Sunday, April 01, 2007

Two articles on 'reverse globalization'

From Brad Setser’s Blog;
“The phrase the “uphill flow of capital” seems to have caught on. It is a vivid way of describing a world where poor countries finance rich countries. Or, a bit more accurately, China and some no-longer-all-that-poor oil exporting countries finance the US.

I wonder if the term “reverse globalization” will also catch on. Nasser al-Shaali, chief executive of the Dubai International Financial Center (DIFC) Authority, recently used the term "reverse globalization" to describe one likely long-term consequence of the uphill flow of capital: Emerging markets will be buying companies – not just bonds – in the developed world.

"Reverse globalization - when you have emerging market players going out and acquiring developed institutions - is a tide that no matter how you try to swing against it, will be very very prevalent in the years to come," he [Shaali] said.

You can quibble about the term. Globalization as a term could easily describe a two-way flow of funds around the globe. Call it financial integration. That is basically how the transatlantic economy works. US firms invest in Europe. European firms invest in the US. Their respective positions basically balance each other out.”
Setser concludes:
“Remember, creditors – not debtors – traditionally have set the rules of the global financial game. Right now the US is a debtor – a big one. But the US still expects to set the rules, more or less. My guess is that most US business circles still think globalization means something close to the global Americanization of finance and business. It may. But it also may not.
Reverse globalization may not be a bad term.
From Tina Rosenberg’s article “Reversing Foreign Aid”:
“Historically, the global balance sheet has favored poor countries. But with the advent of globalized markets, capital began to move in the other direction, and the South now exports capital to the North, at a skyrocketing rate. According to the United Nations, in 2006 the net transfer of capital from poorer countries to rich ones was $784 billion, up from $229 billion in 2002. (In 1997, the balance was even.) Even the poorest countries, like those in sub-Saharan Africa, are now money exporters.
No one planned the rapid swelling of reserves. Other South-to-North subsidies, by contrast, have been built into the rules of globalization by international agreements. Consider the World Trade Organization’s requirements that all member countries respect patents and copyrights — patents on medicines and industrial and other products; copyrights on, say, music and movies. As poorer countries enter the W.T.O., they must agree to pay royalties on such goods — and a result is a net obligation of more than $40 billion annually that poorer countries owe to American and European corporations.

There are good reasons for countries to respect intellectual property, but doing so is also an overwhelming burden on the poorest people in poorer countries. After all, the single largest beneficiary of the intellectual-property system is the pharmaceutical industry. But consumers in poorer nations do not get much in return, as they do not form a lucrative enough market to inspire research on cures for many of their illnesses. Moreover, the intellectual-property rules make it difficult for poorer countries to manufacture less-expensive generic drugs that poor people rely on. The largest cost to poor countries is not money but health, as many people simply will not be able to find or afford brand-name medicine.”