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S. Hermannsson: Economic Globalization and Sustainable Development
Written by Steingrimur Hermannsson, Former Prime Minister of Iceland
Monday, February 18, 2002
Delivered at Assembly 2002, “Establishing a Culture of Peace: Worldviews, Institutions, Leadership, and Practice; The Search for Solutions to Critical Problems,” February 18, 2002
Globalization and liberalization are two words that stand more than any others for the global economic development of especially the last decade. They describe the global economic policy enforced by the capitalistic Western industrial powers, which after the collapse of the socialistic bloc became dominant in the entire Western world. Globalization and liberalization are the policies of the market-oriented free trade economies.
Previously there were two political systems competing for world influence. Developing countries receiving international development assistance therefore had a certain leeway. Most of those countries have little or no infrastructure or skills and a very weak private sector. Such countries were, and many still are, not prepared for the free trade system of economic development, have found it necessary to pursue a planned economic growth under the guidance of the state.
Those planned economies have not in all respects been a success. Far from it. The fact is that many of the developing countries have not had the necessary governing experience to run a planned economic system, and in some cases corruption and internal conflicts have led to tyranny and anarchy unfortunately. But the question is whether the free trade system of economic growth under the auspices of globalization and liberalization has been a success.
Economic Globalization
Economic globalization refers to “the process enabling financial and investment markets to operate internationally.” In other words, globalization means to put the whole globe within reach of capital, and thus within reach of those who own the capital. Liberalization used in combination with globalization is a beautiful expression. But in this context it actually means liberty for the investment and financial markets. In other words, it means freedom for the owners of capital to act.
This is not necessarily evil. There will be no economic growth without capital. The question is, how is it applied, and who benefits?
There are four main vehicles for transfer of capital to the developing countries: development aid, international loans, trade, and direct investment. I shall not say much about development aid. Its execution differs very much depending on the country giving the aid. For example, Icelandic aid is generally given as technical assistance and earmarked for certain projects such as fishing, health, education, et cetera. I don’t recall any cases where we have actually given the money to a government. We always sent experts along, and we thought this to be by far the most effective. Actually, the principle is to teach people to help themselves—to fish for themselves, to take care of health for themselves and so forth.
Now international loans are primarily done through the multilateral financial institutions such as the Monetary Fund and the International Bank. These institutions are controlled by the wealthy nations, which contribute the funds. Those institutions enforce a free market system among the recipient countries. It is very often called “structural adjustment.”
During the Cold War, GATT, the General Agreement on Tariff and Trade, guided international trade. GATT had certain flexibility. It recognized the need for special and differential treatment. It gave the developing countries the freedom in responding to unexpected difficulties. GATT has now been replaced by the World Trade Organization (WTO), which also is controlled by the developed countries. The rules under which WTO operates are stricter and less flexible. The domestic policies of the developing countries are to be virtually standardized, again, by a program of structural adjustment. In this connection it is also important to know that WTO regime is being extended to cover much more than just international trade. It includes now services, capital flow, investment, the environment, and more. Although such rules apply to all members of WTO, they are much more restrictive and difficult to meet for a developing country than the developed.
Unsustainable Development
Certainly foreign corporate investment is nothing new, and in many cases such investment has been beneficial for the host country. But much too often foreign corporations have been motivated by profit-making only and greed. The stockholders at home demand high profits. There are many unfortunate examples of inexcusable practices leading to the destruction of the environment with far reaching consequences. I’d like to mention a couple of examples.
A few years ago I attended a conference of island nations in Malta. A speaker from the Solomon Islands described the operation of a large international mining corporation. It had the right to mine on one of the beautiful islands. The corporation promised employment for all, good salaries, benefits, and so forth. There were benefits while it lasted, but within a few years the mine was empty. The forest had been cleared; the soil had been cleared away. What was left was just bedrock on a strip along the coast where the people lived. That strip was very much infiltrated by poisonous chemicals. The corporation said goodbye and left. The island that was left was actually ruined.
Another large mining corporation did a similar thing in the Philippines. It negotiated the rights to mine on a mountain. The woods were of course cleared, but even worse, poisonous chemicals were also dumped into the mountain streams, destroying the fertile farmland below and the livelihood of thousands of people. As a matter of fact, over the last 100 years, nearly all the forests in the Philippines have been cut, suffering a tremendous loss of topsoil.
On a visit to Costa Rica, my wife and I were given an opportunity, to learn about the tremendous environmental damage in that beautiful country. A large part of the lush forest had been cleared to make space for banana plantations and cattle grazing, resulting in tremendous loss of topsoil and the extinction of unknown number of species, which thrive only in the rainforest. In Costa Rica, I was actually very surprised to learn that foreign banana growers were still using huge amounts of pesticides, which are banned in Western countries and have been shown to cause cancer in humans and kill a tremendous amount of very important basic life. It is amazing that nearly 40 years after Rachel Carson wrote her famous book, Silent Spring, showing that the practice of using life killing pesticides is still being used. Developed countries have banned them, but they are still being used in developing countries. Wind ocean currents carry chemicals like PCB, DDT, mercury and many others, all over the globe. It causes cancer and kills the beluga whale in the Gulf of the St. Lawrence. It kills young cubs of the polar bears in the Arctic, and so on and so forth.
Greenhouse gases emitted by polluting industries are possibly the most serious threat facing mankind today. It may tip the very fine balance in the atmosphere, which is essential for life here on earth. Scientists believe that ultimately it was atmospheric unbalance which seven or eight times brought animal life close to extinction during its 550 million years of existence. The last time, 65 million years ago, the dinosaurs were wiped out. The industrialized countries are primarily to blame for this, not the developing countries. It is sad that the country emitting by far the most greenhouse gases is the United States, which has refused to participate in an international effort to reduce those gases.
A Sustainable Future
What has economic globalization done for the developing countries? Have they become rich? A common measure of wealth is GNP per capita. To the latter part of the last century, GNP per capita grew by over 50 percent in the United States and most Western countries, from about $10,000 to well over $20,000. In the underdeveloped south, on the other hand, it has remained virtually unchanged, and in some of the most populous countries it is around $300 per capita.
This is certainly not all due to the international corporations leaving little in those countries. It is also a fact that poverty tends to lead to more poverty. Poor people often find having a big family their only way of survival, or they believe so. This leads to a huge population growth with less income per capita, more poverty and so on. It is a vicious circle that must be broken.
But it is also a fact that about 10 percent of the world’s population consumes about 80 percent of the world’s production, while 20 percent suffer from hunger and even starvation. This must also change. This must change also for the good of the corporations, who need a healthy human globe. Furthermore, the huge corporate production machinery is extracting much more from the earth than the earth can produce. Those practices are unsustainable. If it continues, it will lead to the downfall not only of the poor developing countries, but even more so of the wealthy north.
Paul Hawken, a former industrialist, describes the situation in a very vivid and striking way in The Ecology of Commerce. He states,
To create an enduring society we need a system of commerce and production where each and every act is inherently sustainable and restorative. Business will need to integrate economic, biological and human systems to create a sustainable method of commerce”
For this to be possible it is necessary that multilateral institutions change. It must become the primary objective to assist the developing countries to become self-supporting, with good education, health and social services, and proper birth control. The United Nations should be given a much greater part in such assistance than it has today.
To achieve sustainable development, Mr. Hawken proposes several drastic changes. I will only mention two. First, he proposes reductions of absolute consumption of energy and natural resources by 80 percent. This may sound impossible, but is it? I think we have the technology to achieve this, even today. We have all kinds of energy possibilities like wind power, which is not being financed as it should be but is extremely promising, for example in the United States. We can easily reduce the use of energy from the sources we use today. Actually we would also have to reduce waste by 50 percent. We have the technology to do so if we really want to and put our minds to it. Another recommendation by Mr. Hawken is to provide secure, stable and meaningful employment for people everywhere. I would conclude by supporting those proposals.