THE CHALLENGE OF NATIONAL ECONOMIC POLICY IN AN ERA OF GLOBALIZATION

Many people consider globalization nothing new – societies have been interconnected for years. But globalization took different forms in the past and the contemporary conjuncture is new. The world has never experienced globalization at this level of intensity before or the speed at which it is transforming and integrating societies.

There is no single, all encompassing definition of globalization. Instead, it has become a broad heading for a multitude of global interactions, ranging from the expansion of cultural influences across borders to the enlargement of economic and business relations throughout the world. For the economist, globalization is essentially the emergence of a global market. For the historian, it is an epoch dominated by global capitalism. Sociologists see globalization as the celebration of diversity and the convergence of social preferences in matters of lifestyle and social values. To the political scientist, it represents the gradual erosion of state sovereignty. But discipline- specific studies explain only a part of the phenomenon. From a multidisciplinary angle, globalization may be treated as a phenomenon, a philosophy and a process which affect human beings.

Each country, based on its individual endowments and circumstances, will have to design and implement national policies in a range of areas that ensure the country takes advantage of the opportunities that globalization provides and at the same time deals with the risks that it introduces. In terms of the national economy, there are three distinct advantages:

(a) The demand for a country’s product is no longer constrained by its own markets;

(b) A country’s investment is no longer constrained by what it can save itself;

Corresponding to these opportunities, some of the challenges are:

(a) Lack of complete access to product markets caused by both trade barriers and hefty subsidies in developed countries on commodities of interest to agricultural producers;

(b) Limited access to financial resources, and for some countries high conditionality attached to concessional resources;

(c) The constraints on acquiring technology in terms of resources, both human and financial, and inadequate infrastructure.

The era of globalization also brings about a closer degree of financial and economic integration between countries in an environment where shocks have become more global in nature and where a crisis in one country can easily affect others. This presents special challenges in the conduct of fiscal and monetary policies, particularly in conditions of heightened uncertainty. It is no longer possible to formulate monetary policy independently of international and regional developments. This requires knowledge of world market conditions and continuous monitoring of financial market developments. The 1997 economic crisis highlighted the tension between achieving the benefits of market integration while minimizing the risks of market instability. Systemic risk management is becoming an integral element of the economic framework and has to reflect the broadest possible coverage of the maximum downside risks a country can face. This not only requires sound financial systems but also improving the understanding of the institutions and social and political dynamics in countries.

A growing innovation in the world economy is the establishment of international standards and codes as “rules of the game” for all economies. Now, there are codes of good practice in monetary policy, fiscal transparency, insurance and payments systems, securities, corporate governance, accounting, statistics and bank supervision, as well as a growing array of standards in other fields. This means that there is greater scrutiny of the policies of individual countries by market participants and policy makers have the additional burden of “selling” their policies to the world at large through greater transparency. The performance of economies, industries and firms is continuously compared and benchmarked across nations. This requires the harmonization of systems with internationally agreed codes and at the same time creates pressures for speedy reforms.

Within a country, there is the challenge of forging liberalization policies that promote greater integration of the domestic economy into the global economy. There are pressures from trade unions, lobby groups and local businesses over the effect of these policies on jobs and the closure of local industries. These can make it politically and socially difficult to implement reforms that could benefit a country in the medium to long term. The issue of national ownership of an adjustment programme thus presents a challenge in its practical application. The responsibility for achieving the right balance and pace of adjustment lie with individual Governments, but in practice this is not simple as it appears.

Building a powerful set of domestic institutions that can meet the rising demands in the race to be and remain competitive brings its own challenges. What determinants of competitiveness should a country focus on? The standard determinants of competitiveness are not only economic and technological but also include non-economic factors such as the promotion of democratic institutions, good governance and human rights. These require not only robust public systems and a vibrant private sector that can deal with sophisticated transnational companies and others in the global marketplace but also strong political and social frameworks, which take time to evolve. Without these frameworks, some countries may be trapped at the lower end of the international skills market.

Such factors highlight the need for a vision in each country about its position in the dynamic global economy. To achieve this, there has to be, first, political will and good leadership. Secondly, a national consensus needs to be forged among stakeholders concerning the necessary reforms and, thirdly, appropriate institutions and policies must be put in place to meet the challenges. The rules of the game may be perceived to be unfair by some, but there are few alternatives to well-designed country policies and programmes to manage globalization.

Globalization is an unstoppable phenomenon, presenting opportunities to those who are prepared and threats to those who are not. It is not easy for countries to manage globalization for their own benefit. Regional cooperation through which the countries look beyond their borders to tap and leverage other’s strengths could be an effective approach in this endeavour.