| |
Globalization and its
discontents
By John Berthelsen
As increasing trade inexorably links the world's
economies closer together, business cycles are becoming
more intertwined as well, so that economic activity in
one G7 (Group of Seven) industrialized economy is more
and more likely to trigger similar activity across the
globe, according to a study of the US economy by the
International Monetary Fund (IMF).
And, as
economies become increasingly intertwined, the booms
that take place in the biggest economies are inevitably
going to trigger booms in the smaller ones as well. More
worrisome, they can also be expected to trigger the
busts. And all of Asia, linked to the G7 through
export-led regimes, will inevitably endure the same
cycles.
The report, published in mid-July, could
thus be regarded as ammunition for both pro- and
anti-globalization forces, which is timely with the
onset of additional World Trade Organization (WTO) talks
opening next month. The so-called Cancun talks are named
for the Mexican resort town where they are scheduled to
take place - far from the protesters who have attempted
to break up trade talks in a variety of cities across
the world, its organizers hope. They are to be held
September 10-14 in a stated attempt to redress
inequalities for developing nations that arose during
eight years of the Uruguay Round of negotiations that
ended in 1994 and created the WTO out of the General
Agreement on Tariffs and Trade (GATT) that had been in
place almost since World War II.
Developing
countries are extremely suspicious of the current round,
given what has been described by Joseph Stiglitz, former
chief economist of the World Bank, a Nobel Prize winner
and severe critic of the WTO, as "secret negotiations,
arm-twisting, and the display of brute economic power by
the US and Europe, aimed at ensuring that the interests
of the rich are protected".
Nonetheless, the
international trading system appears certain to grow
more intertwined with each successive round, protest or
not. Steiglitz says, "The realpolitik of economic power
has ensured that the interests of the developed
countries predominate." Nonetheless, business activity
will inevitably grow more entangled.
The
conclusions on globalization are contained in a 101-page
analysis of the US economy and its most precarious
features by 11 IMF economists (see The IMF and the US economy, August
16). Written by Ayhan Kose, the chapter deals
specifically with globalization and the business cycle
in the United States.
Kose constructs a
complicated "dynamic latent factor" econometric model
that includes dozens of factors in output, consumption
and investment data for the G7 countries, namely the
United States, Canada, France, Germany, Italy, Japan and
the United Kingdom. He pulls these together into a
"world factor" to explain the correlation among
economies in times of boom or bus.
As a result,
he finds, "the world factor has been an important force
behind most of the major business cycle episodes of the
last 40 years". In particular, he writes, the behavior
of the world factor is consistent with the steady
expansion of the 1960s and early 1970s, the recessions
of the mid-1970s, the early 1980s and early 1990s, and
the expansion of the late 1980s.
In particular,
the global downturn of 2000, which continues to depress
world earnings three years later, was very much
synchronized across economies as exporters in Asia, for
instance, could not find markets in the eurozone and the
US, which with its US$500-billion-plus trade deficit and
its spendthrift consumers has in effect become the
importer of last resort.
Global capital markets,
Kose writes, have become significantly more integrated
over the past two decades, to the point where, in the
case of the United States, the sum of inflows and
outflows of foreign direct investment have surged from
less than 3 percent of gross domestic product to more
than 18 percent today. For other G7 countries, he
writes, gross capital flows have reached as much as 45
percent of GDP.
The world factor's role in
explaining the synchronization of business circles
across the industrialized world is becoming more
important as globalization comes more intensive. Thus,
Kose writes, "a rebound in economic activity in the
United States could have large spillover effects for
other G7 countries", particularly for Canada and the
United Kingdom. In the UK's case, global factors have
become more important in explaining its business-cycle
fluctuations as the economy itself turns more to trade.
Canada is increasingly bound to the United
States, as is Mexico, by the North American Free Trade
Agreement, which brought together the three countries in
the largest free-trade zone in the world. Mexico now
derives a full 50 percent of its GDP from trade with the
United States. Canada's trade with the US has doubled
since 1993, when NAFTA was ratified by the governments
of the three countries.
With the US economy at
about $9 trillion annually, it so overshadows the other
G7 countries - and the rest of the world, for that
matter - that any increase in output by the other six
has a much smaller impact on the United States. With its
formidable import-export capacity, the US is the biggest
factor of all. US total trade, the sum of exports and
imports, has tripled since 1960. Other G7 nations have
grown faster, but from a much smaller base. The United
States thus remains the economic engine that can pull
the rest of the industrialized world out of recession -
or put it into one. There is no other locomotive big
enough to take over the job.
(Copyright 2003
Asia Times Online Ltd. All rights reserved. Please
contact content@atimes.com for
information on our sales and syndication policies.)
|
| |
|
|
 |
|
