 85 percent of the world's population can expect to live for at least sixty years (that's twice as long as the average life expectancy 100 years ago!)
  • Increased global income and reduced investment barriers have led to an increase in foreign direct investment which has accelerated growth in many countries. In 1975, total foreign direct investment amounted to US$23 billion while in 2007 it totalled US$ 974 billion
  • Improved environmental awareness and accountability has contributed to positive environmental outcomes by encouraging the use of more efficient, less-polluting technologies and facilitating economies' imports of renewable substitutes for use in place of scarce domestic natural resources.
  • Increasing interdependence and global institutions like WTO and World Bank, that manage the settlement of government-to-government disputes, have enabled international political and economic tensions to be resolved on a "rules based" approach, rather than which country has the greatest economic or political power. Importantly it has bolstered peace as countries are unlikely to enter conflict with trading partners and poverty reduction helps reduce the breeding ground for terrorism.
  • Improved technology has dramatically reduced costs and prices changing the way the world communicates, learns, does business and treats illnesses. Between 1990 and 1999, adult illiteracy rates in developing countries fell from 35 per cent to 29 per cent. Modern communications and the global spread of information have contributed to the toppling of undemocratic regimes and a growth in liberal democracies around the world.
  • The voluntary adoption by global companies of workplace standards for their internationalised production facilities in developing countries has made an important contribution to respect for international labour standards. Wages paid by multinationals in middle- and low-income countries are on average 1.8 to 2.0 times the average wages in those countries.
  • International migration has led to greater recognition of diversity and respect for cultural identities which is improving democracy and access to human rights.

While the critics of the globalization can argue

  • There are social and economic costs to globalization. Trade liberalization rewards competitive industries and penalizes uncompetitive ones, and it requires participating countries to undertake economic restructuring and reform. While this will bring benefits in the long term, there are dislocation costs to grapple with in the immediate term, and the social costs for those affected are high.
  • Some countries have been unable to take advantage of globalization and their standards of living are dropping further behind the richest countries. The gap in incomes between the 20% of the richest and the poorest countries has grown from 30 to 1 in 1960 to 82 to 1 in 1995.
  • Increased trade and travel have facilitated the spread of human, animal and plant diseases, like HIV/AIDS, SARS and bird flu, across borders. The AIDS crisis has reduced life expectancy in some parts of Africa to less than 33 years and delays in addressing the problems, caused by economic pressures, have exacerbated the situation.
    Globalisation has also enabled the introduction of cigarettes and tobacco to developing countries, with major adverse health and financial costs associated with that.
  • The increasing interdependence of countries in a globalized world makes them more vulnerable to economic problems like the Asian financial crisis of the late 1990's.
  • The environment has been harmed as agricultural, forest, mining and fishing industries exploit inadequate environmental codes and corrupt behaviour in developing countries. Agricultural seed companies are destroying the biodiversity of the planet, and depriving subsistence farmers of their livelihood.
  • The major economic powers have a major influence in the institutions of globalization, like the WTO, and this can work against the interests of the developing world. The level of agricultural protection by rich countries has also been estimated to be around five times what they provide in aid to poor countries
  • Trade liberalization and technological improvements change the economy of a country, destroying traditional agricultural communities and allowing cheap imports of manufactured goods. This can lead to unemployment if not carefully managed, as work in the traditional sectors of the economy becomes scarce and people may not have the appropriate skills for the jobs which may be created.
  • Modern communications have spread an awareness of the differences between countries, and increased the demand for migration to richer countries. Richer countries have tightened the barriers against migrant workers, xenophobic fears have increased and people smugglers have exploited vulnerable people.
  • Globalised competition can force a 'race to the bottom' in wage rates and labour standards. It can also foster a 'brain drain' of skilled workers, where highly educated and qualified professionals, such as doctors, engineers and IT specialists, migrate to developed countries to benefit from the higher wages and greater career and lifestyle prospects. This creates severe skilled labour shortages in developing countries.
  • Indigenous and national culture and languages can be eroded by the modern globalised culture

The globalists however discount most of the criticism and insist that globalization works. One of the very ardent globalist and Associate Editor of Financial Times, Martin Wolfe  who has authored the book “Why Globalisation works”, believes that while some  of the concerns regarding Globalization are legitimate, “but the most hysterical complaints of the critics of integration are nonsense”.

He argues that it is wrong to conclude that transnational companies rule the world in an economy that responds to the market dynamics. Also he is of the opinion that neither the WTO nor the IMF can force countries to do what they would very much prefer not to do.

Furthermore he argues that global economic integration does not render states helpless, nor has it created unprecedented poverty and inequality. This question has also been addressed by Prof Erich Weede and he has statistically proven his point.

Taking the example of India and China who are believed to be the largest beneficiaries of the globalization in the last two decades he argues “Since Deng Xiaoping opened China in the late 1970s and introduced reforms which imply creeping capitalism, Chinese agricultural production grew rapidly. Later, China attracted a lot of foreign direct investment. Now, China is a major base for manufacturing. It already was the third largest exporter in 2005: still behind Germany and the US, but already ahead of Japan (The Economist 2005). By 2008 China is likely to become the biggest exporter of the world. In the 1980s even the disparity between urban and rural incomes in China decreased (Lin, Cai, and Li 2003: 145). Hundreds of millions of Chinese were taken out of abject poverty. In the first two decades of reform, per capita incomes grew fourfold (Bhalla 2002: 218). Later and less radical reforms in India led to nearly doubling per capita incomes in a similar period of time and pulled about two hundred of millions of Indians out of abject poverty (Das 2002: 360). Since China and India together account for nearly forty percent of mankind and about half of the population living in less developed countries, economic growth in China and India and other Asian countries contributed to the equalization of the global distribution of income between individuals and households.

He goes on to argue “If we are interested in individuals rather than states, then the empirical facts are clear. Globalization or the global expansion of capitalism has contributed to, or at least been compatible with, an equalization of the size distribution of income between human beings. Since cross-national differences between average incomes are still a more important component of inequality between human beings than intra-national differences in income, it is possible – and currently true - to have growing inequality within many or even most countries and some movement towards equality among individuals on the globe at the same time (Bhalla 2002; Firebaugh 1999; Goesling 2001; Sala-i-Martin 2007; World Bank 2005)”.

In the local context, Pakistan perhaps failed to win from the peak of the globalisation on any sustainable basis. Poor infrastructure, inadequate human resources and a particular security and political environment can be blamed for that.  In pure economic terms Pakistan has to follow a number of policies that may be painful to begin with but can be helpful to sustain its economy in the longer run.  First and foremost is to manage fiscal deficit.  This can be managed by avoiding some of the policies like subsidising energy, using the civil service as employer of last resort; spending on infrastructure as a means to jump start the economy; providing open-ended protection to specific sectors; using price controls as a way to curb inflation; banning exports, to keep domestic prices low; underinvesting in urban infrastructure; underpaying public servants-- such as teachers; and allowing the exchange rate to appreciate too far, too quickly.

On the other hand what Pakistan needs to do is to invest at least 25 per cent of gross domestic product, predominantly financed by domestic savings, including investment of some 5-7 per cent of GDP in infrastructure; and spending by private and public sectors of another 7-8 per cent of GDP on education, training and health. Also a focus on inward technology transfer, facilitated by exploitation of opportunities for trade and inward foreign direct investment; acceptance of competition, structural change and urbanisation; competitive labour markets, at least at the margin; and the need to bring environmental protection into development from the beginning; and equality of opportunity, particularly for women.

In political terms the need of an effective and efficient government cannot be overstressed. In the current scenario it appears that as long as the government and its institutions will have a duality of policy while dealing with the threat of extremists and terrorists, stability will remain elusive. The existence of this threat has multifaceted consequences for the state of Pakistan. Economic and political stability on the one hand and now even the external security seems directly related to the state’s ability to counter that threat.