Robert Haywood, Director
World Economic Processing Zones Association
Evergreen, Colorado, USA
No. 3 Ver. 1
Copies of this booklet may be obtained from:
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P.O. Box 986
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Tel: (520) 779-0052
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© The Flagstaff Institute, 2004
It is said that in this world the only constant we have is change. Ten years ago many thought Japan would have endless economic development. It was the envy of the world, yet now we have a true, long term, recession in Japan. It was said that the United States was in a long term decline. It was forecast that semi-conductor production would never come back to the United States, but that too has changed. The United States is again the largest producer of semi-conductors. So now there is an economic crisis in Japan while the healthy United States economy seems to be keeping the world from slipping into a global recession. Change is what we need to plan for.
Asian Crisis
Whereas 10 years ago the Asian miracle was thought to be leading to perpetual growth, happiness and wealth throughout Southeast Asia, we now have had a liquidity crisis. While perpetual smooth economic development was never a realistic expectation, it was firmly believed by many. I want to emphasize at this point that the Asian economic miracle was real and is still real. For example, if the GNP per capita (a measure of the wealth) of Korea were to drop in half, it would take them back to the standard of living they achieved in 1990, which is six times their income in 1960 when they started along their growth path. This is still impressive!
I have been asked "Was the Asian economic miracle real?" The answer is an emphatic yes, and we must remember that. The Asian model is valid, it worked and continues to work.
The fact that there is a liquidity crisis because the economies lacked appropriate organizations in their central banking systems or had weaknesses in their lending practices, does not take away from the extraordinary achievements of the last 20 years. What is important is that we learn the real lessons from Southeast Asia. We need to learn that export lead development works, and not be distracted by a short and temporary problem now occurring in Asia.
Africa/Latin America
Sub-Sahara Africa was supposed to be a perpetual problem. Yet now it has some of the highest growth rates in the world. This is not because the other growth rates have gone down, although they have, but it's because Sub-Sahara African growth rates have come up to pre-crises Asian levels. Uganda has had a sustained period of growth of over 6%-8% a year. We see Africa beginning to become involved more intimately with the world of manufacturing and the whole world economy.
There are open economies in Latin America coupled with democracies. This is from a continent that 10 and 15 years ago was mostly seen as unstable, rife with military dictatorships, poor governments, and runaway inflation.
What we see all over the world then is change. Change from what we expected just a decade ago. Change from what has been consistent for centuries.
All of this leads to the true concept of globalization that has been going on for a long time. Perhaps it has been going on since before the time of the Roman Empire. Certainly the British Empire did a lot for globalization. With improvements in communications and travel, the last 150 years has seen an explosive growth globalization.
Definition
Globalization is a movement toward a worldwide society. We have traditionally thought of it as a movement of goods and servicesCtrade, but it is much more than that. Along with trade, globalization is also the movement of capital, the movement of ideas and the movement of people.
Trade
There has been a huge growth in trade over the last 20 years. Exports have risen from 10% to 18% of the world's Gross Product or from $1.2 trillion dollars to, this year, about $6 trillion dollars. Services have started to be traded across borders in larger volumes. Services have gone from 1/6 of trade to 1/4 of trade --- from $200 billion to about $1.2 trillion. In other words, the movement of professional services and entertainment and other types of non-product trade now exceeds all trade of 20 years ago.
Capital
Globalization has also meant the movement of capital in the form of portfolio investment and foreign-direct investment. The annual report of UNDP shows that the sales of foreign affiliates of multi-national corporations now exceed the total volume of trade. Whereas trade was between $5 and $6 trillion, the sales of factories owned by non-nationals-- foreign-direct investments-- are between $6 and $7 trillion this year. The flow of foreign direct investment now exceeds the flow of official aid from all channels.
The movement of capital also includes portfolio investment. Right now in the world one in seven equity trades involves a foreigner. And, indeed, the value of foreign exchange traded every single day on the money markets exceeds the entire value of trade in goods and services for a year. This is an incredibly globalized movement of capital. Indeed, it was this movement of portfolio capital that precipitated the "Asian Crises" of last year, and not the movement of trade goods.
Ideas
While the movement of capital is more important than the movement of goods and services, the flow of ideas is more important than either capital or product. In the flow of ideas we have the concepts that make up economics. We have market systems. We have stock markets. We have open economies. We have fiscal and monetary policy. Twenty years ago when an investor wanted to invest in a stable stock market outside of the United States, he had a choice of six markets. Today there are 90 operating and stable markets in the emerging world that industrial country investors can use.
But globalization of ideas means more than economics B it means technology -- from the green revolution to health care, to jet planes, to cellular telephones, computers, and management. There is no country you can go to today where you don't see personal computers sitting on the desks of some managers.
The flow of ideas includes also the ideas of governance B the nation state, democracy, corporations, et cetera. I say et cetera because since World War II, the whole period of decolonization, every single country formed has had to create an executive, a legislative and a judicial branch. The model had developed over the last 150 years, but it has become the current global model of a government.
We have the environment; global meetings of concern about what's happened to our air, our oceans, our waters. We have human rights, issues such as press freedoms, religious freedoms, labor rights. These are issues that are spreading around the world and are being taken up on a worldwide basis. There are also concern about certain defense treaties. At the beginning of the century we wrote the Geneva accords on the treatment of war prisoners. We're now talking about accords on nuclear weapons, we have had accords now on land mines. Global ideas are becoming global solutions to global problems.
Culture
We also have culture spreading around the world B movies, restaurants, sports, global competitions. It is not all Western culture. There are more Chinese restaurants in the world than there are McDonald's hamburger stands. Yogurt is available world wide, as are other Middle Eastern inventions like Arabic numbers-the numbers we all use. We have Italian cappuccino coffee available in Tokyo and Sushi in Rome. Movies like Titanic have worldwide impact. (Incidentally, I recently saw a tee-shirt which I appreciated. It said, "Ship sank. Get over it.") You have designer clothing from Paris, Rome, and Tokyo available all over the world.
Institutions
We respond to this by creating institutions and reorganizing the way we do things in the world. For example to organize our economy we have in the last 50 years, created the International Monetary Fund (IMF), the World Bank, the World Trade Organization (WTO), the Basil Committee on Banking supervision, United Nations Development Programs. These are all organizations to help us govern the globalization of the world. But our institutions, again, are not just in economics.
In technology we have developed commissions on air trafficCair cargo flows, on shipping, on communications to assign frequencies so that our communications don't interfere with each other, on intellectual property, and, again in the WTO we are dealing with the technologies of a global economy.
In governance we're seeing changes with the United Nations, the European Commission, the OECD, Group of Eight --- again, groups of nations trying to solve the problems of a globalized economy. In the environment we have earth summits, global warming agreements, ozone agreements. In human rights we have reestablished war crimes tribunals. The International Red Cross which, incidentally, was probably the first international organization at the beginning of this century, and the International Labor Organization from 1913 are two early examples of changes in global governance.
Movement of People
More important than even the movement of ideas has been the movement of people. This is an emerging issue. We have to deal with the issues of migration of low-skilled labor, such as Mexican workers migrating to the United States, Turkish workers migrating into Western Europe, and it is happening in other places in the world. It also happened 100 years ago when Chinese laborers spread throughout Asia, and Indian nationals went to Africa. We now also have to deal with the issue of migration of skilled labor, doctors, engineers, electricians, and other trade people practicing their trades in other countries.
This brings up a very important issue of credentialing. What gives an American doctor the right to practice medicine in Nepal? We have doctors going over there for charity and practicing medicine, and Nepal welcomes them. But how are they licensed to practice in Nepal or Rwanda or Uganda or China? The samething can be true with lawyers and accountants. It's an important issue. I believe it was the Turkish Free Zones who were approached by a group of doctors who wanted to set up a clinic in a free zone so that they would not have to get licensed within that country C a new concept for the use of free zones.
Free Zones
What does it means to free zones to have to work with these changes caused by globalization? Changes and events that are altering the world we know.
Free zones are important in economics; economics is one reason why export processing zones are necessary. The globalization of technology is changing marketing and the way zones can manage the problems of getting information and communication around the world. It changes how other find out about what going on in your country. Changes in governance are changing the view of some about free zones. Making free markets acceptable in many countries, but also changing who influences national policy. The European Union's generally naive and disparaging view of free zones at home and abroad is becoming relevant in countries that just a decade ago were seen as entirely separate from the EU. Free zones are at the heart of helping many countries learn how to operate economically, technically, and politically in today's world.
How do governments encourage what needs to be encouraged? How do governments control what needs to be controlled? And how do they understand the difference? These are questions that need answering in our changing world, and Free Zone have helped governments try different policies. They are one of the ideas that globalization is disseminating.
Free zones must deal with all the questions of globalization. Free zones must deal with issues of human rights. Critical is the issue of labor rights around the world. Free zones can take the lead in improving productivity and human dignity. Culture issues are resolved in free zones. The multi-national free zones such as the free zones that are started by the Koreans in Russia in order to help Korean companies understand how to do business in Russia, Japanese free zones in the Philippines, Singaporean ones in China, even the free zones in Jordan that deal directly with the U.S. and Israeli economy because of some of the political issues that have been going on in the Middle East, are at the center of cultural globalization. There has been a trend in free zones to try to help cultures interact with each other. It is an important trend. In the last 3 to 5 years we have seen an enormous growth in the dual national free zones around the world.
Zones are not passive players in this changing world. They are important players. In many ways Zones are leading many countries into globalization, and they have the potential to lead better when their managers understand that zones are changing the world.