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Globalization Is Good

John Mangun - 11/11/2005

The on-going riot across France has many roots but one cause is the response of the European nations to globalization. It may seem strange to someone sitting in a ‘third world’ country and hear that it is the ‘first world’ that will ultimately pay a large price for the process of globalization and that nations like the Philippines will be the beneficiaries. The conventional and ignorance based ‘wisdom’, particularly from those who consider themselves pro-poor, is that globalization is a vast conspiracy to economically re-colonize the world. In fact, it is just the opposite.

The purpose of globalization is to open markets and make these markets more free of constraints to trade. Recent studies have shown that to this point it has been the ’first’ world that has benefited. That may be true, but the ultimate victor in the globalization ‘war’ will be smaller, less industrialized countries like the Philippines.

A bit of history. The traditional manufacturing sectors in countries like the USA could not compete with the cheaper labor cost in then less developed economies like Japan, then South Korea, Taiwan, and now China. It was inevitable that the manufacturing of automobiles, steel, shoes, clothes, and other labor-intensive goods would flow to nations where labor costs were cheaper. Japan also lost manufacturing business to Korea and Taiwan in the 1980’s and 1990’s and there was little that could be done to stop it. Even super modernization of Japanese factories with robots and other technology could not stem the tide because, finally, manufacturing requires hands-on labor and paid laborers.

The one area where ‘poorer’ nations like the Philippines could also compete if their leaders were smart enough and had vision, is in agriculture and mining. No matter how efficient large-scale farming might be, again, it is a labor driven industry. The same with mining.

To compete against the overseas farm sector, countries in Europe and to a lesser extent, the USA, heavily subsidize their agricultural sector with tax breaks, price controls, and outright entitlements to keep prices artificially high and to control the amount of production. The USA has been reducing its agricultural subsides over the decades to such an extent that they too fight against the unfair trade practices of European countries that favor their farmers, fishermen, and the like. Along with the financial help, other unfair trade practices are used, such as very stringent import restrictions on agricultural products as the Philippines has faced with both Australia and Japan. These restrictions are insidious as Japan requiring each head of imported lettuce washed by hand to remove any residual dirt thus raising the price to unfair extremes.

At the just concluded Summit of the Americas, the USA attempted to open the doors on forging a free trade agreement with the South American nations. Their response? Forget any thoughts of free trade unless and until the USA eliminates agricultural financial support that keeps American farm produce high domestically and cheap if exported abroad and does not allow these nations, like the Philippines, to compete fairly.

Without the massive financial assistance that particularly European countries such as France provides its agricultural producers, nations similar to the Philippines could and would sell much more to these nations.

As the general trend of worldwide economic growth raises the standard of living everywhere, these countries absolutely must open markets like the Philippines to their goods. In return, though, they absolutely must open their markets to us. Right now, most third world countries can only competitively export agricultural products. As the subsidies fall, countries such as the Philippines will benefit greatly. Europe and the USA are now forced to rethink and will eventually be forced to drop the subsidies, not because of the Philippines or other similar nations, but because they sell to each other. Like the two lions fighting over the food kill, there are plenty of scrapes left over to feed the smaller beasts.

However, national leaders in countries such as ours need to use their heads about the issue. The Philippines will never competitively sell cars to Japan. Malaysia’s failed Proton automobile factory proves that. So we must compete in areas we can succeed. Agricultural production would work if we had far thinking and visionary leadership. The Philippines is building cyber parks while we buy rice from Vietnam. And their economic growth is double ours. And what is the USA biggest export earner: agricultural products like the grapes, oranges, and apples on our tables.

What does all this have to do with the French riots? In the poorer areas, the unemployment rate is 30-50%. Had France built its agricultural production by eliminating subsidies and forcing farmers to produce as much as they could, all these lower skilled people would be working on the farms, in animal production facilities, and food processing plants instead of burning cars in the street.