Globalization & its Impact on Developing Countries
Globalization and its Impact on Developing Countries
by Dr Alí Rodríguez-Araque, Secretary General of OPEC
G77 High-level Advisory Group on Globalization
Geneva, Switzerland, September 12, 2001
Excellencies, distinguished guests,
It is with the deepest sorrow and sympathy that I stand before you today. The appalling tragedy that has been witnessed in the United States has left us all feeling moved beyond words. I would like personally, and also on behalf of OPEC, to express sincere condolences to all those who have been affected by this tragedy. I should also like to take this opportunity to reiterate the message that all OPEC Member Countries remain committed to continuing their policy of oil market stability and ensuring that sufficient supplies are available to satisfy market needs, using spare capacity, if necessary, to achieve these goals. There are, however, important issues that we have gathered together to address, and, therefore, with your kind understanding, I shall direct your thoughts towards these concerns.
It is a special honor for me to address a meeting of such paramount importance for the members of the Organization of the Petroleum Exporting Countries and the developing world at large, and I thank the organizers for their invitation to share our views on globalization and development.
If globalization is understood as the integration of national economies and the elimination of borders, this corresponds with a natural tendency in human beings, as the social beings we are. In this regard, a correct vision of globalization, as a march towards greater integration, should emphasize the complementarity of economies, balancing the weaknesses and strengths of the different countries and regions. This, in turn, would lead to a more equitable world, not denying a healthy measure of competition. But is this what's happening under the current globalization process?
The last few years have witnessed a dramatic expansion of international financial capital, boosted by the ongoing technological revolution. This trend appears to be leading to a homogenization of the world economy, based on a single model. Thus, rigid, single formulae are being applied to a highly diverse world, within which each country and each region have their own particular history and reality. This type of integration, imposed from the top, claims that it is based on competition as its dynamic principle. But since it involves competition between highly unequal forces — due to disparate levels of economic and technological development, and financial power — it is much more about the control of some economies over others. The result, until now, has been the expansion and deepening of poverty, thus widening the gap between the rich and the poor of the world.
In spite of claims about the virtues of free trade, the form of globalization being presently advanced is based on an administered market. While some efforts are aimed at promoting the elimination of trade barriers, a myriad of other measures are devised to severely restrict some forms of trade — for instance, exports of agricultural products from developing countries.
Paradoxically, while globalization generally promotes the elimination of obstacles to the free movement of merchandise and capital, new walls are being erected to prevent the free movement of labour, in search of employment and better living conditions. This leads to inequalities exacerbated by the effects of globalization. Thus, immigration is an issue where developing countries must press to get their views taken into account, so that it can be tackled with a spirit of shared-responsibility by rich and poor nations alike.
The effect of current globalization-related policies is dramatic. Four decades ago the 20 richest nations were 15 times richer, on a per capita basis, than the 20 poorest. This gap has now doubled. On the other hand, while some countries in Asia and Latin America have seen relatively robust trade growth, African exports have actually declined over past decades. Significantly, this cannot even be explained by a lack of integration in world trade — many countries have simply suffered due to the structure of their economies, and, particularly, their reliance upon primary commodities, whose prices have fallen.
Thus, it has become increasingly clear that vital development objectives are not served by the present process of globalization. The failure of the Seattle Summit to launch the "Millennium Round" in November 1999 signaled the intensification of the debate on the merits of globalization. Therefore, we should ask ourselves whether globalization must proceed in the terms it has been pursued until now.
Shortcomings of a global free market
The classic position defending the free market on a global scale is that greater openness should bring greater economic growth in the long-run. Without doubt, the power of globalization can offer opportunities, and developing countries recognize that there are ways that they themselves can use, in an attempt to improve their chances of benefiting. For instance, they can devote increased resources to addressing their main social problems.
Some countries have a comparative advantage in technology and capital, others in abundant labor. Clearly, the comparative advantage of OPEC countries, for example, lies in the fact that they are endowed with abundant reserves of a key natural resource — oil. But there are many countries that do not have technology, capital or natural resources.
Moreover, technological advances have actually increased the gap between industrialized and developing countries, instead of contributing to reducing it. And by exponentially increasing productivity, new technology is having some terrible side effects — thousands of workers, especially the unskilled, are being forced into unemployment, not only in developing countries, but also in the more developed nations.
There is a growing concern that globalization also creates economic and social dislocations that are largely ignored by trade protagonists. Indeed, the encouragement of privatization, deregulation, lower trade barriers, and so on, is far from proving to be the best way forward for developing countries.
It has been suggested, for example, that the success of the East Asia tiger economies was supported by largely protectionist policies. At any rate, the subsequent deregulation of financial systems made them far more vulnerable to financial crises — the painful consequences of which we witnessed at the end of the 1990s. The observed increase in financial volatility, through, for example, speculative capital flows, is suggested by some to have, in fact, reduced economic growth in some world regions, through the resultant uncertainties.
Globalization and foreign debt
Foreign debt has been a serious obstacle to development for many countries and globalization trends are making it an even more acute problem. Heavily indebted nations lack the resources to either alleviate the dislocations resulting from globalization or to take advantage of the opportunities it may bring them. Thus, it is becoming increasingly recognized that debt relief is an important part of removing obstacles to longer-term development. G-8 countries have indeed already pledged to forgive some 100 billion dollars in debt, through the Heavily Indebted Poor Countries Initiative. But debt remains a serious problem for the developing world, and more relief is clearly needed.
It was disappointing, therefore, that the July meeting of G-8 leaders did not record particular progress on this subject. Furthermore, as cynical as it may sound, moves to remove debt should not involve diverting resources away from aid, yet this is in practice what often happens. Overseas Development Assistance (ODA) has declined over the past decade, so that now private capital is dominant in long-term resource flows. With this development, the transnational corporations have become the key to the transfer of technology and skills to developing countries.
The World Trade Organization
The emergence in recent years of new supranational institutions, such as the World Trade Organization (WTO), is also helping shape the face of globalization, as progress is made towards an enhanced Multilateral Trading System (MTS). There is now surely a mandate for the new institutions to adopt rules that better reflect the concerns of developing countries. Indeed, one of their major worries is the lack of transparency of international organizations, with decisions often taken by a small group of members. One clear example of the type of grievance expressed by developing countries with regard to the WTO process is the fact that the promise of access to markets has largely failed to materialize — in particular, agricultural tariffs and subsidies remain stubbornly high in many countries, while little has been done to remove textile import quotas.
Another example is how so-called anti-dumping legislation is easily misused as a tool to placate protectionists in some countries. Furthermore, there have been strong indictments, from the United Nations itself, of the way that intellectual property rights are treated, with tighter rights likely to raise the price of technology transfer for developing countries, meaning that, effectively, the best of the new technologies remain out of reach for poorer countries. This often leads to a perverse sense of priorities in the research agenda, with developments related to luxury goods seen as more pressing than, for example, developing drought resistant crops, or better vaccines.
An important advantage emanating from the MTS is the opportunity for oil exporting countries to establish their rights and defend their interests. OPEC nations, for example, can use the MTS to seek improved access for petroleum and petrochemical products. They could use it to ask for reciprocity in the context of market liberalization — for instance for energy services — and should the need arise, they could make use of the dispute settlement mechanism.
Additionally, it is worth noting that the protests witnessed recently also highlight the need to reassess the role of the International Monetary Fund (IMF) and the World Bank, their governance system and the one-size-fits-all structural adjustment policies imposed by them upon developing countries. Such measures have often had crippling social as well as economic consequences for the countries concerned.
We have seen how, for many developing countries, the growth path has been almost inexorably locked into one of primary product output. This has occurred, in part, because of the very openness of trade. There is a long established literature, for example, on what has been termed the Dutch Disease. This has been particularly relevant for countries that have abundant hydrocarbon resources. How to encourage growth in other sectors is therefore a central concern for many developing countries, including those members of OPEC. Notwithstanding efforts to expand various areas of productive potential, there is increasingly a link being made between these diversification efforts and more global responsibilities.
For example, in recognition of the expected negative impacts of climate change mitigation upon oil exporting developing countries, and OPEC in particular, the resumed COP6 meeting in July included, as part of the "Bonn Agreement", a commitment to provide assistance to such countries in diversifying their economies. This is a positive sign, although the losses accruing are still likely to exceed these transfers. The point, however, is that diversification is clearly central to the development agenda, and an enlightened form of globalization would need to take these needs into account, quite independent of the obvious efforts of individual countries to pursue such diversification objectives themselves.
OPEC, Globalization and Developing Countries
When discussing globalization and oil, it is worth highlighting that the international oil business was one of the first areas of economic activity to become truly global. And in the context of globalization trends, the role played by OPEC, in contributing to stabilizing international oil prices, gains particular eminence.
In fact, the most troublesome feature of the world energy market, over the years, has been price volatility. It has been proven time and time again that an unstable market and fluctuating prices benefit no one. They spell strong negative effects for the world economy as a whole, and for the national economies of both producing and consuming countries, especially in the case of the poorest nations.
In fighting oil price volatility through different efforts — with the creation of a price band being the most recent — OPEC has become the only organization of developing countries to succeed in defending the legitimate rights of its Member Countries over a natural resource as vital as oil. We are developing states, facing the same social problems as many other countries. We depend, in many cases almost exclusively, on oil revenues to address our social needs, to pay very high foreign debt servicing charges and to set the foundations needed to diversify our economies.
In fact, OPEC's quest for market stability goes a long way in terms of helping guarantee access to energy to the different countries of the world, enabling them to pursue a sustainable development pattern. A more integrated global economy makes the need for access to energy even more important for developing countries, as a vital ingredient in expanding economic activity and improving living standards. OPEC is fully aware of this fact and additionally helps developing countries through specific efforts.
These include the work of the OPEC Fund for International Development, and other national and multilateral funds largely financed by OPEC countries, which offer loans and grants for projects throughout the developing world. And more directly connected to oil supplies are schemes such as the San José Accord and the Caracas Energy Agreement, under which Venezuela extends financial facilities to Central American and Caribbean Countries for the acquisition of their oil imports.
Additionally, the last decade or so has witnessed a substantial shift towards privatization and deregulation in the oil business. With this has come a steady fall in costs of exploration and production, which has cemented the perception that oil resources are plentiful, and that scares of an early peak in production were wide of the mark. Having said this, we still expect OPEC countries to have to supply the incremental barrel of demand in the 21st Century. Yet while reflecting on globalization and oil industry development, we may not forget the importance of the process of attracting investment.
In fact, the issue of investment in the oil industry is presenting itself in the form of a great new challenge for OPEC. The Organization has succeeded in achieving cooperation aimed at stabilizing international oil prices, avoiding competition for market share among its Member Countries. This has resulted in benefits for everyone. Thus, we must now avoid the dangers inherent in allowing competition for investment among Member Countries to come into the picture.
Globalization trends have broadened and deepened the breach between the rich and the poor, between highly industrialized countries and developing countries, especially the least developed ones. Consequently, large numbers of people are finding themselves uprooted and pushed aside by the forces of this process, often hindered in their search for jobs and better living conditions. The motto appears to be: "Yes to merchandise, no to human beings."
The right answer is not held either by those totally opposed to world economic integration — which is the natural result of the evolution of human beings — or by those who defend the process in its present form. The facts are demonstrating that it is necessary to reassess the matter with a holistic approach.
This new vision must lead us to a new conception of the institutions that act as promoters or referees of this process, such as the International Monetary Fund, the World Bank and the World Trade Organization.
These realities also involve the oil market, and OPEC, an Organization of developing countries with problems similar to those of other developing nations. Our Organization is fulfilling its role as a stabilizing force for the oil market, thus making its own contribution to the development efforts made by other states, keeping very much in mind the challenges of ensuring that globalization is of genuine benefit to everyone.