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Jul 14, 2000

Globalisation: any other economic path is ‘suicide’

Terence Creamer Engineering News Deputy Editor For better or worse, South Africa is married to the concept of globalisation – that process which facilitates the integration of economies around the world.

Government has decided that, to travel any other economic path would be ‘suicidal’, arguing vigorously that business and civil society also need to become active participants in the process.

It suggests that, while protests against globalisation – and organisations which have come to represent it, such as the World Trade Organisation (WTO) – may be legitimate, South Africa, and indeed the rest of the developing world, has more to lose by shunning economic integration and a rules-based multilateral trading system than by embracing it.

Earlier this year, in a speech to the Commonwealth Club, the World Affairs Council and the US-South African Business Council Conference in San Francisco, President Thabo Mbeki elaborated on why South Africa is seizing the globalisation nettle with both hands.

In his talk, he argued that globalisation was not only ‘irreversible’, but could also offer developing countries an opportunity for faster growth and wealth creation.

Mbeki said economic integration could even create the platform from which under-developed countries are able to take that ‘quantum leap’ in closing the technological and economic divide that had developed during the second half of last century.

“The tragic and unfortunate irony is that developing countries continue to be spectators in the globalisation process . . . with devastating results for the millions of people of such countries. “This marginalisation of poor and developing countries needs an urgent and comprehensive response,” Mbeki insisted.

His statement comes at a critical juncture in the evolution of the world economy. This is because there are a range of forces beginning to rally against globalisation and the freer trade associated with it, describing it as the biggest threat to humanity, particularly the poor.

These fears were no more evident than at the WTO ministerial meeting in Seattle last December, where police and protesters clashed as world leaders scurried for the safety of the conference venue.

The contentiousness of the issue was raised again this month when the World Development Report’s (WDR’s) lead author Ravi Kanbur resigned as from the World Bank, citing concerns about what he viewed as ‘unreasonable pressure’ to tone down WDR sections on globalisation. This follows the resignation of World bank chief economist Joseph Stiglitz at the end of last year, for similar reasons.

It appears that US Treasury Secretary Lawrence Summers became personally involved in rewriting the globalisation section, which is likely to become an important tool in guiding future aid interventions.

What has emerged over the last few months is an acute sensitivity among world leaders on how issues of globalisation are communicated.

WTO director-general Mike Moore, for one, is at pains to stress that freer trade is good for the poor and developing countries.

Under his leadership, for instance, a special report on trade, income disparity and poverty was released in June. The 70-page document, written by Prof Dan Ben-David of Tel Aviv University and Prof Alan Winters of Sussex University, argues that there is evidence that freer trade has been a strong, positive contributor to poverty alleviation.

“Free trade allows people to exploit their productive potential, assists economic growth, curtails arbitrary policy interventions and helps insulate against shocks,” the report says.

This ‘trade-is-development’ sentiment – together with an acceptance that more needs to be done to ensure that poor countries benefit from globalisation and freer trade – also seems to have won the acceptance of many world economic leaders.

There is also, therefore, growing consensus that a new WTO negotiation round is necessary in order to chart the way forward for a far more balanced, rules-based trading system.

This said, it is also apparent that the prospect of further popular protest against the WTO and globalisation remains a serious impediment to the restarting of any discussions – indeed no country has been brave enough to come forward to host the talks following the now-notorious ‘B attle of Seattle’. All concerned know that, wherever the WTO goes, protests will follow. This is because anti-globalisers (a disparate group of individuals and organisations which range from environmentalists through to US steel workers) perceive there to be a lack of action by governments to establish rules to prevent labour exploitation, environmental degradation and increased poverty.

And there is some justification for this angst. Research paper upon research paper concedes that, while globalisation has led to an unprecedented surge in wealth creation, the gap between rich and poor and rich and poor countries has grown during this period of economic integration.

Sub-Saharan Africa has been particularly badly affected: the number of people living below the $1-a-day level has grown, while the prospects for future reduction in the numbers of those living in poverty do not look good. Recent World Bank estimates show that, by 2008, the same proportion of people may still be living on less than $1-a-day, but that the number of those living in sub-Saharan Africa will rise to nearly 40-million.

On the other hand, in June, economic consultancy AT Kearney released a report, called the ‘Globalisation Ledger’, which shows a different picture of globalisation.

The study – involving the 34 countries (including South Africa), which make up three-quarters of the world’s gross domestic product (GDP) – indicates that rapid globalisers enjoy greater political freedom, benefit from more social spending and receive higher scores on the United Nations Human Development Index, which measures longevity, literacy and standards of living, than slow integrators.

It does concede, though, that while ‘rapid globalisers’ had fared better in terms of growth than ‘slow globalisers’, the inequality gap had grown. Despite the fact that fast globalisers enjoyed economic growth rates that averaged 30% to 50% higher than slow globalisers over the past 20 years, income distribution inequality had also grown by 15% to 20%.

However, the drafters of the ‘Globalisation Ledger’ believe emphasis on the skewed income distribution pattern should not be used to distort the entire picture. They say the growing gap between rich and poor is only one force affecting the incomes of the poor. “In economies that have grown rapidly, the positive effects of growth have outpaced the negative effect of inequitable income distribution. Overall, the combined effect has substantially improved living conditions for the world’s most poor,” the study states.

Without that growth, it is estimated that those living in extreme poverty – that is earning less than $1 a day, as per the World Bank definition – could have swelled from 297-million to 653-million people over the last decade.

The report also notes that South Africa has only been a ‘moderate globaliser’, compared with emerging countries such as Argentina, Chile, China, Hungary and the Philippines which, it suggests, have been far more proactive globalisers.

This may come as a surprise to South African industrialists and the labour movement, both of which have been arguing that South Africa has been far too aggressive in its pursuit of liberalisation.

Indeed, many feel South Africa has gone through rapid deindustrialisation precipitated by rapid tariff liberalisation and subsidy withdrawal.

However, the South African government, and its industrial policy strategists, see it differently. They argue that drastic action was needed to deal with a drastic situation.

A strong proponent of this view – and of the fact that South African industry needs to embrace liberalisation and globalisation or face closure – is Trade and Industry Minister Alec Erwin.

He claims that, even before the African National Congress came to power in 1994, it knew that one of its greatest challenges would be grappling with the twin challenges of globalisation and liberalisation. It was clear that the collapse of the centrally- planned economies of Eastern Europe, the thawing of Cold-War relations and the communications and information-technology (IT) revolution, posed a serious threat to the South African economy, which had been built on a philosophy of import-substitution and protectionism.

“Everything we had in the South African economy was way out of line with what had been happening in other competitive markets,” he explains.

“It was imperative that we pulled the economy away from its divergent trajectory in terms of costs into a trajectory that was more in line with world production. “That meant a reduction in tariffs, because tariff protection was sheltering our economy from world trends and making it inefficient and high-cost.” Over the last six years, Erwin and the Department of Trade and Industry (DTI) have, therefore, set about developing an industrial policy designed to provide South African companies enough time to make the adjustment to global trends, while putting enough pressure on them to indeed make the shift.

During this first phase, generic policy instruments were developed, such as supply-side support schemes, export co-ordination programmes and small-business development projects. Now unfolding is a second phase, during which DTI hopes to disaggregate th e process down to sector or cluster level in an attempt to develop a series of strategic frameworks for specific clusters or industries. A major focus during the next few years will be to encourage partnerships in specific industrial sectors to encourage export-centred investment, particularly foreign direct investment (FDI).

“To survive globalisation, government, labour and business need to be in partnership. It is not an option, but an imperative, and anyone who thinks otherwise is living in Cloud-cuckoo-land,” argues Erwin.

The South African government has also signalled its intention to go global with this partnership concept with the establishment, by Mbeki, of an International Investment Council.

A key focus of the meeting was on macroeconomic indicators, investment trends in South Africa, ways of facilitating FDI into South Africa, and issues surrounding the challenges facing developing countries in attracting FDI.

It can be argued that the setting up of such an international ‘brains trust’ would never have occurred in the preglobalisation era, when governments were fixated on national issues. And now Mbeki is even planning a similar discussion think-tank with leading IT figures from Oracle, Dell and Cisco.

The fact that such a lot of emphasis is being placed on FDI once again underpins the Mbeki-administration’s strong support for, and reliance on, global economic integration.

Meanwhile, on the trade policy end, a fairly complex economic-integration strategy has been adopted, involving free-trade agreements (FTAs) and alliances with like-minded countries to tackle the thorny issue of WTO reform.

South Africa has successfully negotiated an FTA with its biggest trading partner, the European Union, and is putting the final touches to the Southern African Development Community FTA, which should come into force in September. It is also in exploratory talks with Brazil and Mercosur, In dia and Nigeria. A trade and investment framework agreement has also been concluded with the US.

The big target for South Africa, though, is tackling the imbalances that exist in the world trading system and in the organisations and agreements that regulate it.

Mbeki and Erwin are on record, for example, as calling for an all-encompassing ‘development round’ of WTO negotiations, with the objective of placing development issues on the trade agenda as well as widening market access to the lucrative markets of the North.

They believe that there are significant barriers to real accumulation and growth that have to be dealt with: The need for more and better-managed aid so as to deal with the basic needs that will have to precede any form of development in certain areas. An urgent need to facilitate flows of FDI into the developing countries, something that requires a complete structural change in the current conditions.

The world trade system will have to be adjusted within the framework of the WTO so as to eliminate imbalances against the interests of developing countries.

The need to rebuild the social infrastructure is vital.

Overall, South Africa’s industrial policy reveals a great deal of hope in globalisation, as well as a commitment from its leaders to playing an important role in ensuring greater market access for the whole developing world.

This commitment is born out of a belief that globalisation can indeed reduce poverty and increase the living standards of those in the South.

However, a word of caution: while the over-arching approach of the South African government to global integration is laudable, it should not be forgotten that unless ‘fairness’ is introduced into the way countries interact economically, globalisation will bring nothing but pain to the people of the developing world, especially the poor. Undoubtedly, any future debate about economic integration or a new WTO negotiation round will be as much about making trade fairer as it will be about making it freer.

Failing to recognise this would be automatic grounds for divorce between developing and developed economies.

Edited by: System Author

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