Globalization Studies

1. Globalization Studies International College KhonKaen University 2011 Week 12 – Winners and Losers in Globalization

2. Winners and Losers in Globalization • Economists focus on how trade liberalization affects efficiency and growth • There is good evidence that freer trade between countries allows countries which participate to grow more quickly • But popular discussions focus more on “fairness” and the concept of a better world • This raises the issue of wealth distribution and of closing the development gap

3. Winners and Losers in Globalization • No government would choose to free up trade unless it believed its country, its people stood to benefit • All countries which have liberalized their economies have benefited from the global economy • How? Because global trade has grown much faster than global production and wealth since 1950, enabling all participants in the process to deliver gains • But the gains have not been equal within and between countries

4. Winners and Losers in Globalization • The US economy grew at an average 3% per year through the period 1963-2006, but its share of world economic activity declined by half over the same period as other countries, mainly in Asia, were growing much more quickly • This has led to a major shift in global economic power between countries • How then can we measure this shift, and who are the winners and losers from economic globalization?

5. % Share of Global GDP

6. Winners and Losers in Globalization • The World Bank ranking of countries by GNI (2009) lists 6 developing countries in its top 20: • China (3), Brazil (8), India (10), Mexico (14), Turkey (17) and Indonesia (20) • The share of developing countries in world merchandise trade has increased annually for more than 20 years, to 40% of world exports and 36% of world imports in 2009 • In export rankings, WTO figures show that China now exports more than any other country

7. Winners and Losers in Globalization • No matter what indicators we look at, we find that many developing countries are “closing the gap” on developed countries • But given the much larger populations living in developing countries the per capita gains are very modest, even assuming the equal distribution of benefits within those developing countries • There are around 6.9 billion people in the world

8. Increasing Inequality • Various “human development indices” have been developed in an effort to measure variations in income and living standards • There is a general consensus that: • Inequality between the world’s richest and poorest people has narrowed • Inequality between the world’s richest and poorest countries has increased • Inequality between the richest and poorest within many countries has increased

9. Increasing Inequality • Causes include: • Different levels of population growth between poorer and richer countries • Technological change - as high value-added activities cluster in highly educated countries with ready access to investment • There is little evidence that trade and the economic growth of countries is translating into a world where distribution is more fair • Trade is a driver of economic growth, not of social equity

10. Increasing Inequality • Although the share of global wealth enjoyed by developing countries is increasing, some developing countries are doing much better than others • The growth in trade, and wealth, is not fast enough to reduce inequality between rich and poor because: • Population growth is even faster than economic growth in poorer countries • Higher income, “new economy” jobs are going mainly to people in richer countries • So poor people are continuing to fall even further behind

11. Free Trade or Fair Trade? • Two questions then: • “can trade be made more fair without slowing down the beneficial effects of free trade?” • “is trade the right mechanism to address human development – a fairer distribution of global wealth?” • A major UNDP report on trade and development (2003) found that “economic growth is necessary for human development but is not sufficient on its own”

12. Free Trade or Fair Trade? • Present trade rules are generating inequitable outcomes • Trade should be seen as a means to development, not as an end in itself • The emphasis of the multilateral trade regime (the WTO and its negotiating rounds) needs to shift from “free” market access to human development outcomes • For world peace, security and welfare, more equitable rules need to be put in place

13. Free Trade or Fair Trade? • The first issues to be addressed should be those with the most impact on the world’s poorest and weakest – subsistence farmers, migrant laborers, women and children • The world’s richest countries spend more than $1 billion a day on domestic agricultural subsidies – and rising • This is more than six times the sum they spend on official development assistance for developing countries

14. Free Trade or Fair Trade? • These subsidies allow rich-country producers to dump their agricultural products on world markets, depriving poor farmers of income and security • In addition, developing countries lack capacity to compensate those who are disadvantaged by trade liberalization – welfare safety nets, insurance, redistributive tax regimes

15. Free Trade or Fair Trade? • Answers to the questions in Slide 11: • Yes: trade rules can be, and must be, made more equitable in the current round of WTO negotiations, the Doha Development Round • Trade mechanisms on their own will not result in sufficient change to rebalance wealth distribution between rich and poor. Other mechanisms like remittances from migrant workers, development assistance and debt relief also need to be improved urgently.