Globalization: Lessons Learned

The heady, unrealistic days of globalization appear to be over. Where once it was promised that the simple spread of markets would melt poverty, dissolve dictatorships, and integrate diverse cultures, today the mere mention of globalization generates anger, discord, and accusations. The sharp worldwide financial crisis of 1997-1998, which devastated Asia and Russia, the unexpected oil shock of 1999-2000, which is hurting the U.S. and Europe, the crash of the euro, and the plummeting of stock markets everywhere have combined to cast doubt on the efficacy of globalization. Despair is replacing euphoria, and defensiveness is taking the place of triumphalism.

A double backlash is generating skepticism about the ability of globalism to do good. In the First World of the U.S. and Europe, the children of the middle class join with labor unions to protest in Seattle and Prague against globalization as a form of capitalist exploitation. They are opposed to what they see as multinational corporate exploitation of Asian and Latin American workers and the overseas environment. They seek to extend, if not impose, First World standards on Third World societies.

The Third World backlash is more complex and pragmatic. Asians, Africans, and Latin Americans protest against the rules of the globalization game but not against globalization itself. They want more controls over the hot, short-term Western capital flows into their countries that can destabilize them. At the same time they want more long-term corporate investment and fewer restrictions in Western markets for their exports. The Third World believes that the imposition of First World labor and environmental standards on their societies is simply a protectionist device to curb their exports and hold back their economic growth.

The backlashes against globalization mark the end of its naive, euphoric beginning and the start of a more complex stage in its evolution. To focus the debate, BUSINESS WEEK assembled a team of 16 journalists to fan out across the world to dissect what globalization means to people on the ground. Their conclusions:

-- Despite the Sturm und Drang of the backlashes, globalization remains the dominant driving force in the world economy, reshaping societies and polities as it changes lives. Moreover, an expanding high-tech, information-based economy increasingly defines globalization and shapes the business cycles within it. Much of the flow of capital, labor, service, and goods among Asia, America, and Europe are technology- based. Without chips, screens, and software help from Asia, the U.S. economy would grind to a halt.

-- How nations respond to globalization defines whether they prosper from it or not. At a minimum, policymakers have to be able to devise and implement sophisticated macroeconomic fiscal and monetary policies that control inflation and take advantage of global flows of capital, direct investment, and trade.

-- Regulation and rules count as much as the free flow of capital. To be productive, capital must move within a context of transparent markets and regulated banks. It's a delicate balance the U.S. has been working on for two centuries but something officials at the Treasury Dept. and the International Monetary Fund forgot when they pushed many Asian countries to open up prematurely in the early 1990s. Laissez-faire ideology is no substitute for practical investments.

-- Governance counts as much as free markets. The Congo, Nigeria, and, to a degree, even Russia, show that without an effective, operating state and a legal system that protects private property and individual rights and enforces contracts, globalization can lead to corruption, exploitation, and impoverishment. Russia has one of the highest levels of education in the world, with many of the best scientists and engineers, yet it has failed to grow because of the anarchy of the state and the failure of the legal system.

-- Education is one of the most important variables in determining how much and how fast Third World countries benefit from globalization. It allows them to move up the value-added chain, producing more advanced goods and services for the world market. Countries with the most education can plug into the high-tech global economy and gain the greatest benefits. Taiwan, India, Korea, China, and other Asian countries are now integrated into the Information Age international economy, which rises and falls with the high-tech business cycle. Africa, with among the lowest levels of education in the world, is out.

One of the great questions surrounding globalization is that of responsibility. Who, for example, is responsible for the sweatshops in Latin America and Asia that produce so many American, Japanese, and European goods? The answer here is clear--consumers are demanding that corporations be responsible for their employees anywhere around the world. Corporations must accept reasonable codes of conduct for their contractors overseas. It is also clear that global capital markets have to reflect the checks and balances found in the advanced economies to be effective.

But going further and imposing Western standards of human rights, worker benefits, and environmental protections on Third World countries, many of them democracies, runs the risk of protesters becoming the arrogant imperialists so many are protesting against. Globalization is the most powerful manifestation of capitalism seen yet. Capitalism has always operated within a context of law and rules, and it may be time to do some fine-tuning. But the danger in turning away from the markets is to return to the days when the World Bank and governments allocated capital for political reasons and the Third World wound up with dozens of steel plants that generated little growth and no prosperity for the people.

In the cacophony of voices being heard about globalization today, it is important to listen most of all to the leaders of the Third World who vociferously proclaim that the last thing their people want is to choke off the very economic process that is lifting so many from poverty.

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