GISPRI Symposium 1997

Globalization in the World and Asia:
Where Japan Goes?

<Session 1>

On November 21, Friday, 1997, the GISPRI International Symposium on the above subject was held at the Keidanren Kaikan Hall. Animated discussions took place, with more 120 participants from Japanese research institutions, universities, member corporations and embassies of different countries. The symposium consisted of two sessions - the morning session was dedicated to "Essence of Globa-lization" (Moderator: Mr. Chikao Tsukuda, President, Institute for Trade and Investment) and the afternoon session to "Globalization, the Era of Companies Choosing the Countries. Where Japan Goes?" (Moderator: Mr. Akira Kojima, Editorial Page Writer, Nihon Keizai Shimbun). This paper briefly reports on the first session.

< Session 1 > Essence of Globalization

Mr. Chikao Tsukuda, President, Institute for Trade and Investment, acted as moderator of this session. First, Mr. Tsukuda emphasized the significance of the GISPRI Symposium. He pointed out that the global economy was being targeted at Asian countries. He went on to say that although the Asian crisis was posing a global threat, the key to the problem was being held by Japan, the world's largest creditor nation. However, he added, Japan, facing a weakened economy and a financial crisis, is both a factor of the problem and a source of solution to it (quoted from the editorial article of a November 20 issue of the Financial Times).

Then, three speakers presented their own reports, followed by a panel discussion. Views expressed are summarized below.

Mr. Michel Fouquin,

Acting Managing Director,
CEPII of France

"Light and Darkness in Globalization"

1. Globalization in the World

Globalization started in the middle of the 1980s and this process is expected to be completed by the end of the 1990s. What has provided tractive force for this process is a liberalization of capital inflow. Progress has been made in the deregulation and liberalization of both visible and invisible or services trades. The liberalization process has been going on both in the services and manufacturing industry sectors. The service-type industries, accounting for as much as three-fourths of GDPs of advanced countries, are playing a particularly important role in this process.

2. Globalization in Europe

European unification and globalization are sometimes mixed up. European unification is a grand and ambitious initiative, forcing the nation-states to cease to exist. The European Union had six member nations in 1957 when it came into being and the membership is now increased to fifteen countries. In the years ahead, EU is predicted to have more than 25 members, so that the decision-making process is likely to become effete. Hence, an institutional reform of EU is inevitable.

3. What Are Real Problems of Globalization?

Financial liberalization means that the financial sector is unable to control itself. This has caused a new problem. Thailand, which was plunged into a financial crisis, had inadequate regulations on its money and credit market. How this country can incorporate regulations into the financial mechanism and improve the market will be the key to the problem. There are many countries that are benefiting from globalization by managing restructuring and opening-up policies wisely. On the other hand, however, the income differential continues to be widening and inequalities are increasing even in America and European countries.

4. Conclusion

Europe has hitherto paid too much attention to the European unification process and devoted no attention to the rest of the world. At present, Europe is groping for new external relations. Efforts are twofold. One is to reinforce relations between the European and American regions, facing each other across the Pacific Ocean. The other is to strengthen relations between Europe and Asia, as is represented by ASEM.

Dr. Adam S. Posen,

Associate Fellow,
Institute for International Economics

"Global Capital and National Policies"

Introduction

Globalization promotes market integration on one hand and costs greatly on the other. Globalization does not necessarily take the same form as the American model in various parts of the world. National policies are independent. East Asian nations will not be forced to follow the models of other countries.

1. Macroeconomic Aspects

The monetary crisis cannot be contained unless a voluntary rule called the fixed exchange rate system is established. A high-inflation country should go on a diet known as a monetary policy. Otherwise, it will suffer from a runaway of capital from its own market.

How to use funds is left to the choice of a national government without being affected by globalization. A failure in the financial policy will result in a serious impact on trade. A solution to this problem will depend on the option of the nation. It is different from the globalization trend.

2. Microeconomic Aspects

A labor market occupies an important position in the world model. Still, the labor market does not change readily. In Germany, however, corporations and labor unions have talks and agree on wages and other working conditions, to which workers are requested to adjust their demands. What it implies is that the labor market needs flexibility.

3. What Does the U.S. Expect from Globalization?

The United States has a large marketplace and will continue to hold a dominant position in the world. Globalization, however, does not mean the U.S. economy goes well. Japan has thus far taken full advantage of globalization. Globalization itself was Japan's choice but Japan should not follow a wrong course in taking the leadership in Asia. Japan's political philosophy will be an important consideration in this regard.

Mr. Akira Kojima,

Chief Editorial Writer,
Nihon Keizai Shimbun

"Globalization and Role of the Nations"

1. Definition of Globalization

An end of the Cold War and change in information technology can be cited as two of the elements of globalization. It is the beginning of a new history in that the market globalization phenomenon resulted in the creation of a global marketplace. In the 1980s, nations of the world became increasingly interdependent, thus leading to the establishment of a global marketplace. Japan, North America, and Europe come to be linked to one another as if they were forming one single market and business dealings are going on that market. This market is being connected with Asian and Latin American countries.

Globalization involves competition for how well costs can be managed. To face this competition successfully, there are three options available.

The first step concerns how labor costs should be lowered. The share of labor cost in total costs must be decreased.

The second action is a reform of the management process. The proportion of personnel expenses to total costs should be reduced by introducing robots and computers.

The third and last measure is to adjust prices through competitive policy. In the globalized environment, corporations are in no position to fix prices. Enterprises have two options. Closing down business or doing business in overseas markets seeking lower personnel expenses. Private enterprises will also be required to build non-price competitive power by acquiring intellectual property rights concerning technologies, products and services.

2. Role of Nations in Globalization

In the globalized environment, corporations which are based solely on one single nation-state are experiencing a decline in their competitive position. A state is too large to handle domestic microscopic issues and too small to deal with global problems. What a state should be is now the question at issue. With the progress of globalization, a move toward the market economy is certain to become more brisk and a natural consequence of this development will be the necessity for a minimum standard applicable to all members of the international community.

To make globalization successful, the following three factors are necessary. There is a large market. There are many corporations seeking new entry into that market. And adequate information is provided and everybody has an equal access to it. Under these conditions, private enterprises are able to act on their own responsibility so that the market will be vitalized. Japanese corporations disclose information to the administrative authorities but they do not disclose it to the market. If there is any foreign bank wishing to buy out a Japanese bank, it will not be able to obtain full information that the latter has bad debts. Such an information disclosure system is distorted.

3. Conclusion

Globalization can change the interdependent relations between nations as long as there are borderless issues. What is important is a coordination of policies among various countries. Over the past ten years, signs of war between nations have died down. Conversely, regional or domestic conflicts have come up; the poverty problem facing these countries has driven people to despair of their future. Thus, how the nations can work together to solve problems is a key question that must be answered. The nations have many tasks to tackle so as to cope with problems arising newly from the globalization and borderless environment.

<< Panel Discussion >>

-Dr. Lee Poh Ping,

Independent Scholar, ex-Full Professor of Faculty of Economics and Administration, University of Malaya:

Globalization is the result of interactions among the nations of the world. In the colonial period of the 19th century, globalization progressed. Differences between now and those days are twofold.

First, the current globalization is characterized by being mutual. During the past colonialization period, the colonial policy was pursued with political intentions. Currently, all components of the world economy are connected with one another through the linkage of trade and financing. Secondly, with rapid progress in globalization, new information is now made available almost instantly anywhere in the world.

There are some, on the other hand, who take a critical view of globalization, arguing that the progress of this process, as the shady side of it, brings about an increase in the number of unemployed persons and an expansion of income differentials, thus causing inequalities. However, their contention is not so strong yet.

-Mr. Ken Iijima,

Deputy President and Executive Director, Sakura Institute of Research

1. Progress of Globalization in Asia

In the 1980s, the Asian market became increasingly globalized. In this market, the outward orientation and the inward orientation appeared alternately, almost every five years.

1981 - 1985 (Period of Outwardness)
The U.S. economy expanded thanks to what was then called "Reaganomics." It resulted in an increase in Asian-made products into the American market. With a favorable exchange for the U.S. dollar, multinational corporations expanded their operations into overseas markets, while industrialization progressed in the Asian region.

1986 - 1990 (Period of Inwardness)
The United States suffered from twin deficits (budget and trade) and trade frictions with East Asian countries evolved. With the East Asian Economic Community (EAEC) initiative and the Tienamen Square incident in the People's Republic of China as a momentum in 1989, the relations of East Asian countries with Japan, the United States and other advanced nations became chilly.

1991 - 1995 (Period of Outwardness)
A growing number of Asian enterprises with Japanese capital or owned by overseas Chinese moved to build a network of production bases in the Asian region. China and Vietnam took part in these networks.

1996 to Present (Period of Inwardness)
Asian countries have started to follow policies apparently contrary to the international rules (WTO), as is evidenced by Indonesia's national vehicle issue.

2. Factors Contributing to Globalization of Market Economies

The globalization of market economies may conceivably require the following factors to exist. People, good, foreign exchange, and information. Globalization leads to transactions in financial products similarly to petroleum. When it comes to people and things, market supplies are limited. Financial products, however, move instantly in large quantities anywhere in the world. As long as credit can be created, financial products tend to increase in geometric progression.

Globalization is important in that it allows the transfer of business opportunities to overseas markets. It requires, however, a transnational minimum standard to be established. Corporations should have a sense of social ethics.

- Mr. Fouquin:

The principle of comparative advantage applies amid the progress of globalization. Then how should new industries be developed? And what role should a state have to play?

South Korea offers a typical case of an automobile industry being brought up through a strong support from the government. In Europe, the aerospace industries are receiving government support in France, Britain, and Germany. Without national assistance, the European aerospace industry could not hold a position as it does now. Thus the government has an important role to play. Governmental involvement carries an important meaning in the creation of a new technology.

On the other hand, government intervention has a negative consequence in the case of portable phone and other electrical appliance manufacturers, among others. Some industries would benefit more from leaving the forces of market unobstructed.

- Dr. Posen:

Some industries need government support. To this end, they should have an ability to observe a social norm. The monetary crisis that befell to Asia lately was indeed putting a damper on the East Asian miracle. This was due to a failure in macroeconomic intervention. The best policy should be to allow the market mechanism to function freely.

Mexico, Thailand and Indonesia were confronted by the monetary crisis. This crisis occurred because exchange levels were overestimated to induce excessive investments in social overhead capital. Although funds continued to be put in the financial market, it was impossible to operate the inflow of capital. A state plays a major role in promoting the globalization process through the management of a macroeconomy. People should be aware of a resultant burden, however.

- Mr. Kojima:

As financial markets become globalized, hundreds of speculators like George Sorroth are active throughout the world. The world is plunging into a "speed" economy. There is a large difference between the speed at which people and goods move and that of capital migration. Funds are increasingly bigger and moving around the world in a flash of lightning. Compared with the spot economy, the monetary economy is expanding to reach a scale 50 to 60 times as much as the total amount of the trade economy.

- Mr. Iijima:

The role of the government holds a significant position. The recent financial crisis in Thailand was attributable primarily to the fact that the Thai government had failed to administer both financial and economic policies properly. Thailand should have sliced its fat much earlier.

Conclusion

- Mr. Tsukuda:

When we speak of the light and shade of globalization, little discussion has been devoted to the light or positive side of this process. Yet the benefits of globalization are certain to be felt in various fields. Nevertheless, we should not forget a criticism on globalization presented by Carl Polanny, an economic historian. He said that the market mechanism, spreading infinitely through all areas since the end of the 19th century, brought about the collapse of the gold standard system and political unrest, eventually leading to the World War. With the progress of globalization, funds came to migrate throughout the world, seeking places where they could feel comfortable. Likewise, corporations came to move around, crossing the border to fetch better profits. As a consequence, the governments of various countries are in a serious dilemma; they are confronted by the fall of the basis of national taxation on one hand and they have to cope with matters of people's concern, such as unemployment and income differential, on the other. Facing the fiscal problem, the government has a very important role to play in the age of globalization.