Globalisation: Globalisation: Friend or Foe ?Friend or Foe ?

Andre Sylvestre, SE., MSc.Andre Sylvestre, SE., MSc.Faculty of Economics, University of Faculty of Economics, University of SurabayaSurabaya

PrefacePreface

The term "The term "globalisationglobalisation" has acquired " has acquired considerable emotive force. considerable emotive force.

Some view it as a process that is beneficial—Some view it as a process that is beneficial—a key to future world economic developmenta key to future world economic development

—and also inevitable and irreversible. —and also inevitable and irreversible. Others regard it with hostility, even fear, Others regard it with hostility, even fear,

believing that it increases inequality within believing that it increases inequality within and between nations, threatens employment and between nations, threatens employment

and living standards and thwarts social and living standards and thwarts social progress progress

The Consequences of The Consequences of GlobalisationGlobalisation Some countries are becoming integrated Some countries are becoming integrated

into the global economy more quickly than into the global economy more quickly than others others

Countries that have been able to integrate Countries that have been able to integrate are seeing faster growth and reduced are seeing faster growth and reduced poverty poverty

The crises in the emerging markets in the The crises in the emerging markets in the 1990s have made it quite evident that the 1990s have made it quite evident that the opportunities of globalization do not come opportunities of globalization do not come without risks. Risks arising from volatile without risks. Risks arising from volatile capital movements and the risks of social, capital movements and the risks of social, economic, and environmental degradation economic, and environmental degradation created by povertycreated by poverty

Important QuestionsImportant Questions

How can the developing How can the developing countries, especially the poorest, countries, especially the poorest, be helped to catch up? be helped to catch up?

Does globalization exacerbate Does globalization exacerbate inequality or can it help to reduce inequality or can it help to reduce poverty? poverty?

Are countries that integrate with Are countries that integrate with the global economy inevitably the global economy inevitably vulnerable to instability? vulnerable to instability?

Economic GlobalisationEconomic Globalisation

Refers to the increasing Refers to the increasing integration of economies around integration of economies around the world, particularly through the world, particularly through trade and financial flows trade and financial flows

The term sometimes also refers to The term sometimes also refers to the movement of people (labour) the movement of people (labour) and knowledge (technology) and knowledge (technology) across international borders across international borders

Globalisation Globalisation Is Not A New TrendIs Not A New Trend Globalization is not just a recent Globalization is not just a recent

phenomenon. Some analysts phenomenon. Some analysts have argued that the world have argued that the world economy was just as globalise economy was just as globalise 100 years ago as it is today 100 years ago as it is today

But today commerce and financial But today commerce and financial services are far more developed services are far more developed and deeply integrated than they and deeply integrated than they were at that timewere at that time

Increasing InequalityIncreasing Inequality

The story of the 20th century was of The story of the 20th century was of remarkable average income growth, but remarkable average income growth, but it is also quite obvious that the progress it is also quite obvious that the progress was not evenly dispersed was not evenly dispersed

The gaps between rich and poor The gaps between rich and poor countries, and rich and poor people countries, and rich and poor people within countries, have grown. The within countries, have grown. The richest quarter of the world’s population richest quarter of the world’s population saw its per capita GDP increase nearly saw its per capita GDP increase nearly six-fold during the century, while the six-fold during the century, while the poorest quarter experienced less than a poorest quarter experienced less than a three-fold increase three-fold increase

Graph 1Graph 1

Four Aspects of Four Aspects of Globalization Globalization TradeTrade Capital MovementCapital Movement Movement of PeopleMovement of People Spread of KnowledgeSpread of Knowledge

Does Globalisation Does Globalisation Increase Poverty and Increase Poverty and Inequality? Inequality? During the 20th century, global During the 20th century, global

average per capita income rose average per capita income rose strongly, but with considerable strongly, but with considerable variation among countries. It is clear variation among countries. It is clear that the income gap between rich and that the income gap between rich and poor countries has been widening for poor countries has been widening for many decades many decades

It reaches the conclusion that output It reaches the conclusion that output per capita has risen appreciably but per capita has risen appreciably but that the distribution of income among that the distribution of income among countries has become more unequal countries has become more unequal than at the beginning of the century than at the beginning of the century

But incomes do not tell But incomes do not tell the whole story the whole story …………..………….. Broader measures of welfare that take Broader measures of welfare that take

account of social conditions show that account of social conditions show that poorer countries have made considerable poorer countries have made considerable progress progress

Some low-income countries, e.g. Sri Lanka, Some low-income countries, e.g. Sri Lanka, have quite impressive social indicators. have quite impressive social indicators. One recent paperOne recent paper2 finds that if countries finds that if countries are compared using the UN’s Human are compared using the UN’s Human Development Indicators (HDI), which take Development Indicators (HDI), which take education and life expectancy into account, education and life expectancy into account, then the picture that emerges is quite then the picture that emerges is quite different from that suggested by the different from that suggested by the income data alone income data alone

Narrowed Gaps Narrowed Gaps Between the CountriesBetween the CountriesA striking inference from the study is a A striking inference from the study is a contrast between what may be termed contrast between what may be termed

an "income gap" and an "HDI gap" an "income gap" and an "HDI gap"

The (inflation-adjusted) income levels of today’s poor countries are still well below those of the

leading countries in 1870. And the gap in incomes has increased. But judged by their HDIs, today’s

poor countries are well ahead of where the leading countries were in 1870. This is largely

because medical advances and improved living standards have brought strong increases in life

expectancy

Nevertheless ………..Nevertheless ………..

Even if the HDI gap has narrowed in Even if the HDI gap has narrowed in the long-term, far too many people the long-term, far too many people are losing ground. Life expectancy are losing ground. Life expectancy may have increased but the quality may have increased but the quality of life for many has not improved, of life for many has not improved, with many still in abject poverty. with many still in abject poverty. And the spread of AIDS through And the spread of AIDS through

Africa in the past decade is reducing Africa in the past decade is reducing life expectancy in many countries. life expectancy in many countries.

How Can the Poorest How Can the Poorest Countries Catch Up More Countries Catch Up More Quickly?Quickly? The experience of the countries that The experience of the countries that

have increased output most rapidly have increased output most rapidly shows the importance of creating shows the importance of creating conditions that are conducive to long-conditions that are conducive to long-run per capita income growth. run per capita income growth.

Economic stability, institution building, Economic stability, institution building, and structural reform are at least as and structural reform are at least as important for long-term development as important for long-term development as financial transfers, important as they financial transfers, important as they are. are.

What matters is the whole package of What matters is the whole package of policies, financial and technical policies, financial and technical assistance, and debt relief if necessary assistance, and debt relief if necessary

Components of Such A Components of Such A Package Might Include Package Might Include Macroeconomic stability to create the right Macroeconomic stability to create the right

conditions for investment and saving; conditions for investment and saving; Outward oriented policies to promote efficiency Outward oriented policies to promote efficiency

through increased trade and investment; through increased trade and investment; Structural reform to encourage domestic Structural reform to encourage domestic

competition; competition; Strong institutions and an effective government Strong institutions and an effective government

to foster good governance; to foster good governance; Education, training, and research and Education, training, and research and

development to promote productivity; development to promote productivity; External debt management to ensure adequate External debt management to ensure adequate

resources for sustainable development.resources for sustainable development.

What Advance What Advance Economies Can Do Economies Can Do Promoting tradePromoting trade Flows of private capital to the Flows of private capital to the

lower-income countries lower-income countries Supplementing more rapid debt Supplementing more rapid debt

relief with an increased level of relief with an increased level of new financial support new financial support

An Advanced Country An Advanced Country Perspective: Perspective: Does Globalisation Harm Does Globalisation Harm Workers’ Interests?Workers’ Interests? How real is the perceived threat How real is the perceived threat

that competition from "low-wage that competition from "low-wage economies" displaces workers economies" displaces workers from high-wage jobs and from high-wage jobs and decreases the demand for less decreases the demand for less skilled workers? skilled workers?

Are the changes taking place in Are the changes taking place in these economies and societies a these economies and societies a direct result of globalisation?direct result of globalisation?

Conclusion 1Conclusion 1

As globalisation has progressed, As globalisation has progressed, living conditions (particularly living conditions (particularly when measured by broader when measured by broader indicators of well being) have indicators of well being) have improved significantly in virtually improved significantly in virtually all countries. all countries.

However, the strongest gains However, the strongest gains have been made by the advanced have been made by the advanced countries and only some of the countries and only some of the developing countries developing countries

Conclusion 2Conclusion 2

That the income gap between high-That the income gap between high-income and low-income countries has income and low-income countries has grown wider is a matter for concern. grown wider is a matter for concern. And the number of the world’s And the number of the world’s citizens in abject poverty is deeply citizens in abject poverty is deeply disturbing. disturbing.

But it is wrong to jump to the But it is wrong to jump to the conclusion that globalisation has conclusion that globalisation has caused the divergence, or that caused the divergence, or that nothing can be done to improve the nothing can be done to improve the situation situation

Conclusion 3Conclusion 3

To the contrary: low-income To the contrary: low-income countries have not been able to countries have not been able to integrate with the global economy integrate with the global economy as quickly as others, partly because as quickly as others, partly because of their chosen policies and partly of their chosen policies and partly because of factors outside their because of factors outside their control. control.

No country, least of all the poorest, No country, least of all the poorest, can afford to remain isolated from can afford to remain isolated from the world economy. Every country the world economy. Every country should seek to reduce poverty should seek to reduce poverty

Closing RemarksClosing Remarks

The international community The international community should endeavour—by should endeavour—by

strengthening the international strengthening the international financial system, through trade, financial system, through trade,

and through aid—to help the and through aid—to help the poorest countries integrate into poorest countries integrate into the world economy, grow more the world economy, grow more

rapidly, and reduce poverty rapidly, and reduce poverty

THANK YOU FOR THANK YOU FOR YOUR ATTENTIONYOUR ATTENTION