What have been the latest developments in the "globalization" controversy?

Globalization concerns have taken a far more positive path since the 1999 Seattle protests. Activists have begun to realize that it is the world governments who are the backbone of international organizations such as the G8, the World Bank, and the IMF and that efforts must be directed toward both the organizations and the member governments in order to achieve policy objectives. In July 2005, on the eve of an important G8 summit in Scotland, a massive music festival was organized to express public support for issues such as debt relief, aid for Africa and cooperation on cutting greenhouse emissions. Almost as if in response, the G8 heads of state announced important initiatives in these areas.

The recent global economic crisis has prompted unprecedented cooperation between the world's major economies with the goal of standardizing and effectively regulating the global financial markets. Many experts credit the coordinated international response as averting a far more serious problem.

The "globalization" of the world economy has moved inexorably forward. The economies of Asian countries such as China, India, Malaysia, and Thailand are booming. In the process, they are significantly increasing global demand for energy thus adding to the ever present global environmental concerns. But progress has been uneven. Beset by AIDs, poor governments and war, the economy in many African countries has deteriorated. Within the more successful countries, the benefits of growth has not reached all citizens. The manufacturing jobs created in these countries generally pay low wages and offer workers little protection against exploitation.

With respect to trade issues, many of the less-developed countries have created the greatest recent resistance to the global pressure to reduce trade barriers through World Trade Organization (WTO) agreements. The main problem relates to agricultural products. Many of these countries have experienced a severe downturn in their domestic agricultural acreage because local producers cannot compete with agricultural exports from major countries such as the United States. They have persuasively argued that it is not a fair playing field because in Europe, Japan and the United States, agriculture receives sizeable government subsidies. Third world countries cannot afford to similarly subsidize their own domestic agricultural industries. The matter came into focus at the WTO summit in Cancun, Mexico in September 2003. Mid-level developing countries such as Brazil, South Africa, India and China objected to any progress on reducing tariff barriers in general until the agricultural problem was resolved and the talks collapsed. At the subsequent WTO summit in Geneva, Switzerland in July 2004, a breakthrough was reached. The deal, approved by all 147 members, will cut rich countries' farm subsidies in return for developing countries opening markets for manufactured goods. The implementation of the agreement presents obvious internal political challenges in the developed countries.

The march toward free trade continues to provoke anxiety among displaced and potentially displaced workers in the developed economies. The Democratic platform continues to insist that trade agreements protect American workers and businesses from unfair trade practices. Democrats were mostly opposed to the Central American Free Trade Agreement (CAGLOB-FTA) which was narrowly approved by Congress in 2005.

How did concerns about "globalization" develop?

A loosely organized grass roots movement began to emerge among leftists or "progressives" in the late 1990's. The effort inspired students and activists in a manner reminiscent of the civil rights and anti-Vietnam war crusades of the `60's. In November and December 1999, activists significantly disrupted a week-long meeting of the World Trade Organization in Seattle. Subsequent protests have occurred in Washington D.C., Europe and Canada. The general concern is that the growing international economy and the organizations that support it are dominated by corporate economic interests who are escaping the scrutiny and regulation provided by national governments. But the motivations of those in the "anti-global" movement vary:

• Trade unions tend to be "anti-global" because of national job loss. The majority of union employment is in the manufacturing sector of the economy. This is the sector of the economy which has been most adversely affected by globalization as international companies increasingly take advantage of unskilled labor abroad, especially in low wage countries. The service sectors of the economy which have benefited from freer trade tend to be less represented by organized labor.

• Many environmental organizations have participated in the anti-global movement because they believe that the World Trade Organization has promoted policies which enable corporations to escape national restrictions on business practices by calling such restrictions "trade barriers". They also accuse global companies of dominating the politics of third world governments. For example, many environmental activists accuse Shell Oil Company of promoting a regime which executed the Nigerian environmentalist Ken Saro-Wiwa. At the same time, however, most environmental organizations recognize that cooperation fostered by international institutions is critical to effective environmental control so it would be inaccurate to classify most environmental organizations as "anti-global".

• Social activists, including Ralph Nader's Public Citizen organization, are chiefly concerned that the social protections which help protect workers and the poor in Europe and the United States will become eroded because workers in the emerging countries will not have these protections.

• Poor nations and their advocates argue that free trade is a benefit for richer nations at the expense of poorer nations because tariff barriers are necessary for poor countries to develop their economies. They complain that the agricultural subsidy policies of the rich countries flood their markets with artificially low cost agricultural products, thus ruining domestic agricultural industries. They also argue that World Bank lending policies force poor countries to adopt economic policies which benefit only their wealthy trading partners and leave them with an overwhelming burden.

• Many isolationists oppose globalization because of a concern that their country will lose its ability to control its own destiny and economy.

All these interests have succeeded in focusing unprecedented and needed attention on two modern developments which had been previously too often overlooked: 1) the growing interdependence of the world's nations and 2) the alarming disparity between rich and poor countries.

What international organizations are involved in the globalization controversy?

• World Trade Organization (WTO) The WTO was established in 1995 as a successor to GATT (General Agreement on Treaties and Tariffs). The treaty now includes most nations. The notable exceptions are former members of the Soviet Union. These nations have observer status.  (Click to see map) By treaty, its members have given WTO the power to monitor trade policies and handle disputes between nations and between industries. The overall goal of the WTO is free trade through the reduction of tariff and non-tariff barriers to trade.

• World Bank The World Bank is an organization affiliated with the United Nations for the purpose of making loans to developing countries which are guaranteed. The bank is self-sustaining and has maintained a profit on its lending activities. The bank is owned by the member nations which include virtually all nations with the exception of Cuba and North Korea. Voting on bank policy is based on capital subscription. Seven countries, United States, Germany, Japan, Great Britain, Canada, Italy and France, have 45% of the voting power. The United States is a 17% shareholder. Many loans now issued by the World Bank involve structural adjustment conditions which generally require countries to devalue their currencies against the dollar; lift import and export restrictions; balance their budgets and not overspend; and remove price controls and state subsidies.

• International Monetary Fund (IMF) The IMF is closely affiliated with the World Bank. It is also owned by virtually the same member nations as the World Bank and has a similar shareholder and voting arrangement based on the size of each member's economy. The IMF's primary responsibility has been to maintain stable currency exchange rates between countries. The IMF also issues loans designed to help countries restructure their economies to increase exports and draw foreign investment. Countries that take out such structural adjustment loans give the IMF influence over their economic policies.

• NAGLOB-FTA The North American Free Trade Agreement is an agreement between the United States, Canada and Mexico to integrate their respective economies through the lowering and eventual removal of tariff barriers. Since December 1994, there have been negotiations to expand NAGLOB-FTA into a "Free Trade of the Americas (GLOB-FTAA)" agreement which would include all Western hemisphere countries with the exception of Cuba.

• Organization for Economic Cooperation and Development (OECD) The OECD is a group of 34 member countries   in an organization that provides governments a setting in which to discuss, develop and perfect economic and social policy. It serves primarily and as forum for gathering information and coordinating economic policies.

• The "Group of Eight" (G-8) The G-8 refers to the Group of Eight leading industrialized countries: Italy, France, the United States, the United Kingdom, Russia, Canada, Japan, and Germany. The group was formed during the 1973 oil crisis with six members to coordinate economic policy. It became the G-7 in 1977, when Canada joined, and the G-8 in 1998, when Russia signed on. The G-8 has no headquarters, budget or permanent staff. The group's main focus now is stabilizing and expanding the world economy and managing international trade, although they also deal with other topics that come up each year. Its importance has diminished with the emergence of the "G20".

• The "Group of Twenty" (G-20) is a group of finance ministers and central bank governors from 20 economies: 19 countries, plus the European Union (EU). It has also met three times at heads-of-government level: Washington, D.C. in November 2008, London in April 2009 and Pittsburgh in September 2009. Collectively, the G-20 economies comprise 85% of global gross national product, 80% of world trade (including EU intra-trade) and two-thirds of the world population. The G-20 is a forum for cooperation and consultation on matters pertaining to the international financial system. It studies, reviews, and promotes discussion among key industrial and emerging market countries of policy issues pertaining to the promotion of international financial stability, and seeks to address issues that go beyond the responsibilities of any one organization.

How has world trade increased?

During the past three decades, the increase in world trade has outpaced overall economic growth.  (Click to see chart) . This is true in the U.S. was well.     Exports now account for over 10% of U.S. economic activity and imports are well above 15%.   A substantial portion of international trade occurs between the member countries of the European Union. If only the European Union's external trade is considered, Europe and the U.S. combine for over 40% of world imports  and 30% of world exports.   All these countries have very low tariff rates  . Manufacturing has been responsible for both the increase in exports and imports .

Hasn't expanded U.S. trade led to a substantial increase in the trade deficit which undermines the U.S. economy?

Since the mid-70's, the U.S. has imported more goods that it has exported. This balance began to improve in the early `90s but has again significantly increased.   Some believe the trade deficit is evidence that American companies are failing to compete in global markets or that U.S. exporters face "unfair" trade barriers abroad. Other economists observe that it is the sign of a healthy economy which has the resources to purchase a large volume of goods. In fact, they note that from 1992 to 1997, the U.S. trade deficit almost tripled, while at the same time U.S. industrial production increased by 24 percent and manufacturing output by 27 percent.

What has been the effect of NAFTA?

As a result of NAFTA, U.S. trade with Mexico has substantially increased   as tariff barriers have been lowered.   Trade with Canada, the major U.S. trading partner, kept pace with the overall trade increase and trade with Mexico far outpaced the overall substantial growth in U.S. foreign trade.  Mexico, Canada and China are by far the leading U.S. trading partners and together account for about 40% of total U.S. international trade. The majority of all Mexican and Canadian imports are from the U.S.   As many remaining tariff barriers are removed under the NAFTA schedule, indications are that trade with Mexico will continue to grow substantially.

Has the growth in trade during the '90's cost U.S. jobs or lowered U.S. wages?

Clearly certain manufacturing jobs have been lost to Mexico and elsewhere as multinational companies are attracted by the lower wage levels for unskilled labor.

According to the Economic Policy Institute, there has been a net job loss of 766,000 in the United States which can be directly attributable to the NAFTA agreement. The Economic Policy Institute also blames globalization for the growing disparity of income in the United States.

On the other hand, NAFTA's supporters point to the fact that the rise in trade has led to increased employment in all three countries.   According to a recent joint government report, in Mexico more than half of the new jobs were related to export activity. The report also maintains that in the United States, a total of 2.9 million jobs (including 914,000 new jobs) are supported by merchandize exports to Canada and Mexico. During the NAFTA years, real wages in the United States finally began to inch upwards.  

In fact, there is no clear answer regarding free trade's overall effect on employment and real wages in the United States. There are many other more important influences on employment and income distribution, not the least of which are domestic tax and labor policies.

The controversy over NAFTA has resurfaced in 2005 as Congress debates the recently negotiated CAFTA treaty which includes the Central American countries of Guatemala, Honduras, El Salvador, Nicaragua, Costa Rica, Panama and the Dominican Republic.

Has the WTO, the World Bank, or free trade created extensive environmental problems?

There are two major environmental concerns:

• Is free trade changing economies in third world countries without regard to environmental protection?

There will always be conflict between economic growth and environmental protection. To the extent that free trade is changing and expanding the economies of third world countries, there are unquestionably increased threats to the environment. For example, most of the greenhouse gas emissions which contribute to global warming come from developed countries.   As poor countries develop, their contribution to this problem is likely to increase. Moreover, in the short term, such countries cannot afford costly efforts at environmental control. On the other hand, most serious environmental activists recognize the need for poor nations to escape their cycle of poverty.

The real concern is that the WTO and the World Bank are insufficiently concerned with environmental consequences as they support economic growth in these countries. In particular, environmental organizations are critical of World Bank lending for oil, gas and mining projects because of the environmental, human rights, and social impacts. They also maintain that development encouraged by WTO polices is depleting the world's forests and creating many other environmental problems.

In response to these criticisms, the WTO notes that the agreement establishing the WTO includes among its objectives, optimal use of the world's resources, sustainable development and environmental protection. The WTO further notes that it is the responsibility of international conventions, not the WTO, to ensure international compliance with environmental agreements. The World Bank insists that concern for environmental sustainability within developing countries is an intrinsic part of the World Bank's mission to fight poverty with lasting results. The World Bank maintains that its portfolio of projects with clear environmental objectives amounts to US$16 billion and accounts for about 3% of all lending each year. As of July 2001, there were a total of 95 active stand-alone environmental projects worth US$5.1 billion. In addition, there were numerous sector projects with primary environmental objectives, as well as global environmental projects - amounting to an additional US$11 billion.

Environmental concerns regarding economic changes in third world countries are clearly valid. National environmental policies in these countries are generally less stringent than in most developed countries. Moreover, even with environmental controls, modernization in these countries will significantly contribute to serious problems such as global warming. The criticisms directed at the World Bank and WTO have been effective at raising the consciousness of these organizations regarding environmental concerns but the role of these organizations appears less important than the need for more effective international environmental treaties.

• Does the WTO issue rulings which undermine national laws which provide environmental protection?

The treaty which is the basis for the WTO gives the WTO the authority to rule that certain laws which ostensibly provide environmental protection are in reality non-tariff trade barriers. Environmental organizations insist that this authority has been abused and cite three examples:

• Venezuelan refined gas case The WTO held that standards imposed by the U.S. EPA discriminated against Venezuelan refiners. The ruling held U.S. could regulate air quality but that by adopting standards which were identical to U.S. industry practices, there was an unfair advantage to American refiners.
• Hormone treated beef The WTO held that European restrictions on U.S. beef was not based on a sound scientific basis and therefore amounted to favorable treatment for domestic European beef producers.
• The Shrimp and Turtles case U.S. regulations require that shrimp be caught through methods which do not endanger sea turtles. This rule applies to both domestic and imported shrimp. A WTO panel found this rule in violation of trade rules in that it imposed a unilateral standard. An appeals panel upheld the decision, but on narrower grounds that the US regulations had been applied in a discriminatory fashion.

There are environmental concerns exemplified by these cases. But a review of the decisions indicates that each case was not decided arbitrarily but instead was based on legal analysis and a thorough and detailed review of the evidence presented.

Is globalization undermining social protections for workers in developed countries?

In a 1996 article in Foreign Affairs, Professor Ethan B. Kapstein argues that the global economy is creating millions of disaffected workers suffering from inequality, unemployment, and poverty. He notes that rapid technological change and heightening international competition are fraying the job markets of the major industrialized countries. The spread of the dogma of restrictive fiscal policy is undermining the bargain struck with workers in every industrial country. States are basically telling their workers that they can no longer afford the postwar deal which provided social welfare and comprehensive unemployment insurance.

Others suggest that globalization has played much a smaller role in the decreasing social protections and influence of organized labor in many industrialized countries. They note that the bulk of trade is between countries where wages are already high. In the United States, many social and labor protections originated in the New Deal era as a response to more radical socialist proposals. The welfare states in Western Europe were created during the post war period as a response to the Communist threat emerging in Eastern Europe. In the post-cold war period, these motivations no longer exist. Fiscal conservatives in Western democracies who support reduced marginal tax rates, favorable policies for business, and who oppose organized labor have obtained increased political influence. These attitudes have had significant effect on domestic policies as well as trade policies.

How do Democrats and Republicans differ on trade issues?

There is a split within each of the main political parties on free trade. Traditional Democrats, guided in part by the interests of organized labor, tend to oppose free trade as a threat to the interests of domestic workers. "New Democrats" believe that trade encourages economic growth thus rewarding ordinary Americans with increased goods and services and better employment opportunities. Former President Clinton, together with past Presidential candidates Gore and Kerry, supported free trade. Spurred by agricultural interests and multinational corporations, the majority of Republicans also support free trade but there remains a distinct minority who resist the globalism of the American economy as a threat to national autonomy. The divide within each party is illustrated in Senate votes on NAFTA and on "fast track" trade authority.

Are WTO-sponsored free trade policies and World Bank/IMF "structural adjustment" loans undermining the development of poor countries?

Poverty in the "third world" or "south" is a major global challenge. The good news is that a lower percentage of the world's population is residing in countries of "low human development" as defined by the United Nations.   Some developing countries now have economic growth rates which exceed growth rates in the developing world. But the disparities between between developed and undeveloped countries remain staggering.   Many globalization activists suggest that the WTO, World Bank and IMF are responsible.

• Free Trade and Development

Countries are poor primarily because their human resources are uneducated, poorly nourished and underemployed. To complicate the problem, population growth in poor countries is far greater than the rest of the world. These countries have poor infrastructures and frequently are governed by unsophisticated and corrupt leaders. The modern efforts of the World Bank and the WTO unquestionably seek to change this cycle and create conditions where human resources are far better utilized and internal "markets" develop. There has been substantial progress in certain countries. Even at very low wages, the introduction of industry and an infrastructure in these countries have employed human resources far more productively.

Some economists argue that developing countries need to rely on protective trade barriers in order to develop industry. They suggest that in the 19^th century, U.S. industrial development relied heavily on these protections. But modern studies suggest that U.S. industrial development would have occurred in absence of high tariffs and may have in fact been impaired by tariff barriers. Instead, many economists argue that the wave of protectionism which swept the world after World War I fostered the global economic depression. They maintain that high tariffs policies protect industries which are relatively inefficient at the expense of the economy in general.

The case of Mexico under NAFTA illustrates how freer trade has fostered growth in that country. Over the past five years real GDP has grown at 5.5 percent per year. Even including the sharp shock of the 1995 peso crisis, Mexican real GDP has grown at 3.8 percent per year since the ratification of NAFTA. The urban unemployment rate that was 6 percent in 1992 and rose to 8.5 percent in 1995 is now less than 4 percent. The Mexican boom has been led by the manufacturing, construction, transportation, and communications sectors. Most of all, the Mexican boom has been led by exports. Now Mexico's real exports will be more than three times as large as they were at the ratification of NAFTA, and as a share of GDP exports have grown from a little more than 10 to 17 percent. More importantly, these changes have created a foundation for a far more stable political situation.

Although there is a very arguable link between free trade and development, it is clearly not the only vehicle for improving poverty and human conditions in undeveloped countries. For decades, Cuba has experienced an economic boycott from its most natural trading partner, the United States, and is not a member of the World Bank or IMF. Its economy was significantly affected by the withdrawal of Soviet support in 1989. Nevertheless, its numbers compare well with its Latin American neighbors especially in health care and education   and its development program has drawn praise from the World Bank.

• "Structural Adjustment" loans

While providing economically troubled countries with loans, the IMF and the World Bank require the countries to make fundamental changes in their economic and social policies. These conditions come in the form of Structural Adjustment Programs (SAPs). SAPs are designed to ensure that the recipient country pays back its loans to the IMF and other international lenders. These policy prescriptions are typically designed to promote exports, reduce government spending and the government's role in the economy, increase taxation and devalue currency.

Critics argue that governments must meet these requirements by slashing basic services and reducing worker protections such as minimum wages and benefit packages. They argue that countries must undertake a variety of measures to promote exports, at the expense of production for domestic needs. Some of the loans require the imposition of "user fees" charges for the use of government-provided services like schools, health clinics and clean drinking water. Critics note that for very poor people, even modest charges may result in the denial of access to services. Mandated reductions in government spending frequently reduce the services available to the poor, including health and education services. Structural adjustment policies have also called for the sell off of government-owned enterprises to private owners, often foreign investors. The result is that these countries have been precluded from developing consumer-friendly enterprises in the typically monopolistic sectors of the economy such as utilities, transportation and communication.

However, many believe that SAPs have been a positive force in development and prevented many loans from being wasted by government inexperience and corruption. A study of 1980s adjustment programs in 42 countries found substantial success -- with steadier growth rates, lower inflation, and improvements in current accounts and trade regimes. And although times were hard for many countries, both the bank and the receiving countries increasingly agreed on the need for reform and the realization that money is only as beneficial as the policies it supports. In recent years, the World Bank has brought forth new commitments to mitigate adjustment's social costs through better design of programs, especially for governmental social spending.

• Poor countries have been forced to assume an unreasonable debt burden.

This has been a persistent problem especially for the poorest countries. The concern is that the cost of debt service in these countries makes development impossible. Beset with international pressure, the G8 countries in 2005 arranged a substantial debt cancellation for "Heavily Indebted Poor Countries". The IMF identified 42 countries, 32 of which are in Sub-Saharan Africa, as being eligible or potentially eligible to receive debt relief in 2004. The 27 countries that have so far received a combined $54 billion in aid. This development has substantially reduced are the following the overall debt level of developing countries in general.

But many global activists argue that these measures are not enough. Instead, they advocate a 100% cancellation of all debts to the poorest countries and additional debt relief for other depressed economies. They further maintain that there should be no conditions attached to debt relief. They argue that because the HIV/AIDs crisis is ravaging poor African nations, there are no resources with which to pay debt. They further maintain that cancellation of such debts will not render the World Bank or IMF insolvent. But the IMF responds that total debt cancellation for those countries alone would come at the expense of other borrowing countries, including those non-HIPCs which are home to 80 percent of the developing world's poor.

Do national foreign aid programs significantly help poor countries?

Many nations in Europe and some in the Middle East and East Asia have significant aid programs. In 2006, the United States was the largest donor although much of the assistance was directed at Iraq. But even with the massive amount of development assistancein the wake of the Iraq war, the U.S. fell significantly short of the U.N. goal set for donor nations at .07% of the GNI. Instead, only five smaller European Nations presently exceed this standard.  The nations who receive aid are primarily in sub-Saharan Africa. In addition, countries in Southeast Asia and Latin America are recipients.   Overall, as a percentage of the global GDP, the level development assistance has actually decreased. 

In the United States economic development aid is provided increasingly as loans through the Agency for International Development and the Export-Import Bank, which finances the export of U.S. capital goods and agricultural products. In 2006, the two largest recipients of aid were Afghanistan and Iraq. The amount of such assistance increased precipitously in the early part of the decade. The increase is directly related to the U.S. military interventions in Iraq and Afghanistan. In Congress, Democrats are more likely than Republicans to support proposals to increase foreign aid.  

Do activists support alternatives to the current global and national foreign aid system?

Although there is vehement criticism of the World Bank and the IMF, there are no uniform alternatives which have been proposed. Some groups actually advocate pro-global solutions such as much greater funding of U.N. aid programs. Those who advocate cancellation or substantial reduction of World Bank/IMF debts are in reality advocating a change in the mission of these agencies from offering loans to instead providing direct grants to needy countries. Activists have been particularly critical of "structural adjustment" lending policies but most offer no other suggested mechanism for insuring that recipient countries responsibly use the aid that is received.

Although the general concern is that international institutions such as the World Bank and WTO are dominated by corporate interests who are unresponsive to the protecting the interests of the world's people, there is virtually no advocacy of a stronger "world government" democratic structure which could potentially protect such interests. Instead, the overall sentiment has been more anti-global than pro-global.

Is there an isolationist sentiment among Americans concerned with "globalization"?

Perhaps because it is a country formed of immigrants seeking to escape living conditions elsewhere, there has always been an strong current of isolationism in the United States. Although the United States emerged as a major world power at the conclusion of each World War, many in America, including those in leadership positions, have been reluctant for the U.S. to assume an active role as a global leader. Isolationism was such a prime ingredient in post-World War I foreign policy that the United States refused to join the League of Nations which its president had helped create. During most of the post World War II era, the primary U.S. foreign affairs mission was to contain communist ideology. Despite the fact that the United Nations is headquartered in New York, the U.S. has generally de-emphasized this organization.

The opposition to the Vietnam War included isolationist attitudes. Some war opponents disagreed with the Vietnam cause itself but many others opposed the war because of a belief that the U.S. should not involve itself at all in the affairs of other countries. This sentiment continues to resurface whenever the U.S. puts the lives of American servicemen at risk in places such as Bosnia, Somalia, and Iraq.

But there are indications that the combination of a booming global economy, shared environmental concerns, and the threat of in ternational terrorism are producing a rapid change in global consciousness within the United States. Americans now favor free trade although they believe that it should be restricted to protect domestic industries. Americans are generally opposed to increasing the level of foreign aid, believing that the country is already diverting too many resources for this purpose.

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