RISK AND OPPORTUNITIES OF GLOBALIZATION archivo del portal de recursos para estudiantes robertexto.com

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SELA (1996): Revista Capítulos, Caracas. 

1. The "Globalization" process and the role of the market

 

As a market phenomenon, globalization originates from technical progress and particularly from its capacity to reduce the cost of mobilizing goods, services, money, people and information. This reduction of "economic distance" has allowed the current regulation opportunities to be employed in the markets of goods, services and factors, diminishing (although not eliminating) the importance of geography and the effectiveness of political blocks. In its current situation, the "Globalization" process also increases the capacity of the participants to geographically fragment the productive processes, which has a counterpart the sustained growth of commerce (especially of manufacturing) and international investment (chart 1).
 

Chart 1
"Globalization": Some Indicators

Source: Gundlach and Nunnenkamp (1996).

For some authors, "Globalization" is a phenomenon that includes everything because in reality they assimilate it with the gradual disappearance of the Nation-State¹. Other authors still leave some function to national policies, limited now to promoting the construction of a "competitive State". According to this vision, the limits to effectiveness of public policy would be determined by their "effective capacity to promote a climate for investment relatively favorable for transnational capital"². Opponents of the first are those who underline the specifications in institutional policies and national regulations as dominating characteristics of an international system still based on the survival of the Nation-State³.

These differences are not trivial due to the different policy implications of each one. The "globalization" vision as a phenomenon that embraces everything is attractive in part due to its simplicity: the market dominates and adaptation is the reasonable course of action in an area of Darwinian selection expressed through the search for "competitiveness". However, this vision seems to be more a normative recommendation in regards to the "desirable" world than a description, even stylized, of reality.

The other two visions have the lure of incorporating heterogeneity and national specifications as attributes of the contemporary international scenario. But what is the relative weight of diversity when faced with the phenomenon known as "Globalization"? There are two decisive factors in this sense: The kind of transactions involved (the characteristics of the market) and the characteristics of the Nation-State on which said transactions have their effect (chart 2).

The convenience of an analysis of specific ways in which the process of "globalization" affects market's functioning and the effectiveness of public policies is evident even in the area of market financing, where the break down of geographical and political barriers has advanced in a more remarkable fashion. Even when the restrictions at government's level to develop monetary policies and independent referees is evident, the empirical examination shows the existence of action margins which remain and differences in the degree of autonomy that different national authorities enjoy.

 

Chart 2
Globalization: A Diverse Phenomenon

Cohen (1996) states that the discipline (macroeconomic) imposed by the integration of the financial markets is less than it seems for at least three reasons. The first is that fiscal and monetary policies have limited long term impact on the true variables of the economy, even in circumstances in which the mobility of the capital is imperfect. The second is that the mobility of the capital is not yet perfect, as demonstrated by the empirical investigations on the degree of possibility of substitution that exists among different national actives⁴. In third place, to a certain degree, the authorities are still faced with trade-offs between their political autonomy and the degree of exchange instability that resulted. Unless authorities have an absolute preference for the stability of the type of the change, normally it is possible to preserve a certain degree of autonomy in the management of the macroeconomic policies in exchange for a certain level of exchange volatility.

As a result, even in areas directly affected by the vast process of financial globalization the national authorities preserve degrees of autonomy. This autonomy, however, is not distributed in a homogeneous fashion: some national States ( and their public authorities) have greater access to it than others. The relevant issue from the point of view of the policies is not whether or not the process of globalization is restrictive (there is no doubt about that), but instead which elements explain the national differences and defining the precise nature of the trade off each public authority is faced with . The degree of independence (and reputation) of the monetary authority; the structural characteristics of the relationship between the bank and industrial areas; the status of external accounts and other attributes such as the size and degree of accessibility of the economy have been identified as variables that influence the degree of political autonomy of the national authorities⁵.

Another example of national specifications survival can be seen in the microeconomic environment or in regional policies. Garret and Lange (1991) state that even when the national macroeconomic policies autonomy has been severely reduced, we can still confirm the persistence of differentiated policies of competition increase that make use of "offerist" instruments of politics. Elements such as the degree of presence of transnational capital or local institutional specifications contribute to the permanence of the differences.

In synthesis, Globalization as a market phenomenon has made a considerable impact on the functioning of the markets and the effectiveness of the national public policies. However, authorities still count on varying degrees of autonomy which are expressed in different political trade offs. Indeed, the reach of this autonomy has been sensibly reduced and varies from country to country. The analysis of the elements that explain this variable (including the role of dynamics of path dependency) seem to be more useful than the mere reiteration of generally valid global tendencies.

 

2. Globalization: the role of policies

Globalization is not the only phenomenon driven by the market. The policies (i.e.: the moving of the obstacles that separate them and the harmonizing of dissimilar national institutions) also play an important role. Frequently, the harmonizing or movement of the regulations is in response to market pressures. Occasionally, the policy decisions are the ones that promote and accelerate the integration of the markets and therefore, the movement towards globalization.

On a political level, globalization makes reference to the pressures towards convergence of practices and diverse national institutions. Its basis lies in the existence of spillovers and "psychological externals" or "political faults"⁶. The first occur each time that decisions or events that take place in a national economy have influence over others (macroeconomic interdependence is a typical example). The "psychological externals" or "political faults" occur when the diversity of practices and the resulting institutions of the national state organization is questioned by the participants with enough power and influence to state their preferences or values as "superior" or "universal". This has happened when issues such as respect for human rights or environmental practices have been introduced.

On a political level the globalization process is expressed in the agenda of "deep integration". As a paradox, its rise has been stimulated by the reduction of the border barriers that has taken place during the last fifty years (the "superficial integration"). The success of the national policies and international negotiation during the post-war era in reducing border obstacles to the movement of goods and property and, in a varying degree, to the services and tangible and intangible forms of capital (financing, technology or control of active) has exalted the non-border obstacles of the "deep integration" agenda" ( especially, although not exclusively, among the industrialized countries)⁷. This agenda is not only more complex than the traditional border agenda, but also the recommendations for regulations regarding how to direct it are subject to a much more extensive debate.

The "profound integration" agenda ( the expression in politics of the process of "globalization") covers a wide variety of issues and on the limit, it includes virtually all the policies and non-border national practices. From the viewpoint of developing countries, Haggard (1995) includes in this agenda the following topics:

A. The extension of international rules for the area of trade to the area of investment, insuring national dealing and market access (including the service portion) for international investors;

B. The treatment of national regulatory regimes that have discriminating effects or "unbalance the game area", such as the differences in the protection of intellectual property, in national standards and regional or generic (financial, industrial, technological, competition, environmental, labor, etc.) policies; and

C. The treatment of the "friction system" derived from differences in corporate and industrial structures and national politics.

This "deep integration" agenda touches on two related problems. The first is to precise the extension and give instrumental value to the concept of "leveling the gamefield". The second is the discernment of the costs and benefits associated with the reduction of diversity.

The idea of "leveling the gamefield" is attractive as an image but dangerous as a general objective of politics. In broad terms, it seems reasonable to sustain that those practices and institutions that give an "unjustified" competitive advantage to one part should be "leveled". But this affirmation avoids the problem: Where should the limit be placed between a "justified" advantage and an "unjustified" one? What type of national practices are the function of legitimate preferences and which are in the interest of obtaining advantages in international competition?

The discernment of the costs and benefits of the reduction of diversity is equally complex. In first place, to evaluate the costs and the benefits, should a "cosmopolitan" or "national" criteria be employed? In second place, how do you evaluate the usefulness of agents or States with substantial differences in their levels of income and productivity? For example, what price will the citizens of a low income country be willing to pay (expressed in a slower pace of economic growth) in order to reduce their aggression towards the environment? Should the citizens of developed countries have to pay for the accumulated damage on the environment or should the "clean slate" criteria be applied?

These issues are extremely contentious and ultimately, they remit to a play for power and influence over the international system. The contemporary international agenda- as well as other moments in history- is plethoric with them. This illustrates the mandate and coverage of the recently created World Trade Organization. In this fashion, the countries of Latin America and the Caribbean should measure, not only the tension created by the globalization process as a market phenomenon, but also the tension which originates from the initiatives that deepen globalization as a political phenomenon. Distinguishing between one and the other is not always easy.

 

3. The opportunities for globalization

The costs and tensions that the globalization process inflicts on national economies are well known. The most apparent are the limitations on the effectiveness of national policies and the conflict which is presented by the break that exists between the government structures (of a predominantly national base) and the "global" nature of certain trends and economic interactions. However, the "globalization" process also offers new opportunities for national economies.

On one side, the "globalization" process presents the opportunity to better the conditions of access to markets that had previously been more fragmented. The information flow, technology and portfolio capital have been the ones who have increased their mobility the most and therefore, they make up the markets where access conditions have also had the most improvement for economies with relatively less capacity of endogenous generation. However, the conditions for taking advantage of these opportunities is heterogeneously distributed among the countries. One central aspect therefore, resides in the identification of attributes that better the capacity and allow reversal of the negative aspects inherited from past behavior (path dependency).

An example of what is mentioned here is presented by a typical trait of the recent process of globalization, and that is the improvement in the capacity of the participants to fragment the productive process in scattered geographical locations. The noticeable reduction of transportation and communication costs has facilitated the division of the productive process, allowing the participation of a greater number of geographical locations according to the advantages that each one contributes to the chain of added value. This fact has broadened the opportunities so that individual economies can participate more actively in the international production networks administered by the large multinational companies. This process has been accompanied by a direct foreign investment boom (chart 1) and from the proliferation of new forms of association with no holdings between participants. As Oman (1994) states, however, the possibility of participating in these production networks depends on the effectiveness with which the receiving economy responds to the demands of macroeconomic stability, availability of infrastructure, qualification and adaptability of the laborers, attributes which are intrinsic to the new pattern of production organization⁸.

The process of globalization also creates new opportunities in that it increases competition, settles the basis for the establishment of new corporate and societal alliances and contributes to the break up of established oligopolies. If these factors blocked modernization, had developed a rent seeking type of behavior and exploited the rest of the community, the new coalitions can generate results that are more favorable than the status quo. In the same fashion, globalization may allow, under certain circumstances, the improvement of the quality of domestic policies by increasing the cost of enforcing policies that cannot be sustained.

These opportunities, however, are only potential. There is no guarantee a priori that the result of the new coalition will be superior to the pre-existing one. In this sense, the revision that Armijo (1996) does in reference to the differential impact of the distinct forms of capital income on economic growth, the acting governments and democracy (chart 3) is enlightening. Even when his results are not debatable, the examples illustrate the diversity of possible results.

 

Chart 3
Probable Consequences of Different Forms on Income of Foreign Capital

Source: Armijo 1996

In the same fashion, even when globalization makes the implementation of policies that cannot be sustained very costly for the middle and long term it is not certain that the new policies will be superior to those that would be applied in a context of greater autarchy . The simplistic version of this issue can be found in the statement of an influential international publication " to the degree that the global capital market is efficient, the greater the possibility that it will give a positive retribution of the healthy economic policies and that it will escape from errors" (The Economist, 1995). However, in actuality an obvious ambiguity exists regarding what "wrongful policies" and "correct policies" are, especially when their objective is not specified. In other words, is a "correct policy" the one that promotes growth or the one that keeps enthusiasm of the national and foreign investors? Can the same policy do both things simultaneously?

¹ Ohmae (1995).

² Cerny (1995).

³ Boyer (1993).

⁴ Herring and Litan (1995).

⁵ Cohen (1996), Henning (1994); Goodman and Pauly (1993) and Andrews (1994).

⁶ Lawrence, Bressand and Ito (1996).

⁷ Khaler (1993).

⁸ Ohmae, (1995).

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