Clarence Henderson
Henderson Consulting International
Manila, Philippines

This Month's Focus: The effect of globalization on Asian and Philippines policy, business development, and economic development. Historical background to globalization, rooted in neo-liberalism and free market ideology, and the arguments of pro- and anti- globalization adherents. Implications for Asia and the Philippines.

"Industrialism is going to be a curse for mankind. The world we must strive to build needs to be based on the concept of genuine social equality … economic progress cannot mean that few people charge ahead and more and more are left behind."

- Mahatma Gandhi

There's so much we share
Then it's time we're aware
It's a small world after all . . .

Though the mountain divide
And the oceans are wide
It's a small world after all . . .

- Richard M. & Robert B. Sherman, Lyrics to "It's a Small World"

Although starting off with the rather odd combination of a Gandhi quote and the be-happy lyrics associated with Walt Disney's homogenized, pseudo-idyllic plastic ride might seem a stretch, I thought them both oddly relevant as I ruminated about how to follow up my March Pearl column (Globalization, Part 1). In that column, I tried to provide an overview and some brief analysis of the Philippine's postwar economic development. To provide a broader perspective, however, it is important to place the idiosyncratic experience of the Philippines in global context.

Hopefully, such discussion will facilitate generalization to the experiences of other developing countries and contribute to some understanding of today's rather unruly debate about globalization. Indeed, the current brouhaha about globalization - whether in Seattle, Bangkok, Washington, or Switzerland - has become so bitter and politicized that terms have become undefined and the key issues forgotten or ignored. The following comments are intended to provide a balanced point of view, if such a thing is possible.

Liberalism and Neo-Liberalism

Much of the globalization debate involves "neo-liberalism", a term referring to the particular policies that have dominated the international economy over the last half century. Take away the "neo-," of course, and you're left with the old perennial "liberalism," an overused term that refers to many things, including political, economic, social, and religious phenomena. We can trace its roots back to Adam Smith's The Wealth of Nations, published in the year of American independence (1776). Smith argued that governments should place no restrictions on manufacturing or commerce and that the "invisible hand" of supply and demand would automatically drive progress. The word "liberal" came to refer to lack of government controls and to laissez-faire policies encouraging "free enterprise" and "free competition."

In practice, of course, the invisible hand of capitalism was not always fair or equitable, and the early industrialists were free to make huge profits and do business pretty much however they wanted. One need only refer to America's famous "robber barons" to get some idea of just how wide open things were. Nevertheless, economic liberalism prevailed in the United States throughout the 1800s and early 1900s and there's no denying that it propelled the states from a provincial backwater into the world's economic powerhouse.

All of that changed, of course, with the Great Depression. The 1929 Stock Market crash was just the beginning, and the economic devastation in the states and indeed around the globe was devastating. Roosevelt's New Deal, crafted under the intellectual guidance of John Maynard Keynes, led to fundamental changes in economic and fiscal policy and indeed, to a transformation in the relationship between public and private sector. The classic model of liberalism was basically discarded, the key argument being that full employment was necessary for capitalism to survive and grow, and that only governments and central banks could get the job done. Although it eventually took the economic punch of World War II to achieve full employment, the Keynesian policies of the New Deal improved life for many people and led to widespread acceptance of the concept that governments could and probably should intervene in private markets to advance the common good.

By the end of World War II, however, another reformulation was called for. The world's economy was in a shambles and major industrial nations like Britain, Germany, and Japan were in ruins. When the leaders of the free world met at Bretton Woods, New Hampshire in July 1944, they found themselves faced with an unprecedented set of economic challenges. Their task was basically to reinvent the way the world's economy worked, nothing more, nothing less.

Part of their solution was to create multilateral financial institutions (MFIs), including the International Monetary Fund (IMF), the World Bank (the International Bank for Reconstruction and Development), the International Finance Corporation, and the International Development Association. These institutions and their successors and counterparts (e.g., GATT, WTO, UNCTAD) evolved into the primary financiers of a great deal of the world's development and advocates/protectors of today's global free trade regime. In its "neo" formulation, liberalism was again alive and kicking, featuring:

• The unquestioned rule of the market and the re-emergence of the invisible hand. Epitomized by NAFTA, there were to be no trade restrictions and no price controls, and all markets (including labor markets) were to be unregulated.

• Reduced public expenditures for public services, which in practice often meant dismantling or weakening safety nets. The philosophical concept of the "public good" and the New Deal's commitment to a strong public sector were basically thrown from a speeding car. One unfortunate result was that poor people around the world were further marginalized.

• Deregulation in all possible sectors, including environmental regulations and job safety.

• Privatization, involving the systematic selling off of state-owned enterprises. This has generally been in key industries such as finance, utilities, and telecommunications, and in practice has led to even further concentration of wealth in most countries.

Consequences of Neo-liberal Globalization

These, then, are the fundamental processes of globalization. However, globalization goes much further and deeper. Today we see the accelerating globalization of international finance and trade. We live in a world of just-in-time information, a world of large ethnic and international migration, a world with open flows of scientific knowledge and technology, and a world with widespread criminal syndicates. Further, globalization involves much more than international trade. It involves the whole of society and the homogenization of entire cultures. Global trade and advertising changes consumer expectations, preferences, and lifestyles in an irrevocable fashion. Indeed, the opponents of globalization argue with some validity that the end result is likely to be the dominance of a mushed out, lowest common denominator mass media culture and the extermination of local cultural values and art.

These arguments, of course, have been at the forefront of the current debate and have provided the motivation and inspiration for the anti-globalization movement that crystallized beginning in Seattle. And their major points are pretty powerful:

• The basic neoliberal prescription - get government out of the way, deregulate financial markets, wire up the world, let multinationals have free rein, and trust in the invisible hand of the free market - has led to the accumulation of power and capital in ever-fewer hands, increased dominance of international finance, and worsening inequality. According to the United Nations Development Programme, the richest 20% of the world's population consumes 86% of global resources. The poorest 80%, in contrast, consumes only 14%.

• According to the Food and Agriculture Organization of the United Nations, 790 million people in the developing world suffer from hunger and malnutrition. Further globalization on the current model will not help the situation. By buying into the globalized system, developed countries must of necessity subsidize their agricultural sectors and limit export markets for their farmers. The net impact is to prevent developing countries from "growing their way" out of poverty. Further, distorted world commodities markets leave no incentive for international investment in the agricultural sectors of developing countries.

• The dominance of free market, export-oriented development has been disastrous to the environment. The IMF and World Bank, as part of their "structural adjustment" packages, encourage countries to expand exports to earn hard currency to pay down their foreign debts. In practice, this puts pressure on poor countries to over-exploit their natural resources at an even faster rate regardless of ecological consequences.

• The IMF's strict adherence to a policy of capital accounts liberalization to facilitate the rapid inflow of capital to fuel expansion was counterproductive. When the fundamentals in domestic economies, beginning in Thailand, turned sour, the same people who so eagerly invested before immediately high-tailed it out of the country, leaving the locals to deal with the resulting devastation.

• High interest rates, deemed essential to attract foreign capital and keep currencies stable, in reality fueled speculation and weakened and undermined domestic production.

• Privatization efforts, which were supposed to raise government revenue and enhance fiscal stability, led to the disintegration of safety nets.

• Trade liberalization, supposedly designed to stimulate the market, further marginalized small producers and hurt consumers.

All in all, a pretty good set of arguments for the anti-globalization movement. However, it won't do to just leave it at that....

The Reality of Adaptation and Survival

While blind opposition to globalization based on the above arguments may be a defensible position for the intellectuals, academics, and NGOs now leading the anti-globalization movement, it's not quite so simple for policy-makers in developing countries. The reality is that globalization is the dominant force in the international economy, and it is not going away.

One should not forget that the Asian economic miracle was fueled by foreign investment in the first place. Malaysia, Singapore, Taiwan, and Thailand created a hospitable environment for foreign investment and welcomed technology transfers in the form of licenses, capital goods, inputs, and foreign training. The result? Rapid economic growth, job creation, enriched human resources, infrastructural development, and healthy national accounts.

Indeed, it was the phenomenal economic growth in the region during the two decades before the crisis that improved the economic fundamentals and provided a strong inoculation against the aftermath of the crash. The rapid rates of recovery now being observed throughout the region - something that "experts" continually declare their amazement about - actually reflects the cumulative positive effect of years of labor-intensive export manufacturing, which served to raise productivity and household incomes and to lower poverty rates.

Even though the Philippines itself missed out on the Asian Miracle and never reached Tiger status, the same arguments are relevant. President Ramos' policies of liberalization, privatization, and reform allowed full participation in the international economy, created lots of jobs, and in net impact improved the quality of life for Filipinos. The improved fundamentals that resulted also help explain the Philippine economy's current resilience. The Estrada administration's continued allegiance to those same progressive policies is the main factor that explains the generally positive outlook for the Philippines economy (see the Philippines Market Capsule for highlights).

The Philippines, like most other developing countries, could not survive without access to the world market. The country has to export to earn foreign exchange, and the country must attract foreign investment if it is to continue to develop. Estrada's new Economic Mobilization Group (EMG) is focused on attracting foreign investment, and the Department of Trade and Industry (DTI) is furiously seeking to keep those inflows coming.

Secretary of Trade and Industry Mar Roxas, grandson of the first President of the Republic of the Philippines, is placing particular emphasis on the IT sector. And with good reason, as described in Globalization, Part 1. I find myself contributing to this effort in a small way as a member of the "E-Commerce Council", a public-private sector group currently advising the DTI and the administration on the country's internet and IT-related strategy. The objective: to position the Philippines as the "Offshore Business Support Haven" for international corporations. The information superhighway is a key support structure for globalization, and it behooves the Philippines to aggressively pursue its comparative advantage for IT and IT-enabled services.

All of which is not to pooh-pooh all of the anti-globalization arguments. Many of the points are well-taken:

• There is a pressing need for better and stronger safety nets, and developing countries should find strategies for increasing their leverage vis-à-vis the international financing agencies and multinational corporations.

• The values and cultural integrity issue is an important one, and the Disneyfication and McDonaldsification of the entire world is not a pleasant thought.

• Developing countries should have an equal opportunity to develop their agricultural sectors and to export farm goods. Ideally, this would decrease the number of hungry people, build foreign exchange earnings, increase per capita income, and increase the demand for imported goods.

However, globalization is the dominant paradigm, and it happens to provide immediate access to economic resources (investment capital), export markets, jobs, and technology - things not to be sneezed at. Indeed, those are the very things required for economic and social development. For a country like the Philippines, facing the reality of globalization, philosophically-based protests in Washington are far removed from the challenges of domestic development. The reality of globalization must be confronted, and the governments and private sectors of developing countries must adapt if they are not to be left behind.

Clarence Henderson

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