Globalisation: gains and losses

Contrary to what is often alleged, globalisation has not entailed a 'race to the bottom' in terms of labour or environmental standards. Seventy-five per cent of all foreign direct investment goes to rich countries, not to poor ones with lax labour or environmental regulation.

As the British Trades Union Congress noted in a report published last year, "if multinationals were really looking for the cheapest locations for production they would all be rushing to develop facilities in sub-Saharan Africa where wages are the lowest in the world. The fact that none of these phenomena can be observed shows that globalisation is having none of these effects". In fact the wages multinationals pay their workers in low-income countries are typically double what those paid by locally-owned firms in those countries.

Nor has globalisation resulted in multi- nationals increasing their power at the expense of sovereign governments. In fact the proportion of global economic activity accounted for by the world's largest transnational corporations has actually declined slightly over the past decade. Meanwhile the share of national incomes collected by governments in rich countries, including from corporate profits, has continued to rise, reaching a record level at the end of the past decade. Countries such as Sweden have been able to maintain their generous social welfare systems financed by above-average levels of taxation despite being more dependent on international trade than most Western economies.

None of this is to say that globalisation has not imposed costs as well has brought benefits, or even that those benefits have been equally distributed.

Many countries, often with the encouragement of the IMF or the US Treasury, opened up their financial systems to international capital flows without first ensuring that their own institutions were adequately capitalised, supervised or weaned off State-directed lending. The results, across East Asia, Latin America and Russia during the late 1990s was successive tidal waves of capital inflows and outflows, leaving economic devastation in their wake whilst in many cases lenders or investors from rich countries were bailed out at taxpayers' expense.

Similarly, the past decade has seen many botched privatizations in developing countries, resulting in the transfer of publicly-owned assets to private or foreign interests at prices which did not reflect their value to the countries concerned, and often resulting in sharp price increases or deteriorations in levels of service. Although privatization is neither a pre-requisite nor an inevitable consequence of globalisation, the fact that they have often gone together and that privatization has been promoted by institutions such as the World Bank has heightened hostility to globalisation in many countries, and undermined confidence in government processes.

Larger and faster movements of people and goods may have contributed to the faster spread of human and animal diseases, as perhaps suggested by the recent SARS epidemic.

Globalisation has often imposed hardship on businesses (and their employees) who have lost out to foreign competition. All too often governments have failed to provide adequate compensation, income support, adjustment assistance or retraining opportunities for those adversely affected in this way.

Perhaps most of all, globalisation as it has proceeded thus far has been in many respects unfair to the majority of developing countries. Rich country governments have, for the most part, pursued trade and investment liberalization in areas where their own producers enjoy a comparative advantage, whilst resisting liberalization in areas where they do not or where liberalization would require them to confront politically influential interests in their own electorates.

The stand-out area in this regard is, of course, agriculture, where hypocrisy reigns supreme. Agriculture has been the poor relation when it comes to international efforts to advance the economic benefits from more open and less distorted international markets. Agriculture was not brought into the scope of the General Agreement on Tariffs and Trade, the predecessor of the WTO, until the Uruguay Round which came into effect in 1994. That round, for the first time, saw developed countries commit to reductions in agricultural export subsidies, cuts (albeit with many exemptions) in domestic price supports, the conversion of non-tariff barriers (such as quotas) into tariffs, and reductions in the level of tariffs on agricultural imports.

Implementation of these commitments has seen the cost of producer support (at the expense of taxpayers and consumers) in rich countries fall from 38 per cent of total farm receipts in 1986-88 (the base year for the Uruguay Round) to 31 per cent in 2001.

Nonetheless, support for agriculture in rich countries - in the form of production and export subsidies, import restrictions and artificially high prices - still costs taxpayers and consumers in those countries US$311bn in 2001. Tariffs on rich country imports of agricultural products from developing countries average 22 per cent, compared with 3 per cent on imports of manufactured goods. The average EU cow gets US$2 a day in subsidies - more than a quarter of the world's population has to live on.