Benefits and challenges of globalisation

Globalisation is a description of the fact that countries and their citizens are affected by other people, or governments, or businesses, or decision-makers all around the world. And because communication is faster, and transport cheaper, the connections are more immediate and more intense than ever before. The telephone which first connected suburbs now connects the world and optic fibre transmits data, money, email, knowledge from business to business, home to business, home to home across the world.

As I have previously argued globalisation is not a value, it is a process. Globalisation describes what is happening. And ranting against globalisation is like ranting against the telephone. You can use the telephone for good or for ill. So too the wider process (of which the telephone is part) can be a force for good or ill.

Of all the countries in the world where this should be well understood, it should be in Australia. The founding of the colonies in Australia was an example of globalisation. At the end of the 18^th Century as its economy strengthened, its technological capacity developed, Britain was able to establish and maintain a settlement 12,000 nautical miles from its global centre in London. It couldn't do this in the 16^th Century where its capacity to maintain colonies extended only 3,000 nautical miles to North America.

Foreign investment arrived here in Port Jackson in 1788 with the first fleet. It was investment in construction, agriculture, livestock and government infrastructure. Of course at that stage it was government rather than private investment, but overseas private investment followed thereafter. In the early years it came principally from London. We used the savings of others to invest in and build our economy. Australia is here as a result of globalisation and foreign investment.

None of this is to say that all the consequences have been without blemish, nor to say that we should not try and direct this process to maximise our benefits in the future. In fact I think we should. But we should come at it from the right starting point. A country which is open to trade, investment, technological transfer, is going to be more prosperous and a better place to live than one that is not.

There is a self-styled anti-globalisation movement that pretends to the contrary.

This movement likes to protest against the meeting of any organisation that has the word `world' in its name – the "World" Trade Organisation (Seattle December 1999), the "World" Bank (Washington April 2000), the "World" Economic Forum (Melbourne September 2000).

Yet these demonstrations are organised on the Internet, otherwise known as the "World" Wide Web, its members fly the One "World" airline network to get to anti-globalisation rallies and they organise demonstrations for "world" wide television coverage.

Some of these people are committed leftists. They are not against internationalism. They are against international markets for capital. They wouldn't mind a bit of internationalism of the socialist variety. Some of the protestors are Christians who are members of the Roman Catholic Church (which has a global hierarchy here on earth) or the World Wide Anglican Communion. Some are environmentalists who protest against globalisation, and demand international agreement on global warming. They think `global' and act `global' and protest against globalisation.

Of course there are countries that have sought to close their borders to foreign investment and erect barriers to trade. But it is unlikely you will hear the demonstrators extolling the virtues of them:- countries like North Korea, Albania or Cuba. And one wouldn't want to run an anti-globalisation demonstration, indeed any demonstration, in a country that prefers the closed - as opposed to the open – society.

One of the constant claims made against the process described as "globalisation" is that it is making the world's rich, richer and the world's poor, poorer. Let me say at the outset that I am interested in making the world's poor, richer. If there are policies that can pull the world's poor out of poverty and increase their standards of health care and education, it does not concern me that in the process the world's rich become richer too. Rising living standards in the developed world would be another reason to pursue these policies. However, it would concern me if rising living standards in the developed world were the cause of deterioration for the world's poor.

Experience shows us that open markets, trade liberalisation, and the economic growth which it has facilitated is boosting the living standards of the world's poor.

In the 20^th Century, the poorest quarter of the world's population became almost three times richer. Economic development lifted more people out of poverty than ever before and gave them better health and education and better opportunities in life. Gains of this magnitude are unprecedented in human history.

A clear majority of those who were poor as recently as 1970 have got richer, in both absolute and relative terms: over the last 30 years, about 70 per cent of the population of developing countries have experienced sufficiently fast growth in real per capita GDP to converge towards rich countries' levels. Poverty has worsened in some nations, particularly in Africa. But there are major developing countries, particularly in Asia, with large populations that have been growing quite strongly and lifting millions out of poverty.

In our part of the world - East Asia - economic policies which encouraged foreign investment, more open trade, and economic growth, have halved the number of people living in extreme poverty in less than 2 decades. The dispersion of living standards has been slowly narrowing, not widening. The only halt in this process was the Asian economic crisis of 1997-1998. Economic growth is the best poverty-buster yet discovered.

But there have not been many successes in sub-Sahara Africa.

Those countries where poverty is worsening are not those which have participated in free capital flows and foreign investment. On the contrary they are those that have been unable to participate in globalisation because of war, corruption, or maladministration. And their economic institutions are weak. Their share of global trade has actually halved over the last 20 years. They are isolated from global trade opportunities.

This indicator of falling trade shares for the poorest countries is not a sign they are exploited by globalisation, but rather an indicator they are missing out on the opportunities that can be created.

Many of the problems attributed to international trade rules or international institutions such as apparently intractable poverty in the poorest countries, are in fact failures of national policies and institutions. If only things were easy. If only we could defeat poverty by halting the proceedings of the World Trade Organisation. The truth is much more pessimistic than the fantasy that the developed world can fix all the problems of the developing world. Ending war, tribal conflict, corruption, building legal and economic institutions is so much harder.

The greatest victims of the anti-globalisation demonstrators who want to stop more liberal world trade would be the poor. Protectionist policies followed in developed countries would lock the poor out of markets for agriculture and textiles where they could actually develop trade and earnings. It is not open markets and free trade, it is protection that will damage the world's poor.

Economic reform has also brought benefits to Australia. In the 1960s Australia used to trail OECD average annual real per capita income growth by about 1 percentage point. By the 1990s and particularly in the second half of the 1990s Australia's productivity kicked away and we began to lead the OECD annual average per capita income growth by about half a percentage point.

Australia was only one of three OECD countries (together with Ireland and the Netherlands) to have registered markedly stronger trend growth of real GDP per capita over the past decade compared to the 1980s. The same trio also led the OECD in the trend growth of multifactor productivity with gains in Australia particularly strong in the later part of the 1990s.

There was broad bipartisan support for economic reform until Labor went into opposition. Since then Labor has had some success in the politics of opposing economic reform. But it has been unable to come up with any alternative program.

So if these economic developments are pulling people out of poverty, if they have led to rising living standards in our own country, why is there so much disquiet? Why has globalisation become a dirty word?

I think the answer is that as people see decisions taken in far-off countries that affect their lives but which they have no influence over, it tends to lead to a sense of powerlessness, maybe resentment or anger.

I am not sure if the individual has less control or influence in modern society than they did 20 or 50 or 100 years ago. But I am sure that they want more. Expectations are rising.

Because we now have immediacy in communication people expect more consultation. They have the capacity to put views on daily events and they expect them to be listened to.

Elections occur only every three years. People want a say more often than that hence the proliferation of vote lines, 1800 numbers and daily talkback radio. People can decide who took the best catch in a Test Match or who should be evicted from the Big Brother home so why not have more important decisions determined on the same basis? Decisions that are made outside the country or outside the broadcast area seem to be much harder to influence again.

Despite the publicity given to individual foreign takeover proposals, the proportion of Australian equity owned by non-residents has remained steady at around 29 per cent since 1993-94.

On the other side of the coin, Australians have become large owners of overseas business assets. Since 1993-94 around $A30 billion has been invested in direct interests in overseas-located companies. Tomorrows icons may well come from these overseas business interests as much as from Australian based companies.

What we know of investment is that departures are visible and arrivals are unnoticed. This is of the nature of media which can film a closure together with individuals affected by it. It is much harder to film potential beneficiaries of new investment. And it is not nearly as interesting a story. News thrives on a sense of crisis.

A recent arrival in Australia is ABN AMRO Australia, which employs around 750 staff in Sydney, Melbourne and Brisbane.

Architectural services provides an example of Australians capitalising on global opportunities. The world market for architecture is perhaps A$3 billion a year. Australia is currently a small player, but off-shore earnings from architecture is some 16 to 20 per cent of Australian architects' fees. Denton Corker Marshall, a leading Australian design practice, and the youthful Sydney architectural firm of John Choi and Tai Ropiha, are enterprises that have both taken advantage to win spectacular successes overseas.

Size does matter if you are selling goods or services, or raising capital. Australia is a market of almost 20 million people and about US $200 billion in terms of private final consumption expenditure. In comparison, the EU is a market of 375 million people and almost US $4600 billion, and the North American Free Trade Area is a market of 400 million people and over US $7500 billion.²

There is strong pressure on Australian companies to gravitate to the large markets of the Northern Hemisphere and to seek capital from the savings of the large block of affluent people who live in the Northern Hemisphere.

But keeping up with the competitive game will require a whole range of pro-investment decisions on labour relations and monetary policy and skill development. And most of all a determination not to run from the rest of the world, but to adapt and change and harness the best opportunities that it offers us.