Supporting Globalization, Remarks By Anne O. Krueger
IMF News, September 26, 2002
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- Authors: Anne O. Krueger Given
- Published: September 26, 2002
I. Introduction
- Globalization defined as "the process of integration of nations through the spread of ideas and the sharing of technological advances, through international trade, through the movement of labor and capital across national boundaries."
- Characterized as long-standing, beneficial, and inevitable: "Globalization is like breathing: It is a not a process one can or should try to stop."
- Historical drivers cited: 15th century discoveries, falls in communication and transportation costs (example: telegraph and transatlantic cable cut settlement times between New York and London from ten days to three days).
II. Growth and Globalization in the 20th Century — Findings and Key Statistics
- Comparative growth rates:
- Nineteenth century leading nations (e.g., Britain) grew at an average annual rate of 1.5 percent per capita.
- Many countries in the present era achieved per capita annual growth rates of 5 to 8 percent.
- "The Asian Tigers achieved every decade what rapidly growing countries had previously achieved in a century."
- Mechanisms linking growth and globalization:
- Access to international markets facilitated reliance on comparative advantage and division of labor.
- Support facilities from trading nations (communications, wholesalers, finance and insurance) lowered costs for latecomers.
- Technology transfer and declines in transport and communications costs aided development.
- Structural transformation examples:
- Korea shifted from being a 70 percent rural economy to a 70 percent urban economy in the course of three decades.
- Joining the international economy helped some regions in India transition to an information-based economy.
- Social and human development outcomes:
- Infant mortality declined from 180 per 1000 births in 1950 to 60 per 1000 births.
- Literacy rates rose from an average of 40 percent in the 1950s to over 70 percent today.
- Since 1980, the number of poor people, defined as those living on less than a dollar a day, has fallen by about 200 million, much of it due to China and India.
- Life expectancy in the developing world averages 65 years, up from under 40 years in 1950.
- The gap in life expectancy between developed and developing world narrowed from 30 years in 1950 to only about 10 years today.
- Political and demographic shifts:
- According to Freedom House, the proportion of countries with some form of democratic government rose from 28% in 1974 to 62% in 2000.
- Electoral democracies represent 120 of the 192 or so existing countries and constitute nearly 60% of the world's population.
III. Why the Protests? — Analysis of Concerns and Counterarguments
- Perceived risks examined and rebutted with evidence:
- Resource depletion: "World oil reserves today are higher today in 1950." Historically known reserves in 1950 were expected to last 20 more years (run out by 1970); "Today, our known reserves are enough to keep us going for another 40 years at our present rate of consumption."
- Environmental impact: Economic growth often shows an initial phase of deterioration followed by subsequent improvement; the turning point occurs at a per capita GDP of 5000 dollars.
- Labor and social conditions in developing countries:
- Conditions in "sweatshop" factories should be compared with available alternatives; example: footwear industry in Vietnam generated a five-fold increase in wages in a short period.
- Child labor arises because alternatives (starvation, malnutrition, forced early marriages, prostitution, street life) are often worse; parents choose schooling when they can afford it, and growth is the quickest path to affordability.
- On loss of control and inequality:
- Argument that globalization causes loss of control is countered by the claim that poverty is "a state of almost total loss of control" and that growth gives people more control.
- Empirical claim: incomes of those at the bottom rise one-for-one with growth.
- No evidence that globalization has a systematic impact on within-country income inequality; countries concerned about inequality "can, and do, address it through government policies."
- World inequality is suggested to be declining, largely due to rapid growth in China and India.
- Underlying cause of protests framed as fear of change rather than opposition to growth per se.
IV. Conclusion — Policy Implications and Recommendations
- Historical policy lesson: 20th century gains required institutions and policies that ran counter to early post-1945 beliefs (distrust of markets, government control of commanding heights).
- Barriers to rapid growth characterized as political rather than economic.
- Optimistic outlook for the 21st century grounded in:
- More countries choosing policies without ideological baggage that slowed growth in the 20th century.
- Continued support from the international economy and scope for further gains from international division of labor and specialization.
- If heavily-populated countries such as India, China and Vietnam join the global economy and experience rapid growth simultaneously, "it should surely be possible to make room for the others."
- Security argument: "Countries in which citizens have a say in their government, and where citizens can concentrate on—and succeed in—improving their material fortune and their families' lives, are not countries likely to present security threats."
- Practical policy directions implied:
- Support institution-building and policies that facilitate growth and integration into the international economy.
- Use growth to reduce impoverishment and expand access to education, health, and democratic participation.
- Address inequality through targeted government policies where desired.
- Provide protection and insurance for those adversely affected by change as affluence grows.
Remarks by Anne O. Krueger, First Deputy Managing Director, International Monetary Fund, September 26, 2002.