The world economic order, popularly known as globalisation, has now started manifesting signs of decay in the countries of its origin. Therefore, not only the developing countries, which are not in its favour since its very inception, the developed countries are also realising the need for its change or restructuring.
Globalisation, as a world economic order, which is being implemented through the World Trade Organisation (WTO), supported by the IMF and the World Bank, does no enjoy the consensus of the international community. Russia, as one of the largest economies was granted membership of the WTO in December 2011. Similarly, China, a fast emerging world economy was given membership only a decade back.
Globalisation which is in fact US-based capitalism, received momentum, after the disintegration of the USSR, replacement of GATT by the WTO in January 1995 and a revolution in information technology. The globalisation of the economy, liberalisation of trade and privatisation, the three major planks of the system, have brought dramatic changes in the global economic scenario during the last two decades or so, giving rise to vast opportunities as well as grave challenges.
While opportunities are the domain of the developed countries, the developing countries are confronted with challenges as their economies are not sufficiently competitive to integrate with the global economy and are, therefore, exposed to serious risk and uncertainties, thus stifling their economic growth. Competition implies survival of the fittest, but since an even-playing field and equal opportunities are not available, the developing countries, barring a few exceptions, are not able to compete with the products of the industrially advanced countries in the North, with advanced technology and capital intensive goods. What the developed countries have accomplished in centuries, is being expected by the poor countries to achieve it in years.
Unlike the objectives of the WTO, regionalism was promoted, and the first common market of the European Union was created which paved the way for regional-based protectionism. Thereafter, other trading blocs, like ECO, Saarc, Asean in Asia were formed but could not achieve the desired results because of the competitive character of the economies of member-countries. They had to look towards the West for import of machinery and technology. They all are producers of similar raw material and less value-added goods.
It is indeed astonishing that while globalisation aims at liberalisation and free movement of all (actors of production, the industrialised countries created many barriers in the free movement of workers (in which, developing countries are rich) on the plea that their unbridled movement will lead to disequilibrium and distortion in the socio-economic set-up of the developed countries, while the free movement of goods and services without any tariff or non-tariff barriers under the WTO compulsions has already caused sufficient damage to the growth and development of industry in the developing countries which is considered to be a symbol of the economic sovereignty of a country.
A series of negotiations under the Uruguay of GATT (1986-1994) and thereafter under the WTO since its launching in 1995 were held, where many commitments were made by the rich countries, but none could be fulfilled, causing disillusionment to the developing countries. Some glaring examples are: 1) agricultural subsidy was not reduced; 2) phasing out textile quota to freely allow the access of textile goods, emanating from the developing countries has been painfully slow; 3) anti-dumping recourse by the developed countries was adopted to obstruct import from the developing countries on the plea that they are trading at prices below the cost; and 4) the agreement to reduce the debt burden of the developing countries and alleviate poverty remained unfulfilled. Similarly, the plea of "trade not aid" was never acknowledged.
That is why, the WTO since its inception in 1995, has persistently run into one snag aft the other. All conferences/meetings, including the Seattle, Cannes Ministerial conferences ended in a fiasco. The fate of the economic forum at Davos was not different. Unprecedented violent anti-globalisation demonstrations by workers' groups drawn both from the developed and developing countries were witnessed. The Doha Round of negotiations, which was to be completed and finalised by 2004, continued to be stalled. The main bone of contention is the farm subsidy.
The cumulative effect of the present system and pattern of trade and development is that 80 percent resources of the world are being enjoyed by the 20 percent population of the North, while the 80 percent population of the South has to content with 20 percent resources, although following the notable economic development in China, followed by India and Brazil, positive change is discernable in world resource-distribution and the centre of economic progress and prosperity is shifting from the West to the East. Nevertheless, the consensus among the developing countries is that the entire spectrum of globalisation and WTO be reviewed and restructured in order to make the system more equitable and to the mutual advantage of both the developed and developing countries.
Now the system has started afflicting the economies of the US and the European Union (EU) mainly because of the over-deregulation of their financial institutions. Since the world today is inter-dependent and inter-connected, the economies of developing countries are also exposed to severe recession.
The debt burden of the US is now within the vicinity of $143 trillion, while its net liabilities moved to around $14.8 trillion in 2011. Waging a war against Iraq, Afghanistan and terrorism has taken a heavy toll of its resources, with the result that it can neither manage its own economy nor could contribute to stem the global crises, being the 'lender of last resort'.
A unique phenomenon has emerged that the US, in a bid to retain its status of a world superpower, is borrowing heavily specially from China and giving economic aid to Afghanistan, Israel, Egypt, Pakistan etc. Investment in the private sector is very slow and sluggish. The flight of capital to China, India and the South Asian countries including Singapore and Indonesia is commonly observed, because of the low cost of production and greater profitability in those countries. Many high-tech and value-added industries are not composite. The parts of auto, aeroplane and computer industries etc are manufactured either in Japan, China or India. Consequently, employment opportunities have diminished and the rate of unemployment has increased. Meanwhile, public expenditure on the social security system has substantially reduced. The overall unemployment is as high as 10 percent, while among youth, it is 17 percent. Around 49.1 million people are living below the poverty line. A large number of families are surviving on daily food assistance provided by the government. Despite this, however, the higher strata of society remains unaffected from the financial crises. The growing rich-poor income dis-equilibrium has paved the way for public demonstrations like the Occupy Wall Street movement. In 2012, the economy of the US is set to grow at 1.8 percent only.
The financial crisis that first started from US in 2007 has taken the whole of Europe into its fold. The EU is confronted with a still more alarming situation than the US. The eurozone is so vulnerable and its banks are so fragile that save the single currency system from its disintegration appears to be a Herculean task. There is a difference of perception about the crises among the 27-member countries because of being their varying level of socio-economic development. While strong economies such as France and Germany are stressing the need for a fiscal union as a mechanism to overcome the ongoing eurozone currency crisis, weaker economies such as Greece, Hungary, Poland and others have a different point of view. The non-member of eurozone are just an onlooker. Poverty, unemployment and inflation are the main features of their economies. While hope of recovery recedes, recession looms large.
The growth rate in 2012 is estimated at less than 1 percent. Resultantly, signs of nationalism and division among the members are clearly discernable, which is not a happy augury for the future of EU itself. Similar crises and unrest known as Arab Spring was witnessed in the Arab world due to ever-increasing rich-poor gap, emerging from a pro-rich political and economic system (capitalism).
A Great Depression 1930-like situation, which was accompanied by mass unemployment has emerged and cannot be cured by wage reduction or retrenchment of workers. The remedy to the malady lies in creating effective demand, as proposed by the then British economist, Keynes, through more public expenditure and judicious distribution of resources.
The system is, however, being managed in such a manner that the poor class has lost its patience and demonstrations/protests were made in the US, the EU and the Arab world countries. Presently, at the country level, one percent of the elite/rich-class commands 99 percent resources, while 99 percent population has an access to only one percent of resources. This disparity of resource-distribution ultimately reflects on the political structure of the country.
Meetings of developed countries, including Group 8 and Group 20 are being held to bring about speedy economic recovery through economic reforms and fresh initiatives for free trade and investment, although a just and equitable economic system is long overdue.
Major changes are required in the existing pattern of world trade, capital flow and aid by the developed countries for the removal of multiple socio-economic disparities between rich and poor countries.
This could be possible through restructuring first the global political structure, as economics is subservient to politics. Presentation to developing countries in the Security Council of the UNO be provided in proportion to their strength in the General Assembly. Meanwhile, overhauling in the working of world Bank, IMF, WTO and other UNO agencies such as UNCTAD, ILO etc is badly needed. Presently, as a matter of practice, the chief of World Bank is elected from America and that of the IMF from France. Such high posts are never given to a member from developing countries.
Communism as an alternative to capitalism, was tried and failed. Russia and China, its hubs, have already switched over to a market-based system. Such developments, like Occupy Wall Street movement, Arab Spring and persistent eurozone crises are sufficient indications to establish that a change in the global economic system is inevitable in 2012. The new system must be more competitive, combined with effective and judicious distribution mechanism, which must narrow the rich-poor gap.
The benefit of rapid growth must automatically diffuse proportionally among all segments of society, by effectively operating the trickle down theory as well as adopting pro-poor growth policies. At the same time, possibilities to reintroduce the barter system and doing trade in the currency of the country concerned be examined to mitigate the ongoing eurozone currency crises and its spill-over effect on the developing countries.
(The writer is former secretary of KCCI)