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National Observer Home > No. 53 - Winter 2002 > Articles

Some Important Myths about "Globalisation"

Martin Feil

“Globalisation, trade liberalisation, free trade, borderless nations, and economic rationalism” — these are the positive mantras employed by the proponents of a particular trade theory that became the darling of economists and Treasury officials the world over. It is very important to understand that these mantras are just words. They do not reflect the reality of world trade any more than the words used against the opposition do. In the latter case, those opposing these mantras are described as protectionists, rent seekers, troglodytes, Luddites, vested interests, and well known animals with snouts usually found in public troughs.

We live in a world where the message is well and truly controlled by the medium, and that medium is very much a beneficiary of globalisation. The spin-doctors of academia in the media are generally firmly on the side of the angels of globalisation.

However there is a viewpoint which resolves the thesis of globalisation and the antithesis of protectionism in a synthesis of contemporary mercantilism. About ten years ago Mr. Alf Rattigan, the Chairman of the Industries Assistance Commission, and the father of Australia’s version of economic rationalism, made the point that most of the developed countries stridently employed the language of economic rationalism whilst practising the old time religion of penetrating other peoples markets as deeply and quickly as possible and also aggressively protecting their own. He argued passionately that the world economies had to prevent this backsliding, but he failed (as has everyone else) to identify the successful preventative action.

Within this context there are a number of substantial myths bruited about regarding the merits of globalisation. In general these myths are exactly the same as those that were bruited about for tariff reductions and economic rationalism.

Myth 1: The economic progress that has occurred in the 20th Century is a consequence of globalisation.

Myth 2: Consumers of the world are better off as a consequence of globalisation.

Myth 3: Globalisation represents the only method whereby under-developed and developing countries can become developed countries.

Myth 4: Globalisation is inevitable.

Myth 5: Losers from the globalisation process can be compensated.

Myth 6: Globalisation will result in a borderless world economy with borderless factories delivering a global market to those companies who have established a competitive advantage as a consequence of their efficiency, scale and use of technology.

I would now like to discuss each of these “myths”.

Myth 1: The economic progress that has occurred in the 20th Century is a consequence of globalisation.

This myth is the outcome of the logical fallacy of moving from the particular to the general. An example of this type of fallacy would be a view that the Archduke Ferdinand’s assassination at Sarajevo was the only cause of the First World War. Making that assertion, and ignoring other relevant matters, would lead to a fail mark in High School History. The fact is that there were many causes of our progress in the 20th Century, and that progress needs to be segmented both in time and place. For example, there is no doubt but massive innovations in medicine and pharmaceuticals have led to a substantial increase in life expectancy on a global basis. Similarly, technological advances and new manufacturing and marketing processes have resulted in very significant cost reductions for a wide range of both tangible and intangible products. But innovation and dissemination are not globalisation. In fact the invariable model for successful product development has generally relied upon manufacture and marketing in an economy that is either protected by patent life, copyrights or specific tariff barriers, subsidies, or other forms of government assistance such as R. and D. grants, or preferential government procurement.

The battle still rages in the World Trade Organisation between the developing countries and the developed countries who wish to continue to protect their intellectual property, logos, and manufactured goods through draconian measures such as the proposed T.R.I.P.S. which would require each signatory actually to impose penalties including the seizure and destruction of imported infringing goods and the jailing of the owners. This contrasts with an alternative view which suggests that all countries should allow unrestricted imports, with the removal of any market controls designed to place a ceiling on the price of imported goods such as pharmaceuticals, chemicals, motor vehicles, computers and other consumer goods. Similarly, globalisation of services such as the media, telecommunications and the financial market, is seen by some as one of the prerequisites for a beneficial outcome in the global economy.

Multi-national companies, developed countries and their bureaucracies, executives, politicians and academic acolytes, fit precisely into the Mercantillist model that has existed since the 18th Century. They are seeking to maximise their interests, and they argue passionately for freedom when this suits their purpose, but, without demur, impose protective measures designed to protect their own market when that suits them. Globalisation is, in this regard, essentially the latest clever way of continuing a process that has used slavery, colonisation and trade wars as the mechanism of market penetration. The logical implication is that globalisation is actually undemocratic. We are facing a philosophy which is definitely about establishing a World Order where the interests of individual nations are theoretically subjugated to the interests of all mankind, but are actually subordinated to the interests of a few countries or even a few large companies.

Myth 2: Consumers of the world are better off as a consequence of globalisation.

Consumers in developed countries may indeed be better off in respect of the prices of some goods. But it is a general tenet of faith for economic rationalists that tariff reductions and the removal of non-tariff barriers result in price falls as a consequence of the flow-through effects on cost. In virtually every circumstance this belief is simply not supported by history. Furthermore, there is a very substantial commercial reason why participants in the supply chain do not exhibit this type of economic behaviour.

The Australian economy is a perfect case study of the impact of tariff reductions over a long run cycle. Significant reductions occurred from 1974, when Mr. Alf Rattigan persuaded Mr. Gough Whitlam to introduce a 25 per cent tariff cut, until 1995, when final phasing of tariffs to 5 per cent took place (except for medium rates for passenger motor vehicles, and textiles, clothing and footwear), and have resulted in a weighted average tariff of about 3 per cent. Australia has moved, with New Zealand, from one of the highest tariff-protected nations to the lowest with the exception of the free trade ports of Hong Kong and Singapore (which have instead many non-tariff barriers).

During this great fall, which coincided with a greater systemic fall in the value of the Australian dollar, the price of major imported consumer products probably rose, except in circumstances where technology delivered mass manufacturing cost reductions (such as for computers and consumer electronic equipment).

The exchange rate, which made imports three times as expensive, was a major culprit. However, there is another villain. In virtually every small Australian market there are few players. A price equilibrium is established which allows each participant to maintain market share and make a profit. In the event of a significant tariff reduction each participant tends to co-operate with others in such a way as to prevent cost decreases from being passed on and to maximise his profits.

The long term goal of firms is to achieve certainty in the marketplace. It is obviously sensible for the participants in the supply chain to decide that they will appropriate the revenue derived from tariff reductions and avoid market conflict and uncertainty. There is certainly no law, nor has there ever been a law that requires importers, wholesalers, or retailers, to pass on the fruits of a tariff reduction.

Myth 3: Globalisation represents the only method whereby under-developed and developing countries can become developed countries.

Since the Uruguay Round, the European Union, the United States and Japan have successfully prevented any trade liberalisation in relation to agricultural products. The level of subsidies in those countries has effectively precluded any substantial imports other than under rigorously enforced quota arrangements. Additionally, the United States, the European Union and Japan rank 1, 2 and 3 as the most frequent dumping complainants in the World Trade Organisation. Most of their complaints are against each other but the balance is basically against developing countries. If globalisation ever meant that the world was truly borderless many would support it. However our life experience has been that countries have always managed to protect their own by one means or another. President Bush has just approved subsidies of $U.S.340 billion for agriculture in the United States, continuing a tradition that commenced in 1921. Commentators said that the previous level of $U.S.10 billion a year was woefully inadequate. President Bush has taken notice both of them and of his own stated view that in times of crisis for national security self-sufficiency is the first rule of government.

In blunt terms, developed countries are happy to locate manufacturing facilities in developing countries where there are numerous example of crimes against the environment, the exploitation of children and the exploitation of both low working conditions and low income levels. The produce of the developing countries is welcome in the developed countries, but only if it suits their individual interests. As noted above, other developed countries are likely to complain to the global referee, the World Trade Organisation, if their citizens are not the owners of the source of supply.

Globalisation has not benefited undeveloped countries or developing countries except where developed countries have strategised for manufacturing plant location or have taken resources from a developing country such as timber, minerals, and fuel.

Myth 4: Globalisation is inevitable.

This assertion moves from spin doctoring to propaganda. It is not easy to understand why, given the partial and obvious advancement of national interests present in so-called globalisation, any one would believe that a total solution involving a borderless world would ever occur, in the light of the present characteristics of the world economy. Even if the United States extends its pre-eminence as the great and singular super power of the world, it will be unlikely to do more than continue to penetrate other national markets as deeply and as quickly as possible whilst deciding to protect its own domestic manufacturers whenever it thinks fit. It is amusing to read the recent explosion of outrage in the media about the imposition by the United States of duties on steel. Less than six months ago one could read pious cant about the benefits of the free trade agreement between Australia and United States. That seems to be difficult unless we forget about agricultural subsidies and tariffs, quotas on sugar, leather, lamb, and now perhaps steel. If Australia could send the United States any manufactures at a competitive price doubtless tariffs or quotas would be imposed on them too.

An alternative and more probable view is hence that globalisation will never happen in the sense of genuinely borderless economies.

Myth 5: Losers from the globalisation process can be compensated.

Adjustment assistance has been a common theme in Industry Commission inquiries in Australia. In particular, Mr. David McBride, a long-serving Commissioner and occasional chairman of the Commission, acted as an Adjustment Authority supposedly handing out assistance to the tens of thousands of people displaced from the textiles, clothing and footwear industry work force. Adjustment assistance is much like charity. The full amount never seems to arrive at the intended destination; it is grudgingly doled out and often misplaced. Finally, it usually ends after a short period, whilst the poor are always with us.

The World Bank seems to be the international organisation of preference for global adjustment assistance. Its efforts were well documented during the crisis in the Indonesian economy when the rupiah collapsed and Suharto retired. Much of the promised money never arrived, because Indonesia did not reform in the way it was told to. It would be interesting to find out just how much of this money actually got beyond the crony ranks.

It is extremely difficult to model just how international structural adjustment assistance can be equitably and sensibly delivered in developing and under-developed economies when it has proved impossible to do it successfully in developed economies.

Myth 6: Globalisation will result in a borderless world economy with borderless factories delivering a global market to those companies who have established a competitive advantage as a consequence of their efficiency, scale and use of technology.

Again, the preceding discussion has emphasised the fact that only some barriers will fall, and they are not the barriers which would advantage the have-not nations. There is absolutely no suggestion by any of the globalisation advocates that intellectual property or products requiring major Research and Development that are protected by patents will ever be freely available. Clearly, no pharmaceutical company would invest $U.S.300 million in the creation and testing of a global pharmaceutical blockbuster unless it had a patent protection giving it exclusivity in the global market for some years.

The fact is that market forces are not perfectly attuned to ensure that the most technologically efficient economic product captures the global market. There are a great number of knowledge failures, market imperfections, cultural constraints and lags in consumer knowledge, that will continue to prevent the seamless, frictionless delivery of a superior product to the marketplace.


Globalisation of the media and in communications is one of the phenomena of the 20th century. Even that has not been a total success, since George Bernard Shaw’s experiment with Esperanto has failed to catch on. Differences in language and in culture continue to segment national markets for the media and communications. However, there is obviously great wealth to be had from emerging compatible markets or from tailoring generic products to individual markets.

The “lie back and enjoy the ride” school of inevitable globalisation has stolen a leaf from the economic rationalists’ test and is insisting that everything that is good from the 20th Century was the product of globalisation. Its message is that globalisation is both necessary and good. The fact that globalisation is not good for everyone and that no one intends it to be more than partial is totally ignored. However with the events of 11 September 2001 there has been a clear and unchallengeable tendency for international facilitation to falter. There is now a return to a 21st Century version of isolationism where each country is making it increasingly difficult for goods and people to move around, and where the protection of local industry increases. Australia should not be deceived into following policies that other countries have disregarded in their self-interest.


National Observer No. 53 - Winter 2002