TCS Daily

Virtual Globalization

By Tomasz Teluk - April 27, 2004 12:00 AM

Globalization is a virtual process thanks to technology. In reality, the world is as large as it ever was. There is a lack of globalization. But technology, combined with free trade and the elimination of protectionism and regulations on international economic relationships, hold the keys to global well-being.

Europe is the most globalized region of the world but the consequences of the terrorist attack in Madrid on March 11 could have as big a negative impact on the openness of Europe as consequences from the September 11 attacks in New York and Washington.

Still, a new study shows which countries are doing better and which are doing worse at riding the globalization wave. According to the newest Globalization Index of Foreign Policy and A.T. Kearney, the most globalized countries of the world are Ireland, Singapore, Switzerland, the Netherlands and Finland. Among the countries not sufficiently profiting from globalization is Poland, ranked in 31st place (it was 25th in 2001). The other competitors from Central and Eastern Europe are doing better; Czech Republic is in 15th place, Slovenia is 19th and Slovakia is 21st.

The Polish government apparently pinned too much hope on European integration. Its politicians have forgotten that in the 1990s Poland developed faster than Ireland without any EU help. After communism fell, Poland had an annual GDP growth of more than 7 percent a year and entrepreneurs have created 6 million new jobs. The explosion of enterprise was a consequence of economic freedom. The new businesses were created by private capital, not by bureaucracy or government donations. Today the situation in Poland is different. A limitation on economic liberties has resulted in the government policies becoming an administration of poverty.

So Poland remains only partly globalized. Ireland is at the top, thanks to its embrace of market liberalism. Ireland is highly integrated with the global economy. Poland lost its position because of tariffs and limitations on international trade. Its small foreign investment portfolio is a result of high taxes and labor costs. The Catholic Church, which is very influential in Poland, has warned that globalization promotes secularization. But the new research proves this is not true: a Catholic country, Ireland, is at the top of this list, and there are other religious countries profiting from globalization: the United States, Italy, Spain and Portugal. They have become more religious and richer. Countries closed to the world, such Ukraine or Iran, have become less religious and poorer.

Globalization has benefited from the spread of Information Technologies - telephone and the Internet. But the world is still in a state of shock after the attack on the World Trade Center (the data in the study are mostly from 2002 and 2003). For example, this is the first time in modern history that the amount of international travel has shrunk. Businessmen scared of international travel choose virtual conferences rather than risk air travel. Travelers surf the Web rather than Pacific waves.

Investors' money is staying home. International capital flow has been falling for two years - by 40 percent in 2001 and another 21 percent in 2002. This trend continues in spite of the promotion of foreign investment by the governments of many countries. Global economic integration is at its lowest in five years.

But the crisis in world economic integration is parallel to the growth in technology. The development of IT is one of the important marks of the globalization index. Integration with the world requires secure servers, internet service providers and Internet users. The web-connected population in such countries as China, India and Brazil is growing exponentially. Modern technologies provide effective communication and are a means of transferring know-how and capital. This is why IT will be the catalyst for economic growth.

Liberty brings economic growth which in turn promotes the welfare of citizens. The success of systematic transformation in the 1990s in Central and Eastern Europe is the best example. After the fall of communism and the economic revolution, governments of the region succeeded. The Estonian and Czech liberal economies are academic cases of well-executed reforms. Openness to the world was one of the positive impulses of economic growth in India and China in the 1980s. Earlier in the 1950s an analogical development was seen in Western Europe, thanks to the removal of barriers in international relations.

It is true that success is impossible without political and economic stability, but for some countries the key to a strong international position is free trade. These countries are Hong Kong, Singapore, South Korea and Malaysia. On the opposite end are economies surrounded by a barbed wire made of duties, tariffs and quotas. According to the new study, there are more than 150 countries not profiting from globalization. They need to abandon protectionism and embrace free trade.


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