The myths about globalization (2)

Friday, April 13, 2001

The opponents of globalization can be faulted for many things, but no one can accuse them of not caring. The legions of protesters who will descend on Quebec City for the Summit of the Americas next week care deeply about the plight of the world's poor.

As should we all. One in every six humans survives on less than a dollar a day. Millions, many of them young children, die every year from the diseases of poverty. Ending their misery is the great moral challenge of the new century.

Fortunately, there is a way. Unfortunately, that way is the very thing the Quebec protesters want to fight: globalization.

The spread of global trade and investment is quite simply the best anti-poverty program the world has ever seen, far better than even the most generous foreign aid. Because of it, hundreds of millions of people have already climbed the ladder out of poverty. In China alone, 160 million people left the ranks of the poor as that country ended its economic isolation and joined the global economy. Average incomes quadrupled in just 20 years. Now, scores of other poor countries are lining up to follow in China's footsteps, among them the 32 nations of Latin America and the Caribbean that will be represented in Quebec City.

Yet the foes of globalization would slam the door in their face. As they see it, globalization only enriches giant transnational corporations and their billionaire owners while leaving developing countries poorer and more exploited than ever. Not so. Though transnationals undoubtedly gain from globalization, by far the biggest winners are poor countries.

A mountain of studies shows that countries that embrace trade and foreign investment grow faster than those that do not -- about twice as fast on average, says one report by the Organization of Economic Co-operation and Development. A well-known paper by Harvard professors Jeffrey Sachs and Andrew Warner showed that poor countries with open economies grew by an average of 4.5 per cent in the 1970s and 80s while those with closed economies grew by just 0.7 per cent.

If studies don't convince, just look across the Pacific. The Tiger economies of East Asia -- Taiwan, Hong Kong, South Korea, Singapore and before them Japan -- all went from rags to riches by selling their products on the markets of the world. Just three decades ago, South Korea was as poor as Ghana. Today, it's as rich as some European countries. Singapore emerged from the Second World War a seedy tropical port with no resources and little industry. Today, thanks to trade and investment, its skyline is filled with skyscrapers and its people are as prosperous as Canadians.

Now look at India. It shunned globalization for decades, sealing off its economy behind a wall of tariffs and quotas. The result was a long winter of economic stagnation from which Indians are only now beginning to recover. The same thing happened in Latin America and Africa.

If poor countries are embracing globalization now -- more than 20 want to join the World Trade Organization, and more than 130 already have -- it's not because they are being coerced by the agents of international capitalism. It's because the alternative has been utterly discredited.

Of course, a richer country doesn't always mean richer workers. Foes of globalization say its benefits flow overwhelmingly to greedy local elites and corrupt governments, while exploited workers suffer. They're wrong about that, too.

Everywhere that export industries have sprung up to serve the global economy, incomes have improved. One study has shown that workers in U.S. factories abroad -- those transnationals that the foes of globalization love to hate -- earned eight times what workers in local factories did. The garment worker in Bangladesh may find the hours long, the factory crowded and the boss callous, but her life is still far better than it was on her father's tiny plot of land in the Ganges delta. Now, at least, she can afford to pay her children's school fees and save for her daughter's wedding.

Workers in poor countries don't need placard-waving protesters to tell them that sewing blue jeans for export is a hard way to make a living. Millions of them know it from experience. But they also know that a sweatshop job is better than no job at all, and that what they are doing is a step to something better.

Globalization is not a magic formula. It is a way to get a foot on the ladder. When poor countries join the global economy, an evolution begins. As foreign investment flows in, local industries get the capital and technology they need to make better products. They soon need workers with better skills, so they start paying better wages. As incomes and tax revenues rise, governments gain the means to pay for better schools and health care.

When all this has gone on long enough, the sweatshops start to disappear. Hong Kong started its climb to prosperity making plastic flowers and toys for export. Now it exports digital video recorders and financial services. Along the way, the gap between rich and poor starts to narrow. After 40 years of trade-driven growth, South Korea's rich-poor gap is no greater than Canada's.

The foes of globalization would stop this virtuous process in its tracks. Though they claim to speak for the poor, the restrictions they seek on trade and investment flows would kick away the ladder for scores of poor countries.

That would be a calamity. For the first time in history, the end of mass poverty is in clear sight. For the hundreds of millions who live in want, there is finally a way out. That way is globalization.

The myths about globalization (3)

Monday, April 16, 2001

When anti-globalization protesters take to the streets of Quebec City next week, environmentalists will be in the front rank. According to groups such as Greenpeace, Friends of the Earth and the Sierra Club, freer trade and a globalized world economy pose a direct threat to the health of the planet.

Their concern is understandable. Globalization means more trade, more trade means making more things to sell, and making more things to sell usually means consuming more resources and creating more pollution. Globalization also means drawing up trading rules that can sometimes conflict with national and local environmental regulations. So globalization must necessarily be bad for the planet, musn't it?

Well, no. In fact, there is good reason to think that, in time, globalization will lead to a cleaner world for us all.

How? To begin with, by making poor countries richer. Countries that welcome foreign investment and trade with the rest of the world tend to grow faster than those that huddle behind protective walls. When people grow richer, they demand a cleaner environment. And because they are richer, they have the resources to pay for it.

Consider what has happened right here in Canada. This country relies on trade more than almost any other, and our volume of trade has leapt from 42 per cent of gross domestic product in 1970 to 83 per cent today. Yet our environment has been getting steadily cleaner. In the average Canadian city, lead levels in the air are down 88 per cent and carbon monoxide 74 per cent since 1974. In the Great Lakes, levels of phosphorous, PCBs and other pollutants are also down sharply. That's partly because more prosperous, better-educated citizens have demanded action from governments. It's also because Canadian consumers and companies can afford expensive anti-pollution gadgets like catalytic converters (to make car exhaust cleaner) and smokestack scrubbers (to reduce sulphur-dioxide emissions).

The same thing is sure to happen in other countries as they grow richer. A renowned 1994 study by two U.S. researchers, Alan Krueger and Gene Grossman, showed that pollution levels in developing countries start to fall when they reach income levels of about $8,000 (U.S.) a head. It's happening right now in newly rich Hong Kong, where a well-heeled and increasingly vocal middle-class is putting pressure on the government to clean up the smoggy air and foul water -- and a government flush with cash is responding. Of course, Hong Kongs don't happen overnight. Industrialization takes time, and it's a dirty business. Every industrializing country in history has had its dark, satanic mills. But that's not globalization's fault.

Places that industrialize without much trade or foreign investment are every bit as dirty as those that don't -- often more so. Look at the Soviet Union, which took almost no part in the global economy but left an environmental mess in its wake. Or look at India. The smog that is eating away at the Taj Mahal is not caused by greedy transnational corporations, all but banned in India until recently. It comes from scores of ancient iron foundries producing for the protected and thoroughly unglobalized local market.

Places that welcome trade and investment, on the other hand, tend to move through the dirty phase of industrialization more quickly and do less damage on the way. One reason is the pressure of competition. If a rubber-tire company in Malaysia wants to compete against all the other tire makers in the global market, it will have to adopt the leanest production methods possible -- methods that use the smallest possible amount of energy and resources. Another reason is that the multinational companies that proliferate like mushrooms in a globalized economy tend to run cleaner than their local counterparts. More and more multinationals are using the same environmentally friendly production methods abroad that they use at home, in part because standardization is cheaper.

But what of regulation? Environmentalists insist that trade bodies like the World Trade Organization and trade deals like the North American Free Trade Agreement (NAFTA) rob governments of their ability to enforce local laws that protect the environment.

Here again, they are mistaken. The basic charter of the WTO says clearly that member states are free to impose trade restrictions "necessary to protect human, animal or plant health." Its only condition is that the restrictions should be based on sound scientific evidence, a proviso designed to prevent governments from using phony environmental scares to keep out imports. Even with that condition, countries are free to defy the WTO if they wish. The European Union did just that when it banned the sale of beef from cattle raised with growth hormones. The WTO ruled against the ban, but the Europeans kept it anyway, and there is nothing the WTO can do about it.

Like the EU, Canada has seen some of its environmental measures clash with international trade rules. The federal government had to revoke an import ban on the gasoline additive MMT when its U.S. maker challenged the ban under NAFTA, but only because Ottawa had no scientific evidence whatever to justify the ban. Regulations aimed at provable environmental threats face no such danger, and even silly, groundless rules can stand as long as governments don't use them to penalize trading partners.

There is simply no evidence that free-trade agreements undermine environmental standards. To the contrary, some agreements, such as NAFTA, include pledges to raise such standards. Even when they aren't written in, countries that trade with each other often make separate agreements on the environment. Governments around the world have signed more than 200 such accords, another sign that globalization means a better, more co-operative -- and, yes, cleaner -- world.

The myths about globalization (4)

Monday, April 16, 2001

You don't often see people marching through the streets in defence of government power. The demonstrators converging on Quebec City for this week's Summit of the Americas are protesting in part because they believe the power of governments is under threat. They way they see it, globalization is stripping elected governments such as Canada's of their power to control the economy, protect the environment, support culture and even to provide decent public services -- in short, their power to govern. The result, they fear, will be a dog-eat-dog world in which transnational corporations are king and governments little more than court jester.

Like the fear that globalization will wreck the environment or hurt the poor, this is a myth. Even in a globalizing world, governments still have immense power to tax, to spend, to protect and to regulate. And despite the growing influence of international bodies such as the World Trade Organization (WTO), governments remain by far the most important player on the international stage -- far more powerful than even the mightiest transnational.

Consider the truest gauge of a government's power: the power to tax and spend. If globalization were indeed undermining governments, you would expect their spending power to fall. Exactly the opposite has happened. In Canada, government spending rose from 28.6 per cent of national output in 1960 to 38.8 per cent in 1980 to 44.7 per cent in 1996. In that same period, trade more than doubled as a share of national output and Ottawa signed three major trade treaties: with the United States (the FTA), with the United States and Mexico (NAFTA), and with the world (the latest round of the WTO). If globalization is meant to cripple government power, it's doing a pretty poor job of it.

Canada's ability to set its own environmental, cultural and social policies has also survived the era of trade and globalization. Despite all the scare-mongering in the 1988 free-trade debate about the end of medicare, the end of unemployment insurance, the end of cultural protection -- the end of Canada as we know it -- all of these things remain intact. No one is making us sell our water to the Americans or carry guns like they do, either.

But what of the future? Won't powerful international organizations like the WTO chip away our governments' powers over time?

It's hard to see how. Despite its image as a powerful and secretive world government in waiting, the WTO's power over national governments is surprisingly limited. The WTO has no enforcement powers of its own. It can't levy fines, remove import tariffs, impose sanctions or change domestic laws. If one of its members breaks the rules -- rules which, by the way, they voluntarily agreed to observe -- the most the WTO can do is allow another member to impose trade sanctions against the rule-breaker. When the European Union defied a ruling on banana imports from former European colonies, all the WTO could do was allow Washington to slap sanctions on European imports to the United States. That is something any country could do well before the WTO came along.

For members that consider even these powers too great, the WTO has a whole series of outs. Under its charter, members can limit imports for reasons of public health and safety, national security, resource conservation, or because products were made with prison labour. No other member can challenge them if they do. And remember: the WTO can only change its rules when every one of its 140 members agrees. Decisions are by concensus.

None of this is to say that globalization has no effect on the powers of government. When governments join a trade organization such as the WTO or NAFTA, they agree to accept certain limits on their behaviour. They can't always support favourite companies or industries if the favouritism amounts to trade discrimination. They can't lash out with trade sanctions if they think a trading partner is playing foul; they have to take the complaint to a trade panel first.

Governments in the global economy also face the discipline of the market. If a government runs deficits for too long and builds up a crushing debt, investors may pull their money out. Governments in our globalized world face heavy pressure to control spending, maintain a stable rate of inflation and limit controls on foreign ownership and investment.

Even if these are mostly good things in themselves -- New York Times columnist Thomas Friedman calls globalization "the Golden Straightjacket" -- it still means that governments today are not quite as free to do what they like.

But no one makes governments accept these limits. Membership in the WTO and its sister organizations is entirely voluntary, and anyone can pull out or decline to join in the first place. Governments choose to take part in the global economy because they judge that the benefits of a stable, open, rule-based trading system outweigh the accompanying loss of power.

Nothing comes for free. When a country signs an arms treaty, it does so because it decides that the security it gains from peace with its rival is greater than the security it lost by giving up some of its weapons.

It's a trade-off. For most countries, the trade-off of globalization is well worth making.

The myths about globalization (5)

Tuesday, April 17, 2001

If you're planning to take in this week's anti-globalization protests in Quebec City, prepare to hear a lot about "the race to the bottom." According to the protesters, the inevitable result of letting goods and money flow more freely across national borders is a global competition to reduce standards. When corporations can operate anywhere they want, they comb the world for the place with the lowest environmental standards and the weakest labour laws. Governments, in turn, compete against each other to entice investors with ever-weaker standards. In the quickening race to the bottom, workers' rights are trampled and nature befouled.

It's a frightening process, and the opponents of globalization are doing their best to talk it up as they prepare for the Summit of the Americas. The only trouble is, it does not appear to be happening. Despite what you may hear from Quebec, the "race to the bottom" is a myth. There is little evidence that trading countries are rushing to lower their standards to court footloose global corporations. There is even less evidence that those corporations are flocking to the places with the lowest standards. If anything, the opposite is happening. Countries that enter the global economy tend to raise their standards, not lower them, and global companies gravitate to places with the best standards, not the worst.

A detailed study of the "race to the bottom" thesis by the Organization for Economic Co-operation and Development found that poor countries that opened their borders to trade and joined in the global economy usually had higher labour standards, stronger unions, better wages and tougher laws against things such as child labour than those that kept their economies closed. As the OECD put it, there is a "positive association over time between sustained trade reforms and trade standards."

Consider Mexico. Critics of the North American free-trade agreement said NAFTA would be a disaster for the environment. Yet Mexico has toughened its environmental regulations since Canada, the United States and Mexico formed the free-trade zone in 1994. "Overall, it appears Mexico has improved its environmental policies and regulatory instruments," said the California-based Journal of Environment and Development in December. Mexico's new president, Vicente Fox, has promised to do even better, proposing to bump up spending for environmental enforcement, reduce logging in old-growth forests and give special tax breaks to companies that install anti-pollution controls.

Why do standards rise instead of fall when countries trade? Partly because better-off, more aware citizens demand it. Partly because trade brings in the money to pay for it. And partly because of that much-maligned animal, the transnational corporation. When companies such as Pepsi or Reebok operate in a poor country such as Mexico, they tend to impose higher labour and environmental standards on their factories than local soft-drink or running-shoe companies. That's not because they're better people; it's because it's easier to work abroad with the same standards you have learned to work with at home.

For the same sort of reasons -- ease and efficiency -- most big transnationals actually avoid countries where standards are terribly low. Three-quarters of all the foreign investment in the world goes to rich countries such as Canada, Germany, France or Japan, places where labour and environmental standards are high. Of the money that goes to less-developed countries, the lion's share goes to the more advanced countries such as Singapore, Malaysia or South Korea that also have high standards.

In fact, the kind of transnational that anti-globalization protesters love to hate -- the one with hellish sweatshops in poor countries making watches or blue jeans for consumers back home -- is a small minority. Only 4 per cent of U.S. foreign investment involves overseas production in poor countries for re-export back home.

The race to the bottom is a convenient idea because it plays into so many of the other misconceptions about globalization: that it strips governments of their sovereign powers; that it ruins the environment and impoverishes workers; that it paves the road for rampaging global capitalism. It would be an ideal argument against globalization, if only if were true.

The myths about globalization (6)

Wednesday, April 18, 2001

Last year, an anti-globalization group called the Turning Point Project bought a series of advertisements in The New York Times. One of them began this way:

"A few decades ago, it was still possible to leave home and go somewhere else. The architecture was different. The landscape was different. The language, lifestyle, dress and values were different. That was a time when we could speak of cultural diversity. But with economic globalization, diversity is fast disappearing. The goal of the global economy is that all countries should be homogenized."

Is it? Take a quick tour around the world, and it might seem so. In Bangkok, cinemagoers are lining up to watch Gladiator, Traffic and The Wedding Planner. In Moscow, diners are crowding the city's 58 McDonald's restaurants to eat "Bolshoi Macs" and fries. In Buenos Aires, TV-watchers are ogling their way through Baywatch and giggling their way through Friends.

To groups such as the Turning Point Project, this is all the proof that's needed that globalization equals homogenization. To them, it is as clear as Evian water that as trade barriers fall, vulgar American culture will swamp the world, local customs, traditions and identities will wither and the world will become a duller, more uniform place.

Fortunately for all of us, that seems highly unlikely. Though no one can deny the power or reach of American mass culture, there is little evidence that globalization is killing off local identities or creating a "global monoculture." In many ways, the modern, wired world is more varied and more interesting than ever. As people and products and ideas move more freely around the world, they are mingling together to create an explosion of creativity and diversity.

At the end of the Second World War, the world counted about 50 nations. Today there are 188, each fiercely determined to protect its identity. That doesn't count the scores of ethnic and cultural communities struggling to assert themselves. Far from disappearing, these communities are blooming.

Consider Europe, where groups such as the Basques, the Catalans, the Bretons and the Scots are undergoing a cultural rebirth. The fact that much of Europe is a free-trade zone hasn't stopped them. In fact, they look to the free-trading European Union to protect their distinctiveness.

You don't have to look across the ocean to see an example of cultural vibrancy in the teeth of globalization. Look at what is happening right here at home. Canada is more exposed to American mass culture than any other place on Earth, yet Canadian culture has never been stronger. Canadian authors like Margaret Atwood and Michael Ondaatje have won legions of readers around the world. Canadian pop stars like Nelly Furtado, Alanis Morissette and Bryan Adams are international stars.

Canada's power to promote and protect its culture remains largely unaffected by globalization. More than a decade into free trade, Ottawa still requires radio stations to devote 35 per cent of their playlists to Canadian tunes and television networks to have 60 per cent Canadian content. Though other policies have come under scrutiny from our trading partners, our cultural umbrella is intact.

But the best way to fight cultural uniformity isn't to put up barriers to American culture. People have loved American-made entertainment since the days of Charlie Chaplin, and they love it partly because it is good. The best way is to offer an alternative. Countries around the world are doing just that.

Though Hollywood blockbusters such as Gladiator draw millions of viewers in India, they don't attract nearly the crowds that flock to the Indian movies pumped out by the Bombay-based movie industry known as Bollywood.

The same is true of Indian television. When media mogul Rupert Murdoch offered shows like Baywatch to Indian viewers through his Star-TV satellite service, they stayed away in droves and the service was a flop. Indian satellite services offering locally made, Hindi-language shows, by contrast, have been wildly popular -- so popular that Indian-made shows are shown in the Middle East, in East Asia and around the world.

That is becoming typical. Though the foes of globalization complain endlessly that American culture pours out of Hollywood and inundates the world, what is remarkable is that so much flows in other directions. Brazil exports its racy television dramas to 130 countries. The Russians are mad about them, as are the Chinese, who can watch them, dubbed, in three Chinese dialects. The biggest cultural phenomenon among North American children in the past couple of years was the Pokemon fad, based on a cartoon show from Japan.

All this cultural mixing can't be bad. The most vibrant cultures are hybrids that absorb foreign influences and make them into something unique. One of the reasons American culture is so strong is that it was built by people who came to the United States from other places and brought their influences with them. So it may be with the wider world. If globalization ever creates a world culture, it will be a thing not of bland uniformity but of exhilarating variety.

The myths about globalization (7)

Thursday, April 19, 2001

It was a tweedy English professor at the University of Toronto who kicked off the debate over globalization.

When Marshall McLuhan first spoke of a "global village," it was a hazy and idealistic vision of a world made smaller by mass communication. Now the prospect of a smaller, more interdependent world has been transformed into something positively frightening. The protesters who have gathered for tomorrow's Summit of the Americas claim that "corporate globalization" will damage the environment, hurt workers in poor countries, swamp local cultures, undermine national sovereignty and set off a vicious race to the bottom in labour and environmental standards.

As we have tried to show over the past few days, these are myths. Globalization is in fact good for workers in poor countries, good for the environment in the long term and far less threatening to local cultures and national sovereignty than the critics say. As for the race to the bottom, there is little evidence it even exists.

Why, then, does globalization make people so nervous? Partly because it is happening so fast. Prof. McLuhan's vision has come true in the space of a single generation. The Internet, invented barely a decade ago, is now virtually everywhere, making it suddenly possible to be everywhere virtually.

Falling trade barriers and floods of foreign investment have made countries more dependent on each other than ever before. Few countries have felt this more than Canada, which has seen its dependence on our mighty neighbour to the south grow by leaps since the beginning of U.S.-Canada free trade.

These are dramatic, mind-boggling changes, and they are not without cost. Though globalization does not create a winner-take-all, dog-eat-dog society, it does leave some people behind, notably workers in stagnant, uncompetitive industries. Though it does not serve only the rich, it can increase the gap between rich and poor. Though it does not neuter the nation-state, it does sometimes make it harder to defend what is unique about each of them. These are important concerns, and the Quebec protesters have already done a service by forcing gov- ernments to acknowledge them.

When all is said, though, globalization is a powerful force for good, with the potential to lift millions out of poverty and bring the world together as never before. Globalization, at bottom, is about freedom -- freedom to trade, freedom to move and to travel, freedom to exchange information and ideas.

All of this becomes easier in a more integrated world. But it's wrong to think greater freedom will mean fewer rules -- a slide into rootless anarchy. The opposite seems to be true. As barriers have fallen and globalization has progressed, limits on international behaviour have grown tighter. In the past few years alone, nations of the world have come together to ban land mines, outlaw chemical weapons, fight global warming and draw up plans for a new world criminal court, to name just a few examples.

This has happened at the same time that countries were lowering barriers to trade and investment through groups such as the World Trade Organization and treaties such as the North American free-trade agreement. Coincidence? Perhaps. But there is a plausible theory that countries tied together by trade and other kinds of economic exchange are less likely to fight each other and more likely to co-operate in non-economic ways.

Consider that near-miraculous creation called the European Union. It began life as a coal and steel grouping, then became an economic community, then a free-trade zone, then a single-currency zone. Now its members set common policies on scores of different issues, from the environment to defence to foreign affairs. No anarchy there.

In fact, the biggest complaint about the EU is that it is too co-operative. Britain sometimes complains the Union is becoming the Big Nurse of Europe, crushing local independence. Yet few would want to turn back the clock to the days of rivalrous nation-states. Because of the EU, war in Western Europe is unthinkable.

Is it possible that the rest of the world will go the European way, with economic integration leading to the political kind? Not soon. Even the most ambitious plans being discussed at tomorrow's summit fall short of an EU of the Americas. But in a generation or two, who knows?

In the meantime, globalization should be celebrated for what it has already proven to be: an engine of prosperity, a leg up for the poor and a boost for economic freedom.