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May 2000, Volume 7, Number 5

Global Trends

The world's population reached six billion in 1999, and is projected to be about nine billion in 2050. World GDP, about $27 trillion in 1996, is expected to double by 2030 to $56 trillion. The IMF expects global GDP to increase by 4.4 percent in 1997 and in 1998, or by about $120 billion a year. Economic growth is expected to be fastest in developing countries, up by 6.6 percent in 1997, primarily because of trade globalization and rapid technological developments.

In June 1997, the CIA released its estimates of GDP at purchasing parity in 1995. The US GDP was reported to have been $7.3 trillion, followed by China, $3.5 trillion; Japan, $2.7 trillion; Germany and India, $1.4 trillion each; France, $1.2 trillion; UK and Italy, $1.1 trillion each; Brazil, $1 trillion; Russia, $800 billion; Mexico, Indonesia and Canada, $700 billion each; and South Korea and Spain, $600 billion each.

Since 1950, world manufacturing output has risen sevenfold, but world trade in goods has risen by 26 times, as average tariffs on goods in the industrial countries fell from 40 to four percent. World trade reached $11 trillion in 1996. In 1995, world trade in services was $1.2 trillion, or about one-fourth of the value of goods trade. Services include transport and travel, communications and financial services, and information services and royalties. The US exported services worth $190 billion or 16 percent of the world total in 1995, followed by France with $98 billion in service exports and Germany with $82 billion.

International tourism receipts in 1996 were $423 billion, excluding airfare, including $64 billion spent in the US, and $28 billion each spent in France and Spain. The World Tourism Organization reported that almost 600 million persons--equivalent to 10 percent of the world's residents--traveled internationally for business or pleasure in 1996.

Economist Bimal Ghosh in "Gains from Global Linkages: Trade in Services and Movements of Persons," argues that further liberalization of trade in services under the General Agreement on Trade in Services (GATS) --the six-section, 29-article agreement reached in 1994-- will increase trade-related migration, and that this migration will benefit both developing and industrial countries. Thus, trade-related migration should, Ghosh argues, be regulated "by an internationally harmonized visa regime for trade-related movements as distinct from migration for employment or permanent settlement."

GATS already covers all types of temporary movements of "natural persons" as service providers and consumers; Ghosh would like signatories to GATS to adopt this principle to facilitate "all types of temporary labor movements...linked to trade...skilled as well as non-skilled workers, intra-firm transferees and self-employed service providers." (43-5). Once this principle is established, Ghosh believes that immigration systems could be modified to facilitate nonimmigrant movements.

The IMF's spring 1997 World Economic Outlook emphasized that, although globalization has created some problems, for instance, downward pressure on wages in industrialized nations, it has also provided tremendous opportunities for trade and growth. More than $420 billion has been invested in developing countries between 1988 and 1995, but the gap between the richest and poorest--between developed and developing nations and within developing nations--has widened. The share of global income of the poorest 20 percent of the world's population has fallen from 2.3 percent to 1.4 percent between 1960 and 1990, so that the richest 20 percent of the world's population in 1996 got about 85 percent of global income, up from 70 percent in 1960. The incomes of the richest 20 percent of the world's residents grew three times faster than the incomes of the poorest 20 percent from 1960 to 1990.

Developing nations have $2.3 trillion in foreign debts, and the industrial countries are proposing $50 billion in debt write-offs, with the money not spent to service the debt instead devoted to education and health care.

There are several measures of inequality. The assets of the world's 348 billionaires exceed the combined annual incomes of 45 percent of the world's population. The assets of the richest Mexican are equivalent to the incomes of the poorest 17 million Mexicans.

Worldwide, foreign investments in factories, real estate, and stocks and bonds, as well as commercial lending to developing countries jumped $60 billion in 1996 to $244 billion, up from $44 billion in 1990. China received about $42 billion of the foreign direct investments in factories, about one-third of worldwide FDI of $110 billion. Mexico received about $6 billion in factory investments and $28 billion in private capital flows, including stock and bond purchases.

One study of 133 countries found that output per worker was 48 times higher in the most productive than in the least productive country and attributed the gap to infrastructure, defined as including the rule of law.

Foreign aid has been falling. Grants and low-interest loans to developing nations were $44 billion in 1996. The amount of foreign aid available for education and health care fell further because so much of the foreign aid that was sent to the developing world in 1996 went for refugee relief and peacekeeping.

The US has contributed about $1 trillion in foreign aid in 1996 dollars since World War II, both bilaterally and through international organizations such as the IMF. The US has provided $439 billion in 1996 dollars for foreign military assistance between 1946 and 1996.

Harvard economist Dani Rodrik, in a new book entitled "Has Globalization Gone Too Far?," argues that freer trade and capital flows alter the social contract by shifting the balance of power inside open economies from workers to employers as employers use the threat of moving jobs abroad to hold down wages and benefits. Second, Rodrik argues that globalization can undermine social norms such as "fairness" that hold societies together, as when workers who complain that their jobs are being shifted to be done by children or prisoners abroad are ignored.

Third, Rodrik says that globalization requires governments to provide social insurance for workers displaced by freer trade. The economies most open to trade, such as Sweden and the Netherlands, are also those that provide the most social insurance to cushion its effects.

In a review of why some nations stay poor, Jeffrey Sachs argues that there should be less emphasis on agricultural reform in the developing world, since free markets in agriculture have contributed relatively little to development outside the temperate zone. Sachs says that farming is a dead end in places subject to rapid soil erosion and deforestation.

Instead, Sachs maintains in a June 12, 1997 New York Times article that developing countries in tropical regions should spend more on public health, and encourage the development of export-oriented manufacturing. The industrial countries would have to open their markets to entry-level manufactured imports such as clothes and shoes for this strategy to succeed.

In 1994, US economist Paul Krugman, using data from 1970-1985, concluded that the Asian economic miracle was based on ever-increasing amounts of labor and capital, rather than rises in productivity, and is thus not sustainable. However, newer data seem to contradict Krugman, indicating that countries such as Singapore and South Korea did indeed use capital and labor more efficiently over the years.

Peter Passell, "Capitalism Doesn't Always Take. Location Is Destiny," New York Times, June 12, 1997.