The
global economy - an opportunity to be seized
by
Maria Livanos Cattaui
Paris, 17
July 1997 - Globalization
is unstoppable. Even though it may be only in its early stages, it is already
intrinsic to the world economy. We have to live with it, recognize its advantages
and learn to manage it.
That imperative applies
to governments, who would be unwise to attempt to stem the tide for reasons
of political expediency. It also goes for companies of all sizes, who must now
compete on global markets and learn to adjust their strategies accordingly,
seizing the opportunities that globalization offers.
The International Monetary
Fund produced as good a definition as any in its recent World Economic Outlook.
Globalization is described as "the growing economic interdependence of
countries worldwide through the increasing volume and variety of cross-border
transactions in goods and services and of international capital flows, and also
through the more rapid and widespread diffusion of technology."
This suggests that the forces
driving globalization are technical progress, particularly in information technology,
combined with liberalization of the multilateral trading system and the flow
of capital.
At the same time, we live
in an era of fantastic increases in the global knowledge base and that too is
part of the phenomenon. Of all the scientists who have lived on earth, 90% are
alive today. Every 10 to 15 years, the amount of scientific literature published
in a year is doubled. Thanks to advances in information technology and telecommunications,
this abundant knowledge has never been so readily available.
Globalization's manifestations
are on a stupendous scale. International trade in goods and services now st
ands
at more than US$ 6000 billion per year. The accumulated stock of foreign direct
investment is more than US$ 3000 billion, compared with US$ 735 billlion 10
years earlier. The volume of financial transactions in New York, Tokyo and London
alone is US$ 1000 billion every day about twice the amount as recently as
five years ago.
Total global wealth is growing
faster than populations. Increased equality of opportunity and social mobility
worldwide are giving more people a material stake in the world. The United Nations
Development Programme (UNDP) estimates that in the last 10 years, 500-600 million
inhabitants of the developing world attained income levels above the poverty
line. Over the next 30 years, UNDP expects a further 1.5 to two billion to do
the same. Poverty is actually declining.
There is more good news.
Between 1965 and the early 1990s, the number of jobs in manufacturing and service
industries in the developing world and the industrialized countries of the Organisation
for Economic Cooperation and Development (OECD) doubled from 660 million to
almost 1.3 billion.
Most of the new jobs were
created in the private sector of the developing world, the increased purchasing
power they represent offers new markets for the industrialised countries. It
is for business in these countries to be sufficiently adaptable and enterprising
to move into those markets. And of course that presupposes workforces that are
willing to adjust and governments that maintain a helpful regulatory climate.
The prospects are unlimited.
China, India and Indonesia together already have 100 million people with an
income equivalent to the average income of Spain today. With economic growth
averaging 6%, some 700 million people in these countries will have reached that
level by 2010. According to the World Bank, Asia will need up to US$ 1.5 trillion
in infrastructure investment in the coming years.
The opening up of China
has added a population of 1.2 billion - one fifth of the human race - to the
market economy. The implosion of the Soviet bloc and India's economic liberalization
has brought 1.5 billion more consumers to the global market place.
The Clinton Administration
is quick to point out that the lessons have been well understood in the United
States, whose economy is thriving on globalization. The success of the American
entrepreneurial model prompted President Clinton at the Denver summit to vaunt
its achievements, to the irritation of some of his European guests whose countries
are suffering from high unemployment and are in the economic doldrums. The President's
message was that flexible labour markets, reduced state involvement in the economy,
and a culture based on individual responsibility have produced their own reward
in terms of low unemployment and inflation-free growth.
There is a downside of course,
as some of the Denver participants were quick to point out. Sir Leon Brittan,
the European Trade Commissioner, was quoted as saying: "I don't think you
have to spend a long time in the inner cities of the United States to see that
all is not a paradise."
Still, the opportunities
of globalization do need to be better understood in Europe, where economic and
social rigidities have produced widespread unemployment, rising above 12% in
France and Germany. France's new Socialist government for example is trying
to defend living standards by raising the minimum wage by 4%
for the lowest
skilled workers and gradually introducing a 35 hour week. Some will see that
as a recipe for more job losses and stagnation.
Globalization has had a
consistently bad press in Europe, associated in the public mind with economic
ills for which it is not responsible. Bookstores in London, Berlin or Paris
carry such titles as "Has globalization gone too far?" A German Jesuit
calls it "the race of madmen." A French journalist, Viviane Forrester,
entitled her book on the subject: "L'horreur économique". It
is the age-old reflex of shunning the unfamiliar. Far from being seen as an
opportunity, globalization has triggered protective attitudes and fanned the
flames of xenophobia and chauvinism.
One symptom of the disease
known as "Eurosclerosis" is for politicians, and especially those
on the extreme nationalist right, to place the blame for job losses on globalization,
even though the main reasons lie elsewhere. The true culprits are home-made
rigidities - such as payroll taxes that discourage companies from hiring new
staff, labour laws that make it hard to shed labour, lack of labour mobility,
extensive regulations and charges that discourage budding entrepreneurs from
trying to set up their own businesses.
In France, fears that companies
are shifting jobs to distant cheap-labour countries as part of the globalization
process were a big issue in the recent parliamentary election. The business
magazine "Capital", which in June ran a cover story headed "Should
we be afraid of globalization?" reported that of France's 3,100,000 unemployed
only between 120,000 and 300,000 could be ascribed to "delocalization"
and that figure took no account of new jobs created by foreign companies establishing
French subsidiaries. The magazine added: "The race to raise productivity
is killing far more jobs than busy little hands in Manila."
Globalization creates many
more new jobs than it destroys, but in different sectors and areas. Industries
change under competitive pressure, as they always have done. Some die, others
adapt, and new ones emerge to replace those that go belly-up.
These industrial changes,
arising from new technologies and consumer demand, are undoubtedly speeded up
by globalization. They have a direct effect on jobs. The blunt truth is that
it takes more to be employable in a globalizing, increasingly high-tech world
economy. Generally speaking, sectors shedding jobs in Europe over the past decade
have been those requiring low average educational levels. About 50% of those
working in sectors with low or negative growth have no education beyond basic
schooling.
Stimulated by globalization,
the information age is a powerful influence on the jobs market. Before long,
computer literacy could be as important as the ability to read or write. In
the industrialized world, the number of people who earn their living by making
things is falling, while those in the service sector are on the rise.
This is not to say there
is no future on the factory floor, but opportunities will be restricted. Here
again the demand will be for skilled workers as industries in the established
industrial economies upgrade to more sophisticated high-tech activities in response
to the pressure of global competition. Wage differentials between skilled and
unskilled workers will inevitably widen as a result.
In the yea
rs ahead, there
will be more part-time jobs and more people will be self-employed, supplying
companies of all sizes with their special know-how and personalized service.
For employees as well as
for companies, the keys to the advantages of globalization are well-honed skills,
the ability to compete, productivity and competitive unit labour costs. While
globalization offers glittering opportunities, guarantees of job security are
dwindling. The world of work is becoming more exciting but less predictable.
Jobs for life will increasingly be but a memory. Individual workers will have
to rely more and more on their own skill, industry and resourcefulness. The
state will no longer owe them a living although it must continue to provide
a social safety net for those in genuine need.
So bound up is globalization
with job security in the public mind that scant attention is paid to the bonanza
it brings to consumers. In all continents, they have a much broader choice of
products and services at significantly lower prices. Price increases for global
products, like cars or computers, tend to be lower than for products and services
from locally isolated markets, for example hairdressing salons and the construction
industry
From stereos to trainers,
from T-shirts to mobile phones and stuffed toys, supermarket shopping baskets
throughout the industrialized world tell the same story: the world has become
the consumer's oyster. And it not just goods that are available in unprecedented
variety. The Internet has opened the door to the unrestricted flow of ideas
and knowledge as well. More than any other new technology, it is the expression
of globalization and all it stands for.
Successful companies large
and small are learning to think and act globally. Major companies take pride
in the national diversity of management staff, and the high degree of autonomy
granted to subsidiaries in countries far from the home base. There is an evolving
pattern of cross-border operations between and within firms, creating synergies
and economies of scale. This contrasts with the way multinationals organized
themselves in the past, with groups of affiliates across the world replicating
the parent company.
Today, a global company
usually has a flatter organization, not only in its organizational charts, but
in the minds of its people. Structures tend to be more horizontal, establishing
linkages between business in different countries instead of the old hierarchical
structure, with managers of subsidiaries constantly referring decisions back
to headquarters.
The nationality of companies
is becoming less significant, as a consequence of liberalization of investment,
the growing interconnection of capital markets around the world, and the new
more flexible corporate structures. The decision by British Airways to remove
the national flag from its livery and adorn its tailplanes with designs inspired
by artists of many nations - from Kalahari bush paintings to Chinese calligraphy
is a sign of the times.
Global companies are developing
more flexible forms of organization, and devolving more power and responsibility
to managers and employees. It is for the managers on the spot to derive the
best advantage from their locations in different parts of the world in terms
of technology, production and marketing. While their thinking is global, actions
and commitment are local.
If anything, the global
economy offers b
etter opportunities to small and medium-sized companies than
they had in the past. They can exploit a growing tertiary sector, satisfying
niche markets and responding to the outsourcing requirements of larger companies.
Benefiting from improved communications and the computer, companies can operate
with low overheads. Large parts of the traditional office infastructure can
be replaced by a PC, a fax, an answering machine, and e-mail capability. Smaller
companies can operate on a shoe-string and still be efficient.
The realities of business
practice are clearly ahead of the globalization debate. Things are happening
while some governments are still talking, or worse looking for ways to escape
the inevitable. Since globalization is creating an upward spiral of wealth and
jobs, the aim must be to encourage governments to stimulate the process.
For a country's economy
to keep pace with globalization, it is no longer sufficient merely to have its
own companies invest abroad. Liberalization, deregulation and the modernization
of institutions and procedures that are relevant to business will all be necessary
if national economies are to be compatible with the global economy.
For all the political misgivings
in Europe, there are promising signs in the arena of international trade negotiations
that governments are increasingly willing to adapt to the requirements of doing
business globally. The Uruguay Round began the processing of extending the remit
of trade liberalization for example by the inclusion of the agreement on trade-related
intellectual property rights (TRIPS). This recognised that adequate patent,
copyright and trade mark provisions build business confidence and are thus an
important factor in trade and investment decisions.
The extension of trade diplomacy
into new areas of immediate relevance to the globalization of business is being
continued through the World Trade Organization, successor of the General Agreement
on Tariffs and Trade under whose auspices the Uruguay Round was completed. Business,
through its spokesman, the International Chamber of Commerce, is urging governments
to press ahead with this broader programme.
In its recommendations to
the Denver Summit of Eight in June, the ICC said it was no longer sufficient
to focus on barriers to trade in the traditional sense as the main impediments
to doing business across frontiers. "The emphasis today must be on a wider
conception of market access D on the international rules for doing business
on a global scale."
That agenda should include:
international rules for cross-border investment, competition policy, customs
modernization, the fight against corruption, ensuring that regional trading
arrangements are consistent with the multilateral trading system. While labour
and environmental standards are both issues that acquire greater prominence
as a result of globalization, they must not be used as a pretext for introducing
protectionist trade measures.
What is needed for the immediate
future is for both governments and business to do much more to explain to the
public at large the benefits and opportunities that will flow from globalization,
some of which are outlined in this article.
Governments and business
must work together much more closely, at national and international level, to
design the multilateral rules that will ensure the smooth functioning and good
management of the worldwide market place that
is now a fact of business life.
Globalization is a business-driven
phenomenon, and governments must see business as their natural partner in this
endeavour, on whose success the peace and prosperity of the world in the third
millennium may well depend.
Maria Livanos Cattaui is
Secretary General of the International Chamber of Commerce
For more information
International trade and investment