International

THE MAJOR CHARACTERISTICS OF GLOBALISATION

What is globalisation? What makes it so special or new? Globalisation generally refers to the greatly increased integration of markets for capital, labour, technology and services. Globalisation, essentially means the growing together of product markets across national borders. And, in particular, the increasingly strong international integration of production in the form of foreign direct investment (FDI), strategic alliances and global sourcing. It is basically a private sector-led and a technologically-driven phenomenon, spurring the world-wide search by transnational corporations for profits and reduction in costs, particularly the increasingly high costs of R&D. For example, more than US$3 billion is needed to design and develop a new generation of mega carriers such as Boeing 777s; the development of a new conversion system of digital telephones will cost nearly US$3 billion; and inventing and developing a simple new industrial enzyme costs nearly US$100 million.⁵

Globalisation has been sustained by widespread price and trade liberalisation, privatisation and deregulation, the growing role of the private sector, and improvements in the extent and reliability of transport and communications which have reduced costs tremendously and also the economic distance between countries. It is of course true that we have had world-wide networks of transport and communications before.

By the First World War, we had world-wide networks of railways and steamships that criss-crossed the world and even before that we had telegraphic communication across the Atlantic. Remember the first submarine telegraph was laid under the Atlantic in 1858 and by 1900 all the major regions of the world could communicate with each other. So what is different now? Today, people can communicate almost instantaneously by electronic means. The telegraph took minutes to convey a short message. Nowadays, the telephone or E-mail communicates at a fraction of the cost in milliseconds. Many more people now have cars and telephones. In this connection, just compare Eastern Europe in 1980 and now! We had steamships in 1900 but we now have super-tankers which can carry more than 50 times the load faster and at a fraction of the cost. And, since 1958 with the first jetliner--the Comet--and

⁵ Paul Krugman, Growing World Trade: Causes and Consequences, Brooking Papers on Economic Activity, vol. 1, 1995, pp. 327-362; and comments by Richard N. Cooper, op cit,
pp. 363-368.
the emergence of the wide bodies jet in 1967, we can now carry enormous loads world-wide at rapidly falling unit costs. These are significant differences to what our grandparents could do earlier this century.⁶⁾

But it is the widespread adoption and influence of new technologies-- particularly micro-electronics--that has allowed the accelerated globalisation of recent years.

It should be stated that the internationalisation of economic activities per se is not a new phenomenon. What is new is the fact we now have super- exporters such as Singapore and Hong Kong who exported 174 per cent and 144 per cent of their GDP in 1990; and, that the value added chain can be broken up as never before with goods produced in one country from components designed and manufactured in another. There is also a tremendous increase in world trade and especially FDI relative to trade and output. The world trade/GDP ratio has increased three times faster in this decade than in the previous decade (and twice as fast as in the 1960s) and the FDI/GDP ratio has increased even faster. But it is the tremendous increase in FDI flows that is the major characteristic of globalisation in recent years.⁷

Another difference today is the multilateral nature of much of direct investment, which is mainly divided between the three largest economic blocs in the world centred around the European Union (EU), the United States and Japan. Another new phenomenon, emanating from the 1970s, is the emergence of significant competition from Latin America and the newly industrialised countries of Asia. Unlike during other comparable periods of rapid growth in trade, such as the late 19th century, this emerging competition from advanced developing countries is in similar manufactured products rather than non- competing primary products.⁸ Also, the state now performs large-scale social welfare functions to ensure employment, pension and health levels and adequate social safety nets.⁹

Thus, the global economy of the 1990s is vastly different from that of earlier decades. Globalisation is the centrepiece of the 1990s and is changing the world economy in fundamental ways. It has tended to reduce the economic distance between firms, institutions, Governments, countries and regions. It has led to much greater interdependence in the world economy, more stringent

⁶ Cooper (1995), op cit.
⁷ Krugman (1995); Cooper (1995); op cit.
⁸ Dani Rodrik, Has Globalisation Gone Too Far, Institute for International Economics, March 1997.
⁹ Dani Rodrik (1997), op cit.
environmental requirements, fears of loss of policy sovereignty, increased uncertainty and a new rationale for co-operation at all levels.

Globalisation has also become the driving force of economic growth in many regions of the world. It is a dynamic process of change unprecedented in its intensity. In Europe and North America, it has rejuvenated industrial development and brought heightened competitive pressures to bear across a wide range of industries. In Asia, it has heralded an unprecedented period of high economic growth and export competitiveness. In Latin America, it has signalled an abrupt change in economic approach from inward to outward orientation.

In Africa, where liberalisation has not progressed as far as in other regions, globalisation has at least established a benchmark from which further progress can be made. In the economies in transition, it has provided a dramatic confirmation of a major doctrinal shift from the past command economic system to a competitive market economy.

At the same time, globalisation has implied tremendous opportunities for trade, much larger inflows of FDI with associated new technologies, skills and market access for developing and transition countries. There are also enormous benefits to the industrialised countries--particularly the private sector--from trade with these countries. The private sector has a critical role to play in this process. However, because of various policy and structural weaknesses, African countries and least developed countries (LDCs) in particular have been unable to integrate fully--if at all, in many cases--into the global economy and enjoy its benefits. Indeed, there is a threat that African countries and LDCs could be increasingly marginalised in the globalisation process and de- linked from the prosperous industrialised countries.

The figures on Africa's development performance are nothing short of alarming. Forty per cent of Africans live on less than US$1 a day. From 1989 to 1992, nearly half of all sub-Saharan African countries experienced negative growth rates. Per capita income has only increased by US$70 in 20 years, whereas it has gone up by US$900 in South-East Asia. In addition, the ratio of trade to GDP has been falling--unlike in other regions--and is still well below what it was twenty years ago. Also, as mentioned earlier, the share of sub- Saharan Africa (SAA) and North Africa in total world exports has decreased steadily in recent years.

However, economic statistics alone cannot adequately convey the extent of the human tragedy that hides behind these figures. By any reasonable yardstick, Africa still merits special attention from the international

community, if its people are to have a realistic chance of competing in the global market place.

Globalisation, especially trade liberalisation in the context of the Uruguay Round and the Marrakech Agreement, will also present a special challenge to African, Caribbean and Pacific (ACP) States--many of whom are LDCs--as their trade preferences will be progressively eroded. To compete on international markets, they will need to raise the efficiency and competitiveness of their manufacturing sector, particularly their small and medium scales industries (SMIs). They will also need to adopt a more export- led strategy and promote effective regional and subregional co-operation. This is required to enlarge the size of their markets as well as structured access to inputs, technology, human resource development and on-the-job training at the firm level. This will often require close interaction between the private sector and the Government and, in many cases, support from international organisations.

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