Globalization needs human face, global governance

by Chakravarthi Raghavan

Geneva, 12 July -- Globalization of the world economy -- driven by forces to open national borders to trade, capital and information -- has benefited some, but marginalised many more and has increased inequalities within and among nations, warns the UN Development Programme in its Human Development Report 1999 (HDR-99) published Monday.

The HDR-99 argues that while the process itself is not new, today's globalization is driven by new markets, new tools like internet, new actors like the World Trade Organization with authority over national governments and Transnational Corporations, and new multilateral rules on trade, services and intellectual property more binding for governments and reducing the scope for national policy.

Globalization is offering great opportunities for human advance, but is also creating new threats to human security, both in rich and poor countries, says HDR 1999.

What is needed, said Richard Jolly, the chief author of the report, is stronger and more democratic governance -- nationally and internationally.

But strong on analysis, and with some plain-speaking in its critique of the current systems of money, finance and trade, HDR- 99 is seems to be more cautious, almost feeling the way, in recommendations for tackling the instruments and power relationships in global policy making of the IMF-World Bank and the WTO.

It calls for strengthening the bargaining position of the poor and small countries - through legal aid, such as in the proposed independent legal aid centre, appointment an ombudsmen to respond to grievances and investigate injustices, support for policy research and for reliance more on regional solidarity and regional institutions.

The ombudsman institution came into being in Nordic countries - where democratic polity and egalitarian policies formed the basis of social democracy, and an ombudsman could cut through bureaucratic tangles to ensure substantive justice.

But it is not clear what the HDR expects an ombudsman to do in WTO.

In the WTO, rules have been framed to advance and safeguard the neo-mercantlist interests of the major industrial nations and their corporations, are asymmetric and weighted against the developing world and the poor, lacks transparency of decision- making even for member-governments, leave aside the public, and with real decision-making in the hands of the major Northern countries, whose nationals are dominant in the secretariat, and hold most of posts of directors of divisions.

In such a situation, a legal aid mechanism to enable the developing countries to defend themselves before panels can reduce their costs, but cannot change the asymmetric rules. And without change the dispute settlement mechanism only serves to enforce the rules and perpetuate the asymmetry of the system, and making the multilateral trading system oppressive to the poor.

Today's Globalization, the HDR says, is driven by market expansion - opening national borders to trade, capital and information - outpacing governance of these markets and their repercussions for people.

"More progress has been made in norms, standards, policies and institutions for open global markets than for people and their rights. A new commitment is needed to the ethics of universalism set out in the Universal Declaration of Human Rights."

Competitive markets, it underscores, may be best guarantee of efficiency, but not necessarily for equity. Liberalization and privatization can be a step to competitive markets - but not a guarantee of them. Many activities and goods critical to human development are provided outside the market, but are being squeezed by the pressures of global competition.

In sum global opportunities are unevenly distributed - between countries and people. And if the opportunities are not shared better, the failed growth of the last decade will continue.

More than 80 countries still have per capita incomes lower than a decade or more ago. And while 40 countries have sustained average per capita income growth of more than three percent a year, 55 countries, mostly in sub-Saharan Africa and Eastern Europe and the Commonwealth of Independent States (CIS) have had declining per capita incomes.

Gaps are widening within countries. In China disparities are widening between export-oriented regions of the coast and the interior. Countries of eastern Europe and the Commonwealth of Independent States have registered the largest increases in the Gini coefficient - a measure of income inequality. The Gini coefficient has also registered big increases after the 1980s - especially in Sweden, UK and the US.

Inequality between countries has increased. The income gap between the fifth of the world people living in the richest countries and the fifth in the poorest was 74 to 1 in 1997 - up from 60 to 1 in 1990, and 30 to 1 in 1960. Inequality grew rapidly in the 19th century - during the last three decades of globalization - when the gap between the top and bottom countries increased from 3 to 1 in 1820 to 7 to 1 in 1870 and 11 to 1 in 1913.

By late 1990s, the fifth of the world living in the highest income countries had 86% of world GDP, had 82% of world export markets and 68% of foreign direct investment -- while the bottom fifth of the world had just one percent of each.

"Some have predicted convergence (through free trade and free markets). Yet the past decade has shown increasing concentration of income, resources and wealth among people, corporations and countries."

The world's 200 richest people more than doubled their net worth in the four years to 1998, to more than $1 trillion. The assets of the world's top three billionaires are more than the combined GDP of all least developed countries and their 600 million people.

And the recent wave of mergers and acquisitions is concentrating industrial power in mega-corporations at the risk of eroding competition. For e.g., in 1998, the top 10 companies in pesticides controlled 85% of a $31 billion global market, and the top 10 in telecommunications, 82% of a $262 billion market.

"In the globalizing world of shrinking time, shrinking space and disappearing borders, people are confronting new threats to human security - sudden and hurtful disruptions in the pattern of daily life."

The financial turmoil in Asia in 1997-99 showed the risks of global financial markets. While net capital flows to Indonesia, South Korea, Malaysia, the Philippines and Thailand rocketed to $93 billion in 1996, there was an outflow in 1997 - with a swing of 11% of pre-crisis GDP.

And while recovery seems to be on the way - and output growth, payment imbalances, interest rates and inflation rates may be returning to normal - human lives take longer to recover.

A review of financial crises in 80 countries over the past few decades show that real wages take an average of three years to pick up again and employment growth does not regain pre-crisis levels for several years.

And far from being isolated incidents, financial crises have become increasingly common - with the spread and growth of capital flows.

Globalization has increased job and income insecurity in all countries, has spread diseases globally, and is creating cultural insecurity.

While global good has gone down, the global bad has risen. Illicit trade - in drugs, women, weapons and laundered money - is contributing to violence and crime that threaten neighbourhoods around the world. The traffic in women and girls for sexual exploitation - 500,000 a year in western Europe alone - is one of the most heinous violations of human rights, and is estimated to be a $7 billion business. Internet is an easy vehicle for trafficking in drugs, arms and women - through nearly untraceable networks.

In 1995, illegal drug was estimated at 8% of world trade - more than trade in motor vehicles or iron and steel. Money laundering, estimated by the IMF to be 2 to 5 percent of world gdp - hides the traces of crime in split seconds.

And at the root of all this is the growing influence of organized crime, estimated to gross $1.5 trillion a year - rivalling TNCs as an economic power.

None of these pernicious trends of globalization is inevitable. With political will and commitment, they can all be reversed. With stronger governance, benefits of competitive markets can be preserved with clear rules and boundaries.

With market collapse in Asia, and its spread to Brazil and Russia and elsewhere, and the threat of global recession still looming, global governance is being re-examined.

But the current debate is too narrow, limited to the concerns of economic growth and financial stability. It is also too geographically unbalanced - dominated by the largest economies, usually the G-7, but often the G-1, and occasionally bringing in the large newly industrializing countries. Most small and weak countries are excluded.

Nor does the debate address the current weaknesses, imbalances and inequities in global governance.

Multilateral agreements have helped establish global markets, without considering their specific impact on human development and poverty.

And the structures for global policy-making are not representative. The key economic structures - IMF, World Bank, G7, G10, G22, the OECD, WTO - are dominated by the large and rich countries. There is little transparency in decisions, and there is no structured forum for civil society institutions to express their views.

Reinventing governance for the 21st century must start with strong commitments: to global ethics, justice and respect for human rights of all people; to human well-being as the end, with open markets and economic growth as a means; to respect for diverse conditions and needs of each country.

"What works in Chile does not necessarily work in Argentina, what is right for Mauritius may not for Madagascar."

Multilateral agreements and international human rights regimes hold only national governments accountable. National governance holds all actors accountable within national borders, but it is being overtaken by the rising importance of supra-national global actors - transnational corporations and international institutions (IMF, World Bank, WTO and Bank of International Settlements.)

Standards and norms to set limits and define responsibilities for all actors are needed.

Social policies and national governance are even more relevant today to make globalization work for human development.

This calls for changing labour market - not by going back to labour market policies protecting elite labour, but through job- creating growth, investing in workers skills, promoting labour rights and making informal work more productive and remunerative.

The shrinking fiscal resources of states need to be augmented by generating more revenue from new sources as taxes on income and land or on value added, reducing military spending globally. And declining cultural diversity should be reversed by supporting local culture, arts and artists.

The threats of financial volatility should be averted by liberalizing capital account more carefully and "with less international pressure and greater flexibility for countries to decide pace and phasing"; subjecting financial institutions to greater transparency; integrating macro-economic management and social policies; and strengthening international action to regulate and supervise banking systems.

The UN's Economic and Social Council, and the IMF and World Bank should conduct an international study of regulatory gaps, especially for short-term bank loans, reversible portfolio flows and activities of hedge funds.

Standstill provisions should be instituted on debt service to the IMF, World Bank and regional development banks; and better institutions should be developed for early warning and crisis management, and establishing an international lender of last resort.

TNCs influence the lives and welfare of billions of people. Yet their accountability is limited to their shareholders, with their influence on national and international policy-making kept behind the scenes.

"If they are brought into the structures of global governance, their positions would become more transparent, and their social responsibility subject to greater public accountability."

The HDR calls for a multilateral code of conduct to be developed for TNCs - rather than as now with TNCs held to codes of conduct only for what national legislation requires on social and environmental impact of their operations.

There are national policies to ensure free competition on national markets, but none in global markets. There is a need for a world anti-monopoly authority, and it could be included within the mandate of the WTO and given anti-monopoly functions over activities of TNCs, including production, working in close collaboration with national competition and anti-trust agencies.

A task force should be established on global economic governance - with ten industrial and ten developing countries, and with representatives of civil society and private financial and corporate actors, and should report to ECOSOC, IMF and World Bank, and to the WTO, the HDR-99 recommends.

It is time to begin building a more coherent and more democratic architecture for global governance in the 21st century including a stronger and more coherent UN as a forum for global leadership; a global central bank and lender of last resort; a WTO ensuring both free and fair trade, and a mandate on global competition policy with antitrust provisions and a code for conduct for TNCs; a world environment agency, a world investment trust, an international criminal court and a broader UN system including a two-chamber General Assembly to allow for civil society representation. (SUNS4475)

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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