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What is globalisation? Fact vs fiction

By Saul Eslake - posted Wednesday, 15 August 2001


Opponents of globalisation also complain that multinational companies pay their workers in developing countries less than their employees in the industrialised world. But they fail to add that their productivity is a lot less, a point which simple comparisons of hourly wages overlook. Moreover, OECD statistics show that foreign firms pay their employees higher wages than domestic firms; that employment in foreign-owned firms has risen faster than employment in domestically-owned firms; that foreign-owned firms tend to export more than domestic ones (other than in the US); and that, in many cases, foreign-owned firms spend more on R&D than domestically-owned ones.

Finally, opponents of globalisation express concern about the erosion of 'national sovereignty'. They claim that the growing 'power' of financial markets has deprived governments of their ability to decide how big their spending programmes should be and how they should be financed. Yet if globalisation were such a threat to the taxing powers of Australian governments, how could it be that in the financial year 1999-2000, the Commonwealth Government's tax take was, at 26.1% of GDP, the second-highest ever recorded? Of course, other factors are involved. But the point is that globalisation has not prevented governments from pursuing policies appropriate to their circumstances.

What financial markets have done is to make more obvious, more quickly, the costs and consequences of irresponsible economic policies-running deficits under inappropriate circumstances, for example. Since it is often to the short-term advantage of politicians to pursue irresponsible economic policies, it is not surprising that many of them chafe at the heightened discipline and scrutiny imposed by financial markets. But future generations have cause to be grateful.

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Moreover, when it comes to issues other than trade and investment-human rights (including, in the Australian context, the rights of Indigenous people, and gays and lesbians), the environment, whaling, and 'core labour standards'-the same people are usually eager proponents of the idea that the 'sovereign prerogatives' of governments should be over-ridden.

Winners and losers

The recent unease and angst over globalisation can in part be attributed to one of the most profound consequences of contemporary globalisation-increased competition. Not only do businesses face more intense competition than ever before, but governments also find themselves in a form of competition with other governments to attract or retain investment and jobs within their jurisdictions. And workers increasingly see themselves as being in competition, not just with the workers at the rival firm on the other side of town, but with workers in other countries.

Competition is a positive force for economic and social progress, but it is almost by definition disruptive and unsettling. Because individuals are not equal in their endowments, they differ in their capacity to cope with competition. For this reason, the outcomes of competition may often seem 'unfair'. Thus, Alan Greenspan was probably right when he said that

"It is the degree of unbridled fierce competition within and among our economies today-not free trade or globalisation as such-that is the source of the unease that has manifested itself, and was on display in Seattle."

Not even the most one-eyed enthusiasts of globalisation would argue that the process is costless and without losers. Two of them, John Micklethwait and Adrian Wooldridge, US correspondents for The Economist and authors of the stridently pro-globalisation book, A Future Perfect, concede that globalisation "does indeed extract costs, occasionally terrible ones" and that "globalization [sic] can often be just downright unfair or carelessly vicious". Governments, businesses and multilateral organisations need to respond to these concerns. For instance, strong and flexible 'social safety nets' will be needed, more resources will need to be allocated to education, and the decline in R&D will have to be reversed if we are to prosper in this new era.

Conclusion

Australia is one of the countries that stands to benefit most from globalisation. But history clearly shows that governments can put the brakes on globalisation if they think it is in their political interests to do so. Regrettably, history is also littered with too many examples of governments taking political decisions that make citizens worse off. at

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This is an edited version of an article from the Summer 2000-2001 issue of Policy magazine, based on two speeches made in September and November 2000. Click here for the speeches' full texts.



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About the Author

Saul Eslake is a Vice-Chancellor’s Fellow at the University of Tasmania.

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