 Hardly a day passes without a new piece of news about NATO, the EU, the IMF, the World Bank, the WTO and dozens of other similar organizations. In Romania it seems that all of our policies are guided or at least influenced by organizations such as these. And the situation is not unique to our country - all nations of the Earth are influenced to some extent. Why does it happen? Who is it good for? What does it all mean? The answer is simple - globalization. This means removal of barriers to trade, investment, business and employment between countries. Take international trade for example: globalization means removing customs taxes for imports, giving foreign companies the same rights as domestic firms have (and that means no special treatment such as state subsidies), and even harmonizing legislation across different countries. It's a complicated, risky and costly process. And the reason countries do it is pure economics. Let's see what theory says first; after that we'll take a look at what actually happens. Take the European Union, for example. Countries in Western Europe did not start their unification process just to spice things up because they were getting bored. Instead, they found that by joining forces they're all better off. What this means is that by joining economies together these countries could become more competitive, increase GDP growth rates and ultimately increase standards of living for their people. How does it work? Increased competition leads to increased competitiveness. When trade barriers such as customs taxes are removed in Germany, for example, its domestic market becomes open to competition from all the other countries of the EU. If local German firms have no advantage in competing with foreign companies, they will either become more efficient or go bankrupt. On the other hand German companies can also enter other EU markets more easily and force companies on these markets to become efficient. In the end, companies from all around the EU will have to adapt to the new situation: they will have to find better ways to do business in order to maintain and attract customers and to survive. This means lowering production costs, increasing productivity, innovating, discovering new ways to sell and so on. By adapting and innovating they're also more successful on other markets such as the US or Japan. The bottom line? as companies become more competitive they grow, get more customers, increase their sales and profits, and basically make more money. Some of this additional money goes back to the people through increased salaries, more taxes paid to governments and used for public projects, and lower prices for products leaving more money in the pocket. So that's how it works. In theory. Now what happens if more competitive and efficient companies from Germany arrive in a slightly less developed country of the EU, such as Greece or Portugal, for example? Will local companies in these countries all go bankrupt? The answer is no. Without doubt some of them will. If the highly efficient heavy machinery and steel producers of Germany are allowed to sell their products in Greece with no restrictions and on equal terms with local Greek companies, then many of the latter will be unable to face the competition and go out of business. But their resources (capital, management, employees) will find their way in other types of businesses in which Greek companies are good at, such as food processing, tourism or shipping. If heavy machinery doesn't work that well in Greece, then Greek entrepreneurs will start food processing companies and Greek banks will finance them; former workers in the heavy machinery industry will switch to processing food. These greek companies might even be so good that they will enter other markets in the EU and force domestic food processing companies there to go bankrupt. This is specialization: each country specializes in products and services that it does best, leading to efficient companies in each industry, increased profits, better standards of living and so on. This is what theory says. But does it work? It definitely works for advanced countries such as Germany, France, England, Japan or the US. If it didn't work then Western European countries wouldn't have voluntarily given up individual rights in favor of unification, and the US wouldn't have voluntarily opened its market to low-cost efficient Japanese electronics and car manufacturers. Even in these countries there are winners and losers; US car manufacturers were heavily hit by the low-cost, highly efficient Hondas and Toyotas entering the American market; some, such as Chrysler, were bought by competitors; the others had to adapt and are still struggling. But overall the economies of Japan and the US benefited from free trade; all of the countries in the EU benefited from the unification - even citizens of Greece and Portugal were better off. This is what every IMF or EU official will tell us. But what about poorer countries? Does globalization work in the same way for Romania? Will joining the EU and meeting requirements of the IMF put more money in our pockets? The short answer is "It depends". The slightly longer answer is: "it might work at some point in the future, but probably not right now and not unless certain conditions are met". No one talks about these so allow us to do it instead. As we've seen above, free trade forces companies, industries and entire economies to adapt and to change. In time companies and entire economies specialize in what they to best, become more efficient and ultimately help increase the standard of living for everyone. Now the problem is that this change is not easy to implement. A country such as Romania with its obsolete industrial base, largely inefficient economy and poor infrastructure cannot adapt and change as easily as, say, Germany or France. When our domestic market will open completely to competition from EU countries, most of our economy will take a big hit. To put it bluntly our country is not prepared for the joys of unification and free trade. It hurts to say this, but it's true. And the situation is the same for many of the world's emerging or third world countries. An economy needs time to prepare and become more flexible. How can Romanian companies compete as equals with companies from Germany or Denmark? They don't have the know-how, the machines and equipment, the experience, the brand and/or the skilled workers and managers that EU countries have. Thus many Romanian companies will not be able to compete and will have to specialize in something else or go bankrupt. How easy is it for companies (and for the Romanian economy for that matter) to change its focus and specialize in something else? We don't have reliable infrastructure - the road network is laughable with only one little freeway in the entire country; bank transfers and operations take forever and capital circulation is restricted by bureaucracy, corruption or lack of experience; government institutions which should supposedly promote and enhance business actually suffocate companies with their stupidity; the system of laws is still inefficient and poorly organized after 14 years; the internet, electronic payments and electronic business still look like science-fiction for most people; most Romanian companies have limited or zero experience in doing business on foreign markets. The list goes on and on. Under these circumstances, how easy is it for Romanian companies to specialize in something else if their current strategy doesn't work? And what can Romanian companies even specialize in and do better than their EU counterparts? Even basic activities such as agriculture are a lot more efficient and profitable in the EU. All of these can be fixed, but require two things: enough time and capable political leaders. While a period of 14 years is long enough for fixing most of the problems, the second condition is a lot more difficult to meet. The only thing that all of our presidents, ministers and members of parliament have shown in the past 14 years is they have absolutely no clue as to how to fix or run the economy; therefore, they decided that taking care of their own private businesses is a much better use of their time. Overall I'm not saying that joining the EU is a bad thing. I do believe in the benefits of globalization; I also believe that all countries should be included in this process, so that everyone on the planet might benefit at some point. These being said, I'm all for joining the EU, but I have two regrets. The first is that we're not in a better position when we will eventually join (2007 looks a little uncertain). This is entirely the fault of our mediocre leaders (for more information on this issue stay tuned for our special election coverage to be launched sometime in september). All our sorry excuses for leaders do is dangle the EU carrot in front of us, as if joining the EU was a magical solution to all of our problems. The second regret is that we're not treated as equals in this process. Some bureaucrat in Brussels says "Jump" and we all say "How High?" - and we're expected to be full of joy about it too. Romania (and to different degrees all of the Eastern European countries) is treated as the poor relative who is done a favor by being "accepted" in the EU. Because we're not basically joining, but are being "accepted". I bet Denmark or Germany or France did not go through a similar process. Western European countries joined the Union, they weren't "accepted". This is especially troubling since paradoxically countries in Western Europe will profit greatly from the acceptance of Eastern European countries in the EU, maybe even more than the latter. Remember the underlying cause for every political decision is economic. If Western European countries hadn't thought they'd profit from the Union's expansion they wouldn't have accepted it in the first place (and I'm talking about short term tangible profits, not longer term benefits from consolidation that are more uncertain). Free trade inside the EU has put a lot of pressure on European companies. They were forced to become more efficient and more competitive; large profits are still possible but are becoming increasingly difficult to obtain in the EU. So what do we do now?, these companies ask. Hey, wait! there's a bunch of countries out there in Eastern Europe which can't wait to join the EU. Why not "accept" them in the Union, throw some aid their way ("dust in eyes" so to speak) and then dump our products on them; local companies will be crushed so the market won't be as competitive as it is in Western Europe. The highly efficient companies of Western Europe will start selling their products in Eastern Europe with no restrictions (customs taxes, quotas, etc), and will do so at lower prices than the ones local companies ask; the inefficient companies of Eastern Europe will not be able to face the pressure and most will go bankrupt. Economies and standards of living will take a big hit at least on the short term. This only leads us to a darker side of globalization. While I still believe that everyone can and will profit, I also believe that some of the advanced countries take advantage of poorer ones in this process. Take the International Monetary Fund (IMF) for instance; the fund was set up by the world's most advanced economies to sort of "regulate" world financial markets. The Fund comes up with strategies to help emerging or poor countries fix their economies and even lends money to back these strategies. Nice. What actually happens? Strategies backfire since they don't take into account the problems and specifics of each individual country; "experts" in New York, seated comfortably in their $5000 leather sofas have a couple of conference calls with other "experts", gather some statistical data and then come up with detailed plans to fix the economy of Argentina, for example. After that, they change a couple of cells in Microsoft Excel and click on "Save As" to create the strategy for fixing the economy of Romania. Do these strategies work? Of course not. Then they lend money, which mediocre leaders in emerging countries gladly accept since this way of getting funds is much easier than fixing the economy and getting money from exports and foreign investments. What happens next? Loans are used improperly by mediocre leaders who have no clue as to what to do with them. This is the reason why EU funds sometimes have to go back to the EU when Romania isn't able to use them properly. After being diverted to unnecessary or expensive projects due to corruption, or spent on current needs instead of investments or infrastructure that would advance the economy, the loans need to be repaid. So countries need more loans to repay the older ones. And thus the cycle of indebtedness is started. So, who's responsible for IMF and EU and WB and all the globalization policies? Well, governments and countries that are members of these organizations, you'll say. But, hey, you don't really believe that these policies are actually the will of people in these countries, do you? Do you think that John Smith, who works on minimum wage in an auto repair shop in Nevada gives a shit about America's policy on globalization, the IMF or the WTO? People in America (and some of the smarter ones too) think that NATO stands for "North Atlantic Trade Organization" and is some sort of trade group. Policies are created, shaped and adapted by economic pressure and lobby groups - by large companies, basically. Here's an example of how this works. England and other countries of the European Union decided to do a favor to their former colonies in Asia, the Caribbean and the Pacific and allow them to sell bananas in the EU with a guaranteed market and no customs tax. This was a way of helping these countries get some foreign currency with which to make some investments and possibly fix their economies. So what happens? Chiquita, the fruit distributor giant who distributes cardboard-tasting bananas all over the world, complains to the World Trade Organization (WTO) for being treated unfairly. The WTO rules in favor of Chiquita and facilities for the poorer countries exporting bananas in the UK are gone. These countries are left with IMF funds to fix their economies, funds that carry crushing debt payments. These countries are also left with the joys of free trade that dumps inexpensive foreign products on their markets destroying local producers and the entire economy in the process. But, hey, there's always the IMF willing to lend a helping hand at 16% interest per year. Yes, globalization can help everyone. But for the process to work for everyone, the differences between the economies of Jamaica or Romania and the US or Germany must be recognized, and policies built around them. And I'm talking about actual differences and effective policies, not the stuff that Chiquita and New York "experts" with their conference calls and statistics think is effective. If the entire process is restructured, then everyone stands a chance to benefit a lot; if it's continued in the same way it's been done in the past decades, then some countries will still benefit more, while others will benefit less. So, yeah, I'm all for globalization and joining the EU, but let's not forget all the messy details, OK? |
