The growing economic divide among peoples and nations has long been recognized as a moral concern. It is also a matter of global security. Unless policies are implemented that increase consumption and hope for the majorities in impoverished countries, globalization will not survive the inherent instability of an increasingly lopsided world.

The Growing Gap

The U.N. Human Development Report for 1999 reminds us of just how lopsided the world has become. Consider a few of the facts noted:

• The richest fifth of the global population now receives 86 percent of the world's gross domestic product (GNP). The poorest fifth get only one percent, and the 60 percent of people in the middle share just 13 percent of the value of all that is produced. The ratio between the top and the bottom fifths is now 74 to 1, as compared to just 30 to 1 in 1960.
• 1.3 billion people live on less than $1 per day, and the same number lack access to clean water. Some 840 million people are malnourished, and 24,000 people a day die from hunger-related causes.
  
• The world's 200 richest people doubled their assets from 1994 to 1998, to over $1 trillion. Their net worth is greater than the combined economic output of the 48 poorest countries. In addition, 55 nations saw a per capita income decrease during the last decade.

According to a recent Boston Globe article (March 3), "The combined net worth of the world's 447 billionaires in 1996 equaled the estimated combined annual income of the poorest half of humanity."

One of the hallmarks of globalization is increased contact among the peoples of the world. It is not surprising that social tensions are rising as economic circumstances diverge. In Korea, suicides have increased with higher unemployment. Mexico has faced an armed insurrection from indigenous peoples demanding land and a fairer share of natural resources. In Brazil, invasions of unused farm lands by landless peasants have been matched by urban invasions of vacant government-owned office buildings by the homeless. And in the U.S. throughout the 1990s, many firms negotiated wage cuts and health coverage "give-backs" from workers, often while increasing the compensation of upper management.

The commerce, technology and politics associated with globalization have only increased the divide between rich and poor countries and classes.

Trends in Globalization

International trade has grown far more rapidly than the world's economic output. Between 1970 and 1988, world GDP increased an average of 3.4 percent per year and trade grew by 4.3 percent annually. During the next decade, however, when growth in economic output slowed to 3.2 percent per year, trade took off at a 6.2 percent annual rate. The economies of countries were becoming more and more intertwined. In part, this resulted from modern transportation and communications technologies that effectively shrunk the globe.

Equally important, however, was the new political reality of an end to the Cold War and the collapse of centralized socialism. The Clinton Administration was able to make free trade and open markets twin pillars of American foreign policy. Trade negotiators continued their long-time goal of reducing tariffs and trying to end the distinctions in national laws between domestic and foreign firms.

Economically, national borders are increasingly looked upon as an irrational encumbrance to economic and business logic. Governments are increasingly pressed to stand aside.

Foreign direct investment (FDI) in recent years has grown even faster than international trade. A recent survey shows that some 39,000 firms have production facilities outside their home country, but just 100 of these transnational firms account for about one-third of total foreign investment. Only about one-third of FDI reaches less developed countries, and the vast majority of that goes to just 10 countries, mostly in Asia. Latin American and the Caribbean nations get only about one-quarter of the total, and the impoverished countries of Africa very little at all.

Portfolio investment is the fastest growing international economic tie. Individual investors, speculators, pension managers and mutual funds have seen the opportunity to put money into existing businesses in other countries. They do not offer factories, markets, or technology, only cash. In the early 1990s, the amount of such portfolio investment grew by 500 percent. Now, each day, $1.5 trillion crosses national borders. What the 1997 Asian crisis taught us is that this kind of investment can flow out even more quickly than it came in. There are no lands, or factories, or contracts to slow the exit; no national loyalty to be served. When business threatens to turn down, the last portfolio investor to leave, loses. Or more accurately, the government and the people left behind lose.

When the economic collapse of 1997 came, unemployment doubled in Hong Kong and went up 200 percent in South Korea. The income of Indonesia dropped by 30 percent, and Mexico saw two million jobs destroyed. When capital flees, governments are left trying to save a collapsing banking system or collapsing budgets, and ordinary people, most already at the margin of economic life, reduce consumption. For most, that means eating less, ending medical treatment and taking children out of school.

Can Globalization Be Managed?

The prior question, of course, is should it be? Many would say: "Let the market prevail," in the supreme confidence that in the long run the market will efficiently provide both plenty and variety. That is the judgment of the so-called Washington Consensus of the IMF, the World Bank, and the U.S. Treasury, prompted by most large businesses.

Few doubt the efficiency of market mechanisms in distributing goods and services. It is indeed a wonder of sorts that we lie down at night without worrying that there will be plenty of food in the supermarket tomorrow, gathered from hundreds of farms, firms, states and countries. But what markets cannot do is make the value judgments about how the burdens and benefits of a society should be shared.

Until recently, it has been assumed that if intervention is needed in the economy, national governments bear the responsibility alone. They were expected to devise and mediate whatever social contract was deemed appropriate. That, of course, meant a wide variance in such things as wages, working conditions, social services, safety nets, environmental laws and taxation, to mention just a few factors. International corporations are quick to root themselves in the cracks between nations, for their own profit and benefit. Often there is a mismatch between small and poor governments and large and powerful firms. It is worth noting that in a list of the world's 100 largest economic units, mixing companies and nations, 51 are transnational corporations. And the power of firms is too often magnified by the corruption of individuals in governments who are supposed to negotiate and regulate on behalf of citizens.

Quite apart from the problems of corporate size and official corruption, it is increasingly clear that national economies no longer exist. Even with good intention and adequate administration, decisions can no longer be made in any country as though the rest of the world did not exist. If labor unions are banned, sweatshops wages allowed, and environmental effects ignored in some countries, then the workers and citizens of other countries with more stringent requirements will be undercut in any trading relationship.

It may be too dark a vision to suggest that economic globalization will result in "a race to the bottom." But unless there are agreements that move us toward a more commonly shared social contract among the nations, there may very will be real losses for workers and citizens in countries like the U.S. without any assurance that life will soon improve for the majority of people in poorer countries. There are no international mechanisms to help usher the world of nations toward that goal. There have been powerful international financial institutions for over 50 years, but that is not their agenda. The IMF was created to provide short-term loans to countries experiencing balance of payments difficulties. They very limited role was expanded 25 years ago to make the IMF the financial disciplinarian of countries that fell behind in repaying international debts. What happened to people in the process was not the IMF's official concern. Consequently very bad things indeed have happened. In the name of generating funds to pay debts, national expenditures on health care, education and development have been slashed. Opportunity has been carved out of the life of the weakest citizens.

The World Bank and regional development banks were assigned the task of providing funds to help poor countries develop more quickly. Many good programs have been carried out, but there have also been colossal failures.

The World Trade Organization (WTO), as the successor to the General Agreement on Tariffs and Trade, is to promote an open trading environment and make final judgments regarding appeals about the practices of individual nations. Considering the impact on people is not their task.

A persistent criticism of these international institutions is their non-democratic structure. Decisions are made neither on the basis of one-country-one-vote nor by vote proportionate to population. Voting is skewed to economic power.

Existing international institutions have served the interests of expanded trade and investment without the mandate or the ability to raise larger social questions about the effects of doing so. They have too often collaborated with national elites, incompetent leaders and corrupt officials in making economic decisions from which ordinary citizens have been excluded and which have too often benefited only the few.

Clearly the international institutions that oversee economic globalization need to be more broadly representative, more transparent in their operations and more participatory in their style. They must not be merely the vehicles for promoting the interests of the economically powerful, whether states, corporations or individuals. There must be a place for ordinary people and non-governmental organizations in the development of structures, strategies and programs, or at least they must be involved in mechanism of oversight and review.

There are legitimate debates about whether and how these international institutions can be reformed to help facilitate a different kind of globalization. It is increasingly difficult, however, to defend the notion that no such institutions are needed. The debate must be about representation in governance, the tasks assigned and the power ceded to institutions beyond national control.

These are weighty questions that will not be soon resolved. The challenge will be to assure that incremental decisions do not lead us in the wrong direction.

In the meantime, there are important policy decisions about international trade, aid and investment to be made by our own government that can begin closing the gap between rich nations and poor. That will be crucial in achieving a global society that is both more just and more secure.

Suggested actions:

1. International trade: Write U.S. Trade Representative Charlene Barshefsky. In the wake of the collapse of the WTO talks in Seattle, urge that the U.S. Administration pursue two policies in international trade negotiations within the WTO:

i) Adopt more transparent and democratic processes of decision making. Developing countries must have more of an opportunity to help shape the economic policies under which they will live. The debate must be more open to the public at large so that it will be clear how decisions were reached. Fear and suspicion about the process may make unworkable much needed trade agreements.
ii) Tale the lead within the WTO in establishing mechanisms that will assure developing countries that labor, human rights and environmental standards will not be used for political purposes or to protect the markets and interests of the leading industrial countries.

2. Debt cancellation for the most impoverished countries: Write your representative and two senators and urge that they support the full budget request of $810 million for poor country debt relief -- $210 million in an emergency supplemental request for FY 2000 and $600 million for FYs 2001-2004. Such action will provide the U.S. share for an international agreement on debt that will allow the international financial institutions and regional development banks to cancel debts of the most impoverished countries. It is crucial that funds for debt relief not come at the cost of reducing other development aid or lending programs.

3. Increased foreign aid: The increasing economic gap between the few countries where most people live in abundance and the many countries where most people have almost nothing is not only a moral issue. It is a growing global security concern. Vast inequalities and indifference to that reality cannot make the time ahead more stable. There is a compelling need to increase the U.S. commitment for sustainable development assistance. This increase should be used to fund fully a critical array of programs in Africa, Asia and Latin America, including micro-lending, child survival, food security and AIDS treatment and prevention.

General Assembly guidance:

The 1996 statement, Hope for a Global Future, calls for a monitoring of international agreements "with special concern for the effects of trade on the poor, the natural environment, local communities, and the distribution of power among the actors in economic development" (p. 135). The same document calls for a substantial increase in U.S. support for sustainable human development and notes that "a doubling of funding would be appropriate." (p. 141). The GA in 1998 and 1999, called for cancelling the debt for the poorest countries, endorsing the Jubilee 2000 program.

Addresses:

Honorable
U.S. House of Representatives
Washington, D.C. 20515

Honorable
U.S. Senate
Washington, D.C. 20510

U.S. Trade Representative
600 17th Street, NW
Washington, D.C. 20508