Globalisation - Good or Bad?

(Keynote address at Worldaware Youth Conference: Constructive Dialogue on Globalisation Issues Conference, London March 4 2004)

Imperialism, Colonialism, Capitalism and Communism were all words which galvanised people during the later part of the 20th Century. Now, with the end of the cold war, Globalisation has replaced those -isms as a catch all phrase with connotations of dark dominance in the new millennium.

The term has also tended to become synonymous with the US.

A lot of antipathy to the war in Iraq, opposition to President Bush, and US government policies on climate change and other issues, has been channelled into opposition to American multinational corporations.

To many, Macdonalds, Nike and other US multinationals symbolise globalisation, and opposition to them - often by people who wear their Nikes when they are eating their quarter-pounders - is as much to do with anti-Americanism as it is to do with the real issues of globalisation.

In fact, American corporate dominance is not on the increase. In 1950, the US was making 2/3rds of the world's cars. Today it produces less than 20 percent. The same is true of many other products. Multinationals now come from many different countries with quite a few being headquartered in developing countries from Mexico to Malaysia.

So my first point is to separate the real issues of a highly interdependent world economy from any emotional reaction to unpleasant things the US administration in Washington does.

What is new?
There is nothing new about international trade. It is what drove the great explorers from the Vikings to the Phoenicians. What is different today is the acceleration of the internationalisation of business and what Tom Friedman, columnist of the New York Times has called "the democratisation of information and communications."

We all know how the internet allows people at opposite ends of the earth to communicate. In 1980, phone conversations travelled along copper wires, which carried less than one page of information a second. Today, a strand of optical fibre as thin as a human hair can transmit in a second, 90,000 volumes of the Encyclopaedia Britannica.

When I was growing up goods travelled between nations by ship. Today, 40 percent of manufactured exports travel by air. All of these advances make it much easier for people to benefit from international trade and business communications.

I must tell you from the outset that I am in favour of trade and open markets because I believe that we all prosper as a result. In particular, trade and foreign investment are critically important for lifting people out of poverty in developing countries.

Let me give you a simple example. I was in India last week. Fifteen years ago the Indian government allowed very little foreign investment and it had a very small share in world trade. Annual growth in GDP moved along at a fairly sluggish 3-4 percent a year in those days.

In the late 1980's and early 1990's India followed China's example a decade earlier, and started to allow foreign competition.

From 1982 to 1992, India's GDP increased by 25 %. Between 1992 and 2002, it increased by 108 per cent. With a population of 1.2 billion India's economy has to grow if it is to offer any hope to the many millions of its people living on less than a dollar a day. Most of that growth in the last decade resulted from Indian companies being forced to become more efficient through competing with international firms.

Globally it is estimated that trade liberalisation under the Uruguay Round alone has delivered a global tax cut of $200 billion dollars a year.

Foreign companies operating in developing countries provide new jobs and also tend to pay higher wages. They also permit technology transfer and bring in management expertise.

So what is the problem?
What I have described sounds very good, but all is not perfect.

1. All countries need to behave by the rules. And that especially applies to the rich countries. The massive agricultural subsidies paid to farmers in the European Union and the United States makes it very difficult for exports from developing countries to compete. Added to this is the fact that unprocessed commodities from developing countries can generally enter rich country markets with little restriction and zero or low import tariffs; but once the developing country converts cotton into clothes or maize into canned sweet corn, those more possessed products come up against trade barriers. And it's the additional processing in their own countries that can provide more jobs for poor people.

2. Large companies operating on a global scale need to behave in a way that allows them to make a profit without exploiting workers. In fact, the vast majority do behave well. But a minority of companies take advantage of weak laws and regulations in developing countries and operate according to the lowest permissible legal standard in areas like health and safety, product labelling, and observing environmental standards.

3. We must not ignore the tremendous problems created by corruption in developing countries. My company does a lot of work in the water sector in Asia. We see countless instances of complex rules being created by governments in developing countries just to create a situation where bribes must be paid to get around the rules. Corrupt local officials and contractors make it impossible for a poor family to get a connection for drinking water or to get their meter red accurately without paying a bribe. That is corruption at the local level, but millions change hands at a company to government level in the awarding of contracts. A few years ago I was in Ghana. There, cocoa farmers can only sell their crop to the Cocoa Board which sells it internationally at a price beyond Ghana's control. Back then, the cocoa Board employed 100,000 people. Their salaries had to be paid from what Ghana sold its cocoa for in the world market which meant there wasn't much money left for the farmers. With the help of the World Bank, Ghana decided to cut back the Cocoa Board by eliminating 42,000 jobs. But when they started to fire people they found they only had to fire 24,000 because 18,000 salaries were being paid to people who didn't exist. In other words, the salaries were being pocketed by corrupt officials.

These then are some of the problems that give global business a bad reputation. We need fair global rules, we need ethical multinational companies that are willing to operate in developing countries to the same standards as they do at home, and we need honest developing country governments.

Let me touch finally on the roles of the World Bank, the International Monetary Fund and the World Trade Organisation. A host of other international organisations from the Asian Development Bank, the Inter American Development Bank to an alphabet soup of UN agencies are all playing a role in our globalised world.

These organisations have differing roles. Some provide finance for development from roads to health care to education on much more generous terms than could be obtained commercially and they give advice on how to run economise more efficiently. Some of them, like the WTO, provide rules to govern trade and other activities. Others like the ILO focus on labour standards and so on.

The Bank and the Fund and the WTO all come in for a lot of criticism and I urge you to study what they do in detail rather than simply accept the popular rhetoric. These bodies belong to some 185 countries, both rich and poor. All the countries have a say in their policies. A common criticism is that they are dominated by the rich countries. In the case of the Bank and the Fund, that is because Rich countries put up a lot of the cash. But I can tell you, having attended countless World Bank board meetings, that the 24 people sitting around that table representing 185 countries all have an equal voice even though the American at the table represents 20 percent of the votes and the director from Tanzania represents 15 countries and just three percent of the votes. The point is that the board hardly ever has a formal vote - the reach a consensus in which all points of view are weighed.

I would like to see some reform to allow more power to developing countries, but the problem is not as great as may think. It should also be remembered that the industrialised countries are not just made up of the US, the UK, France and Germany, but include Norway, Sweden, Denmark, Netherlands, Canada and so on, all of which have a tremendous record in fighting for the poor.

The WTO is an essential body in that it provides a forum to ensure fair trade. The rich countries have a powerful voice there, but its Director General is from Thailand and most of the penalties that the WTO imposes are on rich countries not on the poor.

The globalised world is a reality. No amount of protest will change that. The challenge is embodied in the title UK government's white paper of four years: "Making Globalisation Work for the Poor."

When you study globalisation, I urge you to pay attention to thoughtful campaigners like Oxfam which does excellent research. Read books like No Logo by Naomi Klein, the bible of the anti globalisation movement, and by Joe Stiglitz the Nobel Laureate, with whom I worked at the World Bank. But also read the book by Mike Moore, the former head of the WTO, read the UK government white paper on Globalisation and read OECD's publications the research papers of the Overseas Development Institute. Type the names of any of these organisations into Google and go to their websites and you will find plenty of thoughtful perspectives in good well written readable language. I would suggest that if the protesters were to spend May 1 sitting in front of a computer reading all sides of the argument it would be more productive than breaking the windows of MacDonalds in the Haymarket.

Conferences like this one you are attending today provide precisely that opportunity to explore different sides of the argument. I hope you will take full advantage of it.

Now I would be happy to take questions

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(Speech at Worldaware Conference, London,
4 March, 2004)

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