What is globalisation? Fact vs fiction

The pre-1914 period was also a time in which erroneous conclusions were drawn about the implications of economic interdependence. Just as Thomas Friedman has recently stated that 'no two countries that both had McDonald's had fought a war against each other since each got its McDonald's, so it was argued before 1914 that the 'elaborate interdependence, not only in the economic sense, but in every sense' among the powers of that era guaranteed 'the good behaviour of one state to another'. World War I soon shattered these illusions.

In the years after World War I, governments around the world consciously and deliberately pulled up their drawbridges. They raised tariffs, most famously America's Smoot-Hawley Tariff Act of 1930, imposed restrictions on the movement of capital, and regulated both the temporary and permanent movement of people through the introduction of passports and numerical limits on immigration. The consequences, both for the world economy and for Australia, were disastrous.

Not inevitable

Globalisation eventually resumed following World War II, but it was more limited than the pre-1914 phase. Governments of the world's most developed countries embarked on a coordinated programme - through the General Agreement on Tariffs and Trade (now the World Trade Organisation) - of lowering barriers to trade in manufactured goods.

Australia decided not to participate in the successive rounds of trade liberalisation during the 1950s and 1960s. Hence, it provides an interesting insight into the consequences of opting out of globalisation. We did not participate largely because these 'trade rounds' did not include agricultural goods. What happened during that period? The share of exports in Australia's GDP rose by only two percentage points between 1950 and 1973, less than half that for the world as a whole. By the end of that period it was no higher than it was in 1929.

Many Australians look back on this period as a 'golden age'. Yet it was during this so-called 'golden age' that our long slide down the rankings of national living standards occurred. The Australian economy actually grew more slowly than that of the rest of the developed world. Our productivity growth performance during the 1950s and 1960s was below that of almost every other developed country except the United States.

Others also chose not to participate in the postwar global economy. The countries of Latin America, and most of the post-colonial countries of Africa and Asia, pursued high levels of self-sufficiency, using the full range of trade barriers, nationalised industries, bureaucratic planning and subsidies to do so.

A small number of Asian countries did not. Their contrasting experiences provide another salutary lesson. In 1960, South Korea's per capita GDP was the same as Algeria's, and its third largest export was wigs. Forty years later, even after the Asian crisis, it is the world's 13th largest economy. This growth, and that of the other so-called 'newly industrialising Asian economies', was led by exports.

How well did Latin America's decision to shut out the rest of the world serve its citizens? They succeeded in achieving a high level of self-sufficiency-Latin America's imports fell from nearly 10% of GDP in 1929 to 6% by 1950 and to just 4% by 1973. But the living standards of Latin America's people fell further and further behind those countries with whom they had been roughly comparable at the end of World War II. The experience of Africa has been even worse. It is precisely because the governments of so many countries have observed for themselves the consequences of opting out versus choosing to be part of globalisation that the process has indeed become global over the past 20 or so years. Many facets of what we call globalisation today would have been impossible if it had not been for the decisions of so many governments (including Australia's) to allow, for instance, their citizens to buy goods made in other countries or to obtain the foreign currency necessary to travel abroad.

Globalisation and its critics

If integration in the global economy did not benefit nations, why would countries resort to imposing economic sanctions-that is, externally imposed restrictions on trade and investment-on 'rogue' or pariah states? Clearly, globalisation brings significant economic benefits to a large number of people.

The past two decades, for instance, have been the first in the last two centuries in which global inequality declined rather than rose. Globalisation has clearly benefited the overwhelming majority of the world's poor. A recent study of the experience of 126 countries over 40 years by two researchers at the World Bank shows that openness to foreign trade benefits the bottom one-fifth of the population as much as it does the population as a whole.

Anti-globalisation protestors demonstrating on behalf of the world's poor outside Seattle or the World Economic Forum in Melbourne last year would have been better off demanding that the United States, the European Union and Japan tear down their trade walls against the exports of the developing world, in particular agricultural commodities and textiles. Removal of those trade barriers would do far more to lift people out of poverty in the Third World than the immediate cancellation of all outstanding Third World debt. If developing countries were permitted to export agricultural products and textiles to rich countries, perhaps adults could earn higher incomes, and their children could go to school. Then, in a generation or so those countries would decide-as indeed Western countries did in the 19th century, when per capita GDPs were not that much higher than those of some Third World countries are today-that child labour was no longer acceptable.

Those who oppose globalisation in the name of 'core labour standards' are simply furthering the interests of rich country protectionists. Where in Australia, for example, does one find the most egregious abuses of 'core labour standards'-that is, poorly educated workers enduring long hours in poor conditions performing repetitive tasks for low pay? In the textiles, clothing and footwear industries, the most highly protected industries of all. So why would increasing tariffs further improve 'core labour standards', either here or in developing countries?