Oleh/By : DATO' SERI DR.
MAHATHIR BIN MOHAMAD
Tempat/Venue : JOHANNESBURG, SOUTH AFRICA
Tarikh/Date : 10/11/99
Tajuk/Title : THE COMMONWEALTH BUSINESS FORUM
" Making Globalisation Work: Measures to Encourage
Commonwealth Trade and Investment Flows "
The past three decades have seen a rapid pace of
integration of the global economy. Anything that
happens in one country's economy must have some effect
on the economy of the world. Thus the collapse of the
economy in a small country may cut off the world's
supply of some products which would then affect the
pricing of goods involving that product. The collapse
may be due to natural causes or political upheavals but
the effect is the same. In the most extreme case the
gyrations of the New York Stock Exchange (NYSE) will be
followed by similar gyrations in the stock exchanges of
the world although the businesses and companies and the
banks of the different countries have nothing at all to
do with the NYSE.
2. No country can isolate or insulate its economy
from the rest of the world. In one way or another the
performance of the economy would depend on the economic
situation in the rest of the world.
3. This inability to insulate is made worse by the
speed of communication. Every little thing that
happens anywhere is communicated to the rest of the
world in real time. And invariably they have an
economic dimension. Thus if there is a draught in
Brazil coffee prices would go up. If there is a
demonstration in a country tourists would cancel their
visits and investors would put their money in another
country.
4. All these would of course have an effect on the
economies of nations, bad for some and good for others.
The speculators love this. They would have a field day
shuffling their capital from one country to another in
their pursuit of profit maximisation.
5. But what if the reports through the wire services
are false or fabricated? What if the speculators
invent rumours or make wrong forecasts deliberately or
otherwise? The countries targeted would lose money as
speculators dump their holdings of shares or
commodities. People would suffer as they lose their
means of livelihood. There may be riots and even
bloodshed. All because some speculators want to make
money for themselves.
6. How does a country or a businessmen insure himself
against the gyrations of supplies and prices. Hedging
is the answer. By buying or selling forward or by
purchasing hard currencies the effect of the
uncertainties, whether real or manipulated can be
minimised. Indeed the smart ones can actually make
money purely through hedging.
7. And so a new business is born. This is the
business of insuring against gyrations in prices and in
exchange rate fluctuations. It started off innocently
enough as insurance against the unpredictable and the
unexpected. It is a kind of gambling. Sometimes the
hedger makes, sometimes the hedge funds make. It was
all still fair and square.
8. But then the hedge funds found that they can
easily manipulate the unknown and the unpredictable so
as to win and profit every time all the time. The
theory is as old as commerce itself. If you are big
enough to monopolise then you can make certain of the
prices by being able to fix them. Since you own all
the supplies you are in a position to demand to be paid
the price you name.
9. But why own the commodity? Why not simply control
the supply of the commodity? This can be done simply
by putting a small deposit on future supplies. If the
supplies are not taken up only the deposit would be
forfeited. On the other hand if the prices go up huge
profits can be made.
10. Forward selling of non-existent commodities can
also be made if there is a possibility that the price
would fall below the price sold. That way the
commodity could be bought at the lower price and
delivered to the buyer who had bought at the higher
price. Eventually real goods or commodities need not
be involved at all. Fictitious goods were sold at
current price for delivery later when the real goods
have gone down in price and could be bought for
delivery.
11. If commodities and goods can be traded in this
virtual way, why not money itself? And so money or
currency became commodities to be traded in the same
way.
12. The price of everything is determined by the
willingness of a buyer to buy. To sell the price must
be lowered until a willing buyer is found. The result
is rapid fall in prices as more and more of the virtual
commodity is offered.
13. In a borderless world the players with unlimited
money can offer any amount of any commodity worldwide
at continuously lower prices. The actual producers of
the commodity will find the prices falling below cost
resulting in huge losses. The real traders in real
goods will often lose money but the speculators and
manipulators will make huge sums without ever owning or
taking delivery of any real goods or commodities or
currencies. And whole countries and their Governments
can go bankrupt because their products fetch prices
below costs and their currencies lose their value. The
loss is not just economic or financial but also social
and political. Governments can and have actually
fallen because of this trade in non-existent
commodities, including money. Thus when globalisation
enables free flows of capital, serious abuses can take
place.
14. Yet globalisation can bring about a lot of good to
the poor countries. If the poor try to raise
themselves up by their bootstraps the process and the
pace would be so slow that it would only result in
their being left further and further behind. For the
poor countries it would be like having to invent the
wheel. But if the rich with their money, technology
and marketing knowhow were to invest in the poor
countries not only will the poor see big inflows of
capital but they would acquire the skills and the
technology to make quantum leaps in order to catch up
with the rich. Thus with the technology and capital,
rich countries through their multinationals can set up
production facilities in the poor countries in order to
take advantage of lower labour and other costs. The
workers in the poor countries gain employment, incomes
and skills. Their country gains through reduction in
unemployment and through the injection of funds into
its systems. Eventually these countries would learn
enough about management and technology to start their
own industries bringing even greater benefit to their
people. And in time a poor technologically deprived
country can become industrialised through this process.
In the case of Malaysia, from being a country dependent
on the production and export of only two commodities,
tin and rubber, it has now become a significant
exporter of manufactured goods. Today 80 per cent of
Malaysian export is made up of manufactured goods. The
per capita income of the country rose from 300 U.S.
Dollar to almost 5000 U.S. Dollar before the economic
turmoil of 1997 - 1998. Thus the opening up of its
borders to foreign capital and knowhow has benefited
Malaysia tremendously. And it should benefit other
developing countries as much if conditions are made
suitable for the inflow of direct foreign investments.
15. Clearly globalisation and the borderless world
have their up side and down side. They are not a
panacea for all economic ills. While they can enrich
the poor, they can also impoverish and even destroy the
economies of countries and regions.
16. Globalisation is a concept invented by Man and as
such it is not perfect. It can bring about a lot of
good but it can also lend itself to abuses and give
forth some of the most tragic results. Globalisation
cannot be embraced in toto simply because it enables
free movement of capital and trade. Free movements by
itself does not bring benefit. For whereas capita
inflow can create wealth, capital outflow, particularly
rapid capital outflow can bring about economic and
financial disaster.
17. As with every system invented by Man, good can
only come about if the system is properly understood
and managed. This is because there are always rogue
elements in human societies and they will always abuse
the system in order to reap high returns, whether
economic, social or political. To minimise abuses all
systems must be regulated.
18. Unfortunately in their enthusiasm, the great
trading nations have insisted that along with
globalisation there must also be total deregulation.
They believe the market will correct itself. This is
called the discipline of the market. In fact they
believe the market will actually discipline the
Governments, forcing them to be less corrupt and more
transparent.
19. Idealists are always blind to the contrariness of
human nature. Market players are not the most caring
people. Their obsession is with profits at whatever
cost to others. They are not particularly concerned
about society and its well-being. The idea that
Governments especially elected Governments should
surrender societal care to the market is as welcome as
letting wolves to guard sheep.
20. The world is nevertheless going through a process
of dismantling rules, regulation and laws governing
capital flows and trade in goods and services. The
World Trade Organisation (WTO) is forcing the pace
simply because globalisation and deregulation are
considered to be good in themselves and not because of
the results they produce. And so when recently the
free capital flows destroyed the economies of whole
regions, the free market idealists refuse to recognise
anything wrong with the system. They blame the lack of
transparency and corruption of the Governments instead.
That these self same Governments had obviously
succeeded in rapidly developing their countries until
the free-marketeers attacked them is ignored. The free-
market just cannot be wrong. Only non-believers and
heretics will fail to acknowledge this. As we all know
the only way to deal with heretics is to burn them at
the stakes. And figuratively that is what was done to
the free-market non-believers.
21. A level playing field is a term invented by the
rich to imply fair competition. But merely because the
field is level is not enough for fairness and
equitability to be achieved. The players on the field
must also be evenly matched. In sports handicaps are
common simply because it is acknowledged that certain
participants are disadvantaged. In fact it is common
in sports to grade the teams according to their ages
and sizes. A heavy-weight boxer will never be pitted
against a feather weight no matter how well-constructed
and level the ring is.
22. Yet the emphasis in trade and investments is
solely on level playing fields. If globalisation is
going to benefit the world, then the relative strengths
of the trading partners must also be given due
consideration. It will not cost the superior partners
much if handicaps are given to the weaker partners.
Indeed in the long run it will benefit the superior
partner also, for the prosperity achieved by the weaker
partner due to the privileges will make it a much more
viable market, a market that is sustainable for the
rich.
23. Just as we should rethink globalisation and
deregulation, we should talk no more of level playing
fields without talking also about the relative
strengths of the parties concerned and the need to
award handicaps. One should remember that it took the
developed countries of Europe almost 50 years to bring
down their trade barriers against each other and even
then not completely. And the European countries are
more evenly developed than the other countries of the
world today. Surely a globalised world should not be
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