| Poor
nations react against Globalisation
What is globalisation? For the first time in
history almost the entire world population lives in a global capitalist
system with the aim of free movement of goods and services. The
drive for globalisation is economic growth and prosperity, especially
for poorer nations whose economies have often been the most restrictive
in the past.
See also Presentation and Video on Future of Logistics, Distribution, Manufacturing, Wholesale and Distribution - Keynote for 700 clients of IBS. Video is 45 minutes long - includes impact on globalisation.
Video:
Growing reaction against globalisation
 They
have been propelled by statements such as these from the World Bank
on globalisation: "There is a positive link between freeing
markets and trade and the eradication of poverty in the long term"
and "There is no evidence to justify fears that free trade
pushes down wages for unskilled workers in developing countries".
However the UN has a different view of globalisation
which may grow in strength depending on the fate of the poor in
so-called Tiger economies and elsewhere. "Increased global
competition does not automatically bring faster growth and development"
and "In almost all developing countries that have undertaken
rapid trade liberalisation, unemployment has increased and wages
have fallen for the unskilled."
There is a fundamental problem
with globalisation which will cause international tension and trade
disputes without arresting the process.
The problem is the irrational nature of the global
market, coupled with the extreme vulnerability of the poorest and
most marginalised in emerging economies to sudden changes in exchange,
interest rates, or big investment decisions. Globalisation
therefore can sometimes be destabilising.
Consider the following globalisation scenario: Country
A has a rapidly growing economy. Many companies are booming. Foreign
investment is pouring in. Property prices are soaring. Businesses
are borrowing ever larger sums with little or no security except
their expectation of future large profits.
Every month these companies have to borrow more to
buy more stock to make more goods for ever larger orders, which
are paid for in the future (they hope there will be no bad debts).
They are also exposed through large assets held in property. There
is little inertia in the economy. Currency reserves are tiny compared
to hourly currency flows by global institutions.
Then comes one piece of unsettling news and currency
selling begins. Traders may be confident that the currency is now
undervalued, but will go on selling as long as they believe other
traders think the currency is still overvalued. In other words,
buying and selling becomes driven not by objective data, but by
what they think others will do. So this kind of globalisation can
be a recipe for over-shooting, seen over and over again in currency,
commodity and stock markets - a feature of globalisation.
Everyone sells when the
price is already rock-bottom
You can have a bizarre situation where everyone privately
thinks that the currency is already too low, but continues to sell
hard only because they are certain that everyone else thinks the
currency still has further to fall. Rates fall through the floor
in a mass wave of panic selling, as dealers dump currency in the
near certain knowledge that they can buy it back at a profit in
a few minutes, hours or days.
The big issue is not what the real value of the currency
should be in the light of the economy, but how the rest of the market
is likely to behave in the very short term. Free market dogma on
globalisation is that these peaks and flows will always sort themselves
out. "Don’t try to buck the market". However this
fails to take account of the monumental impact of these arbitrary
swings on families and communities.
The big difference between Britain, the US and - say
- Thailand, is that workers of a bankrupt company eat, drink and
have homes in the West. In Thailand there are very few safety nets.
If you have no job and are already poor you don’t eat, your
family gets little or no health care. A massive fall in currency
may last only a few weeks before partially correcting, but plenty
long enough for multiple bankruptcies.
Companies can’t afford to buy foreign components
they need for manufacture. Others are crippled by sudden increases
in interest rates to support the currency. Others fold because a
large creditor is suddenly unable to pay a bill. Banks fold as companies
suddenly default on repayments and as property prices fall below
the value of huge speculative loans.
Thailand is just one of many recent examples of a
nation brought to its knees by a currency run. Many more will follow.
"Futurewise - the
Six Faces of Global Change" by Dr Patrick Dixon is published
by Harper Collins Autumn 1998
Press here to order
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