Globalization, Mobility and Inequality

Bienvenido “Nonoy” Oplas Jr.

Presentation at the Honors Class, 4th Year HS La Salle Greenhills, Mandaluyong, M.Manila

17 February 2014

Outline

I. Globalization, Theory and Definitions

II. Goods and Services Mobility

III. Inequality

IV. Conclusions

I. Definitions of Globalization

• International, global integration of human activities -- generic, common defn.

• World shrinkage, distances getting shorter, things moving faster, ideas spread quicker

• Big fims, multinationals’ global profiteering and further exploitation of workers, minorities – leftist defn.

• Globalization = Mobility = Freedom

Early Stage of Globalization: The Silk Road, 1450s (Red is land route, blue is water/sea route)

* Image source: Wiki

Theory: Free Trade results in Commodity Price Equalization (CPE) Theorem

Factor Price Equalization (FPE) Theorem another result of free trade

• Substitute prices of goods with prices of labor, capital, technology, other factors of production, in the above graphs

• Free mobility of people and services across countries and continents will result in FPE over the long term, all other things being equal.

• Countries with expensive labor due to labor deficit and low population will experience decline in labor cost once additional and competing labor of similar skills from abroad come in.

• And countries with cheap labor due to high supply of workers, high population, will experience increase in labor cost once the excess labor goes out and work abroad.

Anti-Globalization and Trade Protectionism results in consumers’ diswelfare

Commodities that are otherwise cheap become expensive due to protectionism and government tariff and taxes. This is wrong.

II. Globalization and Goods Mobility

In 1989, only 9 out of the world’s top 20 biggest ports were in Asia… 20 years after, 15 of the top 20 were in Asia, including that in Dubai. Economies with larger consumers and producers, with freer trade policy, benefit.

Philippines’ Exports Markets Diversifying (in $ billion, except %)

From a “US-centric” to Asian-centered or focused exports policy and reality.

D

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Rank

1. China Trade in 2050: $52.2 trillion Percent of world trade: 18.2%. 2. India Trade in 2050: $25.7 trillion Percent of world trade: 9% 3. USA Trade in 2050: $19.1 trillion Percent of world trade: 6.6% 4. Germany Trade in 2050: $9.9 trillion Percent of world trade: 3.5% 5. Korea Trade in 2050: $9.7 trillion Percent of world trade: 3.4%

6 Indonesia Trade in 2050: $8.8 trillion Percent of world trade: 3.1% 7 Hong Kong Trade in 2050: $8.5 trillion Percent of world trade: 2.3% 8. Japan Trade in 2050: $7.6 trillion Percent of world trade: 2.7% 9. Singapore Trade in 2050: $6.8 trillion Percent of world trade: 2.4% 10. UK Trade in 2050: $6.02 trillion Percent of world trade: 2.1%

Top 10 Exporting Countries by 2050, Citigroup study, 2011

Foreign Direct Investment

1990 2000 2010 2012

Indonesia 8,732 25,060 154,158 205,656

Malaysia 10,318 52,747 101,510 132,400

Philippines 4,528 18,156 26,319 31,027

Singapore 30,468 110,570 461,417 682,396

Thailand 8,242 29,915 137,191 159,125

Viet Nam 1,650 20,596 65,348 72,530

China 20,691 193,348 587,817 832,882Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics), accessed on 6 October 2013

FDI Inward Stock (million US$), ASEAN and China

FDI inward stock (million US$)

On Rice Smuggling: Rice protectionism should be abandoned, allow full liberalization

Price/kilo

P1

P2

P3 Full protectionist price

Smuggling price

Free trade price

P3 > P2 > P1

Why make otherwise cheap imported rice become expensive? Rice export powerhouses Vietnam and Thailand have natural advantages that are not present in the Philippines: (a) huge, generally flat rice land, about 10 M hectares each, vs. the PH’s 4.5 M hectares; (b) contiguous land irrigated almost whole year by Mekong River and other river systems, ours is scattered in an archipelago; and (c) they have only 1 or 2 typhoons a year, we have about 20 on average. Crop damage there is lower.

III. Inequality • Anti-globalization groups highlight the rising inequality among

people and among countries with more trade and investment openness, goods and people mobility.

• Somehow they are correct because globalization and free trade will result in more efficiency + more inequality.

• About 20-30 years ago, the Filipino poor and even the middle class could not afford a landline, much less a cell phone, the rich can own several units of thick, heavy/bulky mobile phones, several cars.

• Now the Filipino poor, from ordinary jeepney drivers to farmers have cell phones, more sophisticated kids can even have smart phones, gift from some relatives or godparents. The super rich use hi tech mobile phones, can own several private choppers or jets.

Illustration: • In a scale of 1 to 1,000 units of

wealth, the poorest owned 1 and the richest owned 80 (1:80 ratio).

• Today, the poorest own 5 while the richest own 1,000 (1:200 ratio). Inequality has worsened

• Tomorrow, the poorest will own 10 units while the richest will own 3,000 (1:300 ratio).

• Bottom line is the condition of the poorest, how they can be uplifted from controllable diseases and misery.

• Middle class condition improving too.

Inequality: Before Now

• Life expectancy rising worldwide, many infectious and fatal diseases now easily controlled; the poor live longer.

• Infant mortality also declining. Poor children dying less than before.

• These two improving health outcomes coincided with openness to world trade of countries.

• Source: EMHN, “How free trade improves health”, 2012, http://www.emhn.org/sites/default/files/EMHN_Healthytradev2.pdf

IV. Concluding Notes

• Globalization = mobility = freedom. People, their products, services, talent, technology, are given opportunity to reach other users and consumers worldwide.

• Governments should reduce restrictions on people and goods mobility. These include: (a) reducing tariffs and non-tariff barriers (NTBs) like customs bureaucracies; (b) simplifying visa requirements and issuance, reduce the cost of migration; (c) focus on rule of law function, go after real criminals and not ordinary migrants who only wish to improve their condition through hard work.

• PH restrictions and bureaucracies on labor migration should be drastically reduced, some should be eliminated. The Philippine Overseas Employment Authority (POEA) can be shrunk if not abolished.

• Inequality is here to stay. Prosperity and poverty is generally a form of rewards and punishment in society, corresponds with individual freedom and personal responsibility.

• Protectionist PH constitution should be amended to allow more foreign investments and competition.