Mercy Global Concern - 2003

Trends in Globalization

At a recent meeting held at UN headquarters to look at trends in Globalization and the market, participants were reminded that we are living through a new universal order, namely global capitalism which is not driven by ideas but by a series of institutions, among them the market, the media, multinational corporations and the Internet. The effects of these forces are very profound. They threaten all things local, traditional and particular. September 11th happened when two universal cultures clashed.

Change has become part of the texture of life. For example, in a post-presidential
address, Bill Clinton noted that when he took up office in 1993 there were a mere
50-registered websites. By the time he left office in 2000 there were upward of
350 million. The concept of Globalization is not new. Almost 400 years ago, John
Donne, gave it one of its most memorable expressions:

"No man is an island; every man is a piece of the continent, a part of the main; any
mans death diminishes me; because I am involved in mankind; And therefore never
send to know for whom the bell tolls; It tolls for thee.

Global capitalism is a system of immense power, from which it has become increasingly difficult for nations to dissociate themselves. More effectively than armies it has won a battle against rival systems and has emerged as the dominant option in the twenty-first century for countries seeking economic growth. Quite simply it has delivered higher standards of living and greater choice. But the benefits of globalization have not been spread evenly. There are winners and losers, within and between countries. The 'digital divide' has heightened inequalities. There are 1.3 billion people - 22 percent of the world's population - living below the poverty line; 841 million are malnourished; 880 million living withoutaccess to medical care. One billion lack adequate shelter; 1.3 billion have no access to safe drinking water; 2.6 billion go without sanitation. Among the children of the world, 113 million - two-thirds of them girls - go without schooling; 150 million are malnourished; 30,000 die each day from preventable diseases. In eighteen countries, all African, life expectancy is less than 50 years old. More than 80 countries have seen per capita incomes drop in the past 10 years while the end of the millennium saw the top fifth of the world's population owning 86 percent of the world's GDP, while the bottom fifth had just one percent! The assets of the world's three richest billionaires were more than the combined wealth of the 600 million inhabitants of the least-developed countries.

Deirdre Mullan RSM

Tom Palley, Director, Globalization Reform Project gave the following paper entitled " Privatization and GATS" at the UN on April7, 2003

History of Privatization

1. 1945-1980: Era of expansion of the public sector.

• Nationalization - public ownership of the means of production.
• Market failure - Natural monopoly, externalities, failure of private sector to provide (lack of profit)
• Public Investment - as a way to avoid another Great Depression.
• Europe - market failure dealt with by public ownership.
• U.S. - market failure dealt with by regulation.

2. 1980- 2002 Era of Privatization

• Inefficiency of public production and regulation.
• Technological change created conditions for competition.

3. Distinction between ' public production' and 'public provision'. U.S. agenda = outsourcing = public payment, private production.

• De-fund was a political strategy: undermine public support by starving of funds and lowering the quality of service.

Ecomomists' View of Latin America Privatization of Network Industries - electricity, water and telephony

• Good for Firms and Stockholders - increased profitability, labour productivity, firm growth, market valuation.
• Good for Household welfare - improved quality of network, new lines/connections, lower waiting time for connections, lower prices in most cases.
• Macro benefits - reduce budget deficits, cease paying subsidies.

Public's View of Latin American Privatization

• Percentage who STRONGLY DISAGREE with the statement: " The privatization of state companies has benefited the country"

Problem for Economists

The boom is viewed as a bust by the majority of Latin Americans.

Short Tern Failings:

• Process of Privatization perceived as unfair - selling off the crown jewels on the cheap!
• Contributed to the inequality and change distribution of power in society.
• Significant job losses in privatized companies - weakened trade unions
• Skewed gains from better productivity/ lower prices e.g. increased fixed charges for telephones and lower international and long distance calls.
• End of subsidized consumption hurts poor
• Do poor really want increased quality? Or is this a benefit for the rich?
• Macro instability - creates capital inflow that causes real exchange rate appreciation, and governments use revenues to create unsustainable budget positions.

Long term Failings: 1

IMF and World Bank aim to transfer U.S. model to developing countries. This model will not work because...

• Countries lack administrative capacity
• Domestic market is too small to support competition.
• Lack of technical capacity in private sector to produce dynamic deregulated industry.

Long Term Failings: 2

• Public provision is a valuable tool of redistribution...
  1. Subsidize necessities
  2. Cross -subsidization - richer consumer help provide for poor
  3. Creates good jobs that support extended families.

Long Term Failings: 3

• Privatization produced investment boom.... But is the experience of the late 1990s representative?
• Privatized industry starved for investment funds in future? Need for foreign currency to purchase capital equipment but revenues in domestic currency.
• Privatized industries need major infrastructure investments that private sector is unlikely to be able to fund
• Moral Hazard - when business fails (governments are compelled to pick up the tab)

Failings are Worse in Basic Services Industries _ Health and Education

• Bait and switch ... does not yield cost savings on an equivalent service basis, just adds layers of costs or substitutes inferior service.
• Cherry -picking ... Provides for those who are able to pay. Leaves public system for those most disadvantaged who cannot afford to pay.
• Negative labour market effects... Undermines unions, lowers wages. Negative impact on income and distribution and the working families political voice.

Where Next?

• Two long cycles 1945 -1980 = era of public sector
• 1980 2002 = era of private sector

GATS: Why the Concern?

• GATS is an extension of TRIPS approach to trade.... changes country rules of production, rather than rules about international transfer of goods.
• GATS will impose "rules" on how governments can operate and finance.
• No public sector subsidies.. No Cross- subsidization within industries...
• Fear = undermine provision of basic necessities of health, water, electricity and education.