| How globalisation can alleviate the plight of the poor |
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| Speaking to the International Humbert School in Ballina, Paul Tansey looks at how globalisation must develop in order to become more inclusive internationally. |
Analytically ‘globalisation’ means nothing more than the internationalisation of the world economy. This internationalisation takes three forms: increased trade flows of goods and services between countries, in the form of exports and imports; enhanced flows of foreign direct investment; spectacular increases in the scale of portfolio investment flows, representing international trade in securities and debt instruments in organised financial markets.
Globalisation has not taken place by accident; it is the consequence both of economic factors and of the adoption of specific sets of policies at both international and national levels. Increased trade flows between countries could not take place without the progressive dismantling of barriers blocking international trade, both physical (import prohibitions; quotas) and fiscal (import tariffs and taxes). Moreover, enhanced cross-border FDI flows requires both the desire of foreign investors to make profitable investments abroad and the willingness of host governments to permit and accommodate such investments.
In theory, the growth in international trade and in foreign direct investment flows should act to raise the economic welfare of all participants in absolute terms while at the same time narrowing income gaps between rich and poor countries. It follows from this that small countries with limited domestic markets are likely to gain more from participation in international trade than are larger countries.
In a very real sense, the Irish experience of the 20th century bears out the veracity of these propositions. The years of protectionism, from 1932 to the late 1950s, featured a stagnant economy, inefficiency in domestic production and extremely heavy net emigration. Since engagement with the rest of the world commenced in the 1960s, Irish economic performance has been much better - barring the lost decade to 1987 when we behaved as if we were immune from global influences - reaching a plateau during the 1990s.
There are many groups of individual countries, or groups of countries, benefiting very substantially from globalisation. The Asian ‘Tiger’ economies (South Korea, Taiwan, Singapore, and Hong Kong) exhibited spectacular rates of economic growth in the thirty years to 1997. Ireland itself is a bright shining light illuminating the benefits of globalisation. But in general terms, the benefits of globalisation, so clear in theory, simply have not manifested themselves in the real world on a global scale. Where trade liberalisation should have engendered global economic convergence, divergence has been the distinguishing feature of recent patterns of development.
This can be seen in two ways, firstly, the gap between rich and poor countries has widened very substantially over the past 40 years. Worse than this is the fall in absolute incomes in the world’s poorest countries in the recent past.
There is a tendency to blame the bankers, most specifically, the World Bank and the International Monetary Fund for the plight of poorer countries. This is more than a little paradoxical, since the World Bank is an international organisation set up under the auspices of the United Nations in 1944. Throughout its life, it has specialised in providing ‘soft’ loans and development finance and advice to the developing world. The IMF has worked to abolish exchange controls and to provide exchange rate support for countries experiencing balance of payments difficulties. Whatever the failings of these global organisations, they cannot be blamed for divergent patterns of development.
Why the dissonance between theory and practice? Either the theory is wrong-headed or the theory has not been put into practice.
The first view is shared by those who organised the protests against the recent G8 summit in Genoa. For them, the whole apparatus of orthodox economics is a sham, an essentially political construct designed to reinforce the hegemony of the rich over the poor.
Whatever the inherent merits of this case, it is clear that the implicit policy recommendation - the overthrowing of capitalism- is something of a long shot. Those of us who live in the real world may have to content ourselves with a second-best solution! However, even within a liberal capitalist world-view, it has to be admitted that free trade has not delivered - and is not delivering- economic convergence. The rich are getting richer and the poor are getting poorer.
One of the major inhibitions to free trade has been the increasing recourse of the rich world to introducing non-tariff barriers (NTBs). NTBs impede free international trade and disadvantage developing country exporters and comprise an array of discriminatory of instruments.
The first great wave of globalisation between 1880 and 1914 witnessed not only a liberalisation of international trade but also major migrations of people. The clearest factor that differentiates that first wave of globalisation in the pre-1914 era from today’s round of tariff reductions is the severity of the restrictions now placed on international labour mobility.
Leaving economic arguments aside, on purely humanitarian grounds, Ireland would probably make a bigger contribution to global economic welfare by abolishing its total official development assistance budget and re-directing the resources to providing the infrastructure that would allow us to welcome greater numbers of economic migrants from the world’s poorest countries to Ireland. |
Paul Tansey is managing director of Tansey Webster Stewart & Co, Economic Consultants.
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| Article appeared in the October 2001 issue.
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