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 selfcontained 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 nondeterministic 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

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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
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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 illconceived 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, smallscale 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.
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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. Antiglobalisation 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.

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