Lesson 10

Globalization - a network approach

LEARNING OBJECTIVES

• To understand the concept of globalization

• To analyze the features and stages of Globalization
• To discuss how the companies globalize their operations
• To know how the companies establish their production facilities in various
countries
• To explain why companies procure finance and technology globally
• To discuss the various advantages and disadvantages of Globalization
• To analyze the efforts taken by the Government to globalize its economy
 Lesson 10

Globalization - a network approach

Globalization - a network approach

Why is the world teetering from one crisis to another? Has it always been like this? Were
things worse in the past? Or better? -- Helena Norberg-Hodge

Inuit people had no word for 'contamination'. Now chemicals are poisoning them. --
Geoffrey Lean

The main enemy of the open society, I believe, is no longer communist but the capitalist
threat. -- George Soros

In 1970, about 90% of international capital was used for trade and long-term investment -
more or less productive things - and 10% for investment. By 1990, those figures had
reversed. -- Noam Chomsky

A business or a big corporation is a fascist structure internally. Power is at the top. Orders
go from top to bottom. You either follow the orders or get out. -- Noam Chomsky

GNP as a measure of progress is the most stupid, the most absurd and the most pernicious
index that could ever have been thought of by a discipline that calls itself scientific. --
Jose Lutzenberger, former Brazilian Environment Minister

... the real choice is not jobs or the environment. It's both or neither. What kind of jobs
will be possible in a world of depleted resources, poisoned water and foul air, a world
where ozone depletion and greenhouse warming make it difficult to survive? -- United
Steel Workers of America

What an outstanding thing it is to watch a civilization destroy itself because it is unable to

re-examine the validity, under totally new circumstances, of an economic ideology. --
James Goldsmith

Let goods be homespun whenever it is reasonably conveniently possible, and above all,
let finance be preferably national. -- John Maynard Keynes

He who controls the currency controls the country. -- John Maynard Keynes
What are called structures are slow processes of long duration, functions are quick
processes of short duration. -- Ludwig von Bertalanffy

Free traders, having freed themselves from restraints of the community at the national
level and having moved into the cosmopolitan world, which is not a community, have
effective freed themselves of all community obligations. -- Herman Daly & John Cobb

... the world eventually becomes one vast free-trade zone in which all the social and
ecological imperatives to which economic activities are normally subjected, are now
systematically subordinated to the short-term interests of the transnational corporations
that control the world market - the most fundamental cause of the social and ecological
devastation that is fast making this planet uninhabitable to complex forms of life. --
Edward Goldsmith

If we look at an ecosystem we find systems within systems, networks within networks. At

the lowest level the self-contained self-regulating cell. We could go one stage lower and
consider the genome as a self-organizing self-regulating structure, which puts paid to the
commercialization of genetics built as it is on flawed science. Cells are organised in a
network structure as tissue and organs. Within an organism we have various systems,
respiratory system, digestive system, nervous system. The organism itself is a self-
contained self-regulatory system organised into networks within social systems and
ecosystems. Gaia is the planetary ecosystem. Esoteric theory considers the solar system,
galaxies and the universe to be higher network systems. At each level there is coupling
between systems, but this is of secondary effect, there is also network interaction which
forms the network structure of the next level system.

The Ancient Greeks recognised the Earth as a living system, systems embedded within
systems, the Earth a living part of the Cosmos. Pythagoreans saw the Earth as spherical,
animate, ensouled and intelligent; Plato saw the Earth as living, with other living
creatures an indivisible part of the whole; the Stoics saw the Cosmos as a sentient being,
of which all living things were a part. This holistic, ecological, systems world view
prevailed into the 17th and 18th centuries, Linnaeus, John Ray, William Paley and
Thomas Morgan all saw life as an indivisible, interrelated part of the whole. Indigenous
people today still see a living Earth and all its creatures as an indivisible part to be loved
and respected. Rene Descartes created the artificial division between mind and body to
separate the legitimate inquiries of science from the grasp of the Church, in doing so the
world was artificially divided between res extensa and res cogitans. Sir Isaac Newton,
Francis Bacon refined the methodology, a methodology regarded by William Blake as
cold and impersonal, without value or feeling, what today is seen as 'scientific method'.
Ecologists at the end of the 19th century were the first to see that organisms couldn't be
considered on their own, disconnected from their environment, could only be seen as part
of interconnected systems. From ecology, the systems viewpoint diffused into other
areas, pushed forward by leading thinkers like Alexander Bogdanov, Ludwig von
Bertalanffy, Norbert Wiener, Claude Shannon, Gregory Bateson and Margaret Mead.
Even economists, at least their more revolutionary brethren, are now beginning to see that
their simplistic models of input and output have little merit, that the inputs (resource
depletion) and outputs (waste disposal) couple into larger feedback systems. Ironically, at
a time when other disciplines are abandoning their reductionist viewpoints and
recognising the fundamental nature of a systems, network approach, biologists have
turned full circle with their neo-Darwinist, mechanistic viewpoint that the gene
determines all, mapping the genome being the Holy Grail of biology. The honourable
exceptions being Eugene Odum, who understands the fundamental importance of
feedback loops, and James Lovelock and Lynn Margulis with their Theory of Gaia, that
the world is governed by large feedback loops, contained within which are ever smaller
feedback loops.

Systems engineers deal with systems. Open-loop systems are open to external
environmental influences, we close the loop to form a closed-loop feedback system and
we minimise external influences. Closed-loop feedback systems can be analysed by
simple algebraic equations. Any internal non-linearities are smoothed out by the
feedback, cross-coupling with adjacent systems is minimised, the systems may be
organised into networks. For the network we have networks within networks. We can
though produce tight coupling between systems (that is one system effects the internal
workings of another). Connect the output of one into the input of the other. Our simple
feedback system and its simple analysis is no longer valid as the loop is now determined
by what happens in the coupled system, we can no longer control a single system in
isolation. We have to consider the two systems as one large system, we no longer have
two separate systems with weak coupling between the two. Simple algebraic maths will
no longer suffice. We have to use matrices of simultaneous differential equations usually
non-linear. Such systems are often chaotic, that is the initial conditions determine the
current state, small differences in initial conditions lead to extremely wide differences in
the current state. Such systems often have cusps, an infinitesimal difference in conditions,
often randomly determined, can lead to two widely diverging paths. Imagine a drop of
water poised on the top of a knife-edge ridge. A small perturbation or the flip of a coin
leads to a final destination a continent apart. Such systems appear random, they are not,
they are chaotic, they are deterministic but to all practical appearances are non-
deterministic and random.

Globalisation is unravelling these local loops and replacing them with inherently unstable
systems. We can see many examples of this.

The massive stock market crash in the summer of 1998. Large amounts of money are
sloshing around the world. Banks traditionally lent for investment. An entrepreneur
needed money to add value. The value may not have been of value to society, it could
have been to build a nuclear power station or to manufacture weapons, but in the
narrower economic sense value was added and the entrepreneur and the bank benefited.
Less and less are banks lending in this way, instead money is being lent to funds
(gambling syndicates in all but name) who speculate on short-term outcomes. The funds
have returned high profits, increasing the tendency for banks to lend. The funds have
driven up stock prices which has pulled in more money, which has driven up stock prices
which has increased the funds returns. The whole system is unstable as it is a positive
feedback loop that has an ultimately limit. Eventually there is no more money to be
drawn in and it collapses.

Barings, the world's oldest bank, discovered the hard way that there is no such thing as a
free lunch. Traditionally merchant banks have raised money on behalf of industry.
Barings found it was far more profitable to speculate on the Far East Futures Market in
Tokyo and Singapore. Not only their own money, that of clients too, everyone wanted to
jump in the act, get a slice of the action. Nick Lesson was gambling millions on split
second differences in future options in different trading centers. Such was the volume of
his trading that he was dragging everyone else along on his coat tails even to the extent of
influencing the Nikkei. Whilst everyone was pulling million dollar bonuses at Barings a
convenient blind eye was turned to the fact that Singapore trader Nick Leeson was sailing
extremely close to the wind. Only when the bubble burst did the rats jump ship and place
all the blame on a rogue trader. Had the truth been told, that an unsupervised trader was
given the nod and the wink, senior personnel at Barings, if not the Bank of England been
put on trial, then the entire future of London as a world financial center would have been
put at risk. Barings was allowed to sink, taking the truth with it, leaving Nick Leeson
(now dying of cancer) to rot in a Singapore goal.

There has been no successful mega-merger. Shareholders suffer, employees suffer, and
clients and customers suffer. The only ones to benefit are the senior managers who look
to their share options for a quick killing, rather than the long-term interest of the company
for which they are paid. Mega-mergers are on the increase due to the huge short-term
gains. If the stock value doubles on the acceptance of a bid, then funds sell to realise a
short-term gain, to invest elsewhere to capitalize on yet another short-term gain. Senior
management with their stock options and bonuses benefit even more, the long-term future
of the company is the last thing on their minds.

For a feedback system to work, the regulatory feedback path has to be at least an order of
magnitude faster than the system it is regulating.

The hot money is sloshing around the world ever faster, resulting in ever increasing
instability. Computer share tracking systems cut in and sell at pre-determined points, the
fall accelerates, then cut in more sell programs, which causes ever greater acceleration.
Manual systems are also increasing in speed. Instead of going through a broker, humans
can now use on-line systems for instant buying and selling of stocks. The creation of a
pan-European stock exchange will add further instability.

National economies are notoriously difficult to manage as they are not one simple
homogeneous economy but a series of nested, interacting economies - regional
economies, sector economies. Attempts to cool the UK economy may help the South,
may help the service sector, but also triggers ever more redundancies in the depressed
North, bankruptcies in the engineering sector.

From the system, ecological viewpoint of viable self-contained, self-regulatory systems

nested within networks we can see the destabilizing effect of globalization. Globalization
is producing ever tighter coupling between previously self-contained self-regulating
systems.

The EU attempts to stimulate cross-border trade, treat all countries to common policies,
regardless of national sensibilities, local custom, local industries and economies. The
common currency is designed to accelerate this trend, destroy local loops, ever tighter
coupling. It becomes no longer possible to regulate national economies at the national
level due to the high degree of cross-coupling (ie the high levels of cross-border
economic flows). The common monetary policy cannot, will not work. We have practical
experience with the forced economic reunion of the two halves of Germany (two vastly
different economies). This destroyed the East German economy and ruined the once
mighty West German economy. Although not exactly comparable, the only other
experience we have of single currency zones, yen, dollar, sterling, have not worked over
the long term. Monetary Union has no escape clause, once you're in, you're in for ever (or
until the scheme collapses). Monetary Union will destroy all the local loops and replace
with one community loop. It ignores the vast difference in economic activities, plus the
differences in language, culture, law, political structures. The only way to make it work
would be to replace the regional, national regulatory mechanisms with an EU regulatory
mechanism. This would have to have such Draconian powers that it is unlikely to be
acceptable at a national level. It would also require huge amounts of funds to be moved
around to compensate for its negative effects (unlikely to be acceptable to those who
would be paying). Failure to move huge compensatory funds would lead to mass
migration and consequential civil unrest. The only beneficiaries of monetary union will
be transnational corporations who will find it even easier to move money across borders
increasing the amount of hot money sloshing around, decreasing the stability of the world
economy still further.

Not content to destroy national economies with EMU, the EU is now planning 'tax
harmonisation' - weasel words for denying national and local authorities the ability to
regulate their own economies via a tax regime.

The emblem for Brussels is a little boy pissing. Quite appropriate for a city that is fouling
up Europe and dumps all its raw sewage untreated into the river to eventually flow into
the North Sea.

NAFTA (North American Free Trade Agreement) created a free market across North
America. Despite dire warnings of the consequences it has gone ahead. The only
beneficiaries have been US global corporations. Massive job losses have occurred in the
US as low skill jobs have moved across the border to Mexico. US corporations love
Mexico, lower taxes, lower environmental standards, zero workers rights.

NAFTA has led to unprecedented military activity against indigenous people as the
Mexican government tries to seize their land for use by US corporations. The US has
poured in millions of dollars of military aid, thinly disguised as 'the war against drugs'.
Trade union activists working for Mattel in Mexico (Barbie doll) have been illegally
detained and threatened. Assembly workers in Thailand work in extremely unpleasant
and dangerous conditions, when they protest they are threatened not only with the sack
but that they will be silenced 'forever'. The brutalisation of Third World workers to
produce brand-name goods is not simply a feature of NAFTA, it is a common malaise of
globalisation.

Lori Wallach and Robert Naiman sumarised NAFTA thus:

NAFTA has not simply failed to provide the promised benefits but has led instead to
widespread poverty, unemployment, social dislocation and environmental disruption. The
few beneficiaries have been corporations - mainly transnational corporations - who
necessarily benefit from deregulation that reduces their costs and the free market that
they largely control.

GATT and its successor WTO, are establishing a quasi-world government with
legislative, executive and judicial powers. The world is being turned into one gigantic
single economic system for the benefit of transnational corporations

Key Points

• The environmental implications of this decade's massive movements of money

into the developing world, while enormous, are also complex and somewhat
contradictory.
• Investors are often drawn to places endowed with bountiful natural resources but
handicapped by weak or ineffective environmental laws.
• Policy reforms are needed to steer private capital flows in a more environmentally
sound direction.

In the wake of the Asian economic crisis, the international capital that had been pouring
into that region since the beginning of the decade reversed course as investors raced for
the exit. Suddenly commentators who just months earlier were extolling the virtues of
global economic integration were urgently warning that international financial flows had
outgrown existing financial regulatory structures. But few people are paying attention to
another critical issue: the extent to which this decade's massive international financial
flows to the developing world have undermined the ecological foundations of emerging
economies. Urban air pollution levels in many Asian and Latin American cities are
among the worst in the world, and natural resources such as forests and fisheries are
badly depleted on both continents.
Understanding the role of private capital flows in all of this is no simple matter. The
environmental implications of this decade's massive movements of money into the
developing world, while enormous, are also complex and somewhat contradictory.

As investors search the globe for the highest return, they are often drawn to places
endowed with bountiful natural resources but handicapped by weak or ineffective
environmental laws. Many people and communities are harmed as the environment that
sustains them is damaged or destroyed--villagers are displaced by large construction
projects, for example, and indigenous peoples watch their homelands disappear as timber
companies level old-growth forests. Foreign investment-fed growth also promotes
western-style consumerism, boosting car ownership, paper use, and Big Mac
consumption rates toward the untenable levels found in the United States--with grave
potential consequences for the health of the natural world, the stability of the earth's
climate, and the security of food supplies.

Yet international capital can bring environmental benefits as well, such as access to
cutting-edge technologies that minimize waste generation and energy use. These new
processes can help developing countries leapfrog over the most damaging phases of
industrialization and avoid the kind of costly cleanup bills that many industrial countries
are now saddled with.

Policy reforms are needed to steer private capital flows in a more environmentally sound
direction. But the levers of change are shifting: the influence wielded by public aid
agencies is waning while private sector clout is on the rise. The amount of private capital
flowing into the "emerging markets" of the developing world exploded in the early
1990s, rising from $42 billion at the beginning of the decade to an all-time high of $256
billion in 1997, according to World Bank estimates. Meanwhile, spending on official
development assistance fell by nearly a quarter over this period in the face of large
government budget deficits in donor countries and declining political support for aid.
This shrinking public presence coupled with expanding private flows dramatically
changed the complexion of North-South development finance. Whereas in 1990 only
43% of the international capital moving into the developing world came from private
sources, by 1997 this share had risen to 85% (see figure).

This shift in the sources of capital poses a policy challenge as the private sector is less
accountable to the public interest than are government agencies. But the challenge is not
insurmountable: a growing array of "green" international investment strategies are taking
shape in hopes of shifting private capital out of environmentally damaging activities and
into enterprises that sustain the natural world rather than degrade it. These initiatives
must be launched quickly and on a large scale if they are to turn around a global economy
that pumps 17 million tons of climate-warming carbon from fossil fuel burning into the
atmosphere every day and extinguishes thousands of plant and animal species annually.
 Problems with Current U.S. Policy
Key Problems
• Private capital flows are something of a black box. We know they are growing
fast, but we know little about what exactly is being financed.
• Countries rich in natural wealth all too often squander this bounty by investing in
ill-conceived projects that mine natural resources.
• A sizable share of current international investment in the power sector is
bankrolling multimillion-dollar coal- and oil-fired power plants that produce
prodigious amounts of both local air pollutants and greenhouse gases.

The first step in reorienting private capital flows is to track them better, a task made
difficult by a paucity of publicly available data. Suppliers of official development
assistance, such as the World Bank, publish detailed reports spelling out what the money
is being spent on--whether it is dams, highways, and other infrastructure projects, social
services such as health care and education, or environmental projects such as
reforestation and pollution control. But private capital flows are something of a black
box. We know they are growing fast, but the available statistics tell us little about what
exactly is being financed. Nonetheless, a rough map can be sketched.

Most private funds have flowed to a relatively small group of countries: in the first half of
the 1990s, just 12 nations received some three-quarters of all private inflows, with China
alone accounting for a sizable share of the total. These 12 countries have an enormous
impact on the health of the planet by virtue of their relatively large populations,
economies, and land masses.

The quest for natural resources has historically drawn international investors into distant
ventures in the developing world. This quest continues today, with international
investment in resource extraction flowing rapidly into many countries that are richly
endowed with natural assets such as primary forests, mineral and petroleum reserves, and
biological diversity. In Chile, for example, commodities account for nearly 60% of
foreign direct investment (FDI) stocks, most of it in copper mining. Diamond mining
attracts most of the FDI that flows to Botswana, while in Tunisia, oil and gas
development is a big draw.

Countries rich in natural wealth all too often squander this bounty by investing in ill-
conceived projects that mine natural resources for the short-term economic gain of
political elites at the expense of local peoples and future generations. A wiser long-term
strategy would be to funnel capital into economic activities that preserve natural
endowments, such as timber operations that are certified as sustainably managed, small-
scale ecotourism enterprises, and "bioprospecting" ventures in which pharmaceutical
companies pay for the rights to seek out commercially valuable species.

In recent decades, the manufacturing and services sectors have expanded rapidly in many
developing countries, making them increasingly attractive targets for foreign investors.
The World Bank estimates that manufacturing now accounts for just under half of all FDI
flows to developing countries and that services--including construction, electricity
distribution, finance, retailing, and telecommunications--constitute more than a third,
while the "primary" sector, which includes agriculture, forestry, and mining, now
accounts for only some 20% of the total.

From an environmental point of view, the manufacturing takeoff is a double-edged

sword. International investment in manufacturing sometimes helps developing countries
adopt new technologies that produce less waste and use fewer raw materials than
standard machinery, yet it can also bring highly polluting industries that jeopardize
human and ecological health.

One of the most dramatic trends of the 1990s has been the rapid rate at which
governments of developing countries have turned over many traditionally public
infrastructure activities to the private sector. Private companies are now building power
plants, telecommunications networks, water treatment plants, dams, and toll roads in
many corners of the globe, and two-thirds of the financing comes from investors abroad.

The numerous power sector projects now in the pipeline have particularly serious
implications for the environment--especially for the quality of the air and the stability of
the climate. Over the next several decades, the bulk of new global investment in the
power sector is projected to take place in developing countries. The world's ability to
avert a catastrophic warming of the atmosphere will depend in no small measure on what
kind of power plants are built.

A sizable share of current international investment in the power sector is bankrolling

multimillion-dollar coal- and oil-fired power plants that produce prodigious amounts of
both local air pollutants and greenhouse gases. For instance, international investors are
queuing up to participate in the construction of the more than 500 mid-sized power plants
that China plans to erect by 2010--equivalent to more than double China's current
generating capacity. Many of these will be fueled by carbon-intensive coal.

Toward a New Foreign Policy

Key Recommendations

Use public aid money as an environmental lever to influence

far larger pools of private capital.
• Harness the World Bank and the International Monetary Fund's influence on
behalf of needed reforms.
• Integrate environmental considerations into the forums where the rules of
international commerce are now being written.

The global nature of today's economy means that individual governments have less
power than they once did to chart their own environmental courses. The buying
preferences of consumer’s continents away can determine the fate of a country's
rainforest, and concerns about international competitiveness are often used to block
meaningful environmental reforms. Action at the international level is thus essential.

The rapid infusion of private capital into emerging markets led to some confusion
regarding strategy on the part of those accustomed to operating in the more familiar
world of aid-financed development. Yet new tactics that hold promise for shaping the
developing world's environmental future are beginning to be employed in response to the
changing international landscape.

One approach is to attach environmental conditions to bilateral and multilateral aid

programs that support private investments, thereby using a limited amount of public
money as an environmental lever to influence far larger pools of private capital. The U.S.
Overseas Private Investment Corporation (OPIC), for instance, provides political risk
insurance for private investment. At the urging of environmental groups, OPIC is in the
process of phasing in strengthened environmental guidelines that, among other things,
require the agency to track and report on greenhouse gas emis- sions from its power
projects and forbid it from underwriting projects in primary tropical forests or other
ecologically fragile areas.

The U.S. Export-Import Bank (Eximbank), which provides subsidized loans to other
governments for the purchase of U.S. goods and services, has also taken steps to
strengthen its environmental policies. In May 1996, Eximbank announced that its
environmental guidelines prohibited it from extending export credit support for China's
Three Gorges project--a blow to companies such as the heavy equipment manufacturer
Caterpillar. But the bank's counterparts in Canada, France, Germany, Japan, and
Switzerland stepped into the breach, undermining the effectiveness of the U.S. action.
Stung by the Three Gorges experience, the U.S. is trying to persuade other donor
countries to apply comparable environmental conditions to their bilateral export credit
and investment promotion agencies.

At the multilateral level, significant potential clout over the private sector lies in the
hands of the World Bank and its two affiliated organizations that underwrite private
sector investments, the International Finance Corporation (IFC) and the Multilateral
Investment Guarantee Agency (MIGA). After a decade of pressure from
nongovernmental organizations and determined efforts by committed insiders, the World
Bank now has an extensive set of environmental and social policies. In theory, all World
Bank agencies (including the IFC and MIGA) are bound by these policies. Yet World
Bank officials acknowledge that actual operating procedures have sometimes been
different in private sector operations. And, by its own admission, the World Bank itself--
let alone the IFC and MIGA--has not always followed its own rules.

The International Monetary Fund (IMF) is another economic institution that needs an
injection of environmental sensitivity. The IMF's prominent role in the Asian economic
crisis is demonstrating the organization's power while stirring controversy as to the
wisdom of its financial advice. Little understood, however, are the profound effects that
its economic recommendations have on the ecological health of recipient countries.

The IMF and the World Bank both make structural adjustment loans, in which recipient
countries agree to a range of policy reforms in exchange for access to credit. Countries
are often encouraged to boost exports in order to generate foreign exchange with which to
repay debts. This creates pressure on them to liquidate natural assets in order to come up
with the money. Structural adjustment loans also often require countries to cut
government spending, which can mean that the budgets of already overburdened
environment and natural resource management ministries are cut to bare-bones levels.
Although many of the policy changes required under structural adjustment programs
contribute to environmental destruction, the IMF and the World Bank could instead
choose to use their influence to promote needed reforms, such as reducing
environmentally harmful subsidies or implementing environmental taxes.

Environmental considerations also must be integrated into the official forums where the
rules of international commerce are now being written, such as the World Trade
Organization and the negotiations on the proposed Multilateral Agreement on
Investment. And the UN could be charged with developing baseline environmental
standards for industry comparable to those the International Labor Organization drafts on
matters such as workplace safety and child labor. This effort would logically build on the
World Bank's environmental policies and guidelines, which are already a common point
of reference for private investors.

Around the world, public awareness of the damage that business-as-usual practices inflict
on the planet is growing, and grassroots environmental groups are gaining strength. The
Asian crisis, meanwhile, has drawn attention to the need to manage global economic
integration better. As the process of devising international policies for a global zing world
commences, protecting the natural resource base that underpins the global economy
merits a prominent place on the agenda.

Hilary French is Vice President for Research at the World watch Institute in Washington,
DC. She is the author of World watch Paper 139, Investing in the Future: Harnessing
Private Capital Flows for Environmentally Sustainable Development, upon which this
brief is based.

Facts & Figures

Pro-globalization arguments

• There is mounting evidence that inequalities in global income and poverty are decreasing
and that globalization has contributed to this turnaround.

• The countries that are getting poorer are those that are not open to world trade notably
many nations in Africa.

• Companies of all sizes are involved in world trade – the benefits do not just flow to large
multi-nationals.

• Globalizations contributes to environmental improve-ments by promoting growth,

increasing incomes, improving property rights and allowing the efficient use of resources.

• Poor countries that have lowered their tariff barriers have gained increases in employment
and national income because labor and capital shifts from import-competing industries to
expanding, newly competitive export industries. In addition to providing jobs, companies
moving to developing countries often export higher wages and working conditions compared
with those in domestic companies operating in the country.

• Globalisation is not shifting power from nation states to undemocratic institutions. In the
case of the World Trade Organisation, the practice has been that no decisions are made
unless a consensus of governments is achieved. This guarantees that the WTO reflects the
will of its member nation states. As the work of the United Nations has demonstrated,
globalisation is more effective when there are strong governments, with sound domestic
institutions.

• Australia provides a text book case for the benefits of globalization. In 1986 it unilaterally
lowered its tariffs. As a result, exports have soared, particularly in newly competitive
industries such as manufacturing. It is noteworthy that wages in the new export sectors of
manufacturing are 25% higher on average than those that simply service the domestic
market. Manufacturing has doubled its share of Australia’s exports over the last 20 years.

• Australia has a strong vested interest in further trade liberalization, particularly in

agriculture. Australia has made common cause with developing countries such as Brazil and
Argentina to press for agricultural liberalization, as this would have the benefit of opening
American and particularly European markets.

• It is estimated that if protection levels around the world were reduced by 50%, the benefit
to Australia would be more than $7 billion a year.

• Australian companies investing abroad are helping to create employment and wealth in
those countries, in the same way that foreign investment helps to create wealth here. For
every dollar invested in Australia, 96 cents remains, including 50 cents in wages. Anti-
globalisation arguments.

• Rising inequality is the inevitable result of market forces. Given free reign, market forces
give the rich the power to add further to their wealth. Hence, large corporations invest in
poor countries only because they can make greater profits from low wage levels or because
they can get access to their natural resources.

• The freeing of financial markets has brought global instability, as evidenced in financial
crises in Asia and Latin America and the continuing marginalisation of sub-Saharan Africa.

• The consequences of globalization will be the end of cultural diversity, and the triumph of a
uni-polar culture serving the needs of transnational corporations. Hence the world drinks
Coca-Cola, watches American movies and eats American junk food.

• Transnational companies want to place environ-mentally degrading industries in countries

that have inadequate environmental controls.
• Globalization results in the exploitation of millions of workers in countries that do not give
workers rights to organize. Workers in poor countries may have to work 12 hours a day,
seven days a week with few protections for health and safety. In some countries,
globalization leads the exploitation of child and prison labor. Within richer countries, there is
growing inequality as unfair competition from countries repressing workers’ rights to
organize pushes down the earnings of the less skilled sections of the workforce.

• Globalization is empowering corporations at the expense of the nation state, and the
international institutions such as the WTO and World Bank are not democratic, making their
decisions behind closed doors.

• Australian corporations participate in the oppression of workers and peasants in poor

countries in Asia. Australian mining and forestry companies are involved in extracting wealth
from countries such as Papua New Guinea, Iran Jaya and Indonesia, sometimes relying on
military support to suppress local opposition.

• The Australian support for trade liberalization, particularly in agriculture, has been used to
open up markets in poor countries where Australia’s commodity exports put local
subsistence farmers out of work.

• Australia has opened its own markets to goods made in countries that allow child labor, or
forbid the formation of free trade unions.

• The Australian government has opposed efforts to include environmental and labor
protection clauses in World Trade Organization agreements. Australia should support reform
of the WTO to make it more equitable for poor nations of the world.

• Australia places few restrictions on the operations of transnational organizations, which

take wealth from the country, and are not managed in the interests of Australia.

Anti-globalization arguments
• Rising inequality is the inevitable result of market forces. Given free reign, market forces
give the rich the power to add further to their wealth. Hence, large corporations invest in
poor countries only because they can make greater profits from low wage levels or because
they can get access to their natural resources.

• The freeing of financial markets has brought global instability, as evidenced in financial
crises in Asia and Latin America and the continuing marginalisation of sub-Saharan Africa.

• The consequences of globalization will be the end of cultural diversity, and the triumph of a
uni-polar culture serving the needs of transnational corporations. Hence the world drinks
Coca-Cola, watches American movies and eats American junk food.

• Transnational companies want to place environ-mentally degrading industries in countries

that have inadequate environmental controls.

• Globalisation results in the exploitation of millions of workers in countries that do not give
workers rights to organise. Workers in poor countries may have to work 12 hours a day,
seven days a week with few protections for health and safety. In some countries,
globalisation leads the exploitation of child and prison labour. Within richer countries, there
is growing inequality as unfair competition from countries repressing workers’ rights to
organise pushes down the earnings of the less skilled sections of the workforce.

• Globalisation is empowering corporations at the expense of the nation state, and the
international institutions such as the WTO and World Bank are not democratic making their
 decisions behind closed doors.

• Australian corporations participate in the oppression of workers and peasants in poor

countries in Asia. Australian mining and forestry companies are involved in extracting wealth
from countries such as Papua New Guinea, Irian Jaya and Indonesia, sometimes relying on
military support to suppress local opposition.

• The Australian support for trade liberalisation, particularly in agriculture, has been used to
open up markets in poor countries where Australia’s commodity exports put local
subsistence farmers out of work.

• Australia has opened its own markets to goods made in countries that allow child labour, or
forbid the formation of free trade unions.

• The Australian government has opposed efforts to include environmental and labour
protection clauses in World Trade Organisation agreements. Australia should support reform
of the WTO to make it more equitable for poor nations of the world.

• Australia places few restrictions on the operations of transnational organisations, which

take wealth from the country, and are not managed in the interests of Australia.

The Great Globalizations Debate with Peter Thompson

Sunday 15 December 1996

Peter Thompson: Hello and welcome to this special edition of Background Briefing.

When people recall their political memories of Australia in 1996 in years to come, a few
things will stand out: one will be the triumphant success of John Winston Howard, who
became Prime Minister with a pledge to make Australians more comfortable with
themselves.

For that we can assume Mr Howard was talking shorthand for saying that in the future the
pace of change might be more comfortable.

Out went Paul Keating, the globalising moderniser, who worked for 13 years as
Treasurer, and then Prime Minister, to redirect the country towards an Asia-Pacific
destiny, with a wide open economy.
But who'll forget Pauline Hanson? Pauline Hanson hasn't mentioned globalisation as a
factor in the new anxiety - just migrants, and how some sections of the community are
getting benefits at the expense of others. Maybe the people she's singled out as
scapegoats for more invisible seismic shifts in the way Australia operates in the world.

This week the World Trade Organisation has been holding its big inaugural meeting in
Singapore. The new coalition government is an enthusiastic supporter of the ethos of the
new, open trading environment.

So today we ask: Is there a basic contradiction between becoming more comfortable and
being part of the globalisation ethos of open markets and free trade?

This week we're coming to you from Melbourne, where a forum on globalisation and
labour markets has been organised by Deakin University and the Australian Council for
Overseas Aid - ACFOA. Now with me on our panel are Chris Manning, who's a Research
Fellow in the Indonesia Project at the Australian National University; Louise Sylvan,
who's head of the Australian Consumers' Association and also Executive Member of
Consumers International, the peak global body on consumer rights. Edna Ross is Director
of Advocacy for ACFOA; she's just back from the Manila Peoples' Forum on APEC
which discussed the impact of globalisation - on workers, human rights and the
environment. And Scott Birchell, from the Department of International Relations at
Deakin University.

Louise, let's begin with you: what exactly is globalisation?

Louise Sylvan: Globalisation is really a process I think that is being driven largely by
global corporations. It starts with the deregulation of capital markets; it enables those
corporations to seek the best return anywhere in the world that they can, so profit in a
sense, is driving overall the globalisation processs, assisted of course by technological
changes that give you large computing capacity and telecommunications.

Peter Thompson: Well Chris Manning, as you sit down at the Indonesia Project at the
ANU, what does globalisation mean to you when you're focusing particularly on a
developing country like Indonesia? What does it mean there?

Chris Manning: Peter first and foremost, it means the extension of traded goods into the
international markets - that's the most important aspect of globalisation. It's the expansion
of exports and the import of capital equipment and the rise in that share of traded goods
to GDP.

Peter Thompson: Edna, in the Philippines just in the last few weeks, what does
globalisation mean to people taking part in that forum on APEC? Because if any
organisation represents what globalisation's about, it's APEC.

Edna Ross: Well the concerns of the non-government organisations in developing

countries in particular, are about the un-level nature of the playing field; and what
globalisation means is that if the barriers to trade and to investment are forced open in
order to allow the northern countries to penetrate those markets, that they'll be even
further disadvantaged. And so I guess the two main concerns are that the increasing gap
between rich and poor countries is going to be even further widened and that the people
who are marginalised in those societies, who constitute actually a majority rather than a
minority, will be further marginalised.

Peter Thompson: And Scott, what's your view? I mean what is at the heart of this debate,
why bother to have it?

Scott Birchell: Well I think the crux of the issue is the extent to which nation states can
no longer regulate or manage their own economies, without taking consideration of
external forces. So for very much the first time in history, at least to this extent,
governments, although held accountable in democratic societies for economic
management, are really increasingly unable to manage their economies in ways that they
would prefer to without taking account of finance markets or investors, speculators, who
are part of this, of global community.

Peter Thompson: Well back to Louise. I mean is this simply an unstoppable process?
Should we just lie back and enjoy it?

Louise Sylvan: Well I think in a sense we don't have much choice but to lie back; I don't
know that everybody's enjoying it, and I don't know that we need not to take action. I
think there are things that we can do. Basically the companies that are moving around the
world are saying they're economic entities, they have no responsibility for the social
outcomes of what's happening because of the movement of global capital. I think we've
got to argue, and argue successfully with them, argue successfully with the nation state
governments, that in fact they do have some accountability and the results of people
being thrown into significant unemployment in various parts of the world as one
company moves to seek lower costs in another part of the world. There has to be some
quid pro quo for the profitability that these companies are accumulating in terms of the
social benefit that they deliver back to the communities.

Peter Thompson: But those transnational corporations stick to the law, don't they? in the
countries that they go to. Isn't that sufficient?

Louise Sylvan: Sometimes they stick to the law. I think there are cases where they don't,
but I don't think it is sufficient. While they may provide some employment that may not
have been there previously, it seems to me that if one can move the amoral position that
they've got to a much more ethical position, part of their function could be in fact to
create a much better world for a lot more people. They could in fact significantly improve
the situation for labour in a variety of countries; they could improve their particular
contributions to things like training, education and so on. And some of them do this, but
they don't do it from an ethical position, say, that they should.
Peter Thompson: The Corporation's only obligation is to shareholders, it's not to make a
better world.

Louise Sylvan: Well I just don't think that we can accept that any longer into the future.
And it's a very big ask, I know, to say that corporations have to change, the nature of
business has to change. But it seems to me the kind of results we're getting from solely a
profit maximising set of corporations can't continue in terms of its effect on our social
structure.

Peter Thompson: Chris, back to Indonesia: who are the winners and losers from
globalisation? How is it affecting Indonesia?

Chris Manning: The big winners are capitalists, are trans-national corporations and by
and large their labour in Indonesia.

Peter Thompson: That's a good thing, isn't it? I mean that sounds like its a job for people
who don't have a job or any kind of people who have a measly income now.

Chris Manning: Yes.

Peter Thompson: So, the positives outweigh the negatives?

Chris Manning: The positive effects for labour in terms of rising wages, in terms of
declining rates of poverty, have been quite substantial in Indonesia since it began to
liberalise in the mid-1980s. That's not to say that there's extreme abuse, some extreme
abuse of labour rights. It's not to say that labour standards are very low by any first world
criteria, and that there's a long way to go. It's also not to say that globalisation is the only
process that is involved in improving those standards.

Peter Thompson: Yes, but to the extent that Indonesia is liberalising, and having more
contact with the outside trading environment, that in itself will be a pressure for reform of
what is a pretty repressive set of labour standards, one presumes.

Chris Manning: I think the reforms will come slowly, through formal political processes.
Certainly they are beginning to change, but it depends very much on domestic political
forces and circumstances, rather than on economic pressures. Economic pressures will be
important in the longer term, but not for the next five, ten, perhaps 20 years.

Peter Thompson: Scott, what's your view on that? I mean as China's another case in point,
that it's always been argued that the best way to actually make China more liberal in a
social sense, is to do business with it.

Scott Birchell: Well I think a couple of points there: first of all, I think it's very dubious,
there's no exact link and there's very little evidence of a link between economic and
political liberalisation. There are many examples of countries throughout Latin America
for example, which have substantially liberalised economically but have maintained very
harsh and repressive administrations.

Peter Thompson: Although right now the evidence on that would appear to be pretty
positive, that as Latin America trades more with the rest of the world, particularly North
America, at the moment at least the social climate is pretty positive.

Scott Birchell: Well it's improving. But I don't think the link is there, it may be improving
for other reasons. I think the key point though that concerns me about Chris' argument is
that globalisation tends to validate these repressive labour standards, because effectively
the advantage that these nations are enjoying in low labour costs, is being maintained at
the cost of organised labour - people being unable to assemble freely, people unable to
enjoy freedom of association, freedom of the press. The government intervenes to prevent
independent trade unions in Indonesia, therefore the price of labour is kept low because
labour's not able to organise. So this is not a testament to free trade, this is not a testament
to free markets, this is the State intervening to keep the price of labour artificially low.

Peter Thompson: Well Edna, one of the issues here is whether the social context of
globalisation is catching up with the speed of economic change. I mean on a recent visit
of mine in Southern China, I've never seen anything like it in terms of the pace of
development there - a hundred mile building zone literally. What instincts did you get
from your visit to the Philippines about these issues we're discussing, that is the link
between social policy, if you like, human rights, and exploiting global markets?

Edna Ross: Well I think the feeling of people from civil society, as they like to call
themselves, in developing countries, is very much that the agenda of globalisation is
being run by interests from the industrialised countries and particularly within those
countries, by transnational corporations, and that therefore - and I think that's borne out
by what is on the table for example, under APEC, and what is being discussed at the
WTO meeting, that that is definitely what is the driving force.

So the analysis from developing countries that it's definitely to their disadvantage. Now
the question always is, Well why did their governments want to get into it? I mean are
they really trying to stuff up their countries completely? And the argument then is that it
benefits some people in those countries, and it's usually the elite. So I mean I think Chris
has a point, I think that wages are driven down in developing countries because there is a
surplus of labour, a huge surplus of labour, and because people are incredibly poor and
they will work for anything. But the question then is if you've got international fora that
are pushing barriers down and down and down, and countries are competing with each
other for investment, and therefore reinforcing the downward thrust of wages and
conditions, or legitimising them, then is it not appropriate or necessary to also introduce
into those forums, discussions of how to actually rise up to a better level.

And if I can just come in -- you asked Louise I think, whether transnational corporations
don't obey the national law. They do, but the trouble is that they also help create that law.
And I think part of the complaints --
Peter Thompson: In the case of Papua-New Guinea apparently BHP actually writes the
law!

Edna Ross: Well exactly. And what I heard in the Philippines; the Philippines
government just passed a Mining Act in 1995 which just about gives away the country.
And I said, 'Why would a government give 100% foreign equity?' And apparently I got
from two very separate and independent sources who actually never talked to each other
in the Philippines, the view that the Mineral Council of Australia was quite instrumental
in influencing the Ramoz government to pass that Act. And the reasons for that are again
because politicians in those countries need funds to get re-elected, and apparently some
transnational corporations are not backward in coming forward.

Peter Thompson: Let's talk about the Australian perspective on this for a few minutes
now: John Howard came back from the APEC leaders' conference in Manila and said that
the whole thing has to be sold better. Which to me sounds like shorthand for a policy
which is a loser. Louise, is it just a matter of a selling job?

Louise Sylvan: I think it's much more than a matter of a selling job because you have
effects on people in your own country; in Australia, effects which are unemployment,
potentially reduce standards and so on, I think a very strong case is going to have to be
made by governments who want to be in the global context, out there trading and so on.
And that's why I think there's such a role for governments in not getting themselves into a
bidding war against each other, to press standards downward. I mean it's essentially what
Edna was saying, it's not simply that labour standards might be pushed down when
throughout the world as governments compete to get the corporations in, it's also all sorts
of other standards that might be harmonised, but harmonised in the wrong direction:
harmonised downwards in terms of consumer protections, environmental protections and
so on.

Now I don't think you can sell that to people. Ultimately I think they will resist. So I
think the strategy is going to have to be not only better protections, but better overall
outcomes in some way for the people.

Peter Thompson: Well Scott Birchell, I mean we have just bipartisanship in Australia on
this: we're open for business, we're open for trade, we're bringing down tariff barriers as
fast as we can.

Scott Birchell: Well we have bipartisanship amongst the political parties, I'm not sure
whether the public is carried away with enthusiasm about the policies. You're right, there
is no choice if you vote Labor or Coalition, you're going to get a free trade policy.

Peter Thompson: Democrats are largely free trade, except for perhaps a bit of concern
about foreign investment.

Scott Birchell: Pretty much so, but there's what's called a Democratic deficit here. In all
the opinion polls that I've seen, the public has been overwhelmingly opposed to free trade
and supports tariffs. You don't see a lot of opinion polls on this issue for very good
reasons. But whenever they are published, the population is a considerable distance away
from the political parties on this issue.

Peter Thompson: Yes, I mean on the issue of tariffs and free trade, it's not an easy thing
to frame a question which actually covers a sophisticated sort of nuanced answer.

Scott Birchell: No, except that people I think know in their instincts and are pretty good
on this; they know that the greater levels of foreign investment and free trade, the less
control they have over their own lives. The increasing amounts of foreign investment in
the country diminishes the extent to which governments can conduct national economic
planning, and develop things with local necessities and local priorities. And I think
people realise that, that those decisions are being taken now outside of the borders of this
country.

Peter Thompson: Well there's no tri-partisanship coming from Pauline Hanson. She
clearly is rowing a boat of her own in terms of the political establishment in Canberra. Is
the sort of issues she's raising, Edna, are they surrogate issues for real concern about
globalisation, as I say, she hasn't used the word, but is she stroking or scratching away at
anxieties that exist about these trends?

Edna Ross: I think that definitely the sort of sentiments that are expressed by Pauline
Hanson are an expression of an anxiety about change happening much too rapidly, and
the loss of control. And the loss of control by national governments where at least people
can feel that they can identify and that the government is supposed to govern in their
interest; the feeling that you are now at sea and at the beck and call of international
financial markets, the UN, the WTO, APEC, and that people are no longer running their
own agendas. I think that's very much one of the elements.

Peter Thompson: What about in Indonesia? Is Pauline Hanson known at all?

Scott Birchell: She is known. She hasn't been widely reported, certainly not as widely
reported as she has been in Thailand and to some extent, in Malaysia. And I think the
Resolution in the parliament had a significant impact in Indonesia.

Peter, can I just come back to the issue of globalisation in Third World countries and in
Australia. There is a lot of talk about multinational corporations, but I think it is
important to bear in mind that the key processes are the liberalisation of trade in terms of
welfare. It's the cheaper imports, it's the expansion of exports and associated
employment, and also the social effects are primarily related to trade. The inequality in
the US and in Australia, the high rates of unemployment insofar as they affect unskilled
workers, are related to trade. I think it's a bit of a red herring to keep coming back to
transnational corporations. They do play a role, and perhaps in Louise's field, in the field
of consumer preferences and so on, they are very important. But in terms of work, areas
of work and equality through work, it's the trade processes where the big gain is.
Peter Thompson: And this is Background Briefing, coming to you this week from Deakin
University in Victoria. Our panel includes Scott Birchell who you've just heard from,
who's Lecturer in International Relations at Deakin University; Edna Ross, who's
Director of Advocacy for the Australian Council for Overseas Aid; Louise Sylvan, Head
of the Australian Consumers' Association; and Chris Manning, who's a Research Fellow
at the Indonesia Project at the Australian National University.

Let's talk about that World Trade Organisation meeting that's being held this week in
Singapore. And Australia's taken a quite fascinating position on this. It's backed the
ASEAN countries, and many developing countries, in opposing labour guarantees being
written into trade agreements. And the United States is the country which is leading
advocacy, or leading the advocacy for this linkage to be made. This seems puzzling to
say the least. Edna, can you explain it?

Edna Ross: No, not really. I mean I think our government has taken the view that its
interests in trade lie with the Asia-Pacific region and that this is an area where it can
show solidarity with our immediate neighbours. Maybe it's the anti-Pauline Hanson foil
to prove that we're actually a part of Asia.

Peter Thompson: What is being proposed? How would these things be linked? That is,
trade agreements and some labour guarantees? Scott?

Scott Birchell: Well I think the idea being that for those who are opposed to it, which is
the Australian government's position believes that really these issues of free trade and
trade liberalisation should not be hijacked or obstructed by considerations of universal
labour standards or core labour standards because that would bog negotiations down,
forestall the process of trade liberalisation.

Peter Thompson: After all, Australia wants to just get on with trading agricultural
products in particular.

Scott Birchell: That's the No.1 agenda for Australia. It wants further liberalisation in
agriculture in the WTO and by including core labour standards, that process may be
delayed or rejected. And that's their concern. So what the Australian government wants is
to have those issues, the core labour standard issues, discussed in the ILO rather than
linking them in to the actual trade agreements and discussions.

Peter Thompson: As a consumer advocate Louise, does that make sense to you, to shunt
off consideration about linkages with labour rights to the place that they might best be
debated - in the International Labour Organisation in Geneva?

Louise Sylvan: Well in a sense it makes sense. That's obviously a place to discuss them.
But I think we've got to worry when the general position being taken by the Australian
government is that issues such as labour rights - and I would extend that subsequently to
include obviously consumer rights and environmental protections and so on - that these
things ought not to be linked in any way to trade. What they're basically saying is a
government, which is a very surprising position I think, is that the trade matters; the other
fundamental things don't, they're allowed to come along some way on the side and so on.
But first, foremost and primarily, the trade matters. And I'm not sure that's a particularly
good position for the Australian government to be taking.

Peter Thompson: I mean you could link in all sorts of other rights and trade agreements
to. I mean you could link in consumer standards, or you could link in environmental
standards. Would that be a good thing?

Louise Sylvan: We think it's a good thing, certainly. And there are some standards linked
in. There are processes in particular within the United Nations, which set for example,
standards for foods that are going to be traded throughout the world, and these are pulled
in to the World Trade Organisation processes by the States being able to have disputes
with one another on the basis of these standards. So in fact if you can get these standards
across the world and get a reasonable standard, not a low standard, that's a very powerful
incentive for trade.

Now the corporations and governments are willing to deal with those sorts of standards,
and yet when it comes to standards really for human rights, they immediately try to
resolve from any sorts of commitments.

Peter Thompson: The developing countries, Chris, are saying that linking in labour
guarantees into trade agreements is what they call backdoor protectionism. What does
that mean?

Chris Manning: Well it basically means that rather than restrict the access of goods to
developed countries, they put up certain standards which labour has to meet, or which
their citizens have to meet in terms of environmental standards, or the corporations have
to meet as a means of limiting trade, essentially. Developing country access to developed
countries' markets.

Peter Thompson: So this would be a bit like US concerns for instance about distribution
networks in Japan.

Chris Manning: Certainly. Can I just come back to Louise's point on the issue of human
rights and trade policy. I think Australia has taken the right stand. I think the issues are
separate. I don't think it indicates that necessarily the government doesn't care about these
issues, but it feels that the trade mechanisms are not the channels through which these
policies should be addressed. There are other organisations: the ILO support for trade
union movements within these countries, the international trade union movements,
through a lot of other mechanisms where these issues can be addressed.

Peter Thompson: Why is that so?

Chris Manning: In my view, the whole issue of labour standards is a very complex affair.
Most standards are relative, that is they're linked to a country's standard of living; those
issues are better solved by specialist organisations, better addressed by specialist
organisations like the ILO; they are best addressed and fought for by unions within their
own countries. I think it is very, very difficult, or it may turn out to be very, very
difficult, to set those standards linked to international trade and to administer them
through those processes.

Peter Thompson: Let's take up another issue. This conference was addressed from Boston
by John Kenneth Galbraith who I believe is now in his late '80s. But among the points he
made was that wars being waged against the poor in the name of welfare reform. Now at
first glance that may not appear to be linked to the issue of globalisation. But Louise,
what's your response? There's certainly a lot of welfare reform going on. Is that part and
parcel of - as Galbraith puts it, spending less on others - is that part and parcel of the sort
of get ready for globalisation, be most cost-competitive, which seems to be part and
parcel of liberal trading?

Louise Sylvan: I think it is part and parcel of it. Increasingly the argument is that all
sectors of the economy have to be efficient, have to be competitive and so on, and there is
also the argument to the side of that, but linked to that, that governments are to get out of
the ways of business and so on and so forth. And that's how you get - I mean
governments reducing their debt and so on, is how you get to the real attack on the sorts
of supports that a government would provide to its people.

So there's a real attack if you like, on the role of governments, which I think has become
part of the globalisation debate.

Peter Thompson: It's hardly conspiracy though.

Louise Sylvan: Oh I don't think it's a conspiracy at all in the sense that 17 powerful men
got into a room and decided this is the way we were going to go. It's more a sense of
when you talk to the leadership of many governments, or you talk to the leadership of
many of the global corporations, the same sorts of notions are basically there. They're in
fundamental agreement about the directions. And that's not necessarily agreements that
are shared with a lot of their people.

Peter Thompson: Let's go further on what Galbraith had to say: he talked about both an
upside and a downside to globalisation. The first thing he said was the upside: the upside
is that linked economies, those that are basically having intercourse all the time, reduce
the threat of war. And I suppose the best example of that has been the whole vision for
postwar Europe. Scott, what's your view on that?

Scott Birchell: Well he's got an argument there. This is one that's been explored by
people such as Michael Doyle and Francis Fukiama. The argument being that if you link
the world's economies together, make them interdependent, then it's counter-productive
for them to enter into conflicts with each other, because they only lose out. So yes, I
mean this is the theoretical basis if you like, of the European Union.
Peter Thompson: It's worked, hasn't it?

Scott Birchell: It has as far as France and Germany's concerned, yes. So it really is
counter-productive for those countries to even contemplate conflict between them
because they would lose as much if not more, than they would gain. So that's the upside.
Inderdependent econmies does limit the prospects and the justifications for conflict.

Peter Thompson: Back to Galbraith: he said the downside of globalisation was what he
called the lowest common denominator effect. That is, that there'd just be one low set of
standards operating across countries that traded openly with each other. Louise, from a
consumer point of view, is that a real worry?

Louise Sylvan: Certainly it's a real worry. He's not simply picking a thought out of the
air, he's actually referring to some things that are occurring. And if I can use consumer
standards as an example, when these standards are negotiated internationally, some of the
food standards for instance, there are very powerful interests around the table that are not
trying to actually pick the best practice world standard, they're trying to pick a standard
which is much lower. I think we have to be careful when we're setting those sorts of
standards, that we don't set the standards at a level for example, which is unnecessary
because then you do have unnecessary trade barriers. They have to be standards that can
be met by a variety of developing countries and so on. So realistic standards of
protection, but too often they're set low simply because that's easiest, you can go to the
lowest cost countries then to produce your stuff; and really the result is this downward
harmonisation of overall standards.

Peter Thompson: Where are the examples of that?

Louise Sylvan: Oh you've got - if I take Europe as an example and a very funny example
that is used quite often, and the great debate between the UK and the rest of Europe as to
the sausage standard -

Peter Thompson: It's very important!

Louise Sylvan: Yes, it's very important! Very important standard in the UK.

Peter Thompson: What's the sausage debate?

Louise Sylvan: The sausage debate was that the British people have a certain sort of
sausage, the Europeans have different sorts of sausages, and at the end of the day they
had to negotiate a standard which has ultimately meant of course, that the amount of meat
which is included in a sausage, is substantially lower than it was previously. So the result
for consumers is actually a very poor outcome, which was probably unnecessary.

Peter Thompson: When you consider the different types of sausages in Europe, it's a
wonder they ever got together isn't it?
Louise Sylvan: Yes, it is actually.

Peter Thompson: Let's further consider the downside, and the lowest common
denominator. Outside consumer products, what are the other issues there, Edna?

Edna Ross: Well I think people have referred to globalisation as being a race to the
bottom, and we've talked about a lot --

Peter Thompson: A race to the bottom?

Edna Ross: A race to the bottom. Because as different countries compete for foreign
investment, what we've been talking about is the forcing down of labour conditions and
standards, it means that a lot of standards in industrialised countries that have been fought
for many, many years, are being eroded, and we can see in Australia the new Industrial
Relations Act, the pressure to de-unionise labour is strong in all countries that are export
focused. And the argument given is that we will not be competitive if we don't. So there's
I think, a tension in the north which again is one that is reflected by the Pauline Hanson
argument, that if we have to compete in the north with very cheap and poor labour
conditions globally, that that is a downward push on labour and standards and the rights
of people to organise, etc.

Peter Thompson: So you're seriously saying that deunionisation which is a phenomenon

in Australia, is happening because of globalisation rather than a march of a whole number
of other trends, including the changing nature of the workforce, the shift towards
seemingly more sensible enterprise agreements and so on.

Edna Ross: I think that all those forces are obviously contributing to it. But there's
definitely a correlation between government-sponsored pressures to deunionise, or to
disempower unions as well as the change in the nature of the labour force, which has
failed to attract people to unions. And I think there was a program on the ABC just the
other day which showed that in Singapore and Malaysia there were very strong union
movements in the '50s, and it was only when those countries switched to export oriented
economies, that the pressure from governments to get rid of unions became stronger.

So I think there is a link in a global competition between countries to reduce the power of
labour to work for better conditions.

Peter Thompson: Let's consider Asian unions for a moment. Chris, we know that
Indonesia has a set of unions that tend to get literally bashed around by the government
when they speak out. What's the state of labour unions in other Asian countries? I mean
except for South Korea, are they robust? Japan also I suppose - are they robust in any
Asian country?

Chris Manning: They're not robust and certainly not as powerful as in most developed
countries. Nevertheless there is multiple unionism in Malaysia, in Thailand, in the
Philippines. They are tightly controlled administratively.
Peter Thompson: That is, the government sets the boundaries?

Chris Manning: Yes, the government sets the boundaries, particularly on registration
which is a key issue: which unions can be registered, and which cannot. Do they fulfil the
standards, or don't they. So the second area where there is very tight control is on labour
action in particular strikes. Strike activity is heavily regulated. So in those two areas there
is considerable control.

Nevertheless, at the enterprise level, bargaining over labour conditions is quite active,
particularly in the modern sector in those countries.

Peter Thompson: Do you buy this argument that there's a lowest common denominator
effect?

Chris Manning: Well I think it really depends, Peter, on where you're looking from. If
you're looking from the position of an unemployed worker in Ipswich who's lost his job
because of the penetration of cheap imports into the Australian economy, yes, he's pretty
upset about that and globalisation is negatively affecting his living standards.

Peter Thompson: Which is in fact the argument of the new Governor of the Reserve
Bank, that there's a realy danger for people that are least skilled, in ratcheting up wages.

Chris Manning: That's absolutely true. I mean I won't get into the argument of what our
wage policy should be, but certainly there's a whole community in Australia, in the
United States and the developed world generally, that are suffering as a consequence of
globalisation, in particular the unskilled, the less educated people, and as you've
mentioned, Pauline Hanson has latched on that, although she's redirected the argument
another direction.

If we look at the issue from the north, if you look at it say from South Korea, we can only
say it's a race to the top. There's no other way to describe the extraordinary improvement
in living standards in that country over thirty years.

Peter Thompson: Than what?

Chris Manning: From something like $200 per capita to now about $3,000 to $4,000 per
capita in thirty years, not even one generation. It's never happened in the developing
world, or the developed world previously.

Peter Thompson: And that's because of globalisation.

Chris Manning: It's essentially because that country went out single-mindedly with
government support, not just through markets, and penetrated international markets. It got
into export markets in the US, in Japan, and all over the world, and it did it faster and
more efficiently than any other country in the world.
Scott Birchell: Well I mean I think Chris is right, though he does I think underestimate
the role the State played in co-ordinating the economic development in South Korea. The
South Korean economic miracle, if that's what it is, is hardly a testament to free trade and
globalisation, it's a classic example of how important it is for the State to get involved in
co-ordinating industrial development in these countries. It's a pattern that's been reflected
throughout the East Asian region.

Edna Ross: I think examples like South Korea bring a whole other issue about the role of
the State into the fore: South Korea certainly has shown huge development and it's done
it largely by improving its export performance. But it had a whole lot of other things in
place, which meant that those benefits from the increased earnings from exports were
spread relatively evenly. First of all it had a land reform program and secondly it had a
highly educated population. Now those two things are prerequisites. What you're getting
in other countries where there's very rapid economic growth due to export, without those
other underlying factors having been taken care of, is that you're getting an increasing
gap between the rich and the poor.

And I think that raises the question about the role of the State and about the whole
international agenda, which is only focusing on deregulating trade. And I think free trade
is a misnomer. It's deregulated trade and it's where governments are being urged to
remove themselves and to just allow multinational corporations or industries or whatever
you want, to look at it as to cross freely. And the question is, how can governments come
back into those negotiations and put a social agenda on the table? Because they are
linked. And if governments can't agree on bottom line social conditions, then they will
compete against each other and erode social conditions. And I think that's one of the
things Galbraith was saying, is that internationalisation is good, but it will only be good if
governments talk to each other about common standards of decency and basic needs
being met for everybody, and basic human rights.

Peter Thompson: Let's begin talking about responses and strategies to this as we move
towards a conclusion.

I began by really asking the question, Is this absolutely inevitable? Everyone seems to
think that that's not quite the case, it's a little more complex than that. What sort of
responses can consumers take, or are they simply victims of globalisation?

Louise Sylvan: Well actually no. Consumers benefit a great deal from globalisation. You
get products from all around the world, increased choices. If you have a good competition
you actually can get better prices. In fact consumers and consumer organisations are
fairly supportive of globalisation of international trade and so on. The critical thing is
how you achieve that. And I don't encounter many consumers that say to me that they
would like to have cheaper prices that result from the abuse for example, of child labour.
The consumers don't want that.

Peter Thompson: But consumers don't know, do they?

Louise Sylvan: That is exactly the problem. Consumers don't know. And lots of people
say that the consumer buying power is the way that you eventually start to come at these
problems, that you get consumers to buy responsibly, ethically and so on. And that's a
great idea, but there are not many consumers that are going to spend their time in the
stores with a great tax book in hand, trying to figure out what company, let alone if the
company didn't use any number of variety of inputs from all over the world to actually
produce its products. That's why I don't think you can utlimately simply rely on consumer
buying behaviour to change. They can make some changes, but ultimately you've got to
rely on a different sort of level playing field than the corporations talk about. It's a level
playing field for people in this globalised world.

Peter Thompson: Well as in the case of the last twelve months or so, there was a
consumer movement which has been very successful against Shell for instance, because
of their behaviour in West Africa, in Nigeria. There's got to be potential to discipline the
behaviour of transnational corporations by targeting just some of them.

Louise Sylvan: There is definitely potential to do that. And I think that kind of consumer
power should be used increasingly. When you do have a corporate entity misbehaving,
and there are other examples of those sorts of consumer boycotts, the things that matter
most to those corporations are their profits and their bottom line, and if you can hurt that,
you can ultimately I think, force them to behave in particular ways and much more
ethically. But there's a limit to how often and how successfully you can engage in that
sort of behaviour. But I think it's a great lesson to the rest of the corporations that Shell
could be disciplined so effectively by consumer buying power in the marketplace.

Peter Thompson: Mm. Scott Birchell, in terms of priorities about what action
governments like Australia should take, what do you think the list is?

Scott Birchell: Priorities I think is first of all that the public ought to be consulted in any
agreements, whether they be -

Peter Thompson: Consulted?

Scott Birchell: Yes. Well I think there's been a history --

Peter Thompson: Extraordinary idea.

Scott Birchell: It is an idea. It's a strange idea in some quarters. My mind goes back to the
December 1995 when the previous Prime Minister signed a Security Agreement with the
Indonesian Government, but had to keep it secret from the public because when asked
why did you keep it secret, said well the public wouldn't have agreed with it.

So I think we have to go back and think well, you know, public policy whether it be in
trade, finance or security, ought to be subjected to popular approval.
Peter Thompson: But I haven't forgotten what you said 20 minutes ago, and that is, if
there were a referendum on issues like protectionism, everyone would say yes we'll have
protectionism, we won't have free trade.

Scott Birchell: Yes, but people -- exactly. I mean these are - the people - know where
their interests lie. The people in Geelong, for example, know what would happen if the
Ford Motor Company disinvested from Australia. There would be a mass unemployment
in that city. Now people know that protectionism is extremely important and that
principles - the free trade principles represent a dogma in theology I think, more than
what the practical requirements are to build cohesive societies. And I think this is the
point that Galbraith made very effectively yesterday.

Peter Thompson: Edna Ross, what's your view, what's the agenda for doing something
about it rather than lying back and allowing the negatives of globalisation to happen?

Edna Ross: Well I think it is important - I mean the debate today could suggest to people
that we didn't think trade was a good idea, and that you know that we thought that freeing
up trade and removing protectionism is a bad idea. I don't think that's true. I think there
are actual genuine benefits to be had from removing protections. I think for example, the
export subsidies paid to American agriculture, which is the major form of protection that
the Australian government's fighting against, have huge detrimental impacts on the
environment, and certainly by dumping them on developing countries, have huge
detrimental effects on small-scale farmers in developing countries.

So I think that it's important to get it straight, that we're not opposed to trade
liberalisation, but it has a downside and an upside, and at the moment, everyone's
behaving as though it's just God's gift to humanity. And if John Howard is serious about
telling the people what globalisation means, then I think he has to tell the whole story,
and I think that is one of the crucial things - is that first of all, we don't know enough --

Peter Thompson: It's hard to tell the whole story in a sound bite, isn't it?

Edna Ross: It is really. But I'm going to try!

That we need much more research on the benefits and the costs of both trade
liberalisation and globalisation. And the other thing I think that's really important is that
we need to realise that the whole world is interdependent, and that at the moment, the
agenda that's being pushed in the WTO and under APEC is definitely not acting - it's
definitely favouring the interests of those that are already most powerful.

And the third thing is that I do think that the people have to be listened to, and those
institutions have to be democratised because if they're not, then the disadvantages that are
being extracted, and the payers in the north, workers in the north who are going to be
disadvantaged, will resist. And the whole process will fall apart, and you will move back
into a protectionist world which could threaten the security of the world.
So I think it's in all our interests to open up the processes and democratise the whole
thing.

Peter Thompson: Chris Manning, if you could walk across water in Lake Burley Griffin,
what would you do to take control to ensure that there were more positives than negatives
coming out of globalisation?

Chris Manning: I agree entirely with Edna. I think the whole process of trade
liberalisation and globalisation is threatened by the failure of governments to tell the truth
about what processes are occurring, to explain, to link high rates of unemployment and
increasing inequality and the problems of unskilled workers, to globalisation, there's no
doubt in my mind that part of that is related to increasing trade, though of course a lot of
it is to do with technological change.

If I was - so I think that job's got to be done. If I was looking at developing countries, I
would say that undoubtedly it's in our interests for those countries to grow rapidly, for
living standards to rise, and I would support globalisation because increased employment
means increasing purchasing power and eventually our economy will benefit from
globalisation in those countries.

Peter Thompson: Well we've had enough of talking to your four for a moment. Look, let's
take some contributions from the audience.

Anthony Tabor: My name's Anthony Tabor, I'm an environmental consultant. One

dimension that seems to be missing from all economic debate around this issue is where
we're actually heading here. And there have been estimates that looking at the way
economic development is progressing, and future population growth, we could be looking
at several hundred times the material resource throughput through the global economy of
environmental resources. And even today, we're in no position to manage the ecological
impact at this point in time. And God help us if that is a hundredfold times this. And this
strategy of export-oriented liberalised trade, a lot of those goods we're talking about are
headed for northern consumer markets, they're luxury goods, they're unnecessary goods,
they're ecologically destructive goods, and all the things like foodstuffs that pass across
the oceans from one place to another where those things could be grown locally in local
communities and kept within local economies.

Peter Thompson: A reply?

Louise Sylvan: I think this is a very important point. I mean what a market economy
does, whether it's globalised or national, is it doesn't speak to equity or need or useful
products and so on. And I think Anthony's raised another critical issue, which is if we're
serious about bringing up the rest of the world's people to a reasonable standard of living,
I guess what's called the First World, improperly but, First World people are going to
have to consider their use of resources. I can't remember the exact figure, but I think
every Australian consumes the equivalent of several hundred I believe, Indonesians. I
mean we just consume so excessively in comparison with developing nations.
Peter Thompson: In reality it's hard to see how that's going to all work out though, isn't it
- I mean on the one hand, how's it going to work out that people are going to go on and
be capable in developing countries of consuming more and more, and on the other hand
it's hard to see how Australia is going to say, Well, we'll do away with cars because it's
not a fair distribution of income.

Louise Sylvan: I don't think there's any indication in fact, that those people in developed
economies are willing to give up what they have now defined as reasonable standards of
living. And it makes for an absolutely intractable sort of problem. It makes for a result
that has perhaps one-third of the world's people living at enormously high levels in terms
of standard of living and the other two-thirds not even participating in this global
shopping mall that we're evolving.

Peter Thompson: I mean ecologists are saying that the other two-thirds just can't raise to
consume the sort of global shopping mall standards that the lucky third are now
consuming. So how does that get resolved?

Louise Sylvan: Well I don't think there is any good resolve that I can see. Perhaps some
other people have some good solutions to this. But it almost seems to me that we're on a
path that doesn't have any good solutions, ultimately.

Chris Manning: A very brief economist's response: I mean we see that process as being
resolved in the way that all the fears that were put forward by the Club of Rome in 1972
were resolved, and that is scarce resources lead to higher prices, consumption sets back
on key scare resources through the market system. That's the principal mechanism by
which it's resolved.

Peter Thompson: This week Background Briefing's been coming to you from Deakin
University in Melbourne. We've been part of a conference on globalisation and labour
markets organised by the University and the Australian Council for Overseas Aid.

On our panel has been Chris Manning, who's a Research Fellow at the Indonesia Project
at the Australian National University, thus his ability to walk across Lake Burley Griffin;
Louise Sylvan, who's Head of the Australian Consumers' Association and an Executive
Member of Consumers International which is the peak global body of consumer rights;
Edna Ross, who's Director of Advocacy for the Australian Council for Overseas Aid,
which is the peak body for Australia's 100-plus non-government aid agencies; and Scott
Birchell, who's a Lecturer in International Relations at Deakin University.