1. Introduction
One of the most important policy challenges facing South Africa today is to respond to the changes in the way in which the world economy works. These changes in the world economy are known as globalisation.
Our own transition is taking place at a time where there are enormous changes in the international (world) system. There is no longer any alternative socialist bloc of countries which used to allow developing countries and countries attempting the transition to democracy to structure their trade, aid and investment relations. At the same time, powerful forces of globalisation and liberalisation are changing the capitalist world economy.
Understanding these changes is essential in defining policy options across the board including our economic policy, social policy and policy on the role of the state.
2. Defining globalisation
The United Nations Development Programme's (UNDP) 1997 Human Development Report points out that the term globalisation both describes and prescribes the system of economic relations in the world today. (UNDP 1998, p82)
The descriptions refer to the fact that international flows of trade, finance and information are being integrated into a single global market. Globalisation, therefore, is a process which is aimed at integrating the world market where national commodity capital, financial and currency markets are joined together into a single market which operates according to a set of rules which apply are universal. Transnational corporations, multi-lateral institutions and governments of advanced industrialised countries are driving Globalisation.
This is happening in a context where there are major advances in technology, particularly in the information and communication industries.
Eric Hobsbawm outlines the differences between international and transnational ways of operating in the world economy. During what he calls the "Golden Age" (between the end of World War 2 and the late 1960s), Hobsbawm argues that although countries traded with each other to a growing extent, most of their economic activities "remained home-centred " and the basic way in which the world economy operated was international. But from the late 1960s on, an increasingly "transnational economy began to emerge. " this transnational economy was characterised by "a system of economic complicating factors." And from the early 1970s, this transnational economy became a global force and grew more rapidly.
It is this transition from an international economy to a transnational world economy that defines the present phase of globalisation Globalisation has been facilitated by the introduction of new information and communication technologies. These technologies have made capital, financial and commodity flows much quicker. But globalisation cannot be reduced to technicist changes alone. Globalisation is much more fundamentally a process of restructuring the entire way in which global capitalism works.
Globalisation has transformed the way in which dominant forces in the global economy have defined their interests in the world outside of their own home base. In earlier economic phases, these forces were focused on ensuring access to cheap raw materials in the periphery as well as whatever access they could get to foreign commodity markets that was compatible with ensuring protected access r their economies at home. They are no longer focused on this. he agenda now of transnational capital is to look for a much broad and far-reaching breakdown of barriers to the free movement of commodities and capital across national borders as well as removing obstacles to setting up production processes in any part of the world.
Globalisation has therefore come together with the demands for removing regulatory and other barriers in national states. These barriers are seen as obstacles to the freer movement of commodities, finance and capital, but not of labour, across the world. National states have been pressured by the rules of the World Trade Organisation (WTO), the conditionalities of international financial institutions (IMF - International Monetary Fund and World Bank), and the impact of globalised currency and capital markets (which react with frightening speed against any country that does not conform).
At the same time, as there is deregulation at a national level, there is more regulation at a global level. The Uruguay Round of the General Agreement on Trade and Tariffs (GATT), and the setting up of the WTO, were important steps in this process. The Marrakesh Agreement coming out of the Uruguay Round negotiations introduced tariff reductions and other aspects of the agreement. A key feature of the process from Uruguay onwards has been the extension of the agenda to cover much more than the regulation of developed countries. This is seen in Trade Related Investment Measures (TRIMS) and Trade Related Intellectual Property Measures (TRIPS). These measurers extended international regulations to areas such as investment policy, the financial sector and patent law enforcement.
Other issues that became clear was the desire of advanced industrialised countries for further rounds of negotiations for reducing tariffs and to broaden the WTO agenda to include matters such as a Multilateral Investment Agreement.
3. The Uneven Impact of Globalisation
The above processes can be seen as real and objective changes in the way that the capitalist mode of production operates. The UNDP has, however, also said that globalisation is "prescriptive". "The prescription", according to the UNDP, "is to liberalise national and global markets in the belief that free Tows of trade, finance and information will produce the best outcome for growth and human welfare ".
"All is presented ", says the UNDP, "with an air of inevitability and overwhelming conviction. Not since the heyday of free trade in the 19th Century has economic theory elicited such widespread certainty" (UNDP, 1997, p 82).
There are, however, a number of problems with this kind of ideologically driven policy prescription. Some of the problems include:
Liberalisation associated with globalisation is being applied selectively.
Free movement of unskilled labour is not part of the agenda. In addition, while global negotiations are moving rapidly towards free markets in foreign investment and services, developed countries intervene in textile and agricultural markets to create obstacles for exports by developing countries in areas where they are currently competitive. The ideology of neo-liberalism says that the maximum liberalisation of tariff and regulatory controls is as good for the party taking these measures as it is for the potential entrants into a newly liberalised domestic market, but, in practice, globalisation is a highly uneven and unequal process of liberalisation.
Developing countries have been pressured into significantly "opening up" their national economies and substantially reducing real levels of protection, only to encounter continuing real protection, taking various forms, in advanced industrialised countries.
According to the UNDP, non-tariff barriers in at least 20 industrialised countries became more rather than less restrictive in the decade 1982-1992. By 1992, these "global market restrictions and unequal partnerships" were costing developing countries about $500 billion - an amount equal to about 20% of the their combined Gross National Product (GNP) and more than six times their total amount spent on development priorities, such as basic education, primary health care, safe water and the elimination of malnutrition (UNDP, 1992, 6).
Although the implementation of the Marrakesh Agreement is leading to the removal of some of these non-tariff barriers (while converting others into tariffs), its effects too are highly uneven. A study by the OECD has suggested that those who benefit the most from the Uruguay Round will be North American and Europe. It further says that Africa, including South Africa, will be net losers at least in the short and medium term (see Third World Economics, 15/11/1993).
In agriculture, in particular, non-tariff barriers and subsidies in developed countries and regions, many of which were justified as a price that had to be paid in order to secure the Marrakesh Agreement, have resulted in a playing field that is far from level. For example, the producer subsidy equivalent for European Union agricultural products is 15% in South Africa. These subsidised EU products compete with those from South Africa and other developing countries not only in the EU market, but also in third country export markets and even the domestic South African market.
The UNDP concludes that "in the real world, as distinct from the imaginary one inhabited by free traders, survival in the agricultural market depends less on comparative advantage than on comparative access to subsidies. Liberalising local food markets in the face of such unequal competition is no prescription for improving efficiency, but a recipe for the destruction of livelihoods on a massive scale" (UNDP, 1997, 86).
Thus while globalisation has been seen as potentially raising world GDP by between $212 and $510 billion, it needs to be recognised as highly uneven process that has produced losers as well as winners.
It has been linked with the widening of differences in income and wealth both within and between countries.
The UNDP points out that liberalisation has demanded the "shrinking of state involvement in national life, producing... privatisation of public enterprises and, generally, job cuts." The UNDP further states that "the opening of financial markets has limited governments ability to run deficits - requiring them to slash health spending and food subsidies that benefits poor people." (UNDP, 1997, 88). Liberalisation has sometimes come together with greater inequality and a "falling share of income for the poorest 20%" (UNDP, 88-89).
Similar thinking also underlies concerns repeatedly expressed about the marginalisation (actual or potential) of a number of the least developed countries. In forums such as UNCTAD, it has been argued over and over that while the process of globalisation has the potential to raise growth and living standards across the globe, it also has the potential threat of marginalising a number of countries and peoples who lack the basic requirements to integrate effectively.
President Benjamin Mkapa of Tanzania told the Mozambican parliament during an official visit in April 1996, "...we face pressure to prepare ourselves for liberalised world trade... With our low capacities for science and technology, productivity and hence competition, coupled with our indebtedness and ever deteriorating terms of trade, we stand to lose rather than gain from this new trade regime" (Southern Africa news Features, 16/5/1996).
Linked to this perception of the threat of marginalisation and the need for "development" to feature more prominently in trade negotiations, is an increasing questioning of the whether the neo-liberal policy response to the objective reality of globalisation is appropriate and correct or not. As indicated earlier, the "Washington consensus" says that globalisation requires the same kind of policy response everywhere, which include that :
Ethan Kapstein (1996) has argued that such policies have had an impact of contracting the world economy. He writes, "The global economy is leaving millions of disaffected workers in its train. Inequality, unemployment, and endemic poverty have become its handmaidens". Kapstein blames "the current obsession with balanced budgets in the United States and the Maastricht criteria in Europe"
The failure of many developing countries to achieve East Asia style export-led industrialisation, despite years of IMF and World Bank recommended Structural Adjustment Programmes (SAPs), has also led to some reflection on whether or not they are correct as a strategy, even among economists who encourage their integration into a globalising world economy.
In a paper presented to the North-South Round Table on Africa held in Johannesburg, Sanjaya Lall and Frances Stewart (1995) argued that protectionist policies had one-sidedly emphasised efficiency. The real challenge, they suggested, was to steer a delicate balance between the two.
"There is no definitive guide on how to do so", they write, "though the experience of Taiwan, South Korea and, in the African context, Mauritius, provide some pointers. These countries first built up strong human capabilities through... and, once industrial capability was established, they changed the incentive system to favour manufacture of exports based on simple labour intensive technologies (mainly textiles and garments). They did not abandon the protection of domestic industry, but provided incentives for efficiency through domestic competition and government pressure on firms, including pressures to enter export markets and thus face competition from international markets after a predetermined number of years ".
4. Options in Responding to Globalisation
What then is the appropriate policy response for a country like South Africa?
Globalisation is clearly a complex process that we cannot ignore or avoid. Our country depends on its relationship with the world economy for about 50% of its Gross Domestic Product (GDP) and withdrawing or isolating ourselves is an option that could only be implemented at great cost. The ANC has, thus, taken a policy decision to engage proactively with globalisation and look for a beneficial re-insertion of our country, isolated by apartheid, into the world economy. We need to see globalisation as presenting both opportunities and threats, and to recognise that we have strengths and weaknesses in engaging with it.
The opportunities arise from the fact that world trade is expanding more rapidly than world GDP, that international capital flows have increased and that globalisation has been associated with a communications and information-technology revolution. The rapid expansion of world trade is creating possibilities for a country like our own to boost its economic growth by increasing exports as well as, at the same time, achieving a diversification of exports that could reduce our dependence on primary products. Both these goals are critical to achieving RDP and GEAR targets. The technological advances linked to globalisation also have enormous potential to raise output and improve incomes. The increased movement of international capital could potentially result in an increase in foreign investment - another important GEAR objective.
The threats come from the fact that globalisation has increased competitive pressures. No country can maintain protective tariffs and regulatory barriers at the levels they were in the past - unless it is prepared to cut itself off entirely from the global trading system. As protective barriers are lowered, producers directed at domestic markets will face increased competition from potential imports. At the same time, taking advantage of the opportunities available through engaging in export trade has become an objective of many countries. Unlike the East Asian Newly Industrialised Countries (NICs) who began their drive for export-led growth at a time when most other developing countries were following import substitution industrialisation (ISI) policies, South Africa faces the prospect of having to attempt to realise its objectives in this regard at a time when many other countries are trying to do precisely the same. In both export and domestic markets, globalisation is thus increasing competitive pressures.
South Africa has strengths it can build on in developing a proactive response to globalisation. It has a significant natural resource base, is relatively developed in relation to its neighbours, has a geographic location closer than the advanced industrialised economies of "the North" to faster growing economies of Asia and Latin America, has human resource potential and is undergoing a political transition that is strongly supported and admired by many key players globally.
At the same time, we have clear weaknesses and vulnerabilities that need to be identified and overcome. Much of the inherited productive economy, and the manufacturing sector in particular, are relatively uncompetitive. Years of isolation under apartheid, and policies of import substitution industrialisation have left much of the manufacturing sector, in particular, vulnerable to foreign competition.
These actual or potential weaknesses are made worse by the unevenness and selectivity of globalisation today (as discussed in the previous section). South Africa's level of development means that it is seen as a potential competitor, at east in some sectors, to developed countries. Fears about the impact of our products in sectors where we are currently competitive, e.g. processed agricultural products, clearly exist in influential circles in developed countries. We have discovered that we are unlikely to receive much more than we already have by way of preferential non-reciprocal access to major developed country markets. Any further benefits in terms of access to such markets are likely to require that we grant reciprocal favourable access to our own market through the negotiation of Free Trade Agreements.
Our policy stance requires that a number of elements are put in place at the same time. First, there is a need for a clear trade strategy aimed at identifying countries and regions where we can most beneficially increase our trade. The Department of Trade and Industry (DTI) has identified the fast growing regions of the Indian Ocean Rim and Latin America, as well as the Southern African region and West Africa, as particularly important in this regard. Second, we need industrial and sectoral policies aimed at raising the overall level of competitiveness, identifying sectors where we have potential and those where there are vulnerabilities that need to be overcome.
We must be willing to learn from international experience, and identify international best practice. But we must protect and defend the integrity of our own policy formulation. We must not succumb to ideologically driven or self-interested policy prescriptions that come from elsewhere. Protectionism of the sort applied in previous years is no longer an option. A minimalist approach to tariff reform can create a false sense of complacency. But we must recognise that being more free trade than the norm is unlikely to bring us real benefits. The main thrust of our domestic policy response must involve recognising that change is certain and we must therefore proactively promote appropriate restructuring that serves our growth and development objectives.
Globalisation also requires of us that we introduce concrete measures to counter its polarising and marginalising tendencies. In a context where globalisation has been accompanied by a widening of inequalities within countries and where jobless growth has become a global norm, active policies to promote employment, including by focusing on services and other non-tradable sectors, human resource development and basic needs provision, are all essential.
Finally, globalisation challenges us to actively engage in wide trade diplomacy. A process which is continuing to reproduce a division of the world into "winning" and "losing" nations, particularly in a situation where many of our neighbouring states and a large part of the continent of Africa seem doomed to remain "losing" nations, cannot be one that South Africa is simply indifferent to. We need to recognise that globalisation and liberalisation have created an imperative to, on the one hand, struggle to find new ways to protect the integrity of domestic policy formulation and sovereignty, while, on the other, actively engaging in the international arena both to maximise opportunities within existing norms and structures, and at the same time striving to become an active force seeking to bring about changes in the global environment that will benefit our own country, Africa and the South in general. In circumstances where there are powerful pressures merely to conform, this will need to be constantly based on an informed and critical analysis of the emerging global environment and of the balance of forces within it.
Some valuable lessons have been learnt in the past three and a half years. One of them is that South Africa, which produces less than half per cent of the world's GDP, can only hope to be effective in international forums if it acts together, in partnership, with others. The search for alliances is thus fundamental - with Southern Africa, Africa and the South clear priorities in this regard. We must overcome the tendency to see matters of trade negotiations and international economic regulation as technical matters that can be left to experts. Developments at this level are of critical importance both to government as a whole and broader civil society. The ANC must become more active in:
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