Part I
Nobel-awardee economist and author Joseph P. Stiglitz, in an interview, expressed not just for the continuation, but for the strengthening of globalization. His view visibly reflects his reaction to the decision by US President Donald Trump not to join the pending Trans Pacific Partnership Agreement which saw countries like Japan stranded and guessing what to do next. Stiglitz pointed out that globalization has failed because many countries have not fully deregulated their economies. To him, globalization and deregulation are inseparable, with some insisting that to make the global economic arrangement work, industries should be privatized.
In demystifying the key components of what constitute globalization, it is necessary that we have our fundamental understanding of what it is. But the nagging question is whether the privatization of industries is a precondition to make globalization work, or is it possible to join the club without having to privatize their state-owned industries? Many ask this because privatization, if brought about by external pressures, infringes on sovereignty than on the issue of gains under this economic arrangement.
Frankly speaking, the privatization of industries has no relevance to the goal of globalization. Some countries see this as imposition on their domestic policy to ensure domestic employment and steady income for their people. The demand that member-states first privatize their industries is, in truth, seeking to dismantle the remaining strand of socialism that lingers on after the end of the Cold War.
Maybe the US and the European Union have complied with the demand to privatize, but that they substituted it with subsidy on their agricultural and dairy products for the same reason of wanting to protect their own farmers. Nonetheless, subsidy failed to stop the onslaught of revaluation that invariably pushed upward the price of their exports.
Globalization simply means free trade. Some insist that to make it possible, countries wanting to join the club must dismantle, if not lower their tariff to an agreed level, to induce the free flow of goods. In other words, globalization puts into operation Adam Smith’s theory of “comparative advantage” or the system of trade which encourage countries to sell what they can produce at the least cost to give importing countries the benefit of obtaining them at cheaper cost.
Others argue that globalization can be implemented without necessarily compelling countries to privatize their state-owned industries. They contend that globalization advances a misleading theory. But privatization has nothing to do with the price of goods just as deregulation could not assure anybody that the price of goods will go down. Privatization could deregulate the price of goods on the assumption it will seek (not float) its own level, which is a complete fallacy.
This demand becomes apparent because international trade has accepted the principle of most favored nation clause, a commitment that a country will extend to another country the lowest tariff rate it applies to any other country. Thus, while globalization essentially deals for the reduction of tariff, deregulation is more of an internal mechanism to encourage and/or discourage the production of goods, which has serious effect on their domestic economy. Countries tend to promote deregulation in relation to the production of commodities, but not when it is meant to regulate the price of their goods. Either way, it is the price of their goods that they seek to protect.
Countries that have an array of exports usually enjoy the advantage of finding substitutes to their exports. This is particularly true in the export of manufactured goods. They are less affected by political acts like boycott, trade embargo, predatory pricing or dumping, which today, serve as weapons to reduce the prices of goods to unbearable level. Less-developed countries have no much choice in the export of their agricultural or mineral products.
The “specialization” of exports led to economic disasters to many exporting countries. The comparative advantage has become their own “Achilles’ heel” for often, importing countries use that as their leverage to bring down the price of imports. Admittedly, the quota system and the preferential tariff arrangement, like the unlimited access to the US market and higher value or lower tariffs for our sugar, are practices prohibited by the WTO but remain embedded in many trade agreements.
They have not only made many countries dependent on specific exports, but deepened poverty and inequality because the specialization of products was taken over by the local oligarchy to exploit our own people as what the “sugar barons” did before President Marcos decided not to renew the Laurel-Langley Agreement in 1974. That backbreaking colonial economic system has only created a class of super-rich that today, continued to make a mockery to our democracy.
Moreover, the main obstacle that hinders the complete elimination of tariff is on how to balance the import needs of a country in exchange for its limited exports. Imports from developed countries cost more than the value of their exports which are limited to few products. This is compounded by the fact that it is not only production and pricing that the globalists seek to deregulate, but also in the value of the currency by our adoption of flexible exchange rate after the US devolved the dollar from the gold standard.
Maybe nobody can dictate the price of our exports, but we cannot equally dictate the price of our imports, weakened further by the continuing erosion in the value of our currency. Exporters of manufactured goods enjoy more advantage, and this explains why in times of recession, less-developed countries suffer more. Globalization carried out through a system of interlocking trade agreements has only exacerbated them to commit their exports to importing countries’ price.
Today, the valuation of the US dollar that is based on the approximation of its gross domestic product, which many countries tie the value of their own currency, resulted in the uncontrollable inflation that even if the various central banks wish to impose a zero interest rate, prices continue to climb without any corresponding increase in production. This is not to mention that the value of the US dollar that is made alive on borrowed money (treasury bills) from China and Japan, and bloated by the malpractice of quantitative easing to scoop the hard-earned earnings of developing countries.
This has opened the flood gates to what we call casino economy characterized by the trading of money for money, and the money market gamblers earn more without producing, manufacturing or trading a single commodity, which in fact is the hallmark in the creation of wealth.
(rpkapunan@gmail.com)