TODAY'S GLOBAL ECONOMY
By Fr. Tim Ryan
Today's global economy is fundamentally different from that of a half-century ago. Technical, social and cultural changes have sharply reduced the costs of moving goods, money, people and information between countries. Tariff and other barriers have been relaxed or dismantled. Internationalized investment, production, consumption and trade have consequently risen dramatically, thereby making national boundaries increasingly irrelevant.
The world economy is also more diversified than it was fifty years ago. United States. domination has diminished from constituting a third of world production in the 40s to one-fifth by the early 90s. Economies like those of Japan, Korea, Indonesia, China, Brazil and Mexico have emerged as important economic players. It is projected that China's economy will surpass that of the United States in about six years. Early in the next century, East-Asian economies collectively will be twice the size of the U.S. economy. Other economies will certainly emerge as important future participants.
Rapid "globalization" has progressively weakened national governments. Their ability to use tax laws, full employment policies and environmental protection measures in pursuit of social goals has been eroded. Even industrialized countries like Canada, France, Germany and many others now recognize that economic globalization presents them with dramatic new challenges.
Structural Adjustment Programs
Globalization is taking place within a world economy of gross and still widening disparities where the richest 20 percent of the world's population monopolizes 83 percent of per capita income while the bottom 20 percent subsist on 1.4 percent. Moreover, many of the world's poorest countries are heavily indebted. Onerous interest payments have diminished their capacity to address crying domestic needs, and placed them in a position where multilateral lending agencies like the International Monetary Fund and the World Bank have been able to effectively dictate their domestic economic policy.
The "Structural Adjustment Programs" (SAPS) regularly imposed by these multilateral financial agencies aim at reducing government expenditures (so as to avoid large deficits) and at changing governments. overall management of the economy (through inflation and exchange rate policies, regulatory and market reforms, the privatization of government enterprises, etc.).
Such programs have been strongly criticized. Health and education cutbacks mean that people are less able to contribute to their country's development; societies with massive underemployment suffer increased job-loss; the role of the agricultural and informal economic sectors tends to be neglected. It is widely conceded today that such programs have been unduly rigid and too narrowly focused on fiscal and financial management. Those already suffering have also borne a greater proportion of the adjustment burdens than have the wealthier who have benefited from historic injustices.
The United Nations Summit on Social Development in March of 1995 resulted in a commitment by governments to ensure "that, when structural adjustment programmes are agreed to, they include social development goals, in particular eradicating poverty, promoting full and productive employment and enhancing social integration".
Past experience indicates many ways to improve economic adjustment programs: better timing, content and direction of reforms; the prior phasing in of social safety nets; more time to adjust to impacts; more attention to creating employment opportunities for the displaced; early agrarian reform.
Appropriate Models for Development
Virtually all those sensitive to the realities of the world's poor majority have been able to agree on their critique of inappropriate and unjust economic adjustment programs. However we must honestly acknowledge that past policy failure has also been a driving force in changing economic policies in many emerging countries during the 1980s and 90s. Convinced that previous development models had failed, such countries sought to draw upon the broader range of development experience of the last few decades and, in particular, to analyze the policies of countries which had been able to demonstrate sustained economic growth. The United Nations Economic Commission on Latin America (CEPAL) has argued that it is this reexamination of economic policy rather than global pressure which should be considered the primary reason why most Latin American countries have moved toward policies of deeper global integration.
CEPAL itself played a leadership role in encouraging a re-examination of the accepted tenets of Latin American anti-dependency economic theory by focusing attention on the economic models adopted by some East Asian countries. Between 1965 and 1980, East Asian and Latin American countries had similar average annual growth rates (6 and 7 percent respectively). But East Asian exports had risen by 10 percent annually, while Latin American rates had declined. There was especially keen interest in Korea whose merchandise exports had grown 23 percent a year between 1963 and 1990. The East Asian countries studied had consistently avoided excessive protectionism and overvalued and volatile exchange rates, had maintained stable economies, high savings rates, low and steady inflation, and had fewer and simpler regulations. During this period, income disparity had fallen in East Asia but had risen in Latin America.
A concrete Latin American development experience was seen to exhibit similar qualities. In the late 80s and early 90s, Chile experienced a vigorous economic recovery. While Chile's economic model had been earlier dismissed as an exotic experiment by an authoritarian regime, by the time of the 1989 elections it was clear that none of Chile's three competing presidential candidates would fundamentally alter the existing economic policy. The Chilean government did move subsequently to increase social spending and achieve better income distribution. But it based these initiatives on solid government revenues helped along by tax reform, not on inflationary financing.
CEPAL has long been a highly respected economic institution in Latin America. For decades it had led in the defense of an inwardly-oriented economic policy. Its challenge to reexamine accepted economic assumptions was not easily dismissed as simply "neoliberal propaganda". Moreover, while acknowledging obvious parallels between their position and neoliberalism, CEPAL studies have also emphasized strategic consensus-building and the promotion of social equity.
There seems some basis for arguing that moves by virtually all Latin American economies toward deeper integration into the global economy have borne some positive fruit. Annual growth rates since 1990 have averaged 3.5 percent versus 1.5 percent in the 80s. Most of the region has achieved single-digit inflation. Trade among the largest Latin American economies grew by 50 percent between 1991 and 1994. Capital inflows have been six times greater in the 90s than in the 80s. On the other hand, income disparity has increased and support for greater economic integration will be difficult to sustain unless more of the population sees some benefit flowing from it.
A More Just International Economy
Those concerned with greater justice in the world have tended to pass a quick and clear negative judgement on economic globalization. However, it is important to avoid over-simplification. There are many different models and degrees of economic integration between countries. These can range all the way from minimal rules of mutual respect, to agreements which coordinate or harmonize economic policy or, most dramatically, establish a new level of government to set common economic policy. Moreover, the impact of economic integration is not necessarily determined by the forces which promote it. External sanctions and threats may override a domestic opposition armed with legitimate and important reservations. Yet the resulting integration could still end up benefiting the developing country or countries in question.
Economic liberalization programs also tend to attract opposition in a way that stagnation and non-adjustment do not. And, since governments have little incentive to undertake such traumatic changes during periods of economic strength, such reforms are generally brought in after a period of increasingly unacceptable economic deterioration precisely at a time when adjustment costs will be felt most acutely.
There is good reason to be cautious in assessing the impact of deeper global integration on emerging countries. Our experience is mostly restricted to more modest types of integration. On the other hand, we should not simply ignore the position of development economists who argue that many of the liberalizing and globalizing economic reforms undertaken by developing countries in the past decade have been, in the balance, advantageous to them.
Impacting Globalization Patterns
Accepting that global economic integration is an ambiguous process with the potential for good or for evil does not mean abandoning ourselves to the dictates of blind economic forces. Rather it challenges us to try to help shape the process of globalization in the service of greater global justice. Currently several different strategies for active engagement are being pursued:
1. Working at a national level
We waste precious energy if we try to pretend that the power of national governments is not today dramatically conditioned by the forces of globalization. However this does not mean that individual societies and their governments are completely powerless in how they adapt to the changing global economic context. We are still called to struggle at a national level to promote just and effective economic policies. But we also live in a period when we must courageously examine past approaches to determine if they are still the best means of pursuing our goals.
2. Focusing on Trade Agreements
Another strategy for dealing with economic globalization focuses on building common social and ecological standards into multilateral trade agreements. Working to make the environmental and labour "Side Agreements" of the North American FreeTrade Agreement more effective would be one example of such an approach. On a broader scale, many argue that human rights, labour and environmental standards and enforcement mechanisms should be incorporated into the mandate of the new World Trade Organization.
This strategy is not without its ambiguities. Advocates of such new conditions on trade in industrialized states often find themselves allied with narrowly-focused, even xenophobic protectionists (i.e. NAFTA opposition in the U.S.). Many in developing countries resist such conditions as unilateral impositions rooted in the national self-interest of industrialized countries.
On a more fundamental level, development economists argue that inappropriate standards enforced through such sanctions could well be detrimental to developing countries. Developing economies. hopes for a future role within the global economy are tied in part to specialization through comparative advantage. Moreover common standards which deregulate financial markets or encourage foreign investment, privatization, and domestic competition may be helpful to developing economies (while unfortunately tending also to aggravate economic disparities) whereas those relating to intellectual property rights might well prove detrimental.
Integrating the environmental and labour standards of developed and developing countries represents a particular dilemma. At one extreme, identical labour standards could destroy comparative advantage for a developing economy. Agreements against the use of forced labour, on the other hand, could enshrine important humanitarian standards while being unlikely to significantly impact competitiveness.
Multilateral standards-setting through bodies such as the World Trade Organization and the International Labour Organization tends to be more acceptable when it is clearly linked to commitments to promote global trade and achieve greater social justice in the international workplace. Positive inducements like technical assistance to labour organizations in low wage countries or the expansion of trade-adjustment assistance in high wage countries also seem more likely to be advantageous to developing countries than sanctions.
3. Working to make global business accountable
A third strategy for trying to impact emerging global structures focuses on the global business corporations which are its primary economic agents. Globalized involvement by even moderately-sized corporations is rapidly transforming the focus of the corporate social responsibility movement.
Corporations increasingly acknowledge some obligation to represent the interests of various constituencies with an important stake in their operations. Yet concrete standards and meaningful accountability are virtually non-existent. Efforts are under way to develop effective codes of conduct which might better define and monitor corporate social responsibility within the global context. Important issues of corporate governance and accountability never effectively resolved at a national level must now be grappled with globally.
Canadian Christians share in humankind's pursuit of creative responsibility in our increasingly interwoven world. Living in ever closer proximity and facing common economic, political and environmental challenges has the potential to increasingly bind us together as a single human family if we can but effectively transform present flawed and unjust relationships and structures.
It would seem that globalization should be viewed as an important "sign of the times," an historical reality which is both daunting challenge and potential giftedness. The quest to share in the creation of appropriate and just global structures seems situated at the very core of our particular contemporary human calling. By God's grace, we are assuredly not bereft of fitting paths forward.
Fr. Tim Ryan is the Director of Scarboro Missions' Justice & Peace Office.