The reality of globalization

By Elfren S. Cruz (The Philippine Star)

The issue on whether globalization is ultimately beneficial or harmful to the average citizen of the world
is clearly still a much publicly debated issue. The historical champions of open markets – United States
and United Kingdom – are now increasingly hotbeds for proponents of protectionism. On the other
hand, China which used to be a highly protected economy is now championing globalization.

The rise in extreme global income inequality has been attributed to globalization. Trump’s presidential
victory and the Brexit win in the UK have also been traced to popular disenchantment with globalization;
and a perception that it has benefited only the very wealthy few. The DHL Global Connectedness Index –
which tracks international trade, capital, information and people flow – shows that globalization slowed
down in 2015 but did not go into reverse. Updated data for 2016 for trade and investment suggests a
continued slowdown but still no reversal.

However, the media perception of globalization has become increasingly more negative. According to the
Harvard Business Review: “An analysis of media mentions for the term ‘globalization’ across several
major newspapers – Wall Street Journal, New York Times, Washington Post in the US and the London
Times, Guardian, Financial Times in the UK – reveals a marked souring of sentiments with scores
plummeting in 2016.”

A recent issue of the Economist magazine has apparently accepted the fact that globalization may have
benefited certain sectors and regions, but has left behind large segments of society, in an article entitled
“ Left Behind: How to Help the Places Left Behind by Globalization.”

The article provides some useful insights on the reasons for regional inequalities caused by globalization.
Firms – particularly manufacturing – often do better when they are close together. A maker of industrial
machinery saves on costs when it is near the firms that provide it with raw materials or components as
well as its customers. Manufacturing plants must therefore, come in clusters. A cluster of manufacturers
attract workers.

The same concept of ‘clusters’ apply to other industries. Financial firms do well in New York because they
are close to banks that finance and clients that hire them. Start ups in Silicon Valley have access to
financing, customers, and new ideas that they will not easily find elsewhere.

According to the Economist, “A larger, more integrated market enables production at more efficient scale
and increased global output. Consumers gain access in cheaper and better goods and services including
new foreign varieties.

They do imply, however, that production will become more geographically concentrated. Cities with long
standing industrial tradition that could get by in a smaller economy find themselves bleeding talent and
jobs.”
These concept of “clusters’ means that countries cannot afford to have a policy of attracting only single
firms to invest; but, must look for ways to attract clusters of factories or financial firms or service firms.
Even within a country, globalization will make regional inequalities worse.

As the rich became richer, their wealth was supposed to start “trickling down” to the poor so that
ultimately everyone would benefit from the rich accumulating more wealth. This theory has never
worked. Income inequality has reached a level unprecedented in human history.

There was a time when the same “trickle down” theory was believed to be applicable to nations. As
certain nations became richer, they were expected to share their wealth with the poorer countries of the
world. This was the dream of many organizations like the United Nations. Instead, the rich Western
nations continued to further enrich themselves by economic exploitation of the poor countries. The
Third World countries were developed solely as sources of raw materials and markets for the goods and
services of the Western imperial powers. Japan joined the Axis powers during the Second World War
primarily because Imperial Japan needed to secure reliable sources of raw materials and markets for its
industrialization.

Today, China – the new economic giant – is following the same imperial pattern of the past powers. Its
Belt and Road initiatives are primarily aimed at securing reliable sources of raw materials and markets
for its economy. The primary objective is to continue the economic growth of China.

China and Japan were once heavily protected economies until they were able to build an industrial and
financial base that could compete with the rest of the world. Now they are suddenly champions of open
markets and globalization.

The United States and the United Kingdom were once champions of globalization and open markets. But
now that they are losing their competitive edge, these two countries have elected governments that are
advocating protectionism.

Perceptions about globalization will remain mixed because its effects will continue to be mixed.
Globalization and technological change will enhance the economies of scale that will result in more
geographic concentration of wealth and talent. The Alibabas and Amazons will increase their dominance
in the service industries which will further decimate locally based businesses.

There are those who will insist that the exponential growth of technological change makes globalization
inevitable. Perhaps that is true, but the process of change will be a costly and chaotic period. This is what
history teaches us. The Industrial Revolution gave birth to the class wars and Marxist revolutions of the
20th century. The economic and social changes resulted in the rise of populist leaders and dictators that
led to two World Wars and a Cold War.

I once read two contrasting articles on the same topic. The title of one was “ Globalization at Warp
Speed”; and the other one was “ The End of Globalization.” The future reality will probably be
somewhere in the middle of these two titles. Hopefully, the period of change will not be as violent as
similar periods in history.
Duterte on inclusive growth, globalization

Published November 16, 2017, 12:05 AM (Manila Bulletin)

We have long known President Duterte to be a shrewd political leader,

anti-crime fighter particularly against drug operations, and advocate of strong and effective government.
Last week, in Vietnam, we saw him in a new light as he spoke on globalization and its ill effects at the
Asia-Pacific, Economic Conference (APEC) CEO Summit in Da Nang, Vietnam.

Globalization, he said, may have been generally beneficial for the world economy, but it has had adverse
effects on some economies, including the Philippines. Growth has not been equal or inclusive, he said.
Growth has been much greater in some countries, so that countries like the Philippines have suffered a
“brain drain” as skilled Filipino workers migrated to rich nations.

“We must ensure that globalization does not just lead to wealth generation but, equitably, wealth
distribution as well,” he said. He stressed the need for an “inclusive environment where everyone has
the opportunity for growth. This could be achieved through the promotion of competition,
complementation, and cooperation in business.

The President said he would pursue this matter further in his meetings with leaders of the Association of
Southeast Asian Nations (ASEAN) in Manila. “If Europe can do it with its Union and America is starting to
revive its industries, why can’t we, the ASEAN, do it?” he asked.

President Duterte cited one point in his comments on globalization which, he said, is of particular to
Southeast Asian nations. They should review, he said, their present practice of exporting raw materials to
industrialized countries, only to import finished products made from the raw materials at four times the
value.

Last March, at the height of the dispute between then Secretary of Environment and Natural Resources
Gina Lopez and the mining industry, the Chamber of Commerce of the Philippine Islands, the oldest
business organization in the country, made a proposal. We should not just export raw ore from our
mines, it said. We should process the ores and produce iron, copper, nickel, and other metals used to
make finished products. At a further level of our economic development, we could one day produce the
finished products themselves.

The President’s thoughts on globalization and proposals for economic development will, we hope, augur
a new phase in the Duterte administration.
The anti-drugs drive, the campaign on corruption, the efforts for national security through settlement of
our age-old disputes with rebel groups – these led the movement for change for which President Duterte
won election in 2016. With his words on globalization at the APEC Summit in Vietnam and his call to
move on to processing our raw materials, we look forward to greater efforts by the government for
economic development.

National economic growth will, in turn, lead to a better life for our people.