Globalization and the
of Latin America and the Caribbean
Edition Nº 53.
||Globalization: fact versus fiction
Former Minister of the Economy and
Public Works of the Republic of
Argentina and International Advisor.
By authorization from the publishers, following is an abridged
version of the first chapter of the book Hechos y Ficciones de la Globalización.
Argentina y el MERCOSUR en el Sistema Internacional by the Argentinan economist Aldo
Ferrer, published by Fondo de Cultura Económica in December, 1997.
Ever since the advent of an
economic order encompassing the whole planet, countries' relations with the international
environment have determined their level of development. Capital formation, technological
change, the distribution of resources, employment, the distribution of income and
macroeconomic equilibria are, indeed, strongly influenced by relations with the
Therefore, how a country's economy interrelates
with the international environment determines whether it will grow or lag behind. In other
words, all countries must face the dilemma of how to develop in a global world.
That dilemma reflects, in the first place, the
existence of different levels of development and, therefore, uneven relations of power.
Developing countries must close the gap that separates them from the world's leading
economies in order not to be caught in an international system dominated by these.
The current debate on globalization's nature and
range is nothing new. It goes back to the same historical problem of how can each country
solve its development dilemma in a global world so as to avoid getting caught in a network
of relations administered by the main interests and powers for their own benefit.
The question is, nothing less, whether marginal
countries will have the freedom to choose their own destiny. That is, whether they will be
able to devise and carry out viable national development projects that will allow them to
be active participants in the globalization process.
II. The Facts
The globalization of the world
economy is apparent in four main areas: international trade, transnational corporations,
financial flows and regulatory frameworks.
International trade. Ever since 1945 trade
has grown faster than production. Between 1945 and 1996, and with major fluctuations
throughout the period, the world's product has increased at an 4% average annual rate and
international trade at an average 6% rate. Consequently, in the second half of the the XX
Century, exports increased from 10 to 20% compared to world product .
Practically all countries registered this increase.
Between 1950 and the beginning of the 1990's it grew from 3.6 % to more than 7% in the
United States, from 8.5% to 24% in Germany and from 4.7% to more than 9% in Japan. In
developing countries as a whole, this ratio increased from 16.5% to 20%.
Transnational corporations. During the last
decades, private direct investment increased rapidly. Currently, 30 thousand transnational
corporations, with 270 thousand subsidiaries throughout the planet, are operating in the
world economy. Almost three billion dollars have been invested in these subsidiaries,
generating an annual output of more than 2 billion dollars. The transnational operations
of the 100 major corporations in the world represent around 50% of their total activities.1
Transnational corporations' transnationalization of
production has resulted in an intensive flow of materials, final products, technology and
services between the home corporations and their subsidiaries. The importance of this
process is illustrated by the fact that it is estimated that close to 1/4 of world trade
is the result of relations within a corporation's subsidiaries. The evolution of
electronics and the consequent strides made in data and information processing have
facilitated transnational corporations' decision making process and the organization of
its production at a world scale.
Financial flows. The expansion of
international trade and direct private investment is nothing compared to to the steep
growth of global financial markets. Ever since the end of World War II, international
financial operations have increased three or four times faster than world production and
investments in real assets. This increase has been particularly sharp since the 1960's.
An analysis of just one aspect of global finances,
i.e., net international bank loans, reveals that for each 100 dollars in fixed assets
investments in the world, loans reached 6,2 dollars in 1964 and more than $130 at the
beginning of the 1990's.Compared with international trade, during those same years the
ratio was 7,5 and 105 respectively.2
Financial flows consist mainly of short term
capital operations unrelated to trade, investment and real production activities. The
variety of financial instruments has multiplied and become very sophisticated. Speculative
profits are the main objective of most international financial transactions. It is
estimated that 95% of all foreign exchange markets' operations, which total, daily, around
1,3 billion dollars, are movements of funds speculating on interest rates, exchange rates
and stock markets' expectations.
Financial markets are decisive players in the
globalization process. Those who participate in international trade and lead transnational
operations have limited freedom of action to produce immediate changes in the
international distribution of resources. On the other hand, financial operators have
absolute freedom to move funds and launch, within hours, speculative attacks against any
currency, possibly with the exception of the dollar, the yen and the German mark.
The Regulatory Framework. Ever since the end
of World War II international economic and financial transactions have been progressively
eased. In the area of trade, tariff reductions targeted manufactured goods, mainly high
technology goods. Between 1950 and 1990, the average tariff on manufactured goods imports
fell from 14% to 4,8% in the United States, from 26% to 5,9% in Germany and from
undetermined, very high levels to 5,3% in Japan. On the other hand, industrialized
countries retain high tariff and non tariff barriers on agricultural goods from temperate
climates and other sensible goods, an euphemism that encompasses high labor manufactured
goods (such as textiles) in the production of which developing countries have a
The regulatory framework has changed anew, as a
result of the GATT Uruguay negotiations which led to the creation of the World Trade
Organization. Within this framework, and for the first time in history, similar and more
liberal rules have been adopted on private direct investments and services as well as
stricter regulations on intellectual property.
Informatics technology eased communications between
financial markets. However, widespread deregulation, which has been practically absolute
for current account and also capital transactions, has been the decisive factor in the
growth of financial markets. Once post war reconstruction was completed in Europe and
Japan, the industrialized economies joined the United States in its liberalization of
foreign exchange regimes and financial accounts.
This process coincided with the transformation of
the international monetary system from a fixed parity regime to one of fluctuating
exchange rates. The change was caused by unbalances in the United States' balance of
payments and its 1971 decision to abandon the gold standard.
The turbulence caused by the change in the main
currencies' parity and markets' volatility did not stop the accelerated growth of
international financial flows. The International Monetary Fund has been promoting
financial deregulation in developing countries.
III. The Fiction
These are the facts that have led
to today's globalization. From them, a fictitious scenario has been construed based on the
The technological revolution. The
extraordinary technological progress achieved, particularly in the microelectronic and
informatics area, has set into motion forces that are beyond the control of the state and
social actors. Thus, we are living in a global village united by the informatics
Resources management. Today, most of the
world economy's resources are under the control of transnational actors: mega corporations
and global financial markets. Global markets, rather than national economies, are the
venue for most economic transactions.
Consequently, decisions on the assignation of
resources, the accumulation of capital, technical changes and the distribution of income
are currently concentrated in the hands of transnational power centers. Therefore,
decisions are adopted outside national boundaries. Global markets decide, daily, what is
to be the future of each country. Borders have been erased by the technological revolution
and states are unable to exercise influence regarding crucial matters.
Competitiveness' conditions. Enterprises,
not countries, compete in the global market. In a world without borders, enterprises'
survival and growth depend on their competitiveness, based on their own resources'
management capacity, technical changes and access to the opportunities the global system
has to offer. Firms function within a planetary scenario and it is there that they must
fight for their lives to dominate markets and resources. Globalization has imposed a sort
of economic darwinism in which only those who are able to adjust to the needs of the
global habitat will survive. Severed from its national environment, firms fend for
themselves in the global scenario.
Historically unprecedented globalization. We
are, therefore, facing an unprecedented phenomenon. According to globalization's fiction,
today's scientific and technological revolution has caused a fracture in humanity's
historical development and in the world order that began with the Renaissance and the
birth of the nation state.
Globalization has destroyed the sovereignty of the
state, at least in economic and financial matters.In reality, sovereignty resides with the
market. Today the world is a global village where power resides in the hands of
transnational actors. In this sense, globalization is an utterly contemporary phenomenon.
Never before have events at the global level affected countries in such a decisive way,
nor have countries ever been so powerless in the face of such developments.
IV. The Fundamentalist
These fictional interpretations of the
nature and reach of prevailing financial and economic links have given rise to a
fundamentalist view of globalization. According to this view, in a global world the
development dilemma disappears since, today, the main decisions are taken by transnational
agents and not societies and their states.
Consequently, the overwhelming message is that the
only thing that can be done is to adopt market friendly policies.Which are these policies?
Those that favor the interests of the dominant parties. These include economic
liberalization, deregulation of real and financial markets, the reduction of the size of
the state to the minimum needed to insure security and legal order, fiscal balance and
The proper policies would, then, attract
transnational actors and stimulate them to promote the economic growth and international
competitiveness of the chosen countries. This would make possible to accumulate capital
and increase productivity, and, presumably, to expand employment. On the other hand, those
policies the market perceives as negative would result in capital flight, instability,
economic stagnation and marginalization.
At the same time, global competitiveness forces the
state to facilitate enterprises' maneuvers in the market without boundaries. The first
obligation is to reduce enterprises' domestic costs, particularly labor costs.
Competitiveness and, in the final analysis, enterprises' capacity to create employment
depend on the scaling down of social security systems and the flexibilization of the job
Macroeconomic equilibria and price stability are
essential elements of any responsible policy. However, the fundamentalist proposal goes
much beyond that. According to it, structural transformations that imply accepting,
unconditionally, the rules of the game imposed by the dominant interests and powers in the
international system are what is needed.If this is so, the development dilemma does not,
indeed, exist in a global world. In practice, there would be no alternative other than
passively adapting to the existing order.
Today, the fundamentalist vision is the accepted
wisdom on economic and financial matters. This outlook rescues the orthodox theory of free
play by economic actors in national areas, regions and the world market. The difference is
that, today, this theory is justified more on the basis of developments that are beyond
the control of societies and their political systems, than on economic rationality.
In the classical approach, since David Hume and
Adam Smith, the assumption was that the natural order is reflected in the laws of demand
and supply and their effect on the assignation of resources and the distribution of
income. The political message, then, called for a rebellion against the authoritarianism
of absolute monarchy and mercantilist interventionism. In that new liberal order, an
invisible hand made sure that public and private interests coincided. In this manner, the
regime that best allowed for fuller employment of resources and the best possible life
style was one where transactions could be done freely within national markets and by
international markets at world level.
Today,the fundamentalist view of globalization also
implies the existence of a natural order, but this order is based, simply, on the power
structure of the contemporary world order. It is the return of absolute and discretionary
power,no longer of the monarchy, but of the market.
The fundamentalist view also affects on the current
debate on democracy's governability. If power is rooted in the markets, then the issue is
to insure that democracies formulate market-friendly policies. Therefore, when societies
and their political system object to ratifying markets' decisions, that would be non
governability. They are ungovernable.
Let us now briefly analyze an alternative view of
globalization and its political implications.
V. The Real World and Globalization
An observation of reality reveals
that the world does not behave as popular wisdom would have it. Let us discuss some main
Regulatory frameworks and media globalization.
A good portion of what is perceived as globalization is the result of the deregulation of
financial transactions and the liberalization of trade in goods and services. It is not an
unavoidable result of the technological revolution, nor does it escape the control of
social actors and nation states.
Markets' sovereignty is a self fulfilling prophecy.
It is based on the regulatory frameworks established by the world power centers and,
therefore, it mirrors an historical period and political decisions. Global financial
markets are what they are today because of the widespread deregulation of their
activities. Some mild interventionist measures, such as the small tax suggested by
Professor James Tobin to discourage speculative capital movements, would allow monetary
authorities to regain the control they have lost. Meanwhile, large financial operators do,
indeed, have the capacity to launch speculative attacks that affect advanced countries'
currencies (such as, for example, the franc, the British pound and the lire) and even
Europe's monetary system.
The way financial markets behave is based on
political, rather than real, elements. Before the 1030's crisis, the gold standard and
capital movements' freedom also appeared to be in the natural order of things. As later
developments demonstrated, the multilateral trading and payments system fell like a house
of cards under the impact of a real economic crisis.
On the other hand, globalization is, to a good
extent, a media phenomenon. Probably 90% of all the economic information available in the
world and within each country is related to operations and businesses o f a transnational
nature: international loans, parity and interest rates, stock exchanges, trade,
transnational corporations' investments, mergers, strategic alliances, privatization and
foreign investors participation in them, etc.
Also, the dominant opinions are voiced by well
known economists in developing countries' main academic centers, financiers and
businessmen, officials and spokespersons from multilateral financial organizations, the
treasury and central banks of the main economies. At the same time, in the internal arena,
the prevailing criteria are of those who share the fundamentalist view of globalization.
Based on this information, heavily dominated by
international business and conventional wisdom, it is not hard to conclude that, indeed,
everything happens in the global village.
Nevertheless, most economic activity goes on
outside the media globalization's sphere. Small and medium sized enterprises operating in
all productive sectors, basic education and health services, medium sized public
investment, a good portion of the research and development activities carried out by
universities, laboratories and enterprises, housing and big and small cities'
infrastructure and other activities ignored by media globalization are the environment in
which most people are born. grow, love, work, educate their children and end their days.
It is there where most of production , employment, trade, savings and capital accumulation
The market and resource management. Most
economic transactions do not occur in the global market, but rather in the national ones.
More than 80% of national production is targeted to countries' internal markets. Exports
represent less than 20% of world production. Around 9 of each 10 workers in the world
produce for their country's markets.
The enormous mass of financial resources that
circulates internationally is a bubble of transactions on paper, options and other
instruments that are mostly unrelated to the real activity of production, investment and
trade. Almost 95% of capital's accumulation in the world is financed through countries'
Today, investments by transnational corporations'
subsidiaries represent 4% of fixed world capital formation. In recent years, that
percentage was between 3 and 8% for developing countries as a whole and between 3 and 10%
for Latin America. It is interesting to observe that in Korea, one of Asia's countries
with the highest growth rates, that percentage is below 1%.3
In several countries, such as Argentina and other
in Latin America, a significant portion of transnational corporations' direct private
investment is aimed at acquiring existing assets, particularly through the privatization
of public firms. Therefore, its effective contribution to the expansion of productive
capacity is less than what economic indicators suggest.
Subsidiaries' contribution to world production is
around 7%. Even in developed countries, where 85% of private direct investment originates,
the ratio between their transnational corporations' subsidiaries' product and and their
national product is around 6%.
These ratios are below those of underground
economies (excluding criminal activities such as drug trafficking). Fluctuating between an
8% minimum (Switzerland), and a 26% maximum (Italy), with a 10% for the USA and 15% for
the underground economy's participation in industrial economies' total product is two to
three times greater than that of transnational corporations' subsidiaries. In developing
countries this gap is even wider.
Competitiveness conditions. In the real
world, countries and systems compete, before enterprises do. Transnational corporations
are what they are because they are rooted in the economic, social and political reality of
their countries of origin. The large North American, German or Japanese enterprises would
not have such weight if they were severed from the rich productive and social background
of their respective countries and from the public policies that support them.
In developing countries,the relationship between
state intervention and enterprises' competitiveness is even more apparent. In these
economies, enterprises' relative backwardness requires more vigorous active policies than
those adopted by mature, industrialized economies. To attempt to explain the development
of Korean or Taiwanese enterprises omitting the support of their respective nation states
would be like attempting to explain the adventures of Quixote omitting the Lions' Knight.
The fundamentalist view's insistence on the
reduction of labor costs through a phasing down of social security systems and a
preference for transitory industrial relations, represents a direct threat to productivity
growth. Productivity is based, essentially, on human resources' skills and stable social
relations that may increase the quality of life and strengthen employees' commitment to
the firm's development.
The fundamentalist argument that labor reforms are
essential to create employment is frankly inconsistent. It is always possible, and
necessary, to improve regulatory frameworks in all markets, including the labor market.
However, within the context of the policies based on a fundamentalist view, no reduction
in labor costs could compensate for the decrease in the growth rate or the negative
consequences of income concentration.
VI. The Origins of the Fiction of
Globalization and the Fundamentalist View
In a world united
by information and images it is not difficult to believe in the fiction of globalization.
By all appearances, this is a world without boundaries. However, we have seen how , in the
real world of production, investment and employment, the global order coexists with
countries' internal markets and savings.
Thus, we live in a paradoxical world. In it, real
and symbolic global forces of enormous weight coexist with internal factors. For
vulnerable countries, such as those in Latin America, globalization represents undeniable
restrictions. The new regulations resulting from the Uruguay Round and the GATT and their
application within the WTO introduce criteria regarding intellectual property, services
and the treatment to be granted foreign investments that may not be ignored. Moreover,
large countries exercise their power in bilateral relations, as, for example, in the case
of the United States regarding the intellectual property regime for the pharmaceutical
The existence of a world order and of a power
system in international relations cannot be ignored. Nevertheless, the fiction of
globalization and the fundamentalist view represent a vast deformation or reality. Where
do they originate?
The first, obvious explanation points to
transnational actors. It is natural that from the perspective of the power centers, the
world should appear as a global village without borders. Financial operators and
transnational corporations pretend to operate in this global village without any
interference from nation states. In this respect, the fundamentalist vision is the power
ideology of the contemporary world.
In Latin America, the foreign debt and financial
vulnerability contribute decisively to the fundamentalist view. Debt servicing obligations
are the main cause of the current account balance of payments deficit and the resulting
need for external financing. Therefore, economic policy must meet markets expectations
through neo liberal policies. These policies regulate fiscal and monetary behavior, cover
structural adjustment programs that include a reduction of the size of the state,
privatization, financial deregulation and the liberalization of national economies.
According to conventional wisdom, these policies are the unavoidable result of
globalization and no alternative course of action is possible without running the risk of
capital flights and a financial and economic collapse.
The fundamentalist view is rooted in other probable
and more subtle causes. To a large extent, the globalization fiction is the work of
academia. Academicians are for ever attempting to explain the complexities of reality
through global models that reduce fundamental factors into a few variables. According to
this tendency denotes an intellectual inability to accept reality's challenge and the
renounciation of responsibility to solve real problems.
In Latin America there is also a tendency to build
houses of cards on the basis of a few, important data on the global world. Declarations by
the President of the United States' Federal Reserve Board or a mega merger are enough to
hint at the existence of a "new phase of capitalist accumulation" across
national borders. Conventional wisdom seizes upon this new evidence in order to strengthen
its own twisted view of the world.
But there are other reasons. Since the
globalization fiction and the fundamentalist view are the ideology of the power centers,
developing countries , where conventional wisdom prevails, are subject to an unprecedented
process of cultural colonization.
The most influential economists from these
countries are, in fact, being trained, particularly in United States universities, in the
centralist view. We are thus facing an extraordinary process of rationalization of
subordination and dependency.
In the scientific production area, the results of
this tend to be negative. For example, let us just compare the technical sophistication
currently employed to analyze trivial issues with the enriching contribution of Raúl
Prebisch, Celso Furtado, Carlos Díaz Alejandro and other eminent Latin American
economists. Today's predominant economic analysis has lost touch with the history of
development and its economic, cultural and political complexities. Therefore, it is mostly
superficial and untranscendental.
As some financial and economic failures registered
under the leadership of highly qualified economists have demonstrated, the application to
reality of the dominant ideas has produced even worse results. At any rate, this is a
circular process. The followers of the fundamentalist view are considered the epitome of
scientific seriousness and this is a necessary prerequisite for professional success,
whatever the results may be.
The global ization fiction and the fundamentalist
view promote not very rational policies and bad results. This is because such policies
subordinate the administration of available resources, the accumulation of capital and
technological change to the interests and objectives of economic and social agents that
control only a minor share of resources and markets.
Therefore, it is not surprising that in several
countries the productive sectors are being divided into dynamic sectors, those associated
with transnational enterprises, and stagnant sectors, the majority of the productive
apparatus, where marginalization and unemployment prevail. This results in a formidable
loss of resources, the deterioration of production and social and political instability.
Usually, globalization is blamed
for the increasing lack of balance within the international system, unemployment, the
concentration of revenues and other negative tendencies of economic and social
development. Nevertheless, the problem resides in the application of inadequate policies
within a global, international context.
The expansion of markets and the international
transference of resources have the potential to expand production, employment and the
general well being. However, left to their own device, markets contribute to deepen the
asymmetries prevailing in the world order and within nations.
As the recent Brasilia Consensus suggested, it
is necessary to govern globalization.6
That is, active, national policies and international regulatory frameworks are needed to
free markets' growth and, at the same time, to control its negative effects, particularly
in the financial area. It would be best to insure that the followers of the globalization
fiction and the fundamentalist view do not finish globalization off and fracture the world
order. This is a possible risk, considering the tensions that are building.
Contrary to the fundamentalist view, the vast
majority of available resources in the world economy are potentially under the control of
countries' private and public actors. This is a fact in developed countries and in a good
portion of developing countries, including Latin America. Only the most backward
economies, such as several in Sub-Sahara Africa, probably lack the potential and the
institutions to effectively administer their markets and resources.
Hence, capital accumulation, technological
change, increased productivity and the distribution of income depend, potentially, first
on decisions by national, private and public actors. More than on anything else,
development depends on internal factors such as the modernization of the state,
institutional stability, macroeconomic balance, private investment's incentives and human
resources' skills. None of these may be imported nor placed under the leadership of
Without viable answers to the dilemma of how to
grow in a global world, development is not possible. The discovery of America and the
Portuguese's arrival by sea to the Orient represented the first global world order. Since
then, history has taught us that only those countries that join the global order through
their own internal development and integration, reach high development levels.7 This is as
true today as it was in the past.
The solution to the dilemma of how to develop in a global world continues to rest on
each country's freedom of maneuver. Whether such freedom will be exercised to accept
unconditionally the rules of the game, adopt unviable strategies or embark upon
alternative ways of development depends more on internal factors than on the restrictions
posed by the external environment. Those factor include territorial and population
dimension, cultural and political traditions, society's level of cohesion and the
leadership skills of the elites.8 These are all factors steeped, firstly, in each country's
Recent experience has led us to question the viability of conventional wisdom and, at
the same time, to reaffirm the need for macroeconomic balance and stability. These are
necessary conditions for an eventual change of route. Indeed, nothing can be built when
disorder, waste and irresponsibility prevail in the management of fiscal, monetary and
balance of payment policies.9 Similarly, state intervention, which creates revenues
without creating wealth or increasing the quality of life, represents a perverse
interference in the market and an obstacle to development.
As for democracy, the real problem is not its supposed ungovernability. Since neo
liberal policies tend to negatively affect the majority of the population, it is
understandable that, from the fundamentalist perspective, democratic systems should be
ungovernable. Consequently, the governability of the market is the problem that needs to
In truth, the fundamentalist view of globalization is a modern version of absolutism
and a challenge to the liberal tradition of Western democracies.
To govern globalization, a major change of route must be undertaken. This implies, in
the first place, a wide and profound debate on the options available to society in a
globalized world. It also requires that the means to exercise public action be
restructured so as to make the market's capacity to create wealth compatible with social
balance which is, in turn, a new potential source of growth, employment and wellbeing.
It also requires a widespread process of international cooperation to solve global
issues, such as environment protection and collective security. Also, to face the stigma
of poverty and marginalization when the resources available to create a new world order
and increase the quality of life of the human species, are plentiful. However, this
cooperation depends, above all, on the decisions the power centers adopt and these are
very far from committing themselves to building a new world order.
Meanwhile, each country must face its own reality and acknowledge that, in the final
analysis, it is responsible for its own destiny.
1. UNCTAD, World Investment Report, 1996, New York and Geneva, 1996.
2. UNCTAD,World Development Report, 1994, New York and Geneva, 1994.
3. UNCTAD, 1996, Op.Cit.
4. The Economist, London, May 3, 1997, p. 63.
5. P. Krugman, Pop Internationalism, The MIT Press, Cambridge,
6. Regional Summit on Political Development and Democratic Principles. Brasilia,
UNESCO, July 6, 1997.