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Apr 3 2005, 11:18 PM
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Who profits from economic globalisation? What are its advantages/disadvantages?
Phil Lawn defined economic globalisation as “the integration of many national economies into one single economy through free trade and free capital movement.” Like the first phase of globalisation (from the mid 19th century to 1914), the second phase has been characterised by rapid advances in communications and transportation technology, travel and trade; and by a greater consciousness of the world as a single place, highlighted by global environmental concerns, more widespread demands for participatory democracy, concerns about a “race to the bottom” in labour standards and wages and increased class stratification between and within countries.
Economic globalisation has provided new opportunities for those with capital to increase it, creating greater concentration of wealth in the hands of minority elites. Most international trade and investment takes place within the triad of the US, EU and Japan, and it is the multinational corporations based in these countries which have benefited the most from the free trade rules enforced by the WTO, and the deregulation of financial markets, that have brought financial instability, and hence exacerbated political corruption and instability, in parts of the world (such as South East Asia).
Integration with the global economy, measured as an increase in trade relative to GDP, is not a one-size-fits-all recipe for economic development. This is not just because economic globalisation sometimes cannot benefit the poorest countries (and sectors of society) who lack sufficient capital, technology and sound institutions to underpin economic growth and development. There are many valid routes to economic growth.
But there are limits to the planet’s capacity to absorb all this so-called ‘growth’.
In the pursuit of economic growth and corporate profits, the natural environment is often sacrificed and not considered in government policies.
Corporate colonialism and democratisation
Panos Mourdoukoutas described multinational corporations (MNCs) as a new form of colonialism. In Europe, in the late 19th century, colonialism spread under the name of imperialism. During the 1920s, the United States had launched itself on a path of “corporate colonialism” [1] . Some people would consider it as the reappearance of imperialism, while others might consider it as peaceful despotism. Yet the beginning was not that conspicuous. MNCs in a country of the gold rush, the United States, had just organised subsidiaries in the outside of the country in the 1920s. Later however, it greatly revealed to the world, their management skills with advanced technology: they had established a tight parent-subsidiary relationship by creating their own methods. As a result, they seemed to be carrying “corporate colonialism”. The word “colonialism” may have negative impacts on certain people. Looking back over the past, it was mostly arrogance of the superpowers. However, now perhaps there are both advantages and disadvantages about “corporate colonialism”: acceleration of democratisation and domination of wealth.
Japan is a good example of democratisation being operated by MNCs. Although the concept of democracy was introduced through GHQ (General Headquarters) after the Second World War, democratic management policy of the US, MNCs had a great influence on Japanese corporations. Before the war, Japanese corporations were under the government’s control. Most of the corporations were public; besides, they were the munitions industries. Some financial corporations known as zaibatsu were private, yet they also received support from Japanese government. Therefore, Japanese corporations formed after 1945 had a real democratic figure using the US MNC as a model. MNCs had two main features: strong sovereignty of shareholders and election of executives [2] . Both were quite important elements needed to run MNCs, because the former maintained stable investments (especially from overseas), and the latter avoided being at a deadlock. At the same time, these showed features of democracy: the separation of power and fairness. When these elements were transferred to Japanese (private) corporations, they were finally independent from the government, and democratised. One of the results of corporate democratisation in Japan, was the lifetime employment system. Following democracy, Japanese corporations faced difficulty of dismissal –workers’ rights were vague before then; consequently, the corporations guaranteed workers lifetime employment. When democracy took root in the working places, it naturally extended to society. Thus, “corporate colonialism” led to democracy in Japan.
In fact, democracy coexists with capitalism, and it is almost opposite from the distribution of wealth. The US MNC has been in the lead of capitalism; therefore, “winner-take-all situations” [3] , instead of the distribution of wealth, have resulted. For example, according to American multinationals, the US parent corporations owned 80% of all foreign affiliates in 1994. [4] Also, “The top 100 multinationals own nearly $2 trillion of assets outside their home countries, a quarter of the world's stock of all foreign direct investment (FDI).” [5] This extreme domination is another aspect of “corporate colonialism”. There are mainly two backgrounds as to why the domination of the US parent corporations has occurred. First, the parent corporations have some tactical strategies to avoid losing their competitive power. For instance, geographical and regional research for the expansion is usually undertaken in advance by the parent corporations. Furthermore, any information about products transported by subsidiary corporations to their parent is usually confidential. Second, the tight parent-subsidiary relationship has become a structural diagram, as if it had been regulated by a colonial ruler. The pyramidal structure concentrates not only power but also wealth in the parent corporations. Thus, the US MNC has kept its position for decades, while dominating a large portion of the world wealth.
“Corporate colonialism” has both advantages and disadvantages. For some undemocratic countries, the appearance of the US MNC can be an opportunity of democratisation. However, once they start their business, it tends to result in the domination of wealth. The disadvantage seems like a stronger aspect of “corporate colonialism” because democratisation is less attainable with only MNCs. In other words, the MNC is nothing but a guide for democracy. If so, who profits from economic globalisation? One might be the countries, which were successfully democratised by the US MNC. Needless to say, another is “Might is right”, the US MNC.
Free trade and economic development
International financial institutions and organisations like the OECD have pushed the idea that globalisation is an “engine of world growth”6 in economic terms. They continue to promote it as a means of economic development for the poorest countries. But the new “augmented” Washington Consensus laid out by the IMF may be misguided.7 It still operates within a narrow rich-country mindset, serving the interests of those most in control of it, with an eye to further global economic integration.
In its 2002 report, Globalization, Growth and Poverty, the World Bank implies that integration with the global economy has been the main cause of the rapid economic growth and poverty reduction seen in those developing countries with the highest increase in ratio of trade to GDP between the 1970’s and the 1990s.8 These countries the Bank calls “new globalizers”. On the back of the cover report, Joseph Stiglitz claims that “the battle is... to enable more poor countries to integrate into the world economy in ways that reduce, not increase, inequality and poverty.” However, on page 34 of the report, the World Bank makes what economist Dani Rodrik has called a “startling admission” of the “simple reality” that “deep trade liberalization is hardly ever a factor in fostering higher growth and expanded trade early on”9 when it states that : “We label the top third “more globalized” without any sense implying that they adopted pro-trade policies. The rise in trade may have been due to other policies or even to pure chance.” This means that the US-led multilateral institutions should not impose their idea of good policies onto poor countries, who are better suited to find their own paths out of poverty, in the way that China and India have done.
Dollar and Kraay present a graph showing that the "new globalizers" had the highest GDP per capita growth rate in the world during the 1990s (an average of 5 percent)10 -- but this may only show that countries which have managed to grow rapidly and reduce poverty, through various and often idiosyncratic means, have also, perhaps as a consequence, tended to become more integrated into the global economy, spurring further economic growth. This is one more illustration of the fact that economic globalisation gives those who already have the necessary capital, skills and products new opportunities to increase profits and expand. But trade liberalisation, financial deregulation, privatisation taken to extremes, and even openness to foreign direct investment do not work as a one-size-fits-all recipe for economic growth let alone development, and should not be promoted by powerful institutions as the answer to the development problems of the poorest of the developing countries.
Stiglitz has documented the widespread failure of IMF-imposed reforms based on the Washington Consensus, citing fundamental errors in the sequencing and pacing of reforms, and a failure to appropriately adjust the policy prescriptions to the realities and distinct requirements of local conditions in many and varied developing countries11. As Beck has put it, " there are many paths to modernity -- as many as there are ways of not reaching it."12 The many different kinds of and routes to economic development and growth are illustrated by the historical and present-day institutional and policy differences between North American, European, Japanese and Chinese economic systems. 13 There are similarities too – selective protection of nascent and/or essential industries, selective import substitution, skilful deployment of government intervention as well as an opening up to investment and trade (especially intra-regional trade), have all played a part in the growth trajectories of the advanced industrial countries. China especially is notable for its provision of incentives for investment and local entrepreneurship without even having any private property rights. It was not even a member of the WTO until 2001. Today, neoliberal economic globalisation contributes heavily towards further enhancing the growth of these countries, but as Beck notes, there has been an “uncoupling of economic growth and corporate profits from better working and living conditions for employees” with globalisation.14 Economic globalisation and the cost-cutting, profit-motivated behaviour of MNCs have intensified class stratification both between and within countries15.
Going against the neoliberal trend, Rodrik stresses the importance of quality local institutions necessary to underpin capitalist or market economies: “central banking, stabilising fiscal policy, antitrust and regulation, social insurance, political democracy.” 16 He argues that “[t]he simple idea that markets and the state are complements – recognised in practise if not always in principle – enabled the unprecedented prosperity the United States, Western Europe, and parts of East Asia experienced during the second half of the [twentieth] century.”17 Michael Todaro agrees that “[t]his public-private sector cooperation, and not the triumph of free markets and laissez-faire economics, is the real lesson of the success stories of South Korea, Taiwan and Singapore.” 18 In an article in the New York Times in 1993, Alice Amsden noted that “when the operations evaluation division of the World Bank reported that South Korea and Taiwan used extensive government intervention to industrialise, the Bank refused to publish this analysis.” 19
Skilful deployment of government intervention, the provision of incentives tailored to local conditions, and the practise of waiting until a sufficient level of economic growth has been secured before embarking on trade liberalisation, characterised the ‘success stories’ of exemplary “new globalisers” China, India, Vietnam, Mauritius since the early 1970s and Chile since the mid-80s.20 The balance of evidence would seem to indicate that integration with the global economy is a consequence, not a primary cause, of economic growth. This is not to deny the benefits of economic integration; one of the best paths to economic development for the poorest developing countries may be the expansion of regional (as opposed to global) economic integration, if this could be made politically and culturally feasible.21 This would foster greater self-reliance on the part of developing countries and increase rates of economic growth in a more stable and secure way, facilitating the kind of long-term growth that makes for economic development by improving the quality of public institutions, healthcare and education provisions, access to clean water and sanitation, and access to technology.
Technological impacts
The advancement of technology and its increased availability has emerged as a significant result of the processes of globalisation. Not only has technological advancement enabled greater communication between individuals, communities and whole nations, but it has also enabled travel, especially international travel, to become extremely fast and efficient. Despite these benefits, the resultant economic globalisation has had negative consequences. One example is the unequal distribution of wealth or profits. Those who benefit least from economic globalisation are those who lack access to communications and capital, and as such are unable to take advantage of economic globalisation. People and states that are underdeveloped, who have limited access to technology and capital therefore have limited opportunity to benefit from economic globalisation.
Transportation technology has greatly reduced the barriers of space and time. This can be best demonstrated by advanced transportation modes like intercontinental aeroplanes and modern container ships which allow fast delivery of products to the market. Without these technologies it took weeks or months to deliver goods, which are now delivered in days. Advanced transport modes have also made travel easier, quicker and more efficient. One now travels by jet, car, bullet train and ferry, rather than horse drawn cart and wooden sailing ship, as one did in the 1500s.22 By making transport more efficient, economic globalisation has also lowered the cost of transport, allowing the middle class to benefit, resulting ins a surge of tourism. This demonstrates that the enhanced availability of transportation technology is an advantage brought about by economic globalisation.
Technology has also been a great factor in advancing communication. Communications technology “began with the invention of the telegraph and...was greatly expanded by the invention of the telephone... and then enormously proliferated with the invention of the radio, television and satellite communications technology.”23 Communications technology has been termed as one of the “space shrinking technologies”,24 meaning that these advances have broken down the barriers of space and time. Today, we can now make a phone call from one side of the globe to talk to relatives or friends on the other wide with only minimal time delay. As a result, closer relationships are formed or maintained over great distances by being able to easily and readily talk to these people, when before the telephone existed, this was impossible. Communications technology has allowed one to access money from anywhere in the world, through advances in satellite technology. International financial transactions are common place. Advancements in computer technology have allowed a vast communications system. Not only has it enabled greater communication, it has also allowed access to information, not formerly available to many people. E-mail, in many cases, has replaced the traditional “paper and pen” type of letter, allowing faster and easier delivery, via the Internet. Not only has advanced communication technology enabled individuals greater communication, but it has also enabled groups such as non-government organisations to work effectively, even with members in separate countries. “Increased interconnectedness, partly associated with improvements in communications technology and transport, has given rise to literally thousands of specialist [non-government] organisations, agencies an groups.”25 Some of the best examples of non-governmental groups include Amnesty International, OXFAM and Greenpeace. This shows that the increased availability of communications technology is an advantage brought about by economic globalisation.
Unequal distribution of wealth and profits is just one of the negative consequences brought about by economic globalisation. The gap between the rich and the poor has increased, leaving developing nations poor, while maintaining the wealth of the powerful and rich nations. Globalisation has heightened this gap because, as Griffiths and O’Callaghan argue, “to take advantage of economic globalisation requires both capital and access to technology, [while] many states in the international system have neither.”26 While technology has its benefits, it also magnifies inequality.
MNCs search for profits and environmental degradation
Economic globalisation is a catalyst for free trade which in turn spurs economic growth.27 However this free trade is often damaging to the environment and is why states need to coordinate their environmental policies. With an increase in trade, and more capital, multinational corporations relocate their activities to where services are cheapest, more readily available and where they may compete on for profits on a larger playing field.
Those who lose out in economic globalisation are those people who primarily live in developing countries. Hazardous wastes, which accumulate from the production of materials, are both difficult and expensive to dispose and hence are often dumped in these areas.
As MNCs search for ways in which to maximise their profits, wastes are often exported to poor countries, where they are dumped and not disposed of properly.28 It is in these poor states that governments frequently sacrifice the environment “in their willingness to trade off economic benefits.”29 Not only do MNCs use environmentally damaging techniques to conduct their businesses, in an effort to save money they often skimp on precautionary measures to ensure environmental protection. The Exxon Valdez oil spill is one such instance, where a corporation put profits before the environment. In an effort to cut expenses, the number of crew members was cut back forcing the crew to work and additional four or five hours a day. This led to exhaustion and fatigue, which gave room for human error.30 Consequently, mistakes were made resulting in the tanker shifting off course, causing it to hit a reef. Moreover, the loss of almost 11 million gallons of oil would not have been so extensive had the Exxon Valdez had a double hull, a precautionary measure which would have cost $20-30 million, but a financial burden that the corporation was not willing to take. 31 In other attempts to save money the Alyeska Pipeline Service company in the region did not have the necessary equipment to aid a clean up so the rescue efforts were severely hampered. 32 It has been suggested that because of the inadequacy of the clean up procedures, operations actually caused more damage to the environment than the oil did. Equipment, which had to be bought in, caused further pollution to the region and essentially stripped the beaches and left them bare. 33 The $2 billion dollars which was eventually spent could have been better used. In this instance, both the environment and the corporation lost, however this catastrophe could have easily been avoided had the Exxon Valdez corporation not put short term profits before the long term safety of the environment.
Pollution caused by MNCs not only hurts the environment, but more often than not, residents who live in the area. For the 10 years between 1942 and 1952, Hooker Chemicals buried toxic wastes in the Love Canal waterway in the US. Soon after a school was built on the site and a community grew. Almost 15 years later residents began suffering from the chemicals buried beneath their land.34 Had this corporation disposed of its wastes adequately such complications would not have affected the population. As a result, legislation was enacted, “forcing all contributors to a hazardous waste dump to be liable for any damages arising from the dump.” 35 Other problems which arise from pollution include gastrointestinal infections, parasites, 36 chemical poisoning,37 miscarriages, birth defects and muscular-skeletal disorders. 38 These health problems have serious consequences for the people involved and compensation cannot always remedy the problem.
It is very difficult to try and create acceptable standards of pollution across the globe and a great degree of variation exists in different countries. This is one prime reason that encourages MNCs to shift from state to state.
Standards stipulate how much damage a corporation can inflict on the environment before penalties are incurred. They do not however, make them accountable for their actions. Governments often set standards so that it appears that they are in charge of protecting the environment. These actions usually only benefit the governments because standards are a political tool used to win votes. 39
As standards do not completely protect the environment, taxes and charges are implemented to control the level of pollution created. 40 This “polluter-pays principle” is designed to create revenue41 for governments so that they may redirect the funds for environmental protection. However, corporations may continue polluting the environment and simply factor in the taxes as another cost of their business.42 Moreover, the taxes are often not set high enough to cover clean up operations which cost $10 million dollars on average per waste site. 43 Further critics of the polluter-pays principle argue that, “using the legal system is an expensive way of encouraging good behaviour by polluters”,44 which might be better spent on cleaning up the environment in the first instance. It is important then, that MNCs adopt environmentally-safe practices in conducting their business so that, not only do they protect the environment and the people who live in them; it will effectively save them money in the long run, and they may retain their profits.
Multinational corporations based in wealthy, powerful, western and capitalist nations have the means by which to greatly benefit from economic globalisation; while at the same time dictating to developing nations how and to what extent they should allow its benefits to be equitably shared.
The global economy significantly depends on technological advancement to heighten its processes, benefiting those who can afford access. But there are limits to global economic integration and to how far economic growth can go (given the finite resources of the natural world).
Globalisation has facilitated trade and as a result of this trade MNCs compete for profits all over the world. By relocating their productions to areas where employment and services are cheap, they can maximise their profits. When governments disregard the environment in exchange for FDI, and capital, degradation occurs not only harming the natural environment, but its people. This is of particular concern in the face of global issues such as global warming and green house gas emissions, rising tides and deforestation. This may lead to a host of other problems such as a lack of clean drinking water, food and resources, which directly affect those in the developing nations. Therefore, MNCs must consider the implications and consequences of their actions not only on a local, but also a global level.
Along with growing concerns about a ‘race to the bottom’ in labour standards and wages, all of these features both expose and reinforce the inequalities of wealth and political power across and within societies. “New rules and norms, whether about investment, military security, environmental management, or social policy, are being made by those countries with the power to shape outcomes, and to control international institutions. Less powerful states are, even more than in the past, becoming ‘rule-takers.’... Overall, then, globalisation is exacerbating inequalities of resources, capabilities, and, perhaps most importantly, the power to make and break rules in the international arena.”44