What is different qualitatively about this newest wave? In a significant way, it is the new technological revolution, resulting in the unprecedented ease with which information can now be standardised, exchanged and processed, constantly expanding the range and quality of goods and services that can be traded, and greatly facilitating the movement of capital across countries. But it also reflects the greater importance of the way in which economic activity influences the “global commons” — such as climate changes or the availability of clean water supplies.
The sea change in information technology is in many respects increasingly allowing the world economy to more closely approximate conditions where many of the benefits of an integrated global market economy may be realised. Technological breakthroughs in transportation, computers and telecommunications are to thank, accelerating flows of information and reducing adjustment costs. Not only capital, but workers are moving to seek out better returns in personal incomes, and the cost of achieving better production options is falling sharply, benefiting consumers. Consuming intangible, information-intensive goods has become more simple than ever, from reading Latin American newspapers on a computer screen in Paris to playing an online chess game against a stranger 15,000 miles away. Countries also have less scope now to introduce traditional policy wedges that distort the fair price fortheir goods, capital or labour, and there are increasing new pressures for harmonisation of policies and practices.
But in other key ways, the current wave of globalisation is making it harder to ensure that people all over the world benefit. That is why we see an uneasiness in developed and developing countries alike about some of the globalisation changes. What are the new forces at work?
One is that the speed with which information and capital can move magnifies the risks of investor herd behaviour and financial “contagion”, as when the Asian crisis in 1997-98 spread to Russia and then Latin America. Also, the ripple effects of actions taken in one country on the citizens of others are far greater, as is the speed with which they are felt. The effects might be delayed but powerful — witness many developing countries’ concern for global warming’s likely impact on their economies, reflecting principally carbon emissions from the industrial countries. And the boundaries of the “local” environment are being redefined, blurring once clear-cut definitions in trade, and now extending in unprecedented ways the geographical scope of competition.
So what can policymakers do to accentuate the good and limit the bad of globalisation? Countries can do a great deal individually to harness the good through investing in education, fostering technology research and development, practising greater transparency, working for adherence to universal standards and codes of good practice in economic and financial policy, and promoting effective social policies.
But it is far more difficult to see how most nation states can, on their own, counter the undesirable effects. Some nations or groups of nations have tried; witness the ASEAN countries’ so far unsuccessful efforts to achieve common tax incentives policies or the initiative of southern African countries to harmonise their tax policies. However, it remains to be seen whether such initiatives, however well co-ordinated, can gain enough adherents to make a significant difference.
Ultimately, it is up to the international community as a whole to ensure that globalisation works for all. This requires stepping up technical assistance to developing countries, and decisively opening up the markets of industrial and emerging market economies to low-income countries’ exports. Furthermore, there can be no substitute for supranational efforts to tackle those aspects of globalisation — financial contagion, global warming or marginalisation and social exclusion — that markets can still only imperfectly deal with.
In recent years the IMF has undertaken a variety of initiatives directed at improving many of the institutions, markets and practices that governments, businesses and individuals use. These include beefing up our monitoring of national economies. One particularly innovative effort — jointly with the World Bank — is “health checks” of a country’s financial system (Financial Stability Assessments). Another initiative has been to increase the transparency and dissemination practices of economic and financial data. We have crafted better international standards and codes of good practice. Bretton Woods institutions are also heavily promoting anti-corruption practices in the economic spheres of both developed and developing countries.
The IMF’s initiatives are part of a global effort, reflecting the enormous stakes at hand. For if the international community fails to make globalisation work for those who are being left behind, all will lose, and efforts to promote globalisation will be self-defeating.
*This article is based heavily, but not entirely, on “Reflections on the Impact of Globalization,” by Eduardo Aninat, Peter Heller, and Alfredo Cuevas, July 2001. The other authors are, respectively, the Deputy Director of the Fiscal Affairs Department, IMF, and Senior Economist, Fiscal Affairs Department, IMF.
©OECD Observer No 228, September 2001