Prepared by
Michael G. Papaioannou, IMF1, Alex Mourmouras, IMF, Evangelos A. Calamitsis, IMF, Ret., and Achilles G. Adamantiades, George Washington University and World Bank, Ret.
For the Archdiocesan Committee on Science and Technology
January 27, 2004
Introduction and Background
What is globalization? Globalization is a multi-faceted process covering a wide range of human activities. From an economic perspective, globalization refers to the increasing economic integration among nations, particularly through trade, capital flows, and labor mobility. The extraordinary advances in information and communication technologies of the late 20th century have boosted this process. But globalization has other aspects as well, which transcend economics; it also refers to the human quest for freedom and a better life, increased travel and discovery, and deeper appreciation of new horizons and universal values. As such, this multi-faceted process has economic as well as social, political, cultural, and ethical dimensions, which affect all of us in some way.
Historical background. Although globalization has become more prominent in our lexicon in recent decades, this process is not a new phenomenon. In many ways, it is as old as history itself. Periods of globalization have been driven by quantum technological innovations, such as the invention of the steam engine, the telephone, and the internet. These innovations have at different times dramatically cut the costs of transportation and communication worldwide, thereby spurring international trade and communication.
While globalization can be traced back to at least the Polynesian and trans-Siberian migrations and the conquests of Alexander the Great, most economic historians focus on two eras much closer to our own time. The first is the period of the great discoveries, from about 1490 to about 1550, during which increases in the range of sailing ships made it possible for Columbus to discover the new world. The second is the period from 1790 to about 1840, when falling transport costs made economical the shipment of many more goods than had been feasible earlier. These cost reductions were made possible by the harnessing of steam power, which greatly reduced the cost of sea transport and the powering of machinery. Together with the eradication of piracy, which meant that ships did not have to carry heavy armaments on their decks, these developments enabled a great expansion in the range of goods that could be transported internationally. Whereas in earlier periods only high-value, low-bulk goods consumed primarily by the rich (such as spices) could be transported over long distances, it subsequently became feasible to ship bulk commodities (such as wheat, other grains, and minerals). The massive investment in railroad networks in the 19th century further contributed to declining transportation costs. Then, came the automobile, electricity and refrigeration, which cut such costs even more and broadened substantially the range of goods that could be shipped over long distances.
Closer economic integration has also been driven by changes in economic policies that are themselves motivated by a better understanding of the economic costs of protectionism. In the 19th century, Great Britain -- the leading industrial power of its time -- reduced its import tariffs on grain from 70 percent to 20 percent, enabling it to focus on its comparative advantage in manufacturing. In the process, world income increased, as countries exporting grain to Britain benefited from the expansion of markets while food importing nations were able to feed growing populations of industrial and service workers.
In the 19th century era, the movement of people to the new world was not much restricted. Great migrations were a defining feature of that globalization era. Between 1870 and 1913, foreign workers raised the U.S. labor force by one-fourth (and by far more in Canada, Australia, and Argentina) while reducing European labor forces. Wages rose in countries exporting labor, where labor migration acted as a safety valve. The impact on host countries is more difficult to ascertain as it depends on underlying forces shaping technological progress. Certainly in the U.S., Canada, and Australia, the combination of labor immigration, steady technological progress and capital accumulation have resulted in the creation of modern powerhouses -- industrial nations that have provided higher standards of living for indigenous and foreign workers alike and have become magnets for people everywhere.
However, globalization also suffered setbacks at times. It may be recalled that, after the major wave of economic progress in the early 1900s, globalization was interrupted by a period of increasing nationalism and protectionism. This eventually led to the Great Depression and World War II. Since then, globalization has accelerated again and, in many ways, more sharply than ever. The current drive for global integration is driven also by changes in economic policies. The leaders of many countries that followed central-planning models in the 20th century came to better understand the economic costs of these policies or were forced by popular outcry to reform. The economic transformation of many countries in China, India and Central, Eastern and South-Eastern Europe and the former Soviet Union has reduced trade barriers worldwide.
What drives globalization forward? International trade blossomed in the half century that followed the end of World War II, facilitating a tremendous expansion of the world economy. Declines in costs of transport and communications were significant in the postwar years. Breakthroughs in new technologies, such as ocean shipping, further lowered trans-continental shipping costs. Mass air transport, spurred by the deregulation of the 1970s in the U.S. and the ongoing drive in the European Union, have spurred growth in air traffic and cut costs. The ability to ship goods speedily by air enabled all sorts of transactions that could not occur earlier. Then, came the electronic communications revolution, with the inventions of the facsimile, fiber-optics, cellular telephony, the internet, and other gadgets of the information technology or the “IT” revolution. Electronic commerce, through the internet, is now contributing to rapid growth in domestic markets. Its international potential remains largely unexploited, due largely to transactions costs that must be overcome, such as the lack of secure and verifiable international electronic payments systems.
Fairly dramatic drops in the levels of protection have also been a key feature of the current era of globalization.
Results of Globalization. As a result, international trade as a share of the gross domestic product (GDP) of most major countries has more than doubled. By contrast, net capital flows are still not as large as they are thought to have been in the late l9th century, although their rate of increase is sufficiently high so that they may become equally important in another decade. And, of course, the volume of international currency transactions has become astronomical. Movement of people across national boundaries has been enormous, but pervasive restrictions to labor mobility are an important difference between the present era of globalization and previous ones. Large differences in standards of living create intense pressures for labor movement from poor countries to European, North American, and other high-income countries. Immigration quotas are tight in rich countries, often leading to people smuggling and much human suffering. On its part, Greece has experienced a large influx of workers from its northern Balkan neighbors but also from Asian countries, who are playing an important role in its economy but who also create a number of social integration problems.
The benefits of globalization
Globalization has been associated with increased opportunities for economic growth and welfare on a worldwide scale. Indeed, over the past 50 years, when this process has grown in intensity, it has brought enormous benefits in terms of worldwide economic and social development, as evidenced by an unprecedented growth in global output and per capita income and, more generally, by major improvements in human welfare. According to available data, over this period, global per capita income more than tripled, and most of the world registered major gains in literacy and life expectancy. More recently, many developing countries have been particularly successful, as they took advantage of global markets and raised the share of trade to their GDP in the context of sound reform programs. A World Bank study of 24 such countries-- including China, India, Korea, and Mexico—has shown that, as these countries increased their integration into the world economy in the 1980s and 1990s, they achieved more rapid growth in income, better educational standards, and longer life expectancy. Integration helps reduce wage differentials among the globalized economies through labor flows and trade creation. The benefits of capital account liberalization are also real, in principle, as foreign capital enables developing countries with sound institutions and policies to build up their economies through the transfer of new technologies and know-how.
The risks of globalization
But globalization also entails many risks, which have attracted much attention and debate. The most important risk is that many countries are left behind in the process, and hence poverty has persisted and even increased in many parts of the world. Today, out of the world’s 6 billion people, some 2.8 billion---or almost one-half---still live on less than $2 a day, and 1.2 billion---or one-fifth- --live on less than $1 a day. The situation is particularly worrisome in sub-Saharan Africa, where the number of people living in extreme poverty or on less than $1 a day has actually increased in the 1990s to more than 300 million, representing almost half of the region’s total population2. Poverty has also become more widespread in some countries in Eastern Europe and Central Asia, Latin America and the Caribbean, and the Middle East. For these reasons, globalization has been criticized most often on the grounds that it contributes to economic and social inequality. In addition, a variety of critics have attributed the following risks to the increasing integration among nations:
Globalization of financial markets often leads to destabilizing capital movements and heightened exchange-rate volatility that brings about devastating financial crises, such as the Asian crisis of the 1990s.
- Trade integration creates winners but also losers, as old industries collapse and unemployment rolls increase in advanced economies, while labor standards and living conditions in developing countries remain relatively poor.
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While developing countries are encouraged to open up their markets, developed countries continue to maintain trade-distorting subsidies, especially on agricultural products and textiles, thereby impeding progress in developing economies.
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Globalization contributes to environmental degradation.
- Globalization is inimical to the much-needed preservation and nurturing of the diversity of cultures around the world.
These and other concerns have been dramatized at times by often violent demonstrations in the streets of major cities across the globe.
As poverty has been a particularly serious problem in sub-Saharan Africa, the basic question often raised is why has this region’s development lagged so much behind that of other regions? Adverse geographic and demographic factors, as well as terms of trade shocks, which are largely beyond the control of the authorities, have certainly affected the performance of many African countries, especially the poorest ones. In addition, industrial country trade policies have constrained Africa’s growth. But homegrown factors and policies have been even more of an impediment to the development of the right conditions for investment and growth. Many surveys indicate that macroeconomic policy weaknesses, structural policy failures, and poor governance, as well as political instability and civil wars, have been mainly responsible for Africa’s plight.
Concerns of the Church
The Orthodox Church views all secular issues from its ecumenical and spiritual perspective. She is concerned with the salvation of the person in Jesus Christ whose Gospel she proclaims. That Gospel is founded on the supreme command of love, brotherhood of man, the transitory nature of this life, and a life in communion. Within this framework, the concerns of the Church with respect to globalization may be summarized as follows:
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Economic development cannot and should not overshadow all other aspects of life such as human relations, societal norms, religious traditions and practices, and the ultimate human happiness, which is to be realized in the communion of persons.
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Aggravation of the human condition, even if in certain parts of the world only, is unacceptable. The world community should act as one closely knit family.
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Conditions that lead to child abuse, unfair treatment of women, and deepening social gulfs and tensions are rejected by the Church.
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Conditions that lead to the abuse of nature and the reckless wastage of natural resources are equally repugnant to the Church.
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The enrichment of the few, persons or countries, at the expense of the many who may be too weak or too poor to react is morally repugnant and should be prevented by appropriate mechanisms.
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The homogenization of cultures by the spread of a dominant, so-called “world culture”, and the substitution of religious and ethical values by blatant consumerism should be strenuously opposed by the Church.
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The church has the capacity and the will, through its teachings and influence, to bring about the required “change of mind” in order to ensure that whatever economic and social progress is made possible by globalization, it takes place in a balanced, equitable, and sustainable way, and in accord with the spiritual values that the Church teaches and promotes.
Conclusions and Suggested Position
In confronting the phenomenon of globalization, the basic issue is not one of being for or against it. Although it is not an entirely benign phenomenon, globalization is unquestionably a powerful engine of world prosperity, and it is certainly here to stay. We already live in a “global village” where flows of trade, capital, and knowledge are very large and increasing every year. Countries unwilling to engage in this process risk falling further behind the rest of the world in terms of both income and human development. The challenge is how to make globalization work better for the benefit of all the peoples of the world. A few concrete suggestions are the following:
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Each country must be able to adopt its own development strategy and appropriate program of action without coercion or arrogance on the part of others.
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All countries need to strengthen their reforms and pursue sound policies, especially with a view to achieving more rapid growth, reducing poverty, and combating corruption.
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Poor countries need to redouble their efforts to reduce extreme poverty, hunger and disease, consistent with the Millennium Development Goals adopted by the international community in 2000. To be successful, these efforts should be coupled by stronger, faster, and more comprehensive assistance from both bilateral donors and multilateral institutions, notably, the International Monetary Fund and the World Bank.
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Poor countries must move away from internecine strife toward peaceful resolution of conflicts in a democratic political context. At the same time, spending on arms must be reduced drastically and the weapons trade, on which many countries thrive, must be stopped.
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The environment must be managed with care and love, not in wasteful egocentricism, as nature must be viewed as a gift from God whose Man is appointed the “steward”.
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The world community must support policies that empower the many and give opportunities to the poor, rather than continue to provide mainly opportunities for the few and wealthy.
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The highest priority must be accorded to human development, notably universal primary education, gender equality, and health care (including the fight against the HIV/AIDS pandemic).
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Finally, globalization, which is here to stay, must be managed by humanity with such measures as to ensure that, to the maximum extent possible, all people get their fair share from its benefits.
Globalization -- A Statistical Annex
If we could shrink the earth's population to a village of precisely 100 people, with all the existing human ratios remaining the same, it would look something like the following:
There would be:
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57 Asians
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21 Europeans
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14 from the Western Hemisphere, both north and south
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8 Africans
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52 would be female
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48 would be male
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70 would be non-white
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30 would be white
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70 would be non-Christian
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30 would be Christian
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6 people (yes, just 6 or 6%) would possess more than half (59%) of the entire world's wealth and all 6 would be from the United States.
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80 would live in substandard housing (means no water, no electricity, no sewerage, no central heating)
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70 would be unable to read
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50 would suffer from malnutrition
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1 would be near death; 1 would be near birth
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1 (yes, only 1) would have a college education
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1 would own a computer
When one considers our world from such a compressed perspective, the need for acceptance, understanding and education become glaringly apparent.
The following points are also something else to ponder:
If you woke up this morning with more health than illness... you are more blessed than the million who will not survive this week.
If you have never experienced the danger of battle, the loneliness of imprisonment, the agony of torture, or the pangs of starvation, ... you are ahead of 500 million people in the world.
If you can attend a church meeting without fear of harassment, arrest, torture, or death, ...you are more blessed than three billion people in the world.
If you ONLY have food in the refrigerator, clothes on your back, a roof overhead and a place to sleep, ...you are richer than 75% of this world.
If you ONLY have any money in the bank or in your wallet or spare change in a dish some place, ... you are among the top 8% of the world's wealthy.
If your parents are still alive and still married, ... you are very rare.
If you can read this message, you just received a double blessing in that someone was thinking of you, and furthermore, you are more blessed than over two billion people in the world that cannot read at all.
Footnotes
1International Monetary Fund.
2See data in the Annex.