Globalisation - Risk, Challenge And Opportunity

Globalisation And NZ - Risk, Challenge And Opportunity

Media Release – 6 June 2002 www.tln.org.nz

Globalisation And New Zealand – Risk, Challenge And Opportunity

Globalisation brings both good and bad, says Stephen Jacobi, Executive Director of the Trade Liberalisation Network.

In an address to the Wellington branch of the New Zealand Institute of International Affairs, Jacobi outlines some of the risks, challenges and opportunity of globalisation for New Zealand.

Globalisation is defined as “a dense web of cross border relationships” that goes beyond trade and investment flows and can be both positive and negative: “Terrorist groups can use the Internet, move money around, travel from one country to the next and manipulate the media just like anyone else”.

Rejecting conspiracy theories about globalisation, and addressing two of the principal criticisms, Jacobi argues that globalisation promotes competition which breaks down the market dominance of transnational companies. It also promotes economic growth which enables effective environmental policy. “That’s how globalisation at the same time heightens the problem and provides the solution. It both accelerates and attenuates the risks”.

Managing these risks effectively constitutes the main challenge for the World Trade Organisation. Jacobi says the WTO must remain an organisation of governments. To be effective the WTO must also “stick to its knitting – reducing trade barriers and adjudicating trade disputes.” “The point is that without the WTO the world would be even more unfair”.

Globalisation provides important opportunities for New Zealand. “In the globalised world size and distance don’t matter so much. Our ability to compete becomes more dependent on the business strategies we adopt and the technologies we embrace. Innovation and entrepreneurial ability are more important than market dominance or government protection”.

A copy of Stephen Jacobi’s address is attached.

ENDS

ADDRESS TO THE WELLINGTON INSTITUTE FOR INTERNATIONAL AFFAIRS

WELLINGTON, 6 JUNE 2002

STEPHEN JACOBI
EXECUTIVE DIRECTOR
NEW ZEALAND TRADE LIBERALISATION NETWORK INC

“GLOBALISATION AND NEW ZEALAND – RISK, CHALLENGE AND OPPORTUNITY”

Thank you for the opportunity to be with you this evening.

I’m here to talk about the “g” word.

For some this word equates with exploitation, oppression and injustice.

For others – including the members of the Trade Liberalisation Network – it’s about opportunity, about overcoming the tyranny of size and distance and, ultimately, about finding global solutions to global problems.

Jagdish Bhagwati, the celebrated trade policy academic, says that globalisation is “a phenomenon doomed to unending controversy”.

What I have to say this evening is not aimed simply at fuelling that controversy – although it might be a more interesting evening that way!

Like the Institute for International Affairs, the Trade Liberalisation Network is interested in public perceptions of international issues, in our case international trade.

It’s no secret that there is a new public debate about the impact of trade liberalisation both in New Zealand and around the world.

Non-governmental organisations, some academics and even political parties are raising questions about something we have taken pretty much for granted in the past.

There is nothing wrong with this – it’s healthy – but it has given rise to a much greater need for stronger advocacy of the benefits of trade reform for a small, trade-dependant economy like New Zealand.

This is where the Trade Liberalisation Network comes in.

We are an organisation entirely funded and led by business.

Our membership is drawn from manufacturing, agriculture and services sectors. Between them our members account for around 70 percent of New Zealand’s exports.

We see trade as providing the sort of economy most New Zealanders want to have, and making possible the lifestyles they have become accustomed to.

Our website www.tln.org.nz contains information about us and a wealth of resources and news about trade developments of interest to New Zealanders.

We aim to identify and resource the champions of trade liberalisation who can go out and participate in the public debate on trade.

In the face of challenges posed by the ‘global anti-globalisation’ movement, we aim to build broad public understanding and support for trade.

So you will not be surprised that I come before you as an optimist about the impact of globalisation and its impact on New Zealand.

But I am also a realist.

Globalisation poses both risks and challenges and it’s about these risks and challenges as well as the opportunities that I’d like to speak this evening.

What is globalisation ?

Mike Moore, presently Director General of the World Trade Organisation, has described the g word as “a rallying call for everyone that thinks there's something wrong with the world”.

Certainly a widely accepted definition of globalisation has been hard to come by.

Globalisation is something more than trade liberalisation – by which we mean bringing down barriers to trade and adopting effective trade rules.

In much the same way, trade liberalisation differs from concepts like “free trade” and “fair trade” – rightly or wrongly “free trade” tends to suggest the absence of rules and “fair trade” tends to beg a very big question – “fair to whom?”.

Farmers in the United States might think that the massive subsidies provided by the Farm Bill are very fair whereas farmers in New Zealand and in developing countries naturally have a different point of view.

As I’ll outline later trade liberalisation is really a strategy for responding to globalisation – one of the main tools we have for minimising the downsides and maximising the benefits.

Globalisation on the other hand is something bigger.

In its January edition the US magazine Foreign Policy published the results of a second annual survey prepared by A T Kearney Inc and the Carnegie Endowment for International Peace.

The survey establishes an index of globalisation by looking at four key factors in 62 economies – technology, political engagement, personal contact and economic integration.

The survey is particularly interesting because it takes a very wide view of globalisation going beyond trade and investment flows and because it attempts to measure the impact.

So, in terms of ‘technology’, it looks at the number of Internet users, Internet hosts and secure servers.

To assess ‘political engagement’ it examines each country’s memberships in international organisations, the UN Security Council missions in which each country participates and the number of foreign missions that each country hosts.

Under ‘personal contact’ the survey takes in international travel and tourism, international telephone calls and other cross border transfers.

And, rather more conventionally, ‘economic integration’ is measured in terms of trade, foreign direct investment and portfolio capital flows and income payments and receipts.

There’s no doubt that some other useful indicators of globalisation could be built into the survey - how about, for example, public membership in international non-governmental organisations or the extent of a country’s official development assistance programme ?

But what the survey illustrates most graphically is that globalisation today involves what Foreign Policy describes as “a dense web of cross-border relationships that range from the very evident (the spread of disease) to the very subtle (the spread of ideas)”.

Just to keep you on tenterhooks, I’ll return to the results of the survey later but first I’d like to look at some of the risks posed by globalisation.

Risks of globalisation

Anita Roddick who many of you will know as the founder of ‘The Body Shop’ was in New Zealand a few months ago to promote her latest book.

At a speaking event in Wellington – organised by none other than the Alliance Party - she proclaimed that “globalisation is conspiracy”.

Now “conspiracy” normally invokes some element of contrivance under a cloak of secrecy.

I personally find it hard to imagine that anyone could contrive to organise the “dense web of cross-border relationships” which we see at work in the globalisation index into some kind of plan to re-engineer the world.

But perhaps what Anita Roddick and her fellow conspiracy-theorists are getting at is that there are important downsides to globalisation that the world’s elite and powerful conspire to either ignore or turn to their advantage.

It’s certainly true that globalisation brings both good and bad.

Terrorist groups can use the Internet, move money around, travel from one country to the next and manipulate the media just like anyone else.

Amongst the accusations leveled against globalisation there are two that feature prominently.

The first is that the globalised world is ruled by transnational corporations. The second is that globalisation harms the environment.

My contention is that these are risks that need to be managed rather than inevitable consequences that need to be condemned.

These are trends that globalisation both accelerates and attenuates.

Let’s look at the case of transnational corporations.

Their number, size and market dominance never cease to grow (it is alleged ) and they are said to have become larger and more powerful than governments.

The globalisation survey reveals that the year 2000 was the best yet for economic integration. Almost every indicator showed a remarkable increase.

Whereas the year 2001 was overshadowed by the spectre of recession, and then by the terrible tragedy of September 11, two years ago the good times were certainly rolling and in particular for transnational corporations.

There’s no doubt that these firms would run the world for profit – if they could.

What stops them are governments – which intervene right and left both in sovereign states and through international organisations like the World Trade Organisation which sets the rules for international trade.

In a host of different ways companies are forced to conform to legislation.

Governments do not always use this power wisely.

Where they seek to subsidise, protect or entrench monopoly situations they can unwittingly serve the interests of protected sectors and companies over the interests of citizens and consumers and society as a whole.

Nowhere was this more evident than in New Zealand in the period of import licensing up to the mid 1980s.

Globalisation clearly assists the global reach of corporates but it also works against them by breaking down monopolies and by promoting competition – whether by facilitating access to capital and technology or bringing down barriers to trade or making markets easier to reach.

Motorola doesn’t rule the world – as Nokia will surely tell you.

That’s how globalisation at the same time heightens the problem and provides the solution.

The same is true for the environment.

The theory is that increasing economic activity uses up resources and puts a strain on the environment.

There are companies around the world which flout environmental laws. They should be found out and punished. But most companies do not set out to poison their customers or pollute the natural environment.

A far more significant determinant of environmental sustainability is a country’s wealth.

There is a direct correlation between per capita GDP and effective environmental policy.

As countries get richer they spend more to clean up their act. The poor have other things on their minds.

To the extent that globalisation promotes economic growth and expanding wealth it helps the environment.

Globalisation can help in two other fundamental ways.

Expanded trade in environmental goods and services – one of the things on the agenda for the WTO Doha round – facilitates the exchange of pollution control technology and expertise.

And because global problems demand global solutions effective international action can address the root causes of unsustainability.

The WTO’s current negotiations to reduce subsidies which promote over-fishing are a case in point.

As I said earlier globalisation both heightens the problem and provides a solution to the risks posed by transnational corporations and environmental sustainability.

What needs to be done in both these cases – and others – are to use the upsides of globalisation to mitigate the downsides.

Doing this effectively constitutes the major challenge of globalisation.

Challenges of globalisation

Oxfam is an international organisation that stands uncompromisingly on the side of the world’s poor.

Oxfam has been amongst the fiercest of critics of globalisation, of the developed world’s abject failure to eliminate world poverty and of international organisations like the WTO, IMF and the World Bank.

So there was surprise from some quarters when Oxfam a few months ago published a study “Rigged Rules and Double Standards” which found that trade could work in favour of the world’s poor if the rules of the game were reformed.

Oxfam’s report is far from a ringing endorsement of globalisation as Executive Director Jeremy Harder told a WTO symposium this month:

”… reports of our conversion to the cause of free trade have been greatly exaggerated … our argument is this. Rich countries, and the institutions they control … have rigged the rules of international trade to suit themselves …”

The Trade Liberalisation Network welcomes Oxfam’s contribution to the trade debate.

We believe they have made a correct diagnosis of many of the ills of the world trading system even if we disagree with some of the cure they prescribe.

At the OECD in Paris a few weeks ago New Zealand’s Trade Minister Jim Sutton gave much the same message as Oxfam about the urgent need for rich nations to end their obscene subsidy practices and bring down barriers to third world exports.

New Zealand’s own unilateral removal of tariffs on the imports from the world’s poorest countries has yielded an increase of 150% in their exports to New Zealand.

This is good globalisation – working in favour of the most marginalised.

Where we differ from Oxfam is in regard to its criticism of the way the WTO is currently structured.

Unlike Oxfam we do not see the WTO as the problem but as part of the solution.

The WTO is where the world comes together to make the rules for international trade.

No country is forced to join the WTO but there is a queue of applicants.

Only countries are members – no transnational corporations in sight.

WTO decisions are made by consensus which is precisely why it often takes so long for the WTO to get anywhere and why, like at the Seattle meeting, things don’t always turn out as planned.

I attended the most recent WTO Ministerial meeting in Doha, Qatar, and amongst the very last countries to come on board with the idea to launch a new round of international trade negotiations were those giant powerhouses of trade … the Dominican Republic and Barbados!

The WTO is clearly not perfect.

Participating effectively in the WTO is a high hurdle for small developing countries to jump – Oxfam is certainly right in that.

And a lot of more can be done to make the WTO decision making processes more transparent, to open them up to scrutiny and dialogue with stakeholders and to build better interface with the International Labour Organisation and the multilateral environmental agencies.

Mike Moore has a lot of this work underway already.

At the same time there are a number of fundamentals about the WTO that should not be changed.

First, it must remain an organisation of governments.

Sovereignty rests with governments and for the WTO to remain effective it must rely on governments agreeing to negotiate with each other, to implement the decisions they reach and to abide by WTO mechanisms for settling disputes.

The WTO is not a super government. It cannot overturn governments’ decisions. It recognises governments’ right to regulate in the national interest.

Reducing the role of governments in WTO processes would make it less democratic not more.

Second, and flowing from the first, the WTO must stick to its knitting – negotiating the reduction of trade barriers and adjudicating trade disputes.

The UN system is full of organisations with a noble purpose but whose effectiveness is limited by political agendas.

That’s why the WTO must tread carefully on issues of environment, labour and, yes, even human rights.

Not because there is anything wrong with these issues. On the contrary they are legitimate concerns – vital things our societies should care about.

But they are all areas which the developing world see as potential excuses for developed nations to raise new trade barriers.

There are other international organisations better suited to dealing with these issues and in ways which would not detract from the core business of the WTO and run counter to the aim of creating a more level playing field for international trade.

But, I hear you say, this is a utopian vision!

Is a level-playing field possible with the Farm Bill, a trade war on steel and several billion dollars of lost export revenue as a result of trade barriers in our overseas markets?

If there ever was any doubt, the world is not a fair place.

The point is without the WTO it would be even more unfair.

The only credible strategy to respond to the sorts of protectionism we have seen displayed in recent weeks is not to spit the dummy but to engage more energetically in the WTO and other trade liberalisation initiatives.

It’s to encourage the Government in this direction that the Trade Liberalisation Network has been established.

Without effective rules and disciplines small nations like New Zealand are at the mercy of the rich and powerful.

No amount of hand-ringing or saying “I told you so” or abuse will stop the US, Europe and Japan from subsidising their farmers and steelworkers.

But effective rules and disciplines in the WTO will - if they are backed up by an effective dispute settlement system - no matter how hard this is to achieve.

New Zealand knows this well having won disputes against the US on lamb and against the EU on spreadable butter.

Mike Moore says that “too much of last century was marked by force and coercion. Our dream must be a world managed by persuasion, the rule of law and the settlement of disputes peacefully with law and co-operation”.

That’s the challenge of globalisation. I now want to look at the opportunity.

Opportunities of globalisation

Let me come back to that survey I mentioned at the outset.

The survey lists the global top 20 in the globalisation stakes.

This evening I’m pleased to announce that the winner is …. Ireland with particularly high scores in economic integration brought about by high inward flows of foreign investment and in personal contact.

Coming behind Ireland are Switzerland, Singapore, Netherlands and Sweden.

The United States, often seen as the very symbol of globalisation, is at number 12.

New Zealand is listed at number … 19, ahead of Malaysia at number 20 and ahead of Australia which does not feature at all in the top 20.

That smaller nations feature so prominently in the survey belies the criticism that globalisation favours just the large and the powerful.

More significantly this points to a major characteristic of globalisation: it can help smaller countries overcome the tyranny of size, and in New Zealand’s case, of distance.

One indicator is of particular relevance here – technology.

Based on index scores that reflect the number of Internet users, hosts and secure servers, New Zealand comes out at number 7 behind the US and Australia but ahead of Switzerland, Singapore and Denmark.

The survey notes that Australia and New Zealand have emerged as a new regional centre of connectedness to the world wide web.

New Zealand ranked fourth in the number of Internet hosts per resident.

This matches fully with the findings of research presented at a conference organised by the E-Commerce Action Task Force I attended in Wellington a few weeks ago.

Speakers from various sectors including tourism and farming all emphasized the new opportunities which the Internet, e-mail and e-commerce are bringing to terms of the ability to reach customers, to develop new products and services and to overcome obstacles to doing business.

One speaker suggested that the term ‘globalisation’ should be replaced by ‘interdependence’ as nations reach even higher levels of cross border interaction.

In similar vein I’ve heard the term ‘glocalisation’ – the process by which through intense co-operation and clustering industry sectors can learn to collaborate to compete in world markets.

I told your sister organisation in Palmerston North recently that this was something of direct relevance to Manawatu with its cluster of agricultural research institutes.

It’s no less relevant to “smart innovative” Wellington with its cluster of service industries, particularly in film production.

In the globalised world size and distance don’t matter so much.

Our ability to compete becomes more dependent on the business strategies we adopt and the technologies we embrace.

Innovation and entrepreneurial ability are more important than market dominance or government protection.

That’s the opportunity of globalisation for a small country like New Zealand.

Conclusion

Does globalisation make people happy ?

That’s not something the survey tells us definitively.

As well as the good news I’ve mentioned the survey points to some disturbing trends particularly in terms of the developing world’s access to technology and foreign investment flows.

The OECD estimates that 95.6 percent of the world’s Internet hosts are located in its member countries – we see here the impact of a real digital divide between more developed and least developed nations.

The flows of foreign direct investment still largely ignore the least developed countries – to their economic detriment.

What cannot be concluded from the survey or from what I’ve said this evening is that we can be complacent that the risks of globalisation are being managed satisfactorily and the challenges overcome.

In New Zealand’s case there is reason to be confident but much remains to be done to create a true globalisation of opportunity in the world in the new millennium.

My argument is simply that we must use globalisation as a tool and not turn our back to its benefits.

The UN Secretary General Kofi Annan said as much when he spoke to the World Economic Forum in New York last February.

“The reality is that power and wealth in this world are very, very unequally shared … the perception among many is that this is the fault of globalisation and that globalisation is driven by a global elite …I believe that perception is wrong and that globalisation far from being the cause of poverty and social ills offers the best hope of overcoming them. But it is up to you to prove it wrong, with actions that translate into concrete results for the downtrodden, exploited and excluded”.

That, I would suggest, is as much a challenge for the Trade Liberalisation Network as it is for all of us here this evening.

ENDS

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