Globalisation

inSight

19 Feb 2004

Globalisation

The rapid spread of avian influenza and other diseases illustrates the risks of globalisation.

The rapid spread of bird flu in the region is quite worrying. Although so far the disease has not spread to Hong Kong, thanks to the alertness heightened by the occurrence of SARS last year, I found the general lack of knowledge about it very unsettling. We know very little on the source of the virus and how it is transmitted, apparently from countries wide apart. We know very little about its strengths and weaknesses, how contagious it is, or the extent to which human beings are vulnerable to it.

I have referred to this as another manifestation of the risks of globalisation that human beings have failed to appreciate and consequently found difficult to manage. This is not an attempt to condemn globalisation. The benefits of globalisation are profound. We have learnt from university days, (perhaps now in secondary schools) how economies engaging in international free trade end up significantly better off through specialisation in the production of goods in which each has a comparative advantage. Globalisation of financial markets also brings higher efficiency in the international allocation of capital. But there is of course no free lunch. There is always the dark side behind the bright side. And it is human nature that we all embrace the benefits with much greater enthusiasm than to even just notice the down side risks. As a result, when the risks inevitably materialise we are all caught not knowing how to tackle them. This is particularly the case when the micro economic units are all having a profitable time exploring and exploiting the greater dimension afforded by globalisation, while governments are responsible for identifying, assessing and managing the associated macro, systemic risks. The Asian financial turmoil, for example, was largely the result of the inability of small, open economies in the region to manage the risks of volatility in international capital in the process of the globalisation of financial markets.

Globalisation involves much greater interaction between peoples of different nations, all have different preferences, not necessarily just of an economic nature. The different preferences create opportunities for specialisation and exchange that bring greater overall utility for each. But it is possible, perhaps even inevitable, that the degree of enhancement of utility may differ for each, for example because of the different elasticity in the preferences. The inequality may be so striking as to create conflicts and accusations of exploitation. Exacerbating the situation is the possibility, through liberalisation of foreign investments, of foreign ownership in productive capacity, and the promulgation of global standards that invariably mirror the standards of those in a position of influence. These I believe constitute one of the reasons for frustration among the disadvantaged. The frustration may be so intense as to undermine or even reverse the pace of globalisation as individual economies seek greater protection for themselves. On a different dimension, the apparent inequality or exploitation has also led to increasingly militant or even terrorist action by interest groups of one type or another, and before anybody gives it any serious thought we have the globalisation of terrorism.

And more recently we have another worrying phenomenon - the globalisation of diseases. The viruses of SARS and bird flu are as contagious as the financial crises of 1997-98. We also know very little about the transmission mechanism. I do not know to what extent is the potency of the viruses attributable to the greater interaction of peoples from different countries and to greater trade in goods and services under globalisation. One hears of the possibility of viruses mutating into different forms when in the environment presented by different hosts. And in Asia we do have the habit of eating almost anything that moves, if we can catch it!

But I am venturing too much into an area about which I know very little. One of my responsibilities, however, involves the identification of risks and promoting the prudent management of them. Although this task is in respect of the monetary and financial systems, what we have learnt over the years are that we cannot afford to be complacent, that we should be as imaginative and inquisitive as we possibly can and that we should take pre-emptive action whenever necessary. Even then, we were in 1997-98 shocked by the potency of international capital, to put it mildly. But I believe we had an easier task in that we were dealing with forms of human behaviour that were largely predictable - the profit motive, greed, herd instinct - and with the rule of the market and its imperfections. It is a lot different when dealing with the life-threatening unknown. We need to give those involved the understanding, encouragement and support they need.

 

Joseph Yam

19 February 2004

 

Related Viewpoint Article:

 

Click here for previous articles in this column.

 

 

Document in Word format

Latest inSight
Last revision date : 19 February 2004