Globalisation: A Blight or a Bounty?

An Address to the Essex-Heights Branch of the Liberal Party,
8 May 2000

THE DEMONISATION OF GLOBALISM

When I started to consider what I might say tonight, as a reflex action I turned to the Internet and typed in globalisation.  One of the first sites highlighted was that of our very own Pravda-on-the-Yarra, the Age.  This, the Australian Green Left daily, true to its colours offered a rich tapestry of matters addressing globalisation.

The first of these was the globalisation of sex.  This did not strike me as a new dimension of the issue and I reckoned it would prove too distracting to wade through the piece.  Other articles discussed the massive wealth divide, globalisation brings further injustice, the men have it better, the gap grows wider, and even The Globalised World According to Marx.  Predictably, Pamela Bone, the lioness of the Fitzroy communes, was able to warn Age readers that the planet would pay a high price for John Howard's short-sighted policies.

You've got to hand it to the Age.  They rarely miss an opportunity to propagandise about the ruin that capitalism and free markets are bringing to mankind.  In fact such attitudes have bounced back very rapidly since the shock of the end of Communism (in Europe) and its transformation (in China).  The tub thumping of those with faith in government managed economies barely missed a beat as the facts about the pathetic living standards, low life expectancy and general dreariness of life under the planned economy gained full frontal exposure in the wake of the 1989 Fall of the Berlin Wall

The most contemporary opposition to globalisation erupted at the recent World Trade Organisation meeting in Seattle.  That meeting was convened to do nothing more than had been done in five or six previous trade negotiation rounds.  But unlike previous such meetings we had a vast range of protesters feeding off each others' frenzies.  And they were doing so on a matter that few present understood, a matter that would otherwise have commenced a further stage along the road to having governments agree to allow their citizens the freedom to buy the goods and services they want to buy from the suppliers they favour.

The precursor to the Seattle riots occurred with an even more obscure proposal, the OECD's Multilateral Agreement on Investment.  That proposal was simply to codify what is the practice in virtually all successful world economies:  namely that foreign investors will be treated no less favourably than locals.  And if you stop to think about it, equal treatment of foreign and domestic capital is the centrepiece of the global capital flows that have allowed new world economies like Australia to develop and have been an essential ingredient to the rise of economies we once called backward.  Some of these -- HK, Taiwan, Singapore now have higher wages and living standards that many long established developed economies including Australia.

WHAT IS GLOBALISATION?

The notion encompasses several dimensions.  Some of these are traditional, particularly trade in goods.  Others, like trade in insurance and other services, have also been around a long time.  Capital movements are more modern, and the ability of nations to implement new techniques is almost the definition of a resilient and hence successful economy.  Open access to migrants, at least those capable of paying their own way, is a major aspect of this.  Indeed, prominent Japanese analysts who, acknowledging that the 20th Century was the American Century, from time to time have considered that the 21st Century will be theirs.  But, around 1990 they acknowledged that the 21st Century is also likely to be the American Century.  This is because American society and culture can readily absorb all-comers while the Japanese reject the notion of immigrant Japanese.

One vital component permitting globalisation to happen is the Rule of Law.  That is, well understood concepts of honesty and reasonableness in people dealing with each other.  This was a central feature of the growth of western civilisation as we presently know it.  Relatively unfettered trade between different political entities allowed a considerable cross fertilisation of ideas and allowed specialisation in production, while placing competitive pressures on monopolies.  And one can see for example in the Merchant of Venice how general courts arbitrated disputes so that even those considered to be outcasts obtained the same justice as others.  There was a very good reason why this was so.  Those political entities that did not offer the same respect for the rights of foreigners as they afforded their own were by-passed by traders.  They tended to decline in wealth and sometimes faced political emasculation as a result of the reduced capacity to defend themselves this entailed.

Trade and freedom of capital flows remain important aspects of globalisation today.  Freedom of capital flows -- or foreign investment -- allows countries that can convince foreigners they offer good opportunities and security to top up their domestic savings with infusions from abroad.  This is important for another dimension of globalisation:  the ability to copy other people's ideas.  Thus we see firms setting up overseas in non-tradeable services from McDonalds through to supermarkets, and construction.  The host countries benefit from these investments because they bring know-how and with it increased productivity.

Of all the forces for globalisation, the internet and telecommunications is probably the most powerful newcomer.  But there is nothing inevitable about technology driving increased economic integration.  In fact, trade was much more important in places like Australia a century ago than it was in the 1970s.  The long period of peace in the nineteenth century had brought a far greater globalisation than we were to see for close to a century -- the world was more integrated in some respects in 1900 than in 1990.  Passports, for example, were required in only the two most backward nations:  the Ottoman and Tsarist Empires.

For Australia, what is sometimes called the Deakin Settlement at the turn of the last century had two or three features that were decidedly anti-globalisation.  These included the adoption of the tariff and the White Australia policy.  The adverse effects of the first of these was supported by Australia's unique centralised wage determination system.

Australia's policy stance shifted this country further towards the false god of isolationism and away from integration with the world at large than other small and remote countries.  And we slipped from being the most prosperous nation in the world in 1900 to barely making the top twenty 90 years later.

Some of the most significant steps in unravelling this were taken by the Whitlam Government -- in most respects the worst administration in Australia's history.  Whitlam introduced the first assault on tariffs with the 25% across the board reduction.  And he put the final nail in the coffin of White Australia.

Globalisation has been a long trend, though as the setback post 1914 demonstrates it is not an inevitable one.  It is made possible by improvements in transport, and this century, improvements in communications.  Over the past forty years, the gradual increase in efficiency in sea transport has been maintained and what it took 16 days in male earnings to buy in 1950 now takes only five days earnings.  But more dramatic has been the lowering of other prices.  Thus 16 days earnings worth of air travel now takes only one and three quarters of a day to earn.  16 days' earnings of international phone calls now takes less than two hours' earnings.

And all this is being further revolutionised by the internet.  Ironically, it is the internet that has allowed disaffected groups to caucus and assist each other in pushing agendas that are in general seeking to thwart the greater global interconnection that has made their caucusing possible.

For many people in these disaffected groups, globalisation can be stylised to mean:

• big business and an acceleration of what used to be called the rat race
• less job security than was enjoyed in previous times
• and a grinding down of living standards.
• For those outside major urban areas it means an intensification of the relative disadvantages that mass populations can avoid -- communications transport, culture.

To examine what globalisation means in this stylised version I consulted one of the feral sites that were prominent in derailing the Multilateral Agreement on Investment.  The site said

1. CITIZENS WILL HAVE NO RIGHTS TO LIVELIHOOD, TO WORK, TO FOOD, TO WATER, TO SAFE ENVIRONMENT.

Well if we examine this what do we find?  The countries that have adopted globalisation most readily:  US, UK, Australia, Singapore, HK Canada, have prospered most over the past decade or so.  These countries have enjoyed rising living standards and considerable employment growth.  Within the developing nations the countries that adopted freedom of capital movements and reduced tariff protection saw an acceleration of growth.  One outstanding example in Latin America was Chile.  Castigated as a 'fascist' state in the 1970s and subject to shipping sanctions from militant unions like the freedom loving Australian Waterside Workers, its policy of reducing taxation abandoning tariff and other support for particular industries pushed its citizens prosperity to the head of the Latin countries.  Its success was not lost on others in the continent and one after the other Latin American countries have abandoned the protectionism with which they sought to insulate themselves from Yankee Imperialism.  The outcome has been an end to the sluggish growth the Continent experienced over the four decades to the 1990s and a new dynamism.

The one Latin American country that refused to join this capitalist resurgence was Cuba.  Once portrayed as the model for the Continent, Cuba is now recognised as an international basket case.  It is a place to which many are flocking to see a 1950s museum piece, but a place from which its own citizens are so desperate to escape that they take colossal risks to do so.

A similar contrast can be seen in Asia.  During my lifetime I have seen the disparity in outcomes between nations like Burma and North Korea and the Asian tiger economies.  At least two Asian Tigers have overtaken Australia and enjoy income levels twentyfold those of nations that were comparably placed forty years ago.  In a less dramatic fashion, we have seen India and Pakistan, both of which have adopted insular policies for most of the post war years, being surpassed in wealth by nations like Taiwan and South Korea.  These countries started the Post World War II era in a far more wretched condition.

Even environmental outcomes have proven to be better under globalisation embracing economies.  Partly this is because the economic freedom entailed in globalisation improves the capacity of economies to afford better environments.  In countries like Australia we have seen an immense improvement in things like Melbourne's atmospheric pollution ozone, smoke, carbon monoxide now down to half their levels of the early 1970s.  Perhaps we'll even return the Yarra to a genuine fishable and swimmable condition that has now been achieved with the Thames.

Similarly improved living standards have also allowed us to set aside more land for the environmental assets we prize.  There is for example considerably more forested area in Australia today than there was a century ago.  Partly this is due to national parks but it is also due to the increased productivity of land that has made it unnecessary and unprofitable to farm marginal land.  This is in contrast to outcomes in the poorer countries where low living standards and low levels of capital force a more intensive agriculture.

But better environmental outcomes also result from the same forces that bring globalisation.  The more insular economies with arbitrary law, like the old East European economies have had the worst possible economic outcomes with the eutrification pollution of vast inland seas and air pollution in the cities.  The better outcomes in the economies embracing globalisation have come about partly because of the accompanying facets:  individual property rights and obligations.  These mean there can be no headlong rush towards a goal if that means impinging on others' rights.  This is an automatic stabiliser that has been free societies' guardian against some of the grievous environmental outcomes seen in Eastern Europe.

2. YOU SHALL HAVE NO OTHER IDENTITY OR MORALITY EXCEPT THAT OF BEING CONSUMERS IN THE GLOBAL MARKET PLACE

The opponents of globalisation argue that it will bring a uniformity, a McDonaldisation.  Indeed at Seattle, the Starbucks coffee chain was targetted.  But nothing is further from the truth.  Globalisation means cosmopolitisation.  It has brought the transformation of Australian cuisine.  Some people object to it also bringing the Pizza Hut but their objection is to others' preferences.  We must ask ourselves whether we would rather be consumers in a global market place or in a local one.  Because if we want the latter we can opt for it.  Globalisation simply offers us an option, one that its enemies would seek to deny us, preferring instead to impose on us their own doubtlessly impeccable taste.

Opponents of globalisation also argue that the outcome will be a concentration of power in transnational firms.  This was previously a refrain in France during the 1970's with Servain-Schreiber's Le Defi Americain.  At the present time we have some transnationals growing and some downsizing.  For many years now, more jobs have been created by smaller businesses as a result of downsizing and subcontracting, the latter resulting from firms outsourcing non-core functions.  In other cases we have seen the rapid growth of the innovative firms that, at least until recently, was dragging some of the best managers away from established concerns into start-ups where they had an opportunity to back themselves and make fortunes.

3. YOU SHALL ELECT GOVERNMENTS BUT THE GOVERNMENTS' ROLE SHALL NOT BE TO PROTECT YOU.  THEY WILL PROTECT CORPORATIONS.

Well I hope the corporations will be protected from arbitrary assault.  Because if they are not, we would see the undermining of the security of property rights and the rule of law that has been the bedrock of our present prosperity.  Equally, the individual is protected from the corporation and any others who are deemed to be rich and powerful.

This demonisation of the corporation has never made less sense than it does today.  Corporations are not remote institutions owned by an oligarchy of rich people.  They are businesses desperately trying to seek out customers and ways of meeting their ever-changing needs, and doing so with a constant eye on better techniques and other cost savings.  Competition forces these cost savings to be passed on to customers if the firm is to continue to exist.

Even more significantly, the corporations are owned by individuals, by everyone who has superannuation or any other form of saving.  And the corporations are desperate to keep our money by constantly showing us, if we are individual shareholders, or our institutional agents in the case of superannuation etc. that they are augmenting our funds.

GOBALISATION:  THE REALITY

Over the past decade or so we have seen a transformation of the Australian economy.  This has greatly enriched us.  In the decade to 1980, average wealth per capita actually declined by a couple of percent.  During the 1980's this rebounded with a 21 per cent increase.  But during the 1990s wealth per capita increased by 38 per cent.

The same sorts of trends are seen in income levels.

Major stimulants to these trends have been globalisation and our adoption of it.  During the 1980's we saw tariff reform that forced Australian industry to cease being coddled and to take its place within the world economy.  The outcome was a quantum leap in productivity.  During the 1990s we saw governments react to the need to maintain global efficiency by reinforcing the importance of competition law.  This meant subjecting government owned businesses to the same market disciplines the private sector faced.  It also, especially here in Victoria, meant privatisation with the unlocking of previously hidden value and a massive upsurge in productivity.

These developments were in part a response to the avalanche of increased global interaction that technology was bringing.  In many cases the response was to the manifestations of technology rather than technology itself.  Thus, the inefficiency of Victoria's gas and electricity industries had been tolerated for years but was becoming less so as industry sought every opportunity to achieve international competitiveness.  The financial catastrophes visited on Victoria, South Australia and Western Australia by government owned financial institutions failing might have been avoided in an era where finance houses could be insulated.  But once individuals could see better returns than those that the mistake riven state owned businesses could offer they voted with their own dollars, leading to crises.

This greater discipline on financial institutions to perform is another example of the benefits of greater globalisation.  When citizens can respond to uncertainties in the domestic investment climate by moving funds elsewhere, inefficient firms or financial intermediaries become unable to continue their poor management.  Globalisation of capital flows and the freedom of the saver to shift funds overseas puts pressure on governments to cease their previous policies of favouring certain kinds of investment and placing the risks onto captive local savers.  It is no coincidence that the failings of state owned banks and investment houses occurred with the greater globalisation we have seen in recent years.  Globalisation revealed these failures much more starkly.  It is also no coincidence that such occurrences have led to the abandonment of state owned banking worldwide.  This is yet another way that globalisation has brought benefits:  it has delivered us from some of the tyrannies that governments are apt to impose on their citizens.

This and other changes have made their mark on our prosperity.  The Productivity Commission has estimated that Australian labour productivity in the period since 1993 has risen from its long term trend of 2.1 per cent per annum to 3.1 per cent.  The most rapid increased in productivity were in the industries that adapted most closely to the needs of globalisation:  energy, communications and finance and insurance.  Even more strikingly, the productivity with which we make use of our capital had been steadily declining until the 1990's but is now increasing.

Perhaps for the first time in a century, over the past decade, we have now embarked on a period where our productivity levels are higher than those of the average OECD nation.  Moreover, we weathered the Asian crisis without a pause spite of our close export ties to the countries that suffered catastrophic reductions in their production levels.

The outcome of embracing globalisation has meant a far more efficient set of industries and object lessons to governments that they are poor operators of businesses, lessons learned even by Labor administrations which follow the role model set up by Tony Blair.

Globalisation is often used as a bogey word like economic rationalism before it.  In both cases the words are neutral but are used to impart notions of imposed helplessness on a hapless public.  Such constructions are the worst forms of Orwellian Newspeek.  They reverse the meaning of concepts that simply represent freedom for the consumer to choose for herself what to spend her money on.  Economic rationalism means getting government out of the way of decisions and allowing individuals to decide whether they buy one good rather than another, whether they buy services produced overseas rather than at home, whether they choose to spend their own money or save it, whether they invest at home or overseas.  Globalisation does the same thing by making it difficult to do otherwise.  The great advantages of this policy approach are:

• it means freedom for the individual to do what he or she pleases with her own money
• it offers no privileged path of a domestic producer into the pocket of a domestic consumer and forces the producer to constantly seek to ensure good value is given and to scrutinise developments overseas to ensure competitiveness is maintained
• it means as a result of these processes that the productivity of the economy is constantly honed and as this is the only way to enjoy high living standards,
• and it means a diminished role for government in bossing individuals around and dictating their patterns of consumption and tastes;  such a diminished role offers immense hope for the future emerging as we have from a century which the enlarged role of governments brought untold misery with totalitarian regimes.  And this is so even in the softer, gentler regimes of expanded state control and nationalisation that reduced living standards in many western countries like Australia.

In summary, globalisation brings greater prosperity and freedom from government control.  As can be seen from the relative peace we presently enjoy, and in contrast to the inter war and Cold War years it also tends to foster international harmony because its focus is on cooperation and win-win interchanges rather than use of force.