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The Davos Summit And Its Consequences For Economics
by Omer Bin Abdullah
07/02/2001
The World Economic Forum in Davos is a highly selective club where the movers and the shakers of the world come together. Its influence over governments to shape the global economy in the corporate interest is real.
In addressing the Forum's star-studded gathering of political and business leaders from around the world, Tanzanian President Benjamin Mkapa succinctly put aside the romance of globalization when he said, "Globalization can deliver - just as Tanzania can theoretically play in and win the World Cup."
Leaders of developing countries are demanding a fair share of the benefits of globalization, saying that profits have mainly flowed to the rich industrialized countries. The challenge of globalization is particularly acute for Asian companies. For some, including even one-man enterprises, the Internet provides a chance to run with the big boys. For others, however, their comfortable rut - worn deep over the many years of operating within a simple, domestic market - may be too steep to escape. As a result, globalization will spell their demise.
Among other things, state-owned and family-controlled corporations alike have often enjoyed a monopoly over the market, or at least protection from outside competitors. And in the service sector, companies have been able to thrive despite an attitude that implies the customer is always wrong. That will all have to change - and fast.
Proponents of globalization are warning that businesses must gird themselves for the fight of their lives, although they believe that those who adopt a strategic view, carefully assess their strengths and weaknesses, maintain focus, and stay nimble can still win in today's tougher business climate. They maintain that this recipe is just about to become even more crucial to corporate survival.
On one account, they may be right that the cause of poverty in many developing countries is corrupt leadership. The people of such societies need to become more involved in ensuring that their leaders serve honestly.
However, the leaders of developing countries, who oppose globalization, argue that the "digital divide" - the gap between the haves and the have-nots of the technological world - is worsening, and that further support for globalization and deregulation will come only if they are able to show their people concrete returns and rewards.
Proponents retort that multinationals are a powerful force for good in the world - spreading work, wealth, and technologies that raise living standards and provide better ways of doing business. This is why many developing countries are competing fiercely to attract their investments, they assert.
The theoretical benefits of globalization aside, the present system is unfair in a number of respects. The people in the rich Northern countries contribute far more to environmental pollution than those living in the developing South. If the entire world were to adopt the lifestyle of suburban Americans, very soon perhaps, there would be no world to live in.
Immigration laws are tailor-made so that basically only the best and the brightest people from the South can migrate to the North.
The South is seeking the liberalization of world agriculture trade. For instance, Brazil, a leading agricultural exporter, cannot compete with the one billion dollars a day of farm subsidies that are granted by the United States, the European Union, and Japan.
It was the complaints of developing countries that they have not benefited from previous trade liberalization that led to the failure of the Seattle World Trade Organization conference in December 1999.
The Case Against Globalization: Governments are told to follow two paths. First, deregulate and then privatize. This procedure has been followed in over 90 countries due to the structural adjustment policies of the World Bank and the International Monetary Fund.
The bitter legacy of these policies, however, is growing poverty in all regions of the developing world except China.
Second, they are told to leave business to regulate itself. Corporations have promised to adopt voluntary ethical standards in response to growing public concern over social and environmental damages. However, these promises have often been merely a public relations exercise to deflect criticism. The few companies that are implementing these standards are competing at a disadvantage to the majority of companies that don't.
This is the Davos business model. Of course, entrepreneurs favor an atmosphere that is unregulated, exclusive and beyond the reach of government.
The World Trade Organization (WTO) aims to extend free trade in the provision of services. Not only the external barriers to free trade are under their attack, but also the power of governments to enact domestic regulation that is in the public interest. At stake is the future of public services that are accessible to all.
The prospects of globalization have something to offer to China, which is expected to enter the World Trade Organization later this year. Once it joins that global club, its fellow WTO members will have an even harder time slowing down the onslaught of Chinese manufactured goods into their countries. Enterprises in the rest of Asia will find that China is an even tougher rival in the scramble for export markets and investment funds.
The country's unrelenting rise as a cheap source of exports, an attractive destination for investment, and a mammoth market for goods and services is unmatchable by other Southeast Asian countries. Its wages average below $100 a month, it has two million college graduates a year, and a large economy with scale.
China already has political clout, and a trade-empowered China will only increase that clout, making less advantaged countries in the region dependent on it and allowing it to dictate their policies and, consequently, the will of their people.
Reforms are needed to address the inequalities within the world economic system. The reality is that globalization creates a very uneven playing field. The center, which controls the system, is rich while the periphery becomes less and less rich the further out the field extends.
World governments and institutions have to find ways that encourage individual countries to follow policies that effectively promote economic growth, but do not solely rely on "market discipline."
At present, there are no mechanisms for providing incentives and evening the playing field. Kofi Annan, United Nations Secretary-General, has warned business leaders that they must contribute to global economic development or they will face a backlash against globalization that will provoke protectionism. He has urged business leaders to help him to achieve his goal of enlisting a thousand corporations in backing, by 2002, his Global Compact initiative, aimed at involving companies in partnerships to help develop the social infrastructure and reduce poverty in the developing world.
Annan's challenge can be met if the International Monetary Fund aids capital flows to poorer countries, the World Bank offers more flexible lending mechanisms, and measures to address issues such as labor conditions and environmental concerns are developed within the application of World Trade Organization rules.
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