*{ADDRESSING THE SOCIAL IMPACT OF GLOBALISATION: PROMOTING THE BENEFITS OF CHANGE
BIAC Submission to the OECD Liaison Committee with International Non-Governmental Organisations
13 November 1997

Introduction}

BIAC agrees with many experts that globalisation is a positive force for higher living standards
around the world. The increasing ability of enterprises -- large or small -- to develop, produce and
distribute goods and services in virtually any country is generating substantial new wealth and
unprecedented opportunities for improved economic performance, employment creation and
consumer welfare.

Nevertheless, it is true that many people find the rapid pace of globalisation daunting. We live in a
time of tremendous change, and because of new information and communications technologies, we
are perhaps more aware than ever about the dramatic effects of this change in the world around us.
Every day people see examples of the benefits of increasing international competition and market
contestability: new products, new services, and vast amounts of wealth being created in nearly
every corner of the globe. But they also see clear examples of economic insecurity and poverty
suffered abroad, in their countries and in their neighbourhoods by those who are not sharing in the
benefits of change.

They listen to political leaders, scientists, academics, journalists and interest groups debate the
merits and dangers of trade/investment liberalisation but they are confused by conflicting statistics
used to support the various arguments for and against the recommended policy approaches. Is it
any wonder that there is increasing uncertainty within our populations about the implications of
globalisation and diminishing confidence in governments to manage change in a way which will
reinforce social well-being?

In addition to the seemingly inconclusive debate on globalisation, there are two significant factors
in OECD countries which add to the sense of uncertainty. One, alluded to above, is the pace of
technological change. Although many of us demand and enjoy the fruits of technological
advancement in our personal and working lives, there are also many people who are unsettled by
the new developments because they lack the (re)education and skills necessary to exploit new
innovations and adapt to the resulting new methods and organisation of work. For them, there is a
loss of confidence in their ability to compete in a rapidly evolving labour market. The second
significant source of uncertainty involves the demographic trend towards ageing populations and
the continuing questions about governments’ ability to finance the same level of care and support
enjoyed by previous generations. Both of these factors add to many individuals’ uncertainty about
their economic future, and must be considered in developing policy prescriptions to meet the
challenges of globalisation.

BIAC believes that the increasing economic interdependence between nations and regions around
the world is irreversible. If individual nations or regional trading areas were to respond to
nationalist or isolationist pressures by introducing large scale restrictions on trade with each other,
or if the present free movement of capital were to be replaced by a national or regional
governmental system to control capital transfers, the consequences for the world economy would
be very serious, with unpredictable social and political costs. Indeed, there has never been a greater
need for appropriate and effective multilateral rules to support the continuing process of trade and
investment liberalisation. The challenge is thus not to develop a new world economic model, but
for countries, companies and workers to prepare themselves for the best that globalisation can
offer, and at the same time, mitigate the inevitable social costs of change.

BIAC maintains that the OECD is uniquely positioned to offer an objective assessment of the
effects of globalisation. We thus fully support the mandate delivered to the Organisation by the
1997 Ministerial Meeting to undertake such a study. We hope the OECD will not only contribute
sound and reliable statistical data to the debate on globalisation, but will also provide Member
governments with a package of policy actions which they can explain clearly to constituents and
then implement to maximise the benefits to society of change. We would note that the OECD has
already identified many of the policy measures which should be taken by its Member governments,
and we provide below a summary of those which we believe must be included in any strategy to
address the social consequences of globalisation. In this context, BIAC would support continuous
monitoring by the OECD of Member countries’ progress in implementing the necessary measures.

*partie=titre The Social Impact of Globalisation from the Business Perspective *partie=nil

Trade and investment flows have grown tremendously as national barriers have come down. There
can be no debate about the fact that increasing economic interrelations and interdependence among
our countries have led to a period of unprecedented peace and prosperity in the world. As the
OECD Secretary General stated earlier this year, “Countries have come to understand that cooperation
and competition go hand in hand in an interdependent world.” *{1} Moreover, a recent
UNDP study has stated that poverty has been reduced more in the past 50 years than in the
previous 500, and that there is a potential for eliminating it altogether in the early part of the next
century. *{2} We believe much of this improvement in living standards around the world can easily be
attributed to the rapid expansion and increasing dynamism of international business since World
War II.

*{1 OECD Secretary-General’s Address to Colloquium Commemorating 50th Anniversary of the Marshall Plan, 27 May
1997
2 From a speech by Renato Ruggiero, Director General to the WTO, to the International Industrial Conference, San
Francisco, 29 September 1997.}

However, many people continue to pose questions about whether the prosperity resulting from
globalisation is being shared by all, and if not, what can be done to ensure a more equitable
distribution throughout our society. These questions deserve to be answered clearly and
convincingly if people are to accept and continue to support liberal trade and investment systems.

Much of the debate concerning the social impact of globalisation understandably focuses on the
effects on wages and employment, particularly among lower skilled workers, in trade-sensitive
industries. Moreover, it is frequently suggested that the primary pressure for reducing OECD
country standards for lower skilled workers comes from trade with emerging economies which
have generally lower wages and benefits than in the OECD countries. However, the OECD’s most
recent (July 1997) Employment Outlook provides some very important data and analysis on this
point. Not surprisingly, BIAC agrees with the OECD’s findings that trade with emerging
economies, although increasing, is still not of a magnitude to have broad effects on OECD labour
markets (trade with emerging economies represented 1.6 percent of overall OECD GDP in 1994).
Nevertheless, we also agree that trade with emerging economies, combined with other trends in
technology and production, may be contributing to the problems of low skilled and low educated
workers in certain sectors of OECD countries.

In our view, the conclusions drawn from this analysis are sound: that any labour market problems
experienced as a result of trade with lower-labour-cost countries -- however slight --must not be
interpreted as a justification for protectionism, but rather as an indication of which groups in our
society may need special adjustment measures in order to better adapt to new economic realities.
For although it is useful to know that the data concerning the impact of trade on unskilled workers
is “not always statistically significant” or that “no dominant empirical pattern emerges”, we should
recognise that such phrases offer little consolation to people whose lives may be adversely affected
by change, even if such change is enhancing overall standards of living.

The other significant feature of increasing globalisation is of course the rapid growth of
international investment flows. Many suggest that the increasing percentage of OECD-based
companies’ direct investment in low labour cost countries represents an “export of jobs” from
OECD countries. Again, the continuing dominance of OECD countries as the primary target for
investors (70 percent of total international direct investment flows in 1995 went to OECD
countries *{3}) tends to refute this argument, and there are studies which have shown that international
investors generally out-perform their domestic counterparts in home country job creation. *{4}
Moreover, some studies suggest that much of the rise in direct investment in certain emerging
economies comes from their regional partners. For example, recent estimates suggest that over half
of FDI in non-OECD Asian economies comes from within the Asian region. Still, we recognise
that companies in some labour-intensive sectors, e.g. textiles and clothing, may be reducing
employment in the home country as a result of investment in lower-labour cost countries, and
similar to above, aggregate statistics provide little comfort to the people who are losing their jobs.

*{3 Financial Market Trends, No. 67, June 1997
4 See, for example, The Performance of Foreign Affiliates in OECD Countries, OECD, 1994}

The media attention given to actual cases of job loss through delocalisation clearly has a significant
negative impact on support for globalisation, especially when the broader economic benefits to
society are not reported. We believe the OECD must help Member governments to publicise
objective statistics which show the true extent of the problems, as well as the economic benefits,
that have resulted from increasingly liberalised trade and investment rules. However, although we
believe there is certainly a need to provide clear and objective data on the important role of
trade/investment in economic growth and job creation, we also recognise that governments must
address their constituents’ fears with an appropriate policy framework if trade/investment
liberalisation is to continue.

*partie=titre The Policy Response: Globalisation as a National Challenge *partie=nil

Many concerns have been expressed about the globalisation process undermining the effectiveness
of domestic policies and regulations. Although we recognise that there are some policy areas which
may have become more complex as a result of greater economic integration, we believe that
OECD governments have the ability and opportunity to shape their countries’ economic future in a
more competitive world. While it is essential that policy-makers pay closer attention to the factors
which characterise today’s dynamic economies, there is by no means a loss in governments’
power to manage and guide the forces of change for the benefit of their constituents.

Some governments may decide to react defensively to globalisation in deference to politically
influential interest groups. They could attempt to shield their economies from the pressures of
international competition by adopting and promoting strict interpretations of what they consider to
be proper “social models” with generous welfare programmes designed to protect their populations
from the rigours of the market place. This approach may also involve maintaining or introducing
rules and restrictions governing trade and direct investment to limit the impact of globalisation on
the domestic economy. In some cases, these countries may attempt to promulgate comparable
social policies in emerging countries’ economies through inappropriate means (e.g., promoting
social clauses in trade and investment agreements) in order to “level the playing field”. BIAC
believes such approaches are misguided. Although these policies may serve to promote social
cohesion and boost political popularity in the short term, they do so by locking in inefficiencies
and providing a false sense of security which effectively short-circuits discussion of serious
structural reforms which some countries must implement for long-term economic health.

Our preference would be for OECD governments to treat globalisation as a national challenge:
articulating comprehensive policy frameworks and implementing the necessary reforms to prepare
their economies for the tremendous benefits that the world-wide pursuit of maximum efficiencies
in the production of quality goods and services can offer. Such a framework would involve several
key priorities, many of which have already been outlined by the OECD in various reports:

*partie=titre 1. Implementing the Jobs Strategy Recommendations: *partie=nil Serious efforts to promote labour
market flexibility must be considered as the number one priority for any comprehensive strategy to
meet the social challenges of globalisation. This point can not be over-emphasised. Labour market
policies and their associated costs in some OECD countries effectively penalise private sector job
creation, especially by small- and medium-sized enterprises. But the OECD Jobs Study
recommendations include more than just measures needed to increase labour market flexibility. In
fact, we believe the nine recommendations, including calls for adopting non-inflationary
macroeconomic policies, enhancing the climate for technological innovation and diffusion,
promoting entrepreneurship, and improving education and training systems, provide a sound basis
for any national globalisation strategy. Unfortunately, although OECD Governments have
continued to endorse the Jobs Study recommendations, implementation at the national level
remains piecemeal at best. This must be changed. People will only have confidence in
globalisation if they see that it results in more and better job opportunities for them, not stagnation
and insecurity.

*partie=titre 2. Sound Macroeconomic Policies: *partie=nil Over the past years, both the OECD and BIAC have
placed considerable emphasis on the need to reduce public deficits, and BIAC Members are
generally pleased with the progress made by most Member countries. We raise this issue again in
this context because we consider that the maintenance of sound macroeconomic policies, including
sustainable reductions in government spending, is an essential part of any national globalisation
strategy. The reason is that the tremendous scale and mobility of international capital flows is now
a dominant feature of the world economy. Although this vast pool of global capital offers
tremendous opportunities for economic growth and development in nearly every country, as seen
from recent events in Asia there is also a significant risk of financial market volatility if
governments are not perceived to be maintaining appropriate fiscal and monetary policies. Such
volatility creates another source of considerable uncertainty and can undermine confidence in a
government’s ability to manage change effectively.

Another significant reason for fiscal discipline, referred to above, is the trend towards ageing
populations. High and persistent public sector deficits, particularly involving social security
programmes, raise serious questions about governments’ ability to finance adequate social safety
nets for tomorrow’s elderly. We believe there is thus a significant need in many countries for better
“generational accounting” to ensure that future generations are not overly burdened by the cost of
today’s social programmes. Whether through necessary reforms of social programmes, continuing
reductions in other budget areas or a combination of both, concerted efforts now to address a
problem which we know will occur in the near future will give many people greater security in
their economic future and reinforce confidence in globalisation.

*partie=titre 3. Education and Training: *partie=nil We fully agreed with the importance which OECD Education
Ministers attached to lifelong learning as a means of responding to the challenges of an
increasingly globalised economic system. Moreover, we were pleased that Ministers embraced a
clear set of strategies to promote lifelong learning in their respective countries. As noted above,
rapid changes in technology require a well-educated and adaptable work force. Those individuals
who do not have access to and take advantage of effective, continuing education and re-training
programmes will be marginalised in national labour markets, and as a result, will feel seriously
threatened by global competition. It is thus essential that any national globalisation strategy
include measures to improve education and training systems as a priority objective. BIAC
recognises that employers, together with individuals, bear the primary responsibility for ensuring
that labour force skills are updated as necessary. However, we remain convinced that governments
can and must help by taking steps to adapt their educational institutions to equip youth with the
knowledge, skills and attitudes required to become lifelong learners and to support the
requirements of lifelong learning as an ongoing process.

*partie=titre 4. Regulatory Reform: *partie=nil Building on the OECD’s work in this area, and following from the
Jobs Study recommendation to “nurture an entrepreneurial climate,” governments must undertake a
complete and objective review of existing regulations taking into account international “best
practices”, and reform those that undermine their economies’ capacity for adapting to change. As
the OECD Regulatory Reform report pointed out, this does not necessarily mean “de-regulation”
(although in many cases this may be required), but rather a new emphasis on evaluating and
removing or changing regulations so that they do not impede entrepreneurial initiative and
economic dynamism including, in particular, the capacity for launching and succeeding in new
business ventures. Although we agree that all of the Regulatory Reform Report’s
recommendations are important and should be implemented as a package, we consider number five
to be particularly relevant in this context: “Reform economic regulations in all sectors to stimulate
competition, and eliminate them except where clear evidence demonstrates that they are the best
way to serve broad public interests.” Introducing such a practice would be a major step towards
ensuring that the benefits of globalisation accrue to the population at-large by promoting more
durable employment opportunities for workers and a wider choice of quality goods and services for
consumers at the best possible prices.

*partie=titre 5. Social Safety Nets: *partie=nil Although globalisation and technological advancements are providing
many new job opportunities in our economies, there will always be people who experience
difficulties in adjusting to change despite their personal willingness to adapt. These individuals
have legitimate concerns about their future well-being in a dynamic economy and we believe they
deserve targeted programmes to facilitate re-integration to the labour market. While the precise
measures may vary according to national/regional circumstances, such programmes might include
temporary income support combined with re-training and re-location assistance. Effective
programmes, which reward individual incentive and responsibility with financial support for
enhanced adaptability and mobility, will foster a much greater sense of economic security and
promote confidence in a government’s ability to help people cope with change.

*partie=titre 6. Good Governance: *partie=nil In addition to the policy objectives mentioned above, which focus on
the domestic economy’s capacity for responding to the social consequences of globalisation, we
believe that any effective national globalisation strategy must include serious measures to improve
OECD Members’ governance capacities. Vague and inconsistent approaches to policy
development and implementation undermine peoples’ confidence in their political leaders’ ability
to understand and respond to their needs. The OECD Public Management Service has outlined the
necessary goals for governance reform. *{5} Most important, in our view, is the need to clearly
articulate policy objectives to the general public and then to ensure transparent mechanisms for
evaluating performance, control and accountability in implementation. Although the precise
methods may vary according to specific national circumstances, we believe that Member
governments can and must play a more active role in promoting constituents’ support for policy
goals and the means of achieving them.

*{5 See “Governance in Transition,” OECD PUMA, 1995}

Improved governance at the national level is clearly important for governments to manage change
effectively. However, we would suggest adding an international dimension. We believe that more
transparency and consistency in international economic policies could significantly reduce the
incidence of trade/investment conflicts and thus promote stability and confidence in liberal
trade/investment systems. In this regard we would recall the extremely important (sub)
recommendation from the Regulatory Reform report: “Implement, and work with other countries
to strengthen, international rules and principles to liberalise trade and investment (such as
transparency, non-discrimination, avoidance of unnecessary trade restrictiveness, and attention to
competition principles) as contained in WTO agreements, OECD recommendations and policy
guidelines, and other agreements.” As stated previously, it has never been more important for
governments to develop and support effective multilateral rules. In this context, BIAC reiterates its
strong support for completion of the Multilateral Agreement on Investment and the built-in agenda
for post-Uruguay Round work at the WTO.

Taken together, these suggestions could form the basis of a national globalisation strategy, or in
other words, a policy framework designed to promote the economic benefits, and alleviate the
adverse social effects, of globalisation. While some of the recommendations may have been
debated and even enacted in OECD countries, we believe that only a comprehensive approach will
succeed in increasing support for globalisation.

*{Conclusion}

It is obvious that globalisation is irreversible and that it offers tremendous benefits to the world’s
economies and overall living standards, but it is equally clear that there is a social dimension
which must be addressed if support for liberal trade and investment systems is to continue. There
are no “quick-fix” solutions, and those political leaders who promise them are only deluding their
constituents and adding to the sense of uncertainty by raising false hopes. There are also no secret
formulas for success. Indeed, it should be clear that many of the policies suggested above have
already been proposed and publicised by the OECD in various communiqués and reports.

BIAC believes that national governments can and should actively pursue a set of policies which
will maximise their economies’ capacity for adapting to technological change and the competitive
pressures of globalisation. Such an approach will truly give people greater confidence in their
ability to succeed under new paradigms of economic life.