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12/09/02
Since the new Millennium kicked off two years ago, the
world has witnessed a long list of horrific political
and power events from the US, Afghanistan, Bali,
Middle East, Moscow, Nigeria to Kenya. The economy
does not help, either. The economy around the world
has not been able to produce rosy pictures. Argentina
just recently experienced an economic crisis and will
likely continue to suffer for the next few years until
there are fundamental changes in the country in terms
of its relation with the IMF and its foreign debts.
Countries in the Southeast Asia such as Indonesia and
Philippines are still struggling to recover from long
and painful crisis. Japan is still in recession. The
US economy has not been able to rebound to its mid 90s
performance. For better or for worse, the impacts of
these two giant economies are worldwide.
A recent survey of more than 1,000 executives,
business economists and economic analysts from 89
countries by the International Chamber of Commerce and
the Munich-based Ifo Economic Research Institute found
that geopolitical instability provoked by
international terrorism and the Iraq crisis has
provoked a sharp deterioration in the world's economic
climate. And with the
likelihood of war in Iraq next year, the global threat
of terrorism and the sluggish performance of the economy around
globe, the world could enter: a new world disorder or
a new new world order.
Unfinished business
In his State of the Union Address, January 29, 1991,
President George Bush Sr. stated, “The world can
therefore seize the opportunity (the Persian Gulf
crisis) to fulfill the long held promise of a New
World Order where diverse nations are drawn together
in common cause to achieve the universal aspirations
of mankind."
Since then the new world order had been a pop
jargon. But reactions to Bush’s statement were mixed.
Some perceived it as a hidden agenda of the US to
control the world. When it combined with the backfire
from the programs introduced by the international
bodies such as the IMF and the World Bank to
“revolutionize” the economies of the developing and
under-developed countries, "The New World Order"
had often been referred as "a conspiracy theory" by many
people.
For them, a new world order is a world dominated by
American military power and American control over all
strategic raw materials from crude oil to agriculture
products. And for them, including some libertarians
and left wind liberals such as Noah Chomsky, America is
the villain and the international institutions such as
the IMF and the World Bank are the American tools to
dominate and control the world. And for them,
globalization is just another form of colonialization.
But is it so? It is true that all bad things that
happen in all countries are the results of
Washington’s policies? Is really the White House a
grand design of the world? It is too absurd to believe
in the argument as if a falling hair from one’s head
is because the US president orders it to do so. But
there are millions of people around the world who are
really entertained by the conspiracy theorists.
Between 1983-1986, the British-born conspiracy
theorist Antony Sutton wrote a series of pamphlets
about the Order of Skull & Bones. Skull & Bones was
founded at Yale College in New Haven, Connecticut in
1832. It is the oldest and most prestigious of Yale's
seven secret societies. This fraternity serves as a
recruiting ground for young men destined for careers
in government, law, finance and other influential
sectors of American life. George Bush Sr. was believed
to be selected a Hall of Fame of Skull & Bones.
According to the Skull & Bones documents used by
Sutton in his somewhat flawed profile of the Order,
the creation of a New World Order is a primary goal of
the Bonesmen and has been for decades. For the
initiates into the Order, the term New World Order has
a very specific meaning.
But that theory died instantly as Bush lost to Clinton
in the US president election in 1992.
Putting aside conspiracy theory, one would understand
rationality behind the Bush’s speech on the new world
order. George Bush Sr. perhaps realized that
following the collapse of the Soviet Union and the
Berlin Wall in the late 80s and
the crushing military defeat of Iraq by a
technologically far superior American-led coalition,
the world had entered a new phase where the rules in
the international relations were no longer determined
by country’s anti-communism or pro-communism stance.
Economic interest has replaced the interest on
ideology. Market is more important than party and
decentralization is preferred to centralization. The
old paradigms in international relations and in
domestic development have changed. Many of the
institutions created during the Cold War were no
longer relevant.
While Bush had not finished yet laying down his
concept of the new world order into policy and
practice, he lost his position to Clinton who brought
a new but unclear perspective on the foreign policy.
As Anne Applebaum wrote in Hoover Digest Summer 2002,
“Bill
Clinton had plenty of policies but no philosophy with
which to link them. “Nation-building” was the phrase
sometimes used to talk about American policy in the
Balkans and in Haiti. “Democracy-promotion” is
perhaps more accurate. In practice, this meant that
all around the world: In China, in Russia, in
Malaysia, all over Africa, and above all in Serbia
United States lectured and scolded and promoted its
system, complaining about the closure of opposition
newspapers, protesting the incarceration of opposition
leaders.”
Indeed, as the leading economy and nation, together
with the European Union, the United Stated perhaps had
missed the golden opportunity of the 1990s to bring
some orders to the disorder world. During the 1990s,
the world had experienced a tremendous progress and
advancement in telecommunication technology which
enables people to connect and send messages to
thousands of other people instantaneously: World wide
web. Yet, while the world becomes entangled in a web,
millions of people are really disconnected from each
other which has created one of the most deadly crimes
in the universe: terrorism.
As Clinton came to power, he brought with him his
popular campaign theme, “It’s the economy, stupid!”
His legacy was in the success of domestic economy but
on the international context, some parts of the world
such as East Asian, Latin American and African
countries were left in despair, a sin that often
attributed to the failure of Clinton’s administration
in helping the world economy get moving. In the
words of President Clinton,
each nation is "like a big corporation competing in
the global marketplace.” Clinton was right as pointed
out by Paul Krugman in Foreign Affair (1994) that the
economic problem facing any modern nation is
essentially one of competing on world markets -- that
the United States and Japan are competitors in the
same sense that Coca-Cola competes with Pepsi. But it
is this dangerous analogy that has produced losing and
winning countries in the today’s global economy.
The
1990s: A missed opportunity?
Globalization is perhaps the most popular jargon from
the late 1980s to the first half of 1990s. This
concept has been extensively discussed by scholars
from many fields (Beyer, 1994; Boyer, 1996; Dicken,
1992; Featherstone, 1990; Howel and Wood, 1993; Jones,
1995; King, 1991, McGrew and Lewis, et al,
1992; Robertson, 1992, Spybey, 1996) and popularly
addressed by politicians in many countries. Commonly
perceived as a global transformation toward a
condition where geographical, cultural, political and
social boundaries are no longer impediments to the
relationships of among nations, globalization is
believed will enhance the living standard of people
around the globe. The reason is that because
globalization will eliminate barriers in international
economic and business activities and improve the
efficiency of world economy.
The most important aspect of this global
transformation is the integration of national
economies into the global production system. The
growth of the world trade, the expansion of capital
flows among economies and the vast development of
multinational corporations (MNCs) producing in more
than one country are all elements that lead to changes
in the international production and consumption.
There is no longer a single good or service sold
globally is made in one country. Automobile for
instance is no longer entirely made in US or made in
Japan, but it is more and more made in the world.
Another example is credit cards. The product is
devised for a specialized, high value-added world
market, based on the integration of whole bunch of new
technologies, from data processing to
telecommunication and managed by global companies.
The transnationalization of production has fueled
competition among major economic powers. To some
extend, it is this competition that stimulates
globalization. As Porter (1990) indicates that
firms, not nations, that competes in the global
economy. Transnational corporations (TNCs) are the
key global actors that compete with each other to win
markets for their products. The unrelenting
competition forces TNCs to invest constantly in the
development of new products or better production
technologies. Otherwise they will run the risk
falling behind in the race for profits and market
share. On the sidelines are all kinds of financial
investors that want to capture a share of those
profits and that in the process make bets on the
relative strengths and weaknesses of TNCs. Their
choice reinforce the perceived qualitative and
quantitative differences in competitiveness of TNCs.
In today globalized economy, therefore, TNCs must
shape up or decline. That pressure has forced TNCs to
seek for help from the most valuable of human
possession: brains, which produces knowledge.
The revolution of modern technology plays a central
role in the transformation of global economy.
Scientific advances and innovations in information and
communication technology have increased the speed of
information process and transmission across national
boundaries at a light speed. The result is an
enhanced capacity of TNCs to coordinate their
worldwide operation. This is reflected by the
intensity of TNCs’ operations around the globe both in
trading and investing activities. These activities,
eventually, provide a clue whether the world is really
moving toward globalization.
The business scale of TNCs is so huge that they have
capacity to determine which countries will participate
in the new global economy. The criteria for their
decision are based on the potential of markets,
availability of resources, economic policy and
political stability of a country. They will invest in
a country where market is potential, bulk of resources
and where domestic politic is relatively stabile.
These conditions are required to ensure the
profitability of their investments, either in the
short run or long run.
Certainly, the transformation of global economy does
not occur in a political vacuum. Economic
liberalization, elimination of trade and non-trade
barriers and protectionist measures, and the quest for
regional cooperation and economic integration are all
political driving decisions. The transformation and
transition in the global political domains have
brought a new order. For this phenomenon, many
authors used a term: new world order. The aspect of
this transformation is the replacement of the United
States – Soviet Union bipolarism with a multipolarism.
In a multipolar world, the US, Russia, Japan, China
and Western Europe will share the responsibility in
managing global politic and economy. Yet, in reality,
the precise forms of this configuration and the
direction of transition remain unclear and these bring
uncertainties in the management of global politic.
For example, the only time when all major forces (US,
Western Europe, China and Russia) had relatively
similar perceptions on how to manage the global
politic was during the gulf war in 1991. In the post
gulf war, Russia and Western Europe countries, mainly
France and Germany, tend to have different positions
and reactions from the US’ on how to manage the global
security. The differences are mainly caused by
differences in the national economy interests of the
countries. This implies that in the globalization era,
economic interest is as important as political
interest.
As we are living in the new Millenium, globalization will
acquire further momentum of the world development.
However, only countries and regions that are already
well situated in the world production systems, in
terms of access to technology, markets and capital,
will be qualified to obtain its benefits. This will
leave some nations as winners and some others as
losers. Another consequence of globalization is the
decrease in the role of states in managing their
economies. As an economy moves toward global economy,
domestic policies become easily affected by the
dynamic of global economy. As what happening in East
Asian countries recently, the financial crisis hitting
the region have left their governments with no choice
except to accept and implement policies recommended by
the global institution such as the World Bank and IMF.
In fact, some of their recommendations are not always
correct to overcome the real problems they are
experiencing. The role of states in the globalization
era, therefore, is questionable.
Globalization: Policy and
Practice
Globalization is a broad and multi-dimensional
concept. From economic perspective, it is a process
integration of the world economy into global economy.
The word ‘integration’ then is the key to understand
the economic globalization. Literally, it refers to
the state of being integrated which implies that once
objects or entities become integrated, they are
treated as one.
Theoretically, integration is associated with
equalization of product and factor prices through free
commodity trade and greater division of labor across
the relevant markets (Haberler, 1964). When
transportation costs are not taken into account,
identical goods and services should carry the same
prices across all places where such goods and services
are traded. This is what known as the law of one
price in economic theory. Belassa (1961) broadly
defines integration both as a process and a state of
affairs. He emphasizes that the theory of economic
integration is a custom union theory involving several
strategic stages before and after a custom union is
actually reached. Thus a custom union is an
intermediate step towards a more complete state of
integration. The general accepted stages of an
economic integration process with each of its
characteristics are exhibited in the graph 1.
From this perspective, one can assess whether
quantitatively and qualitatively the presence of the
integration initiatives support the hypothesis that
globalization does exist. A problem arises as how to
measure the economic integration. So let’s define
that the world economy is transformed into the global
economy if the former becomes more integrated. The
higher the quantity and quality, the more likely the
world is globalized. From quantitative aspect, in
1994, IMF compiled a list of sixty-eight agreements
pursuing economic integration in many regions covering
five continents. This seems supports the hypothesis
that there exists a strong tendency toward
globalization.
The fundamental motive behind the agreements is to
increase trade and investment activities by reducing
tariffs and other economic barriers among the
countries involved in the agreements. The reduction
in barriers will increase reliance on the price
mechanism rather than on controls of governments. In
other words, the role of governments in the
microeconomic decisions will decrease and market
mechanism will be driving force of economic
activities. To put in a more sophisticated jargon,
economy must be liberalized and let market determine
what the best for the economy. Liberalization then
becomes one of the most ‘beautiful’ words that
economists, business people and politicians love and
it becomes an important indicator of globalization.
This implies that the more liberalized the world
economy, the more likely it is globalized.
The following data is likely to support the
hypothesis: In almost 50 years, the number of
countries agree to sign the agreement intensifying
liberalization grew by more than 400 percent, and the
remaining duties as percentage of the 1930 tariffs
decreased drastically from 66.8 percent to 13.1
percent.
Based upon the structure of their economies, countries
in the world today can be divided into two categories:
industrial countries (ICs) and developing countries (DCs).
Thus, integration may also be interpreted as how the
two categories and each of its members move toward to
the same rows, becomes united and interconnected. One
country interacts economically with another by
exchanging their commodities which may take form in
the trade of goods and services or in the investment
of money capital. These exchanges will indicate how
closed is their relationship economically and
eventually indicate whether the world is really more
integrated.
Classical and neoclassical economists argue that
economic integration tends to enhance economic welfare
by compelling nations to specialize in the production
of goods and services in which they enjoy a
comparative advantage. They promote free trade among
nations. As what Paul Krugman (1987), a famous
neoclassical preacher, write, “If there were an
Economist’s Creed, it would surely contain the
affirmation ‘I understand the Principle of Comparative
Advantage’ and ‘I advocate Free Trade’”.
Free trade means that every nation must open its
economy to international economic activities such as
international trade and investment by reducing
barriers and promoting liberalization of its economy.
Thus, free trade is seen as the foundation of economic
integration.
Do these activities, trade and investment, shape the
world economy and support the hypothesis of
globalization? The next section will provide some
facts about it.
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