Preface Twenty years ago, the word globalization hardly existed in our daily use. Today, it is everywhere, and evokes strong intellectual and emotional debate and reactions. It has come to characterize the end of the twentieth century, and the beginning of the new millennium. It makes and unmakes individuals, families, organizations, communities and nation states. Some think it will save the world; others are convinced it will destroy it. It differentiates and integrates. Those who drive it are exalted and at the same time condemned. After more than ten years of breaking walls, liberalization, democratization, increasing international trade and investment flows, and street demonstrations, the message is beginning to sink in: Globalization is here to stay. Those with the capacity to manage it effectively will cope and even thrive; those without will lose, suffer, and stay behind. Those who isolate themselves from the global economy and global society will remain permanently handicapped. Winners will be those with the capacity and motivation to manage globalization in all its aspects for mutual benefits. It is not a quick fix, therefore winners must also be able to persevere and have the capacity for staying power. The world reactions to the events of September 11, 2001 confirm the resilience of globalization in the face of adversity. Governments, corporations, institutions, and individuals will seek ways to protect themselves against terror, but will not give up globalization to terror. The socio-economic logic, governance, and infrastructure, which drive globalization, have not diminished. This book is about the opportunities and challenges globalization offers to developing countries and transition economies. Globalization offers these countries the opportunity 1
for economic, political, social, and cultural development. By participating in the global economy, these counties increase their chances of reducing poverty, raising wages and incomes, and accumulating wealth. By interacting with other open societies in the world, they create favorable conditions for democratic development, and by improving the quality of public management they can mobilize resources and improve services such as health care to the citizens. The central message is that globalization is not a unitary concept. It is not only about trade and investments. Rather, it is complex, dynamic and multidimensional, and needs to be understood by individuals, families, groups, communities, and public and private sector organizations in order to maximize its potential benefits and minimize its inevitable unintended adverse effects. Globalization does not happen by accident, but it needs effective leadership, planning, resourcing, and management by both the public and private sectors working together at all levels of society. Unfortunately, most developing countries and transition economies do not have the necessary and sufficient resources, capacities and competencies to manage globalization in order to maximize its potential benefits and minimize its inevitable unintended adverse consequences. In order to build and sustain these capacities, these countries need to establish public-private partnerships, both domestically and internationally so as to be able to manage the various dimensions of globalization and their interrelationships to mutual advantage. Regardless of current violent opposition and almost insurmountable obstacles, the fortunes and civilization of the 21 st century are inexplicably linked with the future of globalization. 2
The international community---individuals, businesses, institutions, the voluntary sector, and governments--- in the USA and other industrialized democracies have a role to play in facilitating effective globalization in the rest of the world. Globalization is not only about competitiveness; it is also about collaboration. On the 100 th anniversary of the Nobel Prize, December 2001, 100 Nobel laureates warned that the world must learn to think and act differently because as never before, the future of each of us depends on the good of all. A global economy needs a global dialogue. Therefore, this book is intended to facilitate informed dialogue among Americans, and with citizens of other parts of the world about the opportunities and challenges of globalization and how to build a global economy and global society for the benefits of all. No dialogue on globalization is complete without the active involvement of the United States of America. Globalization needs America, and America needs globalization. As they say in India, first light the light in your house, and use the light to light the rest of the world. Whether you run a global organization, earn your living as a small entrepreneur, own stocks or mutual funds, or if you or a member of your family or community owns a pension plan or other retirement benefits, or if you are a child or student lucky enough to have parents or guardians saving or investing for your education, you must support globalization. To do otherwise is to shoot yourself in the foot. Likewise, if you are a political, business or community leader in any of the developing countries or transition economies, an ambitious young person growing up, a farmer, unemployed university graduate looking for work, or a young couple raising a family, you must also support globalization. This is because globalization is not a policy option, but a fact of life to which we must all adapt. It is also because globalization is not a handout, but a potential 3
hand up. It offers the poor and oppressed people the best hope, opportunity and prosperity to get out and stay out of poverty and to enjoy freedom. The anti-globalization movement has been glorified by the media, tolerated by the public, and flirted with by leading world leaders. Yet, in reality, those who are violently opposed to globalization, and seek the destruction of the institutional foundation, values and ideals of the evolving global economy and global society are the blood cousins of the terrorists: They seek to destroy civilization as we know it. During the last half of the 20 th century, it was believed that foreign aid offered poor countries the best hope for freedom, prosperity and a better life. After more than fifty years, the results of that benevolent experiment are at best mixed. Experience has shown that while foreign aid, property targeted and implemented, can stop poor human conditions from getting worse, its ability to create conditions for income generation, wealth creation, growth, local capacity and sustainable development is very limited indeed. The logic, rationale, passion, and morality, which supported foreign aid for the better part of the last century, must now be scaled up to support globalization for the 21 st century. We must not allow emotions to dictate our reactions to globalization s short-term or unintended negative consequences. History offers instructive lessons of experience. For example, while the Industrial Revolution was beneficial to Britain, Europe and other industrialized countries, millions of citizens paid heavily for the progress and success of industrialization. We can learn from such experiences and draw out important lessons for managing globalization more equitably and with a human face, taking into account the sensibilities and moralities of the 21 st century. We need to turn the challenges of 4
globalization into opportunities for all, not behave like the Luddites of the 19 th century Britain (1811-1816) who, wanted to destroy the technology arising out of the Industrial Revolution. The book is written with several audiences in mind. It is written for the international community: Professional men and women in America, Europe and elsewhere doing business in these countries, and wishing to understand and play an active role in the exciting and challenging journey of globalization. It is also written for professionals working for the United Nations system and other international organizations including, churches, non-government organizations (NGOs), and private consultants such as engineers, aid workers, lawyers, accountants, senior administrators, and security and intelligence officers. The book should also be attractive to the academic community, especially the professional and area studies interested in globalization and international relations. Ordinary Americans wishing to expand their global awareness and knowledge about the evolving relationships between America and the rest of the world may find the book attractive. Likewise, political, business, and community leaders, professionals and academics from developing countries and transition economies should find the book useful in bringing together examples and lessons of experiences from different counties. The book is especially important for Americans. Since World War II, historical evidence suggests that American engagement with the rest of the world contributes to global peace, hope, and prosperity. This was the case with America s belated participation in the Second World War, the reconstruction of war-torn Europe, the development of a new world order, and the global fight against Communism and the Cold War. More recently, 5
American active involvement and leadership in Bosnia, Kosovo, Kuwait, East Timor, and Afghanistan has contributed to a more stable and prosperous world. In contrast, when America remained disengaged in Rwanda, the Democratic Republic of the Congo, Liberia, and Sierra Leone, there were tragic consequences. Although America is the only remaining Super Power, Americans as individuals are more local than global. Very few take the trouble to study or read about other countries, cultures, religions, or foreign socio-political systems. Fewer still speak foreign languages, and less than ten percent hold passports or visit other countries. This must change because with globalization, America and the rest of the world are inexplicably linked. For globalization to succeed and benefit all of humanity, America must remain engaged. This book provides the basis for informed engagement among Americans, and between Americans and the rest of the world. The book has a number of unique attributes: It is balanced, recognizing the unprecedented opportunities globalization offers to the people in developing countries and transition economies, while at the same time mindful of the potential for unintended negative consequences, especially if these are not effectively managed with proper mitigating contingencies. It is comprehensive in that it does not limit globalization only to economic considerations, but includes political (governance), social (e.g. labor, employment, health), environmental, and cultural aspects. It is global in that it is not limited to a single country or region, but covers all regions of the developing and transition economies. It is practical and managerial in that it provides practical concepts, approaches, frameworks, and tools to help these countries to build a better world for globalization. It is instructional in that it provides lots of examples from real life 6
experiences of globalization, and draws out lessons of experience for others to learn from. It is simple, written in non-technical language with illustrations (Tables, Figures), so as to let the story speak for itself. It is conceptual in that, when necessary, it briefly explains the theory or conceptual framework applicable to certain aspects of globalization. It is professional because it deals with issues that professionals from different disciplines are confronted with as they work with colleagues, from other parts of the world. Finally, it is American because it seeks to establish informed dialogue between Americans (and others in advanced countries) and citizens of newly globalizing countries so as to develop a common understanding and strategies for the effective and equitable management of globalization. The book is organized in three parts and twelve chapters. Parts I to III discuss globalization and the state, the economy and society, respectively. Part I consists of two chapters. Chapter 1 discusses the conceptual and practical meaning of globalization, and the translation of these definitions into images and life experiences ordinary people can understand and relate to. The Chapter emphasizes the idea that globalization is basically local. Chapter 2 discusses the relationship between globalization and governance. Governments have a critical role to play in creating enabling or disabling environments for the effective management of globalization. It discusses the strategic and structural changes governments and society in general must undertake to equip themselves with the values, institutions and capacities for managing globalization to advantage. It links the public sector reforms these countries are undertaking to the need to develop institutional capacities and competences for globalization. The chapter concludes with a brief 7
discussion of globalization and national security for select countries in Africa and the Middle East. Part II, consisting of seven chapters, discusses globalization and various aspects of the economy. Chapter 3 discusses the relationship between globalization and a country s macroeconomic and microeconomic conditions. It starts by emphasizing the need for building effective working relationships between the public and private sectors, and the importance of ensuring an effective national integrity and regulatory system (NIRS) to contain corruption and build confidence for private sector participation. Chapter 4 defines entrepreneurship and explains the role it plays in creating a dynamic domestic and innovative environment for global participation, innovation and competitiveness. It discusses the critical importance of good corporate governance, and draws out lessons of experience from Central and Eastern Europe for other newly globalizing countries. Chapter 5, on trade and investment, begins with a brief explanation of trade theory and the idea of comparative advantage. It outlines some of the key impediments to global trade such as protectionism, and export subsidies, and the reforms needed by all countries to facilitate freer trade. This is followed by a discussion of foreign direct investment (FDI), the factors which determine its flows, and the prospects for newly globalizing countries to attract more and better FDI. Chapter 6 turns to the institutional aspects of globalization. Specifically, it describes the history, structure, mission, roles and responsibilities of the World Trade Organization (WTO), and the challenges it poses for developing countries and transition economies. It draws out important issues and lessons from Seattle and Dohar for newly globalizing countries, and the need for these countries to develop the necessary national capacities 8
and competencies for effective participation in global trade and investment. It outlines a model for identifying and developing the relevant capacities, drawing on recent methods of international development such as program based and sector-wide approaches (SWAPs). The chapter emphasizes the need to balance the forces for competitiveness, and equity in the process of driving for globalization. Chapter 7 is about banking and financial crises. During the 1990s, many banking and financial crises were blamed on globalization. This chapter discusses the historical evolution of the banking system from the relatively closed and stable days of the Cold War, to the more open and competitive 1990s. It describes the anatomy and causes of financial and banking crises, and provides lessons of experience from Chile, one of the most active newly globalizing countries. It also describes efforts being made to develop the emerging global institutional architecture for strengthening financial institutions. After discussing the strategies and limitations of regional approaches to managing financial crisis management, the chapter concludes by outlining practical steps countries can take to prepare for these crises, and to protect the poor and most vulnerable groups against the effects of these crises. Chapter 8 discusses the relationship between debt and globalization. Opponents of globalization have argued that it is responsible for worsening the debt burden for developing countries and transition economies. This chapter begins by explaining a country s debt burden and how it is measured. It also discusses the relationship between debt and poverty, and the performance of various groups of countries. It gives details of current efforts lead by the World Bank to reduce debt, especially for the highly indebted poor countries (HIPCs). The chapter makes a distinction between domestic and foreign debt, and suggests that both types of indebtedness are important and need to be 9
effectively managed. The chapter ends by outlining practical steps countries can take to enhance their capacity and competencies for managing the debt burden from both domestic and foreign debt. The last part of the book, Part III, on globalization and society, consists of four chapters. Chapter 9 is about globalization and health services. Services are among the most important areas of discussion among globalizing countries. The stakes are particularly high for developing countries and transition economies because of the potential comparative advantages they enjoy in some service sectors over the advanced countries. The chapter focuses on health services to highlight key challenges and opportunities these countries face in promoting and benefiting from trade in services. Chapter 10 discusses globalization and culture. Using music as an example, the chapter discusses challenges and opportunities developing countries face in developing commercially profitable cultural products and services with the rest of the world. Key challenges include the need to develop effective copyright and intellectual protection and anti-piracy strategies. Chapter 11 discusses the relationship between globalization, labor and employment practices, including the problems of child labor, and the applications of labor standards for newly globalizing countries. After reviewing the global employment situation for the twenty- year period ending in 2000, the chapter discusses the need for the development of flexible industrial relations systems and practices, especially at the enterprise level so as to maintain competitiveness. The chapter also discusses the skills, and competencies globalizing countries need to emphasize in formulating and implementing their education and human resource development policies and strategies. The chapter concludes with a brief discussion of the effects of globalization on the distribution of wages and incomes 10
among various segments of society. The last chapter is on globalization and the environment. It starts by reviewing the environmental health of the earth as of 2000, and concludes that the earth is in deteriorating ill health. After discussing the impact of the eight big environmentally important countries including the United States, the chapter examines the effects on the environment of the business sector, both global corporations and indigenous small and medium sized enterprises (SMEs), and the relationship between the environment and poverty in the context of globalization. It is observed that most newly globalizing countries experience an imbalance between the speed at which the economy is growing, and the local capacity for sustainable development. Therefore, the chapter concludes by outlining strategies, which, these countries can take to build local and national capacities, in the public and private sectors for the effective protection, conservation, and management of the environment., 11