The increasing volume and speed of transactions have also increased the volatility of capital flows in the international financial system. The Asian financial crisis I referred to earlier, demonstrated the devastating impact of this volatility on world trade and domestic economies. In 1996, net capital flows into Indonesia, Korea, Malaysia, and 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 countries2..
Economic growth in developing countries fell to 2% in 1997 and in 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-boarder mergers and acquisitions. The share of FDI inflows to developing countries in 1998 was 42%, having risen from an 18% share in the mid 1980’s. However, of the total FDI going to developing countries and the eastern European economies in transition in the 1990’s, more than 80% went to only 20 countries. In 1998, the top five developing countries received 55% of total FDI inflows to the developing world1..
FDI has considerable impact on economic growth in the countries 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 of growth are accompanied by the increasing migration of populations. 42 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. 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 boarders; 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 the reciprocal interdependencies, new linkages among groups across borders, and a changing world social fabric.
The world is concurrently witnessing another unprecedented transformation with its development into an information- based society. An unprecedented volume of information and ideas is now circulating in real time, often beyond 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 NGO’s 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 being 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. 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 1990’s. Indeed, these new trends help create and hide an increasingly divided world, where a North- South gulf has taken 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.
Nation states have suffered vertical loss of power in the face of the economic globalisation process, mainly as a result of the fiscal crisis of the state and 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.
Through this transnational corporations (TNC’s) have become the main drivers of FDI and world trade. In 1970, there were about 700 TNC’s. In 1998, there were 60,000 TNC’s with 500,000 foreign affiliates. TNC’s accounted for 25% of the world’s GDP and one third of the world exports in 1997. They have become highly integrated and powerful actors rivalled only by the richest nation-states. General Motor’s 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 TNC’s 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.
NGO’s 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 NGO’s 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 NGO’s. Civil society also plays an important role in education and community capacity-building in developing countries. While TNC’s 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 NGO’s nor TNC’s 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.
There is considerable asymmetry between the advanced state of liberalism of trade in goods and services that is of interest to OECD countries and the barriers to trade that persist in labour- intensive goods exported by developing countries. Commodities, especially food and fibre, and their processed products that constitute most of the developing countries’ exports, continue to face high barriers to import in OECD countries. In 1992, the Human Development Report estimated the cost for developing countries of these trade restrictions to be US$500 billion annually in lost exports revenues, almost ten times the amount those countries receive in aid every year.
In this context, developing countries have often come to consider environmental regulations as disguised protectionist measures designed to restrict access to OECD markets. They also tend to perceive the inclusion of environmental and social protection issues under trade negotiations as threats to their national sovereignty. For these reasons, countries such as India, Brazil, China, and many others repeatedly oppose any discussions on environmental standards in trade liberalism talks.
Clearly, the issues of fair market access and environmental protection cannot be separated because developing countries fear the latter is a threat to the former.
Lack of transparency and inadequate representation result in credibility problems, bringing about poor levels of support for the trade liberalisation processes both at the national and international levels. Transparency, effective participation of civil society, and adequate representation of developing countries are fundamental areas in which the WTO has tried to improve its credibility and secure support. While the WTO has made some efforts to expand participation in it’s work, it’s actions fell short of an affective strategy to integrate NGOs and intergovernmental organisations (IGOs) especially MEA secretariats in its decision- making and dispute resolution processes.
The WTO opens its doors to civil society mostly in the form of informal consultations and improved communications with NGOs and IGOs.
In 1996, the WTO adopted guidelines for the participation of NGOs that focused on improved communication channels and open meetings such as the Symposia on Trade and Environment. While they were intellectually productive and fostered an interesting dialogue, the symposia were not policy oriented and no attempt was made to summarise issues or generate consensus. Their influence on negotiation processes was therefore very limited.
Effective participation of developing countries constitutes another challenge. Many of them do not have the resources to participate in preparatory meetings. The issue of representation is also made more acute by the absence of 50 countries that do not have a seat at the WTO, including major trading countries such as China. At it’s general council meeting in February 2000, member of the WTO agreed to improve and regularise funding for it’s technical corporation activities and to co-operate more actively with the other agencies such as UNCTAD to support effective participation by developing countries and facilitate implementation of key trade investment liberalisation provisions and policies.
The failure of Seattle can be attributed to the convergence of a series of underlying tensions that have characterised world governance since the end of the cold war.
While they surely contributed to the tensions, circumstantial causes such as timing, inadequate preparation, US electoral politics, demonstrations, and riots cannot entirely explain the Seattle debacle. Seattle’s’ failure takes route in major underlying weaknesses in the WTO, notably a lack of transparency (from western civil society point of view), inadequate participation of developing countries, divisions on the scope of the new round, floored negotiation procedures, unresolved implementation issues, and conflict over liberalisation of agricultural markets.
The issues at stake are huge; the OECD has estimated that a new round of trade liberalisation would generate an annual growth of 3% or US$1, 200 billion in global economic activity. The dividends of growth ought to be more fairly shared among the WTO's 135 members. Seattle destroyed any hope for a quick start of a new round of multilateral trade liberalisation. WTO needs to broaden its agenda and co-operate with other organisations to work out new integrative governance models that will allow for the reconciliation of trade and non- trade agendas of globalisation.
The cost of failure could be to the multilateral liberalisation wheel and return to trade-distorting and development-slowing regionalism.
It is paradoxical that Seattle’s failure highlighted the deficiencies of WTO governance while it opened a new window of opportunity for developing innovative strategies of global governance. Global governance has become more complex and the need to integrate various agendas of globalisation into a coherent structure is more apparent than ever. As stated in the Human Development Report: “The challenge of globalisation in the new century is not to stop expansion of global markets. The challenge is o find the rules and institutions for stronger governance local, national, regional and global to preserve the advantages of global markets and competition, but to provide enough space for human, community and environmental resources to ensure that globalisation works for people not just for markets.”1.
The values behind such an approach rests on broadly shared concerns in western democracies as to their ability as societies to provide domestically for the needs of the larger number, and the projection of this approach outward toward to the global community. The rationale at a global level is embedded in the systematic effort to achieve the most widely based stakeholding by countries in the trade liberalisation process.
This exercise requires an uncommon resilience in giving the multiple non-trade agendas their place in foreign policy efforts by adopting integrated rather than fragmented approaches. To make a meaningful contribution that gives a direction to these changes, foreign policy, international financial, and trade talks, as well as summitry mechanics, must all participate in defining this new coherence and consistency. There are considerable obstacles on the way to efficiently integrating such complex issues.
Increased trade is unrealistic outside a peaceful and secure setting. Population growth, natural resources depletion, and poverty related social instability in an increased number of countries all bear on the meaning of peace and security. To face this evolving paradigm responsibly, the links between social and environmental realities with the international trade and the peace and security agendas must be clearly recognised, addressed, and acted upon.
The obstacles to change cannot be removed without meaningful leadership at the highest level of foreign policy, international finance, international trade, and the security apparatus. The steering of globalisation forward in a direction that is more humanistic ultimately rests not on administrative personnel and international bureaucracies, but on the heads of governments and their ministers, and their capacity to elaborate and implement such a vision.
1. UNUP, Human Development Report 1999.
2. Kaiser, k, J.Kirton, and J.Daniels (eds.) Shaping a New International Financial System, Aldershot, Ashgate, 2000.
1. UNCTAD, World Investment Report 1999.
1. UNDP Human Development Report 1999