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3. Structural
Adjustment and Global Integration Structural
adjustment and global integration are interdependent and mutually reinforcing. While the
processes of globalization gave birth to structural adjustment as a response to world
economic crisis, the adoption of reform measures have in turn widened and deepened the
thrust towards global integration. Driven by technological progress and spearheaded by
transnational enterprises, the globalization process has been fuelled in the 1980s by
measures of internal deregulation and falling barriers on foreign investment and on flows
of capital and technology. The accelerating pace of global integration in the economic
domain is reflected in the rapid expansion of world trade in commodities and services, of
foreign investment, technology transfers, foreign exchange transactions and
telecommunications. In the social and cultural sphere it is reflected in sharp growth in
travel and tourism; in the establishment and meetings of world associations of
professional, business, labour and other interest groups; and in the rapid spread of
Western consumption patterns, and of ideas, news, fashion and music through television,
radio, press and films.
A few examples may serve to highlight the rapidity of
change in international exchanges. In every decade in the post-war period, trade has grown
noticeably faster than output. While the volume of trade grew by 8.5, 5.0 and 4.0 per cent
per annum in the 1960s, 1970s and 1980s respectively, the corresponding figures for the
expansion of world output were 6.0, 4.0 and 2.5 per cent (GATT, 1990). The share of
exports of goods and services as a proportion of GDP for the Group of Seven rose from 10.1
per cent in 1960-1967 to 15.4 per cent in 1980-1989 (OECD, 1991). Trade in services has
expanded even more rapidly than in commodities: between 1970 and 1990, it grew by 12 per
cent per annum (UNDP, 1992).
Foreign direct investment (FDI) has played a key role in
shaping patterns of trade, the international division of labour and in transfer of
technology. It grew rapidly in the 1950s and 1960s. After a slowdown in the 1970s, FDI
spurted ahead vigorously in the 1980s. Between 1983 and 1989 the value of world FDI flows
expanded at an annual average rate of 34 per cent, nearly four times the annual rate of
growth of 9 per cent in the value of world merchandise exports (Blackhurst, 1991).
Technology transfers have become important components of
international consultancy service transactions. Their value, as represented by royalty
payments and outright sales of technology, research and development and advisory and
consultancy services, has grown exponentially in the 1980s. The share of high technology
in the exports of the OECD countries has increased from over 20 to nearly 26 per cent
between 1962 and 1982 (Marcum, 1984). The corresponding shares for Japan and the United
States have increased from 28 to 40 per cent and from 17 to 30 per cent respectively. The
global share of technology-intensive exports jumped from 21.5 per cent in 1978 to 28.6 per
cent by 1988 (World Bank, 1992).
Deregulation and technological progress have also
transformed foreign exchange and financial markets. The 1980s have seen a virtual
explosion in foreign exchange trading. In New York, for example, trading has grown at
about 40 per cent annually since 1986. By 1989, US$ 650 billion a day were being traded in
foreign exchange markets around the world (Blackhurst, 1991). There has also been a sharp
increase in international transactions in bond and equity markets, especially with the
possibility of non-stop trading now that all major markets are linked electronically.
Foreign investment in equity markets grew 20-fold in the decade from 1979 to 1989. The
result was a more than doubling, from 6.2 to 14.2 per cent, in the share of cross-border
trade in equities in total world stock turnover. At year-end 1989, trading by
non-residents in United States government securities reached US$ 3 trillion, or roughly
US$ 12 billion per day. In Germany, bond transactions involving non-residents increased on
average by 43 per cent a year from 1985 to 1989 and now account for over one third of the
value of all transactions in German bond markets (Blackhurst, 1991).
Telecommunications and information processing technologies
have played a critical role in the globalization process in recent years. Outgoing
international telecommunications traffic expanded annually by 20 per cent in the 1980s.
This growth has been greatly facilitated by rapid technological progress resulting in
sharp declines in charges. For instance, the cost of leasing the American half of a
private transatlantic voice channel fell from US$ 12,000-14,000 a month in 1983 to between
US$ 4,000 and US$ 5,000 in 1990 (Pipe, 1990). The cost of information processing dropped
by about 65 per cent between 1975 and 1985 (OECD, 1988). The average cost of a
three-minute call between New York and London fell drastically from US$ 54.86 in 1950 to
US$ 31.58 in 1970 and to a mere US$ 3.32 in 1990 (World Bank, 1992).
Likewise, technological progress in transportation has
greatly facilitated the growth of trade and tourism. The average ocean freight and port
charges per short ton of import and export cargo fell from US$ 34 in 1950 to US$ 27 in
1970 and US$ 24 in 1980 before rising to US$ 25 in 1990. The average air transport revenue
per person/mile fell from US$ 0.30 in 1950 to 0.16 in 1970 and 0.10 in 1990 in constant
dollars (World Bank, 1992).
The relative importance of different aspects of the
internationalization of the economy has changed over time. For instance, in the 1950s and
1960s, the rapid expansion of international trade was the driving force behind
globalization. In the 1970s, the lead role was played by flows of capital financed by the
commercial banks. The 1980s were marked especially by an explosive growth in foreign
direct investment and technology flows.
Transnational enterprises (TNEs) have been at the heart of
global economic integration. They have spearheaded technological progress and foreign
direct investment and played a central role in international transactions in goods and
services, foreign exchange and stocks and bonds (Julius, 1990). The total number of parent
corporations and foreign affiliates was estimated at 35,000 and 147,200 respectively in
1990. Global sales of foreign affiliates in host countries were estimated at US$ 4.4
trillion in 1989 compared to world exports of US$ 2.5 trillion, and have grown at an
annual average rate of 15 per cent since the mid-1980s (United Nations, 1992). By the
early 1980s, trade between the 350 largest TNEs contributed about 40 per cent of global
trade (Oman, 1991). TNEs are the main vehicles for FDI, access to foreign markets and for
transfer of technology and management skills.
The role of developing countries in global exchanges has
tended to shrink in recent years. The notable exceptions to this trend are a few countries
in East and South-East Asia. In trade, the developing country share has declined from 31
per cent in 1950 to 21 per cent in 1989 (UNCTAD, 1990). In 1968, they accounted for over
30 per cent of the stock of world foreign direct investment. This had fallen to just over
21 per cent by 1988 (Griffin and Khan, 1992), much of it concentrated in a handful of
countries. Five countries - China, Indonesia, Malaysia, South Korea and Thailand -
accounted for about a quarter of all foreign direct investment. There are likely to be
even greater imbalances in the transactions in technology and finance.
From the evidence presented earlier, it is clear that the
world is now moving strongly towards a single market for goods, services, technology,
capital and skills. It is only with respect to unskilled workers and some categories of
agricultural and manufactured products that national boundaries continue to constitute
effective barriers to mobility and free trade.4 The
accelerating integration of the world economy and continuing technological progress are
likely to have far-reaching effects on patterns and location of production and
distribution of resources within and across countries. They can also be expected to exert
influence on national and international distribution of power and hence on social
structures and political processes. Some of the social and political consequences of
adjustment and globalization processes are taken up in the following sections.
4 The growth of regional trading blocs could slow or even reverse the process of
global economic integration by raising commercial barriers against non-members. In recent
decades, such blocs do not appear to have caused significant trade diversion.
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