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Economic Development in the Global Century
Discussion Paper for workshops on Economic Development at
the 1998 Assembly of the World Academy of Art and Science, Vancouver, Canada
By Garry Jacobs, Robert Macfarlane and Robert Van Harten
November 5-7, 1998
An examination of the prospects for global economic development in the 21st Century is a monumental task, more appropriate for a lifetime of research and thought than a series of short workshop sessions. It encompasses in its scope a highly divergent mixture of national level conditions, developing regional patterns as exemplified by the European Union and NAFTA, international trends and the still faint lines of emerging global institutions. It includes within its ambit pressing near term challenges, such as the current crises in East Asia and Eastern Europe, as well as the longer term impact of emerging trends on employment, resources, living standards and the global environment. The topic also encompasses the entire range of near to long term opportunities, from the spread of the Internet, expansion of foreign trade and investment flows to the impact of far reaching technological and organizational developments. The task is further complicated by the difficulty of considering opportunities in the field of economics without also taking into account the potential and likely influence of parallel developments in other fields which may have a profound impact on economic achievements— the prospects for global peace, the spread of democracy, education, information technology, increasing speed of transportation and communication, advances in social organization, etc.
How then can we approach this task with some modicum of order and some hope of adding to the sum of our knowledge and understanding rather than merely stirring the already murky pot of divergent views on this issue? We propose to do it by posing for discussion a select number of more specific questions which relate to the wider issue before us and which must necessarily be answered in order to arrive at a clearer perspective regarding the economic prospects for humanity in the next century. We further propose to divide these questions into three major groups, as defined below.
1. Engines of Development in the 20th Century:
The first group relates to events that have already taken place and the factors responsible for them, which serve as the starting point and evolutionary trend lines for what is likely to emerge in future. Why focus on the past in a conference about the future? Because unless we first arrive at some perspective on what has already occurred and why, we are unlikely to fare well in examining the future that has yet to emerge, especially in the light of the economic upheavals that have recently thrown into question what were once regarded as the most marvelous economic achievements of the past quarter century. Under this heading, we will explore the following issues:
- An overview of the economic development achievements of the present century.
- The factors that have propelled and retarded development in this century and the process by which development achievements have been realized.
- Problems that have been solved in the course of the century and the process by which they have been solved.
- Problems that have been generated by development and the factors that contributed to these problems.
2. Forces Shaping Development in the 21st Century:
Looking forward from the near to the long term, we wish to explore the likely impact, both positive and negative, of current and emerging trends on global economic development and consider how they will influence the evolution of the global economy. Specifically, we need to examine the hypothesis that the next century will not be driven or dominated by the growth and influence of one or a few nations as it has been in the 19th and 20th, but that instead it will be driven by the emergence of a truly global as opposed to merely international economic system. Under this heading, we would like to explore the following issues:
- Emerging trends in economic development, including the changing role of material and non-material resources.
- The factors that are likely to propel or retard the pace of global development in the coming century.
- The distinction between internationalization and globalization and the signs by which they can be recognized.
- The emergence of global organizations, including examination of the Internet as a model for future social organizations.
3. Strategies for the Global Century:
Finally, based on our insights regarding global development in the present century and our identification of emerging opportunities and challenges, we wish to consider what conscious, practical steps can be taken at the national and international level to more fully and surely convert emerging opportunities into realities and to mitigate or wholly avert the consequences of emerging challenges. Under this heading, we would like to explore the following issues:
- Development of organizations to support globalization.
- Values and social attitudes to promote globalization.
- The role of the human being and human choice in development.
We hope that through a combination of pre-conference internet discussion, prepared workshop presentations and free interaction at the conference to elicit a wide range of views and insightful responses to these topics.
The concept of a global century suggests a shift from a world economy driven by a few powerful national economies to the emergence of an integrated, global economic system. Although international economic activity has occurred throughout history, this would mark a significant evolution of the world community. To clarify the implications of globalization, we can distinguish three levels or stages in the development of the world economy.
- National: In the first, economies are predominantly national in their structure and functioning. The social organization of economic activities develops within each country. National currencies, commercial laws, markets, financial institutions, industries and productive firms emerge and develop. Economies were predominantly national in structure from the beginning of the Industrial Revolution until the founding of the Bretton Woods institutions.
- International: In the second stage, the national organization continues to develop, but it is accompanied by the increasingly rapid emergence of bilateral and multilateral conventions, systems and organizations at the international level. Banks form international alliances. Governments coordinate their trade and monetary policies. Companies establish overseas production and marketing subsidiaries to tap emerging markets and lower costs. International commercial law and conventions develop rapidly. Labor migration increases. International organizations emerge to help regulate activities and promote coordination among nations. This is largely the system that has been emerging with increasing rapidity during the past half century. During this period many international institutions have developed, but primarily as instruments for the coordination and support of national level policies. They have not made the global economy the primary center of policy making or the primary unit of economic management.
Characteristics of a Global Economic System
A global economic systems implies—
- Globalization of production, trade in products and services, and financial activities regulated and managed by global institutions.
- The emergence of global economic and financial institutions, including a world currency and world central bank, vested with the authority to manage for the benefit of the world economy as a whole.
- Emergence of uniform global standards, regulations and laws regarding all aspects of economic activity that are now standardized at the national level.
- Unification of markets, which implies the elimination of barriers to trade and labor movements, national economic loyalties, gaps in supply and demand between markets, price differentials between markets, over production spurred by nationalistic economic policies.
Organization as the Central Characteristic of Development
The process of social development is best characterized as a process of organization. This organization takes place progressively at several different levels.
- Physical – the organization of human communities around productive centers, beginning 10,000 years ago with the invention of agriculture and the establishment of sedentary communities, towns and cities, which became concentrated centers of economic activity.
- Technological – the organization of know-how and inventions into a cumulative body of knowledge regarding the handling and processing of materials to produce goods and services.
- Social (as it relates to economics) – the organization of social activities and institutions to increase the efficiency, coordination, productivity, quality, reliability, regularity and speed of human actions related to production and distribution of goods and services.
- Information – the organization of facts into understandable, useful and easily accessible forms and systems.
- Scientific and Education – the organization of the accumulated knowledge of society and the delivery systems through which it is recorded, validated, preserved, codified and communicated to future generations.
Each advance in organization has led to advances in the speed, quality, efficiency and productivity of economic activities resulting in material improvements in living standards.
Since the purpose of this paper is to provoke thought rather than provide definite answers or personal views, we would like to close with a list of observations and perspectives that may help stimulate and enrich the discussion.
1. The pace of development is accelerating in the medium and long term:
In spite of sudden short term set backs which have characterized development at crucial transition points in the past and have again quite unexpectedly appeared on the world scene, the longer term trend over decades and centuries has been an increasing speed of development. From the perspective of 10,000 years of history, human progress over the past 200 years has been extraordinary and the achievements of the past five decades are nothing short of miraculous. In two centuries social productivity has increased to the extent that the global community is now able to sustain a population 12 times as large as in 1800. From a rural-based, agrarian society in which less than three percent of the people lived in towns and cities, the human community has evolved into an urban-centered, industrial society in which the urban population now exceeds 40 percent of the total. This change has brought with it and aggravated a host of problems – overcrowding, pollution, crime, etc.—but it has also brought political freedom, economic security, education and modern conveniences to billions of people.
What is more remarkable is that this social movement continues to expand and accelerate. The 1997 UNDP Human Development Report observes that over the past 50 years the world has made greater progress in eradicating poverty than during the previous 500. Around the globe, life expectancy is climbing, infant mortality is declining, epidemic diseases are receding, famine is becoming extinct and education is becoming more widespread. Since 1950 average per capita income has tripled, in spite of unprecedented population growth, and average real per capita consumption in developing countries has doubled. These achievements raise the possibility and the hope that unprecedented levels of prosperity could soon spread to all humanity.
These accomplishments still leave more than one billion people in poverty. But there is growing evidence to suggest that today’s least developed countries could match and perhaps even exceed the achievements of the most advanced industrial nations within a much shorter time than it took for the original achievements. Beginning in 1780, it took the United Kingdom 58 years to double output per capita. The United States did it in 47 years, beginning in 1839. Japan accomplished the feat in only 24 years, beginning in the 1880s. But after the Second World War, Indonesia did it in 17 years, South Korea in 11, and China in 10. From 1960 to 1990 real per capita standards of living based on purchasing power parity multiplied twelve-fold in South Korea, seven-fold in Japan, more than six-fold in Egypt and Portugal, and well above five-fold in Indonesia and Thailand.
Even taking into account recent set-backs and a temporary slowdown, there are reasons to conclude that this trend can continue in future and spread to other nations that have not yet reached the take-off stage.
2. The factors responsible for the increasing rate of development will be more prevalent in future:
It would be difficult to single out any one factor that adequately accounts for the increasing speed of social advancement. But it is possible to identify a cluster of interrelated factors that in combination appear as necessary conditions and catalysts of development.
- Peace: Any evaluation of development potentials needs to take into account the influence of internal and external social stability on social progress. The end of the Cold War has dramatically reduced the threat of armed international conflicts and the catastrophic consequences of nuclear war, providing a far more stable and secure climate for worldwide economic expansion. War is a destroyer of development. It physically demolishes what society has accomplished. The Cold War limited the physical destruction to regional conflicts, but it directed a substantial portion of the energies and talents of the world community into an unproductive arms race. Since 1988, world military expenditure has fallen by about a third, $400 billion. If the current peaceful status is sustained, it could free up even more capital for investment and reducing the inflationary pressure of burgeoning government deficits. The long feared negative impact of reduced military expenditure on economic growth has been much less than anticipated. Falling defense spending has been followed by a surprisingly rapid recovery in defense-dependent states such as California and an unexpectedly long period of national economic expansion in the USA. This experience should help reduce the resistance to further cuts. The end of the Cold War has already resulted in a substantially reduction in military spending. If properly nurtured and supported, it could lead to an unprecedented period of peace and an unparalleled climate for global economic development.
- Democracy: Since 1980, a democratic revolution has been spreading through Latin America, Eastern Europe and, most recently, Africa, freeing hundreds of millions of people from repression by authoritarian regimes. As peace provides a secure external environment for international development, democracy provides a stable and conducive environment within countries for more rapid social progress. Democracy raises human aspirations. It encourages individuals to take active initiative for their own advancement. It facilitates freer and wider social interactions. It releases greater social energy. It vastly increases the dissemination of information and the multiplication of new organizations. As the transition from monarchy to democracy was a catalyst for rapid economic advancement of Western countries over the past three centuries, the spread of democratic institutions today opens up greater possibilities for global expansion.
- Social Velocity: Development is a function of the velocity of social transactions. The speed of movement of information, ideas, decisions, technology, people, goods and money has significant impact on the productivity of the society and its further advancement. The ‘shrinking of the world’ through better transportation and communication opens up commercial opportunities inconceivable just a few years ago. During the past two decades the volume of international travelers, freight, telephone and other forms of electronic communication have increased by more than an order of magnitude. Between 1980 and 1994, overseas telephone traffic to and from the USA increased from 200 million to 3.4 billion calls. New technologies such as satellite-based wireless phones are reducing the cost of expanding the communications infrastructure. Electronic mail has drastically reduced the cost and increased the speed of written communications. The meteoric growth of the Internet provides instantaneous low cost access to global information sources and commercial markets. The speed of technology diffusion is also accelerating. The Xerox machine was not introduced into India until the late 1970s, more than 15 years after its use became widespread in the USA. Three years ago, Windows 95 was launched in New Delhi just weeks after its release in the USA. Last year Intel announced its latest microprocessor simultaneously in USA, India and Beijing. Our perspective on the next century needs to take into account the impact of the increasing velocity of social transactions on the speed and course of development in the future.
- Technological Application: The time required both to develop and disseminate new technologies is becoming shorter, but technological development far outpaces technological applications and accomplishments in even the most advanced societies. Adoption and full utilization of already proven technologies can dramatically elevate performance in every country and in every field. To cite a single example, the average yield of tomatoes in India is 8 tons per acre, yet more advanced farmers achieve yields as high as 20 tons. The average yield of tomato in California is 35 tons in California, but one of California’s leading tomato farmers with 1200 acres under cultivation routinely obtains average yields of 55 tons or more by applying advanced systems for micro-nutrient management applicable to all crops and climates. Applying more sophisticated and capital intensive technology, Israeli farmers achieve yields of 250 tons or more of tomato per acre. This wide variation in the application of technology within and between countries is nothing new. But it is a significant determinant of development and a factor that is at least partially responsive to social policies.
- Education: Levels of education have risen dramatically during this century and continue to rise in countries at all levels of economic development. The impact of primary, secondary, technical and higher education on development has been documented by a number of studies. It directly influences receptivity to new ideas and information, democratic functioning, the rate of scientific advancement and technological inventiveness, practical adaptation of new technologies, the quality of productive skills, awareness of new opportunities, willingness to adopt new activities, and the capacity to develop higher levels of social organization.
1. Money is not the determinant of development:
Money is one of the greatest inventions and social institutions of all time. It is an abstract unit of account in terms of which the value of goods, services and obligations can be measured. The systems of exchange, valuation, issuance and conversion of one form of money into another constitute elements of that organization. The value of money depends directly on the level of this organization. The more developed it becomes, the greater the productive power of money. The development of money has been a powerful force for the development of society. However, in the process the true role of money appears to have been distorted.
The rapid recovery of Western Europe under the Marshall Plan in the 1950s reinforced the idea that capital investment was the most essential ingredient and powerful determinant of economic development. This experience strongly influenced the policies of international financial institutions and the strategies of developing countries during subsequent decades, leading, at first, to a preoccupation with foreign aid and, more recently, to an obsession with foreign investment. Until recently a severe shortage of capital was considered by many to be the most serious limitation to international economic development.
Recent experience in Eastern Europe and East Asia give us cause to reflect on the role of money in development. Over the last seven years since the reunification of Germany, the national government has invested more than $1.1 trillion for the development of the East German economy, equivalent in real terms to at least 10 times the entire amount invested all over Europe through the Marshall Plan. Yet during this same period, unemployment in East Germany has grown from very low levels to more than 25 percent, while productivity has remained at one-fifth the level prevalent in the western part of the country. At the same time the financial crisis that has overtaken Japan and other East Asian countries can be traced to an excess of money that was either generated internally or lent by foreign investors, beyond the carrying capacity of these economies to absorb and utilize it productively.
2. The potential productivity of resources is not subject to any inherent limits:
Resources are inputs or factors for carrying out an activity effectively. Economics is very much concerned with the scarcity of resources. But when viewed from a wider perspective it becomes evident that while the quantity of some physical resources may be inherently limited, the notion of scarcity does not really apply to non-material resources such as knowledge, information, technology, skills and social organization. Any of these may be limited in their immediate availability, but none are subject to inherent limits to their development. Organizational capabilities can be increased over time. The horizons of knowledge, information and technology are continuously expanding. The human resource becomes progressively more capable and productive.
As a society develops to higher levels, non-material resources play an increasingly important role as factors of production. This principle is embodied in the concept of the Information Age, an era in which access to information has become a valuable input and precious resource for improving the quality of decisions and the productivity of activities. The increasing contribution of higher, non-material resources helps explain how societies have continued to expand productivity on a limited physical resource base.
There is no such thing as a natural resource. The mind is the creator of all resources. It is the application of human intelligence and inventiveness that converts a substance into a resource. A resource emerges when the mind evaluates a material in the context of an end use. As society develops, the application of mind continuously increases the productivity of materials, finding new applications for them and more efficient ways to utilize them. The more the mind becomes open and flexible in its outlook, the greater is its power. Mind, the human being, is the ultimate resource that gives value to all other resources. The capacity of the human mind to acquire knowledge and devise improved technologies is for practical purposes unlimited. The concept that scarce resources impose ultimate limitations on human development needs to be reexamined from this perspective.
Role of the Individual
In an effort to emulate the exactness and objectivity of the physical sciences, economics has focused on the external conditions and activities that lead to development while it has ignored or tried to eliminate the subjective human element from the equation. But economic and social development are human activities. Until we discover the central role of human beings in development, we cannot hope to understand and master the process of social advancement.
A variety of factors including money, technology, commercial institutions and government policy are cited to explain the increasingly rapid economic progress of the past five centuries. But the most powerful and essential factor is not any of these. It is the emergence of the individual from the social collective. This movement can be traced from the outburst of humanistic ideas in the Rennaissance through the breakdown of feudalism, the Reformation, and successive commercial, political and industrial revolutions up to this current century of ‘the common man’, in which for the first time in recorded history societies around the world have actively committed themselves in principle and, at least, partially in practice to provide physical, social and economic freedom and security to all citizens, regardless of the sex, race or origin.
The recognition of the rights of the individual as distinct from the rights of the collective and the provision of increasing physical, social and mental freedom to the individual—through law, education and social institutions—has resulted in an unprecedented outpouring of human energy, ideas, and creative initiatives, which have fueled technical and social invention and vastly accelerated the pace of progress in all spheres of life.
Viewed from this perspective it appears that the entire process of social development has been governed by human knowledge, attitudes and values, rather than by material factors. As the human being has developed, social productivity has increased exponentially. In looking forward into the next century we must consider to what further stages of development the individual can rise through further advances in social organization, education, and human values, and what will be the impact of this development on the speed and extent of collective social development. We would do well to, at least, consider whether there are really any inherent limits to the potential development of the human being and, consequently, of human society.