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Beyond Trade: Broadening the Globalisation Governance Agenda

Pierre Marc Johnson1
with Karel Mayrand

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II. The Multiple Faces of Globalisation: The Diversity of Change5

Globalisation is not a new phenomenon. The world has experienced periods of extensive economic and political integration in past centuries; some have been even more pronounced. The early 16th century or late 19th century were, most notably, two "golden eras" of commerce, characterised by open markets and extensive international trade. Yet the current globalisation process is fundamentally different in its scope, depth, and institutional characteristics. The current process of integration is truly global, as well as multidimensional. It is market-based, driven by powerful economic forces, and accelerated by a technological revolution. It is also supported and shaped by an extensive and ever-growing web of international organisations and rules, both formal and informal, public and private.

The Growth of Trade

The last 50 years have seen unprecedented economic growth, with considerable impacts on societies around the world. Global gross domestic product (GDP) multiplied more than six times in real terms between 1950 and 2000, while per capita GDP expanded almost three times. During the same period, international trade multiplied more than 14 times. In 1998, international trade represented 14% of the world GDP (US$39,300 billion), compared to only 6% in 1950. In the decade from 1987 to 1997, the share of trade in global gross domestic product jumped from 10% to 15%. This trend was dampened only in 1998 by the onset of the Asian crisis.

Trade currently represents 19% of the GDP of OECD countries and 40% of Canada's, the smallest G7/8 member. The trade share of Canada's GDP increased by 56% over the 12 years leading up to 1999. In the United States, the G7/8's largest member, exports accounted for more than a quarter of economic growth and the creation of 20 million jobs in the ten years leading up to 1999. The stakes in maintaining a rules-based, predictable, multilateral, open-trade regime for Canada and many other G7/8 and OECD countries are thus simply overwhelming.

While international trade is often perceived as the engine of economic growth, it is not necessarily synonymous with development. For example, Sub-Saharan countries export 30% of their combined GDP, yet this brings few benefits as debt-servicing costs absorbs all these hard currency revenues. As a result, these countries continue to be among the world's poorest. Trade can definitely be one engine of economic growth, but other factors are necessary to translate this economic activity into development.

The Explosion of Financial Flows

A second economic driver of globalisation is the world-wide explosion of financial flows. In 1970, US$10 to $20 billion were exchanged every day in the world's currency market. Today, more than US$1,500 billion changes hands daily.6 Financial markets are characterised by the anonymity and the non-accountability of many actors involved in these massive flows and almost unlimited instantaneous transactions; many financial actors can elude state control by using powerful technologies. This new situation has considerable influence on both national and global governance as financial markets have become more and more difficult to regulate.

The increasing volume and speed of transactions have also increased the volatility of capital flows in the international financial system.7 The Asian financial crisis demonstrated the devastating impact of this volatility on world trade and domestic economies. In 1996, net capital flows into Indonesia, Korea, Malaysia, the Philippines, and Thailand totalled US$93 billion. Yet, in 1997, these countries faced a net outflow of US$12 billion. This swing in financial flows of US$105 billion represents 11% of their combined GDP. As a result, real wages fell by 40% to 60% and 13 million people lost their jobs. The proportion of poor people in Indonesia rose from 11% to 40% in less than a year, feeding social and political instability. The international financial community mobilised more than US$170 billion from 1997 to 1999, which stabilised the financial markets in these countries as well as those of Russia and Brazil and apparently avoided a similar situation in other countries.8 Economic growth in developing countries fell to 2% in 1997 and 1998 as a result of the crisis. World trade growth collapsed from 10% in 1997 to 3.7% in 1998.

Foreign direct investment (FDI), the other major component of financial flows, has grown faster than international trade in recent years. It has thus become an important driver of economic globalisation. Total FDI reached US$644 billion in 1998 a gain of 39% over the previous year driven by cross-border mergers and acquisitions. The share of FDI inflows to developing countries in 1998 was 42%, having risen from an 18% share in the mid 1980s. However, of the total FDI going to developing countries and the eastern European economies in transition in the 1990s, more than 80% went to only 20 countries. More than one quarter went to China alone. In 1998, the top five developing countries received 55% of total FDI inflows to the developing world.9 FDI has considerable impact on economic growth in the countries where it is massively channelled. It has thus become a powerful factor that cannot be neglected. Indeed, FDI has become much more important than Official Development Assistance (ODA) in major developing countries, with obvious structural effects on their economies. At the same time, capital and money markets have demonstrated through their volatility that they can be disruptive and increase the vulnerability of host countries.

Increased Demographic Pressures

The world's population increased almost four-fold in the 20th century, growing from 1.6 to 6 billion.10 Eighty million people, or the equivalent of Germany, are added to the global population each year. The "middle scenario" of the United Nations forecasts the world population will grow by 38% more in the next 25 years to reach 8.3 billion by 2025. This growth will be concentrated in developing countries. Ninety percent of it will occur in cities. This will put considerable pressure on urban infrastructures, development strategies, the environment, and social stability.

Demographic growth is accompanied by the increasing migration of populations. Forty-two million people migrate temporarily for work each year. Six million migrate permanently. World-wide, 130 to 145 million legally registered migrants permanently live outside their own countries at this time. There are 4 million internal refugees and 15 million external refugees in the world. Globally, the number of international travellers has risen to 590 million every year. These demographics and movements of populations are unprecedented in human history. They can contribute to the instability of borders; they also demand tremendous growth to attain increased per capita income. At the same time, they drive the market expansion and increased consumption that is steadily putting pressure on natural resources and ecosystems. All these factors contribute to reciprocal interdependencies, new linkages among groups across borders, and a changing world social fabric.

The Information Revolution

The world is concurrently witnessing another unprecedented transformation with its development into an information-based society, driven by major technological changes in communications and computers. The number of television sets per 1,000 people doubled between 1980 and 1995, from 121 to 235. In 1990, there were 33 billion minutes of international telephone communications; that figure had more than doubled by 1996, reaching 70 billion minutes. The number computers with a direct connection to the Internet rose from 100,000 in 1988, to 36 million 1998. There were 140 million Internet users in 1998. This number will increase to 700 million in 2002. The volume of data traffic on the Internet has been doubling every 100 days as the 20th century is giving way to the 21st. 11

An unprecedented volume of information and ideas is now circulating in real time, often beyond the reach of direct state control. This has a considerable impact on democracy and governance. It thwarts authoritarian state practices to restrict the free flow of ideas. It also allows for the efficient action of nongovernmental organizations through unlimited access to networking, thus activating democratic processes at the local and international levels. It also contributes to a wider circulation of knowledge among populations, thus bearing pressure on local and national policies.

This technological revolution also has a deep structural effect on the world economy. The Internet economy now represents US$300 billion or 5% of the American GDP. It generates almost a third of US economic growth and employs 1.2 million workers. The Internet sector is now equivalent to the automobile industry in the US in terms of labour force and market. The value of electronic commerce totalled US$2.6 billion in 1996. It may reach, by some accounts, as much as US$300 billion in 2002.12 More than half of the GDP in major OECD countries is now knowledge-based. The share of high technology products in international trade doubled from 12% to 24% over the 1990s. Clearly, a new wave in technological and social development has begun. All of these trends of increased trade and financial flows are accompanied by powerful asymmetrical demographic trends and information systems development that must be analysed and put in the perspective of developing economies.

The Geography of Globalisation: A New North-South Divide

Indeed, these new trends help create and hide an increasingly divided world, where a North-South gulf has taken the place of the traditional system-defining East-West cold war conflict. The richest fifth of the world's population now controls 86% of world GDP and 82% of world exports. It is responsible for 92% of FDI outflows and receives 68% of FDI inflows. The poorest fifth accounts for less than 1% of these indicators. Income disparities between the richest and poorest fifths of the world's population increased from 30 to 1 in 1960 to 74 to 1 in 1997.

The World Bank estimates that 1.2 billion people live on less than US$1 dollar a day, a number that is likely to remain stable until 2008.13 Some 840 million are malnourished world-wide. Since 1971, the number of countries considered by the United Nations to be extremely poor or least of the Least Developed Countries (LDCs) has risen from 25 to 48. These countries, representing 13% of world population, accounted for 0.4% of world exports and 0.6% of world imports in 1997. This represents a 40% decline since 1980. More than 80 countries have seen their per capita GDP fall during the 1990s. Only 33 countries sustained a GNP per capita growth of 3% in the 19801996 period. During the Cold War, its major actors could develop geopolitical and strategic interests by supporting some of the poorest countries. The security interest to do the same in a depolarised world is still ill defined. This has considerable consequences for many of the poorest countries.

In addition, many indicators are announcing a technological or digital divide.14 The OECD countries, representing 17% of world population, have 74% of all telephone lines and 88% of Internet users. In contrast, 25% of the world's countries have a teledensity lower than one telephone for 100 inhabitants. Thailand has more cellular telephones than the entire African continent. The United States has more computers than all other countries combined.15 In the high technology sectors, OECD countries in 1993 accounted for 84% of global research and development expenditures and held 97% of world patents.

However, global co-operation has succeeded in raising the literacy rate from 64% to 76%, and access to safe drinking water increased from 40% to 72% during the 1990s. Food production per capita increased 25% over the same period. Economic growth kept pace with rapid demographic growth, as world GDP per capita rose by 1% annually in the 1990s. Yet the persisting inequalities are a testimony to the considerable challenge of translating this growth into human development. Issues of social equity are now compounded by the necessity for global governance institutions to identify and implement innovative ways of disseminating knowledge and technology, including giving masses access to the powerful instrument of the Internet.

The Vertical Loss of Sovereignty: More Room for More New Actors

Nation states have suffered a vertical loss of power in the globalisation process, mainly as a result of the combination of the fiscal crisis of the state and the internationalisation of governance. The fiscal crisis has devolved to local authorities while states delegated aspects of their sovereignty to international regimes. This process has weakened the state and given prominence to new actors. Most notably, transnational corporations (TNCs)16 have become the main drivers of FDI and world trade. In 1970, there were about 700 TNCs. In 1998, there were 60,000 TNCs with 500,000 foreign affiliates. TNCs accounted for 25% of the world's GDP and one third of world exports in 1997. They have become highly integrated and powerful actors rivalled only by the richest nation-states. General Motors' equivalent GDP of US$164 billion, for example, would place it among the 25 most important economies of the world, ranking between Thailand and Norway.

The strength and influence of TNCs is compounded by the concentration of production in many economic sectors. The top ten companies in each sector control 86% of the market in telecommunications, 85% in pesticides, 70% in computers, 60% in veterinary medicine, 35% in pharmaceuticals, and 32% in commercial seeds. This level of concentration of market power raises the question of competition and the possible negative impacts on populations of monopolistic or oligopolistic practices by firms in these essential sectors.

NGOs have also become influential actors. They have developed into a highly organised and diversified web of organisations, creating a truly global civil society. There were a mere 176 international NGOs in 1909. By 1993, there were 28,900. Human rights, environmental protection, and human development are all issues advocated by global civil society by way of NGOs. Civil society also plays an important role in education and community capacity-building in developing countries. While TNCs are the drivers and actors of economic globalisation, organised civil society is both the driver and the emerging voice of an evolving global democracy. It carries the global social demand.

Although they do not share in the nature of nation-states as actors in the global system in terms of accountability and responsibility, neither the NGOs nor TNCs can be ignored. Their power, influence, and relevance, both at the local and international levels, demand that they be somehow associated as transparently as possible to the various formal processes of globalisation.

The Environmental Impacts of Growth

Increased environmental pressures accompany this transformation of critical economic and demographic processes. Natural ecosystems are under high stress around the world as a result of increased pollution, natural resource over-exploitation, and habitat destruction. Scarcities caused by the exhaustion of natural resources and the destruction of ecosystems pose an enormous challenge to economic growth and development in global terms and in some cases create tensions, displacements of populations, and conflicts.

Freshwater resources are a key component of these overall structural trends. Water withdrawals, mainly for agricultural purposes, grew seven-fold in the 20th century. One third of the world's population, or 2 billion people in 80 countries, experiences moderate to high water stress. By 2025, two thirds of world population could be in this situation if nothing is done.17 Water scarcity, combined with the increased pollution of watercourses, constitutes an imminent threat to human health, food security, and social and political stability, and therefore to development and economic growth. Water scarcity also bears the potential for numerous international tensions since shared international river basins drain 47% of the world's lands excluding Antarctica and are home to 40% of the world's population.

Natural ecosystems that provide essential resources for economic development are under stress everywhere as a result of overexploitation, bio-invasion, or habitat destruction. According to the World Conservation Union, 34% of freshwater fish species are threatened with extinction18, while six out of 14 commercial sea fisheries are seriously depleted. Forest ecosystems are also threatened, as 200 million hectares of forest cover was lost between 1980 and 1995. Deforestation affects 12 million hectares annually, an area half the size of the United Kingdom. Desertification i.e., the degradation of agricultural land in arid, semi-arid, and sub-humid territories is threatening 40% of global lands, which are home to more than a billion humans.19

Industrialisation has also affected natural macro-systems such as climate and the ozone layer. In 1997, the hole in the ozone layer over Antarctica was twice the size of Europe. The ozone layer might not be restored until 2050. In addition, evidence confirms that global warming is not only a process created by human activities, but also that it has been accelerating in recent years.20 The warmest year ever recorded in modern history was 1998. The ten warmest years in history have been recorded in the 15 years leading up to 1999. The economic costs of implementing the Kyoto Protocol commitments to reduce greenhouse gas emissions will be considerable. But weather-related damages have been exploding in recent years, reaching US$92 billion in 1998, a 53% increase in only two years.21 The costs of inaction are thus overwhelming.

Economic growth, environmental degradation, and human development are intimately linked, as was recognised at the Earth Summit in 1992. This recognition led the international community to develop a series of international instruments to protect the global environment and promote a sustainable model for globalisation. As noted in a 1999 WTO report on trade and environment, the "ongoing dismantling of economic borders reinforces the need to cooperate on environmental matters, especially on transboundary and global environmental problems that are beyond the control of any individual nation".22 Accordingly, the rising number of international agreements has paralleled the acceleration of trade liberalisation since 1985. There are currently 216 effective MEAs in the world.23 Eight major global MEAs have been signed since 1985.24 These developments create a new need for consistency in governance. This need was observed in trade liberalisation processes in the 1990s. As the centre of world trade governance, the WTO cannot escape this new trade and environment/development nexus.

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