Global truths

Secretary-General of the OECD

There are large economic forces at work in the world that carry the potential for immense human progress, but that also can make our economies and societies more vulnerable. Despite the fact that we have known this for at least two decades, since the process of globalisation began to take hold, the international community still fails to secure cooperative action on a scale and nature that will allow all nations to reap the benefits of globalisation.

I am convinced that this period of history will be characterised as the “age of globalisation”. Let us make sure historians have a good story to tell, of how world leaders seized the moment to harness untold opportunities to eradicate the poverty, misery and disease in many parts of the developing world; and of how economic growth was firmly established worldwide through the transfer and effective application of capital, technology and know-how, combined with unfettered access to global markets for all. What a wonderful story it could and should be!

Some argue that unequal access to global economic opportunities comes down to a lack of political will. I agree. At the same time, we should be aware that since the end of the Cold War there has been unprecedented political effort and organisation devoted to the cause of international economic co-operation. But while the big picture has developed well, vested interests, especially in the OECD area, have slowed down access to the global economy for the countries and sectors that need it most.

Admittedly, these are often complex issues. Globalisation presents us with new challenges which governments must grasp and make understandable to their sometimes worried or confused citizens. Today, for example, the public in some OECD countries is worried that the outsourcing of business services will undermine employment. The analyses of this phenomenon I have seen demonstrate the benefits of outsourcing to both the OECD countries and to the developing world, and should put such fears to rest – provided a clear message gets out.

The efficient operation of global markets and the international economic system is vital to all countries. The health of that system is itself dependent upon effective national policies – both domestic and external – at a time when situations can vary considerably from country to country. A major challenge is to re-establish the facts, with the help of solid data, and dispel misconceptions about globalisation.

Chief among these is the notion that globalisation places draconian limitations on national policies. This statement bears close examination. My own view is that wrong-headed policies that lead businesses and individuals to use their resources or time in wasteful, unproductive ways will bring economic decline and less prosperity, whether or not the national economy is engaged in the global economic system. We have many historical examples of countries that tried autarky and failed.

In contrast, while it is true that the global economy will sanction bad policies, it also provides great economic opportunities, as well as the information needed to harness those opportunities, to countries willing to participate. Globalisation brings benefits, but effective national policies are essential for success. It is certainly not because of globalisation that some economies have experienced a rather disappointing decade. The reason is mostly inertia in the domestic policy reform that must be undertaken to achieve economic and social progress – and to create the confidence the public needs to meet the challenge of globalisation and profit from it.

Related to this is the myth that trade liberalisation damages, rather than furthers, a country’s development. The fallacy of protection has been proven time and again, in rich and poor countries alike. As Jagdish Bhagwati once wrote in the OECD Observer, “protectionism in poor countries is quite often the chief culprit in their dismal export and economic performance.” Of course, not all developing countries have in place the domestic institutional and economic infrastructure to make a success of rapid market opening. But unless they begin to reduce their tariff barriers and open their services markets in line with their capacities, they will not obtain the positive impulses from competition and lower costs that will help their own industries to grow.

In other words, globalisation should be embraced by all countries, not for the sake of any overarching philosophy, but in their own enlightened self-interest.

Of course, it is more difficult for developing countries to sustain the will to liberalise when they see protectionism entrenched in some of the richest OECD countries. Need I mention the agricultural sector, where political will has been woefully weak, despite the clear benefits of open markets to farming! The lessons about preparing domestic policies and opening markets must be understood and acted on by developed OECD countries. Otherwise, our common aspirations to make globalisation work for all, and so provide future historians – our children – with the positive story they deserve, may not be fulfilled.

Reference

Bhagwati, Jagdish, and Meyer, André (2002), "Wanted: Jubilee 2010 Dismantling protection" in the OECD Observer No 231/232, May. See link below.

©OECD Observer No 244, September 2004




Economic data

GDP growth: +0.6% Q4 2017 year-on-year
Consumer price inflation: 2.6% May 2018 annual
Trade: +2.7% exp, +3.0% imp, Q4 2017
Unemployment: 5.4% Mar 2018
Last update: 06 Jul 2018

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