ANCHORED ON trade and economic liberalization, globalization for
decades now has been a favored prescription of developed countries
for developing countries, who have either adopted it wholeheartedly
as cornerstones of their economic development strategies or had
it imposed on them by international funding agencies as a condition
for loans.
With a month to go before the 5th Ministerial Meeting of the World
Trade Organization in Cancun, Mexico, local academics studying the
Philippine experience with globalization, however, suggest that
what the Philippines may need is not necessarily more trade and
economic liberalization, but rather, a dose of economic nationalism
and stronger institutions.
At an August 5 forum at the University of the Philippines entitled
“Can globalization be managed?”, Clarence Pascual, a fellow
at the Philippine Center for Policy Studies (PCPS), posited the
thesis that the experience of the Philippines under globalization
for the last 20 years has not been good.
This conclusion is evident, he said, in the country’s development
record which is divided into two periods: before globalization (1950-1979)
and after globalization (1980-2002), which he defined as a strategy
of development based on rapid integration with the world economy,
and the pursuit of open-market policies such as trade liberalization,
capital and financial market liberalization, labor market flexibility
and privatization of state functions.
Pascual adopted the before-and-after methodology because globalization
was presented as an alternative to the strategy of import-substituting
industrialization (ISI) adopted from the 1950s to the 1970s. The
late 1970s, he said, saw the publication of comprehensive studies
criticizing the ISI strategy and provided the theoretical basis
for structural-adjustment programs in the 1980s.
Also, the early 1980s saw a dramatic increase in policy intervention
by the International Monetary Fund (IMF) and the World Bank as the
country faced an economic crisis. Liberalization began in the mid-1980s,
as the first steps towards privatization and deregulation were taken
during this period.
‘Performance Under Globalization Is Below Expectation’
“Performance under globalization is below expectation,”
Pascual said, pointing out that after 20 years, it has failed in
its promise of economic growth. He asserted that there was a marked
deceleration in growth in the 1980s and 1990s, as opposed to the
1950s and 1970s. In addition, foreign exchange crises have been
more frequent and intense from the 1980s onward, taking place every
five years, as opposed to every ten years before the 1980s.
Pascual said that the Philippine experience also shows that “contrary
to the predictions of trade theory, employment generation weakened
while the skilled-unskilled wage gap widened under a liberalized
economy”. With the increased share of the services sector,
the dwindling industry sector led to growing numbers of self-employed
and unpaid family workers.
History shows that successful development is marked by a shift
in the structure of production from agriculture to industry, Pascual
noted. Under globalization, however, the direction of the economy
was transformed in a “perverse manner”, resulting in a
declining share of industry in terms of output and employment, and
and increased the share of services after the 1980s.
Reacting to Pascual’s presentation, PCPS executive director
and economics professor Esguerra said that “it is increasingly
becoming evident that pursuing development requires more than just
opening up” the economy.
Pascual called for a development strategy to build domestic productive
capacity. A critical component of such a strategy, he said, is industrial
policy, or simply getting industrial development off the ground
as the “key to sustainable growth and the generation of quality
employment”.
“A key concern should be how to encourage strong domestic
investment and ease the constraint posed by low and declining domestic
savings rate,” instead of the current preoccupation with attracting
foreign capital.
‘A political Project of the Elite’
Josue Mata, secretary-general of the Alliance of Progressive Labor,
pointed that Pascual’s definition of globalization missed one
thing, that globalization is a “political project of the elite…that
hides the reality of [modern-day] imperialism”.
This is why, in response to the question, “Can globalization
be managed?” Mata asked whether answering it is even practicable.
“How can you manage America?” he asked rhetorically, adding,
“You cannot manage the empire at this point in time.”
He said that as far as the labor front is concerned, globalization
has only destroyed jobs and resulted in more employment insecurity,
as globalization relegates labor-intensive production to developing
countries like the Philippines where labor is cheap. This forces
developing countries to keep wages down for fear of losing these
jobs to other developing countries.
One size doesn’t fit all
In terms of liberalization of trade in services, Cristina Morales,
policy analyst from Action for Economic Reform (AER) acknowledged
that liberalization has its pros and cons, and that there is no
one model that would fit all industry sectors.
The Philippines, for example, has had an “arguably acceptable
outcome” in telecommunications liberalization, but “a
far less pretty picture” in the liberalization of water and
energy.
The liberalization of the service sector through the General Agreement
on Trade in Services (GATS), a WTO agreement signed in 1994, opens
the country to the entry of foreign companies and investments in
different sectors of the economy, including the delivery of basic
services.
In doing so, host governments must provide so-called “least
trade-restrictive business environments” which, critics say,
can mean fewer laws or less stringent standards for environment,
labor, and public health, as these standards may be perceived as
restricting trade.
Trade sanctions may be imposed by the WTO for supposedly violating
agreement rules, and GATS provides strict rules that make it difficult
for member countries to reverse commitments.
With countries committing to negotiate for opening markets in specific
sectors to foreign competition, governments’ ability to regulate
movements of foreign companies in such sectors is curtailed. By
including domestic regulation in the framework of GATS, Morales
said that critics have warned of “grave danger in giving up
government’s rights” to regulate investments.
Once services are committed to liberalization under GATS, government
regulations that are seen to restrict or discriminate against foreign
companies are subject to WTO challenge by foreign companies through
their home countries, even if regulatory measures exist to advance
the domestic economic, social or environment goals.
In summing up her presentation, Morales listed “caveats”
for consideration, including whether GATS really belongs within
the WTO framework when the WTO was originally envisioned to involve
only trade in goods, and GATS is not about accessing foreign labor
markets.
Reiterating her earlier caution about giving up government’s
right to regulate investments, she warned, “Economic sovereignty
may be at stake…Some even say democracy is at stake”.
Little Evidence That Globalization Has Helped Poor Countries
Even the IMF recently admitted that there is little evidence
that globalization has actually helped poor countries, said Filomeno
Sta. Ana III, coordinator of Action for Economic Reform (AER), quoting
a March 2003 IMF report.
The IMF, the traditional promoter of financial integration and
capital account liberalization, recommends that poor and developing
countries open their economies to foreign investors and free-market
policies. Among these countries is the Philippines, which has continued
to rely on foreign capital flows, particularly foreign direct investments,
to boost its economy.
According to Sta. Ana, the IMF itself found that economic integration
may actually increase the risk of financial crisis in the developing
world.
“Indeed, the process of capital account liberalization appears
to have been accompanied in some cases by increased vulnerability
to crises,” Sta. Ana quoted the IMF report as saying. “Globalization
has heightened these risks since cross-country financial linkages
amplify the effects of various shocks and transmit them more quickly
across national borders.”
“If financial integration has a positive effect on growth,
there is as yet no clear and robust empirical proof that the effect
is quantitatively significant,” Sta. Ana said.
The IMF report recommended that financial integration should be
approached cautiously and “with good institutions and macroeconomic
frameworks viewed as important”, meaning countries must carefully
balance financial integration with strong economic policies and
building strong institutions, including banks and regulatory systems.
Sta. Ana wondered how long this new stance of the IMF on capital
controls will last, since one of the report’s co-authors, IMF
chief economist Kenneth Rogoff, is scheduled to be leave the agency
soon and this apparent new IMF stance may yet be reversed by the
incoming IMF chief economist, Raghuram Rajan, who is a firm believer
in free markets.
A Reality That Will Be Here for Quite Some Time
Globalization, with its encompassing and seemingly unstoppable
nature, appears to be a reality that will be here for some time,
said Rene Ofreneo of the UP School of Labor and Industrial Relations
and the Fair Trade Alliance.
Perhaps under globalization, what is more needed is “economic
nationalism” that promotes domestic policies and build strong
institutions as a buffer against the adverse effects of globalization.
Ofreneo added, “We need a sense of the national economy. At
the rate we’re giving away land, natural resources and utilities,
we will be just an appendage of the world economy.”
“Globalization is a war of national interests [where the most
ready in terms of upgraded systems, sound economic policies, good
governance and institutions] wins,” Ofreneo stressed. “Those
that are the most open, without an agricultural policy, without
an industrial policy, will fail.”
Intervention Needed to Cope with Liberalization
Marvic Leonen of the UP School of Law faculty and the Legal
Rights Center-Kasama sa Kalikasan (LRC-KSK), an environmental advocacy
group, thought that the question—can globalization be managed?—may
reflect an overly optimistic outlook. He suggested rephrasing it
in terms of “whether it is possible to find different dimensions
of intervention that will help us reform/cope with liberalization”.
He said that in the area of internationally funded energy projects,
civil society intervention is responsible for a shift in emphasis
from mainly the human rights of indigenous peoples to the overall
sustainability of development projects to benefit all stakeholders.
Local intervention stopped Asian Development Bank and World Bank
funding for the Philippine National Oil Company’s Mt. Apo geothermal
project.
The project, according to Leonen, eventually got financing from
the US’ Export-Import Bank, but local intervention provided
the pressure to make these institutions more transparent. The local
government was forced to adjust to pressures from NGOs.
He also cited the National Power Corporation’s coal-fired
Masinloc power plant project in Zambales, which remained stalled,
even with ADB-guaranteed funding and a presidential endorsement.
The plant was shut down in January 2003 due to continuing protest
actions by villagers.
Local Laws Must Be Able to Deal with Transnational Corporations
To deal with globalization, Leonen said, our laws must be able
to deal with transnational corporations. “International laws
have not caught up, but that’s understandable, as they’re
built on the fiction that the state is the (only) player on the
international stage.”
He cited an Australian company, Western Mining, that left the Tampakan
copper mining project in South Cotabato. According to Leonen, the
company has not paid the one-percent royalty due to indigenous peoples
in the area. Instead, the company set up a foundation and made payments
to that foundation, to be divided into 1/3 for indigenous peoples,
1/3 for the Mining and Geosciences Bureau, and 1/3 for Western Mining.
Leonen also cited Marcopper Mining, whose mine tailings ruined
three river systems in Marinduque. The Department of Environment
and Natural Resources filed criminal charges that are gathering
dust, as Marcopper has shut down its mines, its Canadian partner—Placer
Dome—is gone, and the company they set up in the wake of their
exit—Placer Dome Technical Services—has likewise gone,
having shut down in 2001.
Even when laws are absent or insufficient, Leonen said, “The
solutions will be found on the ground” arising from “new
forms of resistance in the interstices of the system”.
But Leonen maintained a measure of optimism: “We haven’t
[yet] found solutions that are politically, economically, or ecologically
correct,” he said, “nut that’s why we’re here.”
Costs and Benefits of Globalization
Indeed, as pointed by UP economics professor Solita Monsod,
a discussant at the forum, “There are costs and benefits to
globalization. Can we increase benefits while reducing costs?”
Competition, she said, is about efficiency, not equity.
She disagreed with Ofreneo’s description of Philippine industry
being in crisis, asking for actual figures, saying that there has
actually been industrial growth, according to the National Statistics
Coordination Board.
Our failure to industrialize sufficiently is the result of what
she called “bad policies, bad terms, bad rules”, not all
of which are necessarily the fault of the World Trade Organization,
except maybe, she was willing to concede, for bad rules. But in
the meantime, Monsod asked, “Why haven’t we made sure
our processes, our industries, our products are ISO (International
Organization for Standardization)-certified?”
The government’s responsibility is to mitigate the negative
effects of globalization. Providing equity—the distribution
of the country’s growth properly among sectors, particularly
the poor—is the function of the government and not the market.
The forum, sponsored by the PCPS and the UP Third World Studies
Center, was held at the Balay Kalinaw in UP-Diliman
