Pacific Perspective

Shirley J. Daniel

Friday, July 27, 2001

Long-term pay off to
global integration

Violent protests at the recent G-8 Summit highlight the growing controversy over the issue of globalization. Despite the controversy, there is no broadly accepted definition for the term. However, a more rational discussion can result from examining the 3 elements of globalization: 1) international trade, 2) foreign direct investment and 3) capital market flows.

The past 10 years have witnessed an increasing level of international activity. For example, the level of international trade increased in developed countries from 27 percent to 39 percent of GDP and in developing countries from 10 percent to 17 percent. The share of foreign direct investment to GDP has also risen in both developed and developing countries and is now the largest form of private capital inflow to developing countries. These trade and FDI increases are generally seen by businesses as positive.

However, the globalization of capital market flows is more contentious. National governments, particularly those with policies that are out of step with the rest of the free market, are exerting less control over capital market flows, which are more volatile than trade or FDI flows and are sometimes blamed for regional economic crises.

From the entrepreneur's perspective, the driving force behind globalization is market opportunity. In the past, it was improved transportation technology that provided market opportunity; today it is telecommunications technology that is creating the opportunity for anytime, anywhere markets.

From the consumer's perspective, one of the benefits of globalization is the availability of lower cost, higher quality products. As the "commoditization" of products and increasing competition erodes profit margins, constant product improvement and differentiation by firms are necessary to remain competitive.

Many critics of globalization emphasize environmental problems and increasing income inequalities caused by industrialization. However, these are issues related to economic development in general, rather than globalization per se. Research shows that while environmental quality is often compromised in the early stages of economic development, once a country is past a mid-level of development, environmental quality typically improves. There is also no clear relationship between international trade and income inequality. However, in general, the more free and open the economy, the quicker it can adjust to the changes brought about by globalization.

On the positive side, global telecommunications technology not only enhances the ability of people throughout the world to make better informed choices, it also mitigates the power of governments and groups to perpetrate atrocities without being sanctioned. It seems inevitable that distant parts of the world will become increasingly interdependent. In light of this, the century-old University of Hawaii motto Maluna a'e o na lahui a pau ke ola ke kanaka, Above all nations is humanity, is more relevant than ever.

Shirley J. Daniel is the Henry A. Walker Jr. Distinguished Professor of Business Enterprise and director of the Pacific Asian Management Institute at the College of Business Administration, University of Hawaii at Manoa.

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