Globalization: a force for good
It is a great honor to be the guest speaker at such an important occasion like this.
Today I would like to discuss globalization and its effects.
It is a topic that is very relevant for a class like you will benefit from it in the careers you pursue,
the salaries that you will command and the opportunities that will be open to you right around
the world.
It is also relevant because despite the fact that many, or all of you, will directly benefit from it, I
would be surprised if a proportion of you did not feel some unease about the inexorable march
towards globalization.
You may be concerned about what it does to poor countries, what it means for the
environment, for human rights, what it means for democracy.
Indeed I would predict that, while Bond is not the most radical of campuses, some of you have
nevertheless been part of a protest or organisation campaigning against globalisation.
And you would not be alone.
Anti-globalisation protests have been occurring around the world for years.
Indeed just last week while several thousand business and government leaders were attending
the World Economic Forum in Davos (in part to promote greater economic integration), 60,000
people were gathering in Caracas, Venezuela, for the World Social Forum - a Forum which
strongly opposes globalisation.
The Forum was billed as the "antidote" to the World Economic Forum.
Globalisation has been a controversial subject and will no doubt continue to be so.
My view, however, and this is what I want to discuss today, is that globalisation is an
overwhelming force for good and hence we should not only defend it, but promote it.
My views are based on what globalisation means in terms of freedom and based on the cold
hard facts of its effects particularly in terms of poverty alleviation.
Let me explain.
Globalisation is the result of free choices
But first, what do we mean by globalisation?
The World Bank describes it as "the growing integration of economies and societies around the
world."
Essentially, people and countries are more interconnected.
What happens in one country can influence another. Wall Street sneezes and the rest of the
world catches a cold.
Technology advancements, in the form of rapidly reduced transportation and communication
costs, combined with policy decisions to reduce trade and investment barriers have been
important factors behind this rapid global integration in recent decades.
But they have not caused globalisation to occur.
What has caused greater economic integration between nations - and this is often forgotten or
deliberately overlooked by the critics of globalization - is individuals taking decision in pursuit of
their own interests and being given the liberty to so.
A McDonalds restaurant for example - enemy number one to the anti-globalisation forces - only
exists because there are people who freely choose to open the restaurant and because there
are people who freely choose to purchase meals at the restaurant.
Australia imports clothing from Bangladesh because there are Bangladeshis who freely choose
to sell their products abroad and because there are Australians who freely choose to purchase
them.
Lower transportation costs and lower tariffs on imported goods into Australia allow this to
occur more easily, but no trade would occur without the free choice of individuals on both sides.
Likewise, Australia's exports of wine to Britain don't occur because of any government mandate,
but, again, because of the free choices of thousands of people both producing the wine and
consuming it and being given the freedom by governments to do so.
Opening a McDonalds, importing clothes from Bangladesh, exporting wine to Britain.
All of these things result in greater global economic integration, or globalisation.
And they are all caused by people being given the freedom to pursue their own interests.
This alone is a very powerful argument in support of globalisation.
To limit the freedom of individuals to pursue their own interests requires very convincing
evidence that such freedom has very negative consequences on the broader society.
Many critics will claim exactly this, citing poorer people as having particularly suffered.
An impassionate view of the evidence, however, suggests otherwise.
The practical effects of globalisation
Consider what has occurred over the last century and particularly the last 20 to 40 years, which
coincides with the acceleration of greater global integration.
The past century has seen more people lifted out of poverty than in all of human history.
In 1820, about 85% of the world's population were living in absolute poverty - usually defined
as living on less than one dollar a day.
By 1950 that figure had fallen to 50%. Today it is about 20%.
Swedish economist, Johan Norberg, notes that in the last 20 years, for the first time in history,
both the proportion and the absolute number of people living in absolute poverty has declined.
The population grew by 1.5 billion while the number living in absolute poverty fell by 200
million.
The average global income per capital has almost doubled over the last 35 years with the
poorest fifth of the population increasing their income faster than the wealthiest fifth.
Life expectancies show a similar pattern.
At the start of the 20th century, life expectancy in developing countries was 35 years. By the
end of the century it was 65.
While this is still below that of the richest countries today (the average for the OECD countries
is 78 years), it is 15 years longer than the average for the richest country 100 years ago.
Infant mortality rates are half what they were in 1970. Adult illiteracy has almost halved.
This is phenomenal, unprecedented progress and it did not happen by accident or in despite of
globalization.
Rather it occurred as a result of increased economic growth due to the opening up of
economies and the spreading of global capitalism.
Studies have shown that the more open economies and those that have most successfully
integrated with the global economy have produced the best growth results, while those that
have remained closed have produced the worst.
For example, a 2002 World Banks study of 72 developing countries found that since 1980, the
"globalisers" - those that increased their ratio of trade to GDP - grew almost four times faster
than non-globalisers.
A further study estimated that an increase in the ratio of trade to GDP by one percent raises the
level of income by one-half to two percent. (Frankel & Romer, 1999 as cited in World Bank
report on Poverty in the Age of Globalisation, 2000).
Our regional neighbours have been some of the big gainers from globalisation.
From the 1960s onwards, most East Asian economies became increasingly export oriented and
globalised, lowering tariffs and expanding their trade.
They also provided their populations education and infrastructure and generally sound
governance.
As a result, per capita income grew most strongly in East Asian economies over the last 20 years.
In the 1990s, with the exception of Japan, East Asia grew by between 6-8 per cent per annum,
and the share of regional populations living in poverty fell rapidly.
Furthermore, the growth in these countries didn't just benefit a small few with the poor lagging
behind as some people suggest.
Rather, evidence shows that economic growth is on average associated one-for-one with higher
incomes of the poor.
That is, when an economy grows 1%, the incomes of the poor rise on average by one percent.
There are exceptions to this, but statistical evidence shows that, on average, the poor have
benefited at roughly the same speed as the rich. (World Bank, 2000)
In contrast to the rapidly growing East Asian countries, countries that have failed to grow and
still suffer desperate poverty - most notably many countries in sub-Saharan Africa - have failed
to integrate into the world economy.
This failure to integrate is caused by domestic conditions including war and internal governance,
but it is sometimes made worse by rich countries putting up barriers to their products,
particularly farm products.
As UN Secretary General Kofi Annan has said: "The main losers in today's very unequal world
are not those that are too much exposed to globalisation. They are those that have been left
out."
For those who are still in doubt, it worth reflecting on what happens when a country closes its
doors having been opened to the world for some time.
Zimbabwe is probably the best illustration of this.
According to Norberg, Zimbabwe has "undertaken the world's fastest and most consistent
retreat from the alleged evils of globalisation and liberalisation."
Under Robert Mugable, trade has been limited, government spending has increased, price
controls installed, freedom of expression limited, and property appropriated.
The result? Within 5 years, Zimbabwe went from being an exporter of foodstuffs to a country
where more than 6 million people were facing starvation. (Norberg, 2003).
Australia, of course, has been both at the fore-front of, and a beneficiary of globalisation.
Over the last 20 years, the Australian Government has cut tariffs, opened itself up to global
capital markets and implemented significant micro-economic reform.
While this has resulted in some significant disruption to some industries, Australia overall has
benefited profoundly with productivity growth in the second half of the 1990s 40 percent
higher than in the 1970s and 80s. (DFAT, 2003)
This has lead to higher incomes and the lowest unemployment levels in decades.
It is worth remembering that lowering trade and investment barriers is necessary, but not
sufficient, to ensure that communities keep and spread the gains from globalisation.
Governments must also ensure domestic goods, labour and financial markets work and legal
systems and infrastructure function efficiently.
They must operate stable macroeconomic policies to keep inflation low and employment full.
And they must ensure that their populations have access to good quality education and health
care and adequate social safety nets.
While Australia has done these well, other countries have not and their gains have been less.
Australia's role in spreading the gains of globalisation
Australia has a direct interest in seeing other countries integrate into the global economy or
globalise.
Not only is there a humanitarian interest in seeing enhanced economic growth and poverty
alleviation in poorer countries, but globally integrated economies are more politically stable
and can be a market for Australian goods.
Australia can do a number of things to spread the gains of globalisation.
Assisting with governance reform and institution-building is possibly the most important.
With stronger institutions, countries are better placed to introduce the policies and reforms
vital to securing the opportunities of globalisation.
The strength of Australia's own institutions means we are well placed to help others improve
their institutions and their approaches to key policies.
Through our aid program we are investing in the prosperity, the health and the freedom of the
poorest, particularly in our own region.
With more than a third of our aid program focused on promoting good governance, we are
helping create environments where creativity, enterprise and effort can reap rewards …
… and where resources are allocated to productive purposes rather than squandered through
corruption or mismanagement.
Reducing trade barriers is also critical.
This applies to both developing and developed countries.
Removing barriers to agricultural trading is particularly important and Australia is working hard
to achieve this through the current Doha Round of WTO negotiations.
It is in agriculture that many developing countries have a competitive advantage and it is in
rural communities where many of the world's poorest live.
But it is also in agriculture that the world trading system is most distorted.
Primary producers in the world's developed countries receive about US$280 billion a year in
government support.
In the European Union, farmers receive a third of their income from government subsidies.
A typical cow in the European Union receives a government subsidy of US$2.20 a day.
This is more than what 1.2 billion people earn!
The World Bank estimates that an ambitious conclusion to the current WTO negotiations could
lift an additional 140 million people out of poverty by 2015 and boost global welfare by up to
US$269 billion, with up to 40 per cent of these gains flowing to developing countries.
Developing countries face their own, unique difficulties in adjusting to the trade liberalisation
process, and they need support to help them adjust.
With this in mind, WTO members recently agreed to an Aid for Trade initiative to help
developing countries build their capacity and take advantage of the opportunities provided by
trade liberalisation.
The Australian Government contributed an extra $4 million for Aid for Trade activities, adding
to the $32 million we provided in the previous year.
It would be remiss of me, particularly in this setting, to not mention education. Education, is of
course, a significant export for Australia.
But it is also a means of assisting countries develop their economies and societies through
training their people.
Over the past 55 years, about 700,000 people from Asia have been educated in Australia.
The contribution that these graduates are making to their home countries is enormous.
Many, of course, are in leadership positions in government or in business.
The international students graduating today who are returning to their home countries will no
doubt make a similarly impressive contribution.
Conclusion
While I overwhelmingly believe that globalisation is a force for good, I also believe it is
unstoppable.
To protest against globalisation is like protesting against the sun rising.
We share a planet…and with modern transport and communication we share it more easily.
The enterprise, curiosity and enthusiasm of human beings will always ensure that opportunities
are sought in every corner of the globe.
So our challenge is not to prevent globalisation but to manage it in such a way as to maximise
the benefits for all.
The former World Bank head, James Wolfensohn said that "for me, the argument about
globalisation is a non-argument."
I couldn't agree with him more.
I congratulate you once again on what you have been able to achieve, and wish you well as you
take up the many opportunities available to you.