CR Vol. 15, No.

2, 2005

building of a new analytical framework

democratization,
human
rights,
sustainable
development1, civil society2 and global governance
and evaluates their impact on government and
multilateral policies in a radically changed context of
security concerns.

GLOBAL COMPETITION AND

ECONOMIC DEVELOPMENT:
KEY GOVERNANCE ISSUES
by Brigitte Lvy

GLOBALIZATION AND ECONOMIC

DEVELOPMENT: IS THERE CAUSE FOR
CONCERN?

EXECUTIVE SUMMARY
Today,
multilateral
institutions
and
governments of industrial countries seem to agree on
the need to reorient macroeconomic and structural
policies in order to achieve a more balanced growth
of the global economy. At the same time, developing
countries and civil society organizations have raised
questions about the effectiveness of the current
multilateral system. As well, new social and political
concerns are reshaping our views about
globalization processes. This paper looks at the
ongoing process of global economic integration and
demonstrates that new forces are reshaping the
economies of the world and raising challenging
questions about ethics, governance and security that
will require corporations to respond with new
strategies.

The world has seen three waves of

globalization in modern times: 1870 to 1914,
followed by a retreat to nationalism from 1914 to
1945; 1945 to 1980, fuelled by trade and growing
foreign investment; and 1980 to the present, driven
by global expansion of the multinational enterprise,
followed by the more recent questioning of its
impact. According to Eckes (2000: 305), As we all
know, the trade history of the last century is largely
about the flowering of a big idea an open world
economy with rules for participants. On the one
hand, the first decades following World War II were
characterized by the internationalization of trade
facilitated by the relatively stable functioning of the
Bretton Woods Institutions (the World Bank, the
International Monetary Fund [IMF] and the General
Agreement on Tariffs and Trade [GATT]), although
the fixed exchange rate system ultimately had to give
way to a need for greater flexibility. On the other
hand, the globalization of foreign direct investment
(FDI) and associated activitiesa phenomenon that
accelerated in the mid-1980sraised significant
challenges for developing countries in terms of
development strategies.
Despite the growth of
international trade relative to GDP in the majority of
countries, the numbers of the worlds population
living in poverty have not decreased. Accelerating
globalization and rising poverty and inequality led
the World Bank, in its 1990 World Development
Report, to launch an international campaign to reduce
poverty. That agenda is clearly emphasized in the
World Bank reports for 2001, 2002 and 2003. This
follows the consensus forged in the United Nations
(UN) with the Millennium Development Goals,
which aim to reduce poverty levels by 50 percent by
2015.
The debate on the supply-side aspects of
globalization (international trade, finance and
investment) is captured by recent analyses conducted
by several multilateral agencies (World Bank, 2002;
UNCTAD, 2002; WTO, 2001; OECD, 1997). In the
same vein, many books published over the past few
years have addressed globalization, among them Has
Globalization Gone too Far (Rodrik, 1997), Global

INTRODUCTION
Globalization, along with regionalization, is
widely cited as the dominant international economic
trend of the post-World War II era leading to
increasing linkages among countries. At the same
time, globalization is seen as having been
accompanied by wide disparities in development
among and within countries. Questions have been
raised about its role in creating or accelerating the
financial crises of the 1990s and early 2000s
(Mexico, 1994; Asia, 1997; Russia, 1998 and
Argentina, 2001).
Also, in the aftermath of
September 11, 2001, globalization is challenging how
we look at corporate governance and security.
This article first looks at the dynamics of
trade liberalization and development through the
perspective of orthodox and heterodox literature. It
examines the link between economic liberalization
policies and inequality, and looks at whether
economic liberalization alone can bring convergence
among and within countries and close the gap in per
capita GNP. Next, the article focuses on
sustainability, which is often understood as a guiding
principle for wealth distribution and for achieving
social justice. The article closes with an analysis of
the rise of new concepts in trade as they relate to the

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of their implementation. Hasty privatization and

trade liberalization can lead to long-lasting
unemployment through the exposure of protected
institutions to sudden competition.
Over time, development economics thinking
has evolved away from Franks (1967) dependency
theory toward embracing export orientation and open
markets. In Latin America, for example, after the
structuralism and dependency model theory of
development based on the tension between core and
periphery, which emphasized asymmetric and
unequal economic relations, there followed a
development paradigm based on neo-liberalism,
during the latter half of the 1980s and in the 1990s.
The 1990s, while better for Latin America than the
1980s (the lost decade), were disappointing
because the region did not regain the sustained
growth of the pre-1980s and overall unemployment
did not decline.
Globalization has sped up
development and improved the well-being of a
significant number of social groups, but in some
cases globalization has increased poverty,
unemployment, marginalization and the exclusion of
social groups (Latin American Economic System
[SELA], 2000). The crisis that hit Brazil and then
Mercosur in 1997, and further financial crises in
Argentina, Brazil and Uruguay from 2000 to 2003
contributed to increased poverty and an unequal
distribution of wealth in those countries. These crises
revealed some institutional weaknesses in dealing
with global financial problems. The countries that
sailed through the Latin American crisis and the
Asian crisis with the least impact (Chile, Singapore,
Hong Kong, Taiwan) are those with the most open
economies and the least amount of crony
capitalism. Many countries perceive further
integration into the global marketplace as a path for
development and growth.
An important aspect of change in the
globalization process is that although world trade has
grown faster than world GDP in the last 20 years (the
ratio of global trade to world GDP increased from 39
percent in 1980 to 46 percent in 1997), the gains from
trade have been unevenly distributed among
developing countries (ILO, 2001). The gains were
largely concentrated in a specific group of developing
countries and regions: Argentina, Brazil, China,
Hong Kong, India, Indonesia, Malaysia, Mexico, the
Republic of Korea, the Philippines, Singapore and
Taiwan. Since growth in those countries was
correlated with openness to trade, the corollary of this
was the marginalization of many more closed
developing countries, despite some attempts at
integration.

Capitalism in Crisis (Soros, 1998), The Lexus and the

Olive Tree (Friedman, 1999), The Wind of Hundred
Days: How Washington Mismanaged Globalization
(Bhagwati, 2000), Globalization Unmasked (Petras
and Veltmeyer, 2001) and Global Capitalism at Bay?
(Dunning, 2002). However, few authors among those
considering the crisis of global capitalism have
attempted to provide an alternative to the classical
and the neo-classical theories of trade.
Despite David Ricardos law of comparative
advantage (Ricardo, 1817), a countrys place in the
global economy seems neither predestined nor
predictable. As Hausmann and Rodrik (2002) put it,
economic development is a haphazard process of
self-discovery. Capital and technology are today
mobile across borders and comparative advantage is
almost impossible to spot in advance. The authors
cite many examples of countries that have happened
upon a lucrative export niche, among them, hats from
Bangladesh, cut flowers from Columbia, software
from India and footballs from Pakistan. As Porter
(1990) argues, and the experience of nations such as
post-war Japan, Korea, Taiwan and Singapore
demonstrates, comparative advantage can be
modified over time by the actions of corporations,
consumers and governments.
In recent decades, both historical experience
and conceptual analysis have challenged our views of
the goals and tools of development. In the 1960s,
W.W. Rostow presented a theory likening economic
development to an airplanes takeoff. As they
experience economic growth, nations move from the
preparation stage to the takeoff stage and then to the
high mass- consumption stage. The 1980s and
1990s, however, witnessed an uneven distribution of
the benefits of the global airplane (Khor, 2001).
The revival of Hecksher-Ohlin trade theory,
a mixture of static and dynamic advantages linked to
increased competitiveness and economic efficiency,
has been expected to bring economic growth.
According to the Heckscher-Ohlin theorem, trade
between countries not only increases welfare (under a
set of restrictive assumptions) but also brings about a
tendency to equalize factor prices across boundaries.
But the post-war growth of trade also challenges the
way distributive policies should be implemented in
order to counter social and economic inequalities.
Trade liberalization, an essential component of
globalization and regionalization trends, is viewed by
some as being responsible for growing international
economic inequality. The legitimacy of the neoliberal paradigm of development is coming under
scrutiny by development scholars and others. Stiglitz
(2002) argues that the fundamental problem of
pushing market-oriented reforms on developing
countries is the unreasonable rapidity and sequencing

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governmental organizations (NGOs) interested in

specific issues, such as the environment, human
rights and cultural influence. They also include
traditional opponents of free markets, such as
Marxists, and others concerned about the impact of
international trade and investments, including labour
unions.
From a global business viewpoint, a
company with international operations must be aware
of these concerns in order to respond flexibly and
appropriately. Changes in the international policy
environment have a strong impact on location
decisions, and technical progress affects the
geography of FDI in many ways. FDI is still the
main factor driving the expansion of the international
production system, and the location of MNCs
increasingly
reflects
three
forces:
policy
liberalization, technical progress and evolving
corporate strategies (UNCTAD, 2001). But FDI is
very unevenly distributed, with 30 host countries
accounting for 95 percent of total world FDI inflows
and 90 percent of total stocks. The top 30 host
countriesmainly industrialized countriesalso
account for 99 percent of outward FDI flows and
stocks. In addition, about 90 of the worlds 100
largest non-financial MNCs in terms of foreign assets
are based in the Triad of the United States, Japan
and Europe.
The trading system is highly competitive
with nations from North America, Europe and Asia
seeking to sustain economic growth through greater
reliance on export trade. Institutional reforms are
needed to allow both industrialized and developing
countries to compete for FDI in the new world arena,
given that the interface between globalization, trade
and social development is complex and involves a
number of policy areas.
In Western societies, democracy, equality,
human rights and pluralism have been among the
dominant social goals of the last half of the twentieth
century and are widely considered as fundamental in
the pursuit of public goods. Since the 1990s, related
goals and connected concepts have increasingly
become the object of public policy discourse. An
engaged citizenship, good governance and social
cohesion were frequently referred to as priorities for
policy deliberation. This leads us to consider the
concept of values. Such a concept is complex,
multidimensional, has multiple ramifications
depending upon the views of individual actors,
theoretical perspectives adopted, and specific
objectives being considered. The importance of
individual action (agency in Amartyas Sen term)
and human venality, ambition, greed, commitment,
creativity and endurance must be given full

The expansion and integration of the world

economy over the last 50 years, which stems from the
free trade philosophy prevalent in the post-war
reconstruction of Europe and Asia, cannot be taken
for granted, given the forces opposing globalization
and the western values it carries with it. Amin (1996)
emphasizes the need to recognize the social and
institutional context of globalization in time and
space.
Along with regionalization, worldwide
lowering of tariffs through the GATT and the World
Trade Organization (WTO), rising levels of
international competition, and the diffusion of new
technologies and innovations in production and
management, globalization has been the key driving
force of change around the world. Within the
framework of world-systems theory, Amin
acknowledges that serious attempts are being made at
understanding the system.
However, for him,
capitalism neither amounts to the end of history
(Huntington, 1993), nor is it even capable of
surmounting its own inherent contradictions. For
Amin, only one alternative remains: The prospect of
another social system, abandoning the sacrosanct
institution of private property, and of another
globalization, rejecting polarization. . . . . (p. 258).
This view from the left end of globalization and
development studies is gaining momentum among
civil society groups and is being expressed more
widely in social forums taking place during official
meetings of international institutions. However, one
can question whether this is more the expression of a
preoccupation with globalization and a process of
civil societys critical engagement and debate rather
than a proposal to a return to communism or some
form of socialism, given the failure of the communist
system in Western Europe.
The common thread between the two
ideologies (orthodox and heterodox) and their
analytical frameworks is that globalization and its
effects are a cause of concern. In particular, the
benefits of economic integration are unevenly
distributed within nations and among nations. Both
proponents and opponents of the global capital
development paradigm acknowledge the need to
reduce its detrimental impacts. What differs in their
analyses is their evaluation of the effects of
globalization (see Lvy, 2000, and Culpeper, 2002).
For orthodox mainstream economists, globalization
enhances economic welfare through the global spread
of capital, technology and management; heterodox
economists, however, focus on the potential dangers
of globalization, due in part to the skewed ownership
of these factors among the advanced nations. What is
different about the current wave of concern is that it
derives from a fragmented group of people with
widely differing agendas.
These include non-

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alike and is part of the call for co-operation and a

common development agenda among international
organizations. The fight against poverty is high on
the agenda of the WTO (Doha, Qatar, 2001) and the
UN (World Summit on Sustainable Development,
Johannesburg, September 2002).
The transnational economic space that
globalization has created needs organized responses,
and decision makers have to define the operational
terms and conditions of the new international order.
New multilateral approaches must be developed to
address global concerns in areas such as the
environment, labour rights and human rights (Cutter
et al., 2000: 92). An example of such an approach at
the institutional level is the call by Sylvia Ostry
(World Trade Organization, 2001) for a policy forum
at the WTO. Empirical research is required to
address these new issues emerging in international
trade and economic theory. Also, fifty years of
development experience have taught us that
integrated and co-ordinated policies are needed to
tackle poverty and that sustainable development
requires socially inclusive action. This calls for a
dialogue with civil society and an ability to transcend
economic, geographic and cultural (ethnic and
religious) boundaries.
Such a dialogue is a
prerequisite to world stability given that national
economic interests and geopolitical concerns are now
more than ever linked to security.
The frontiers of development thinking are
expanding, and the frontiers of our analytical
framework are being increasingly challenged. On the
one hand, the failure of centrally planned economies
has given way to a belief in the extension of global
capitalism. On the other hand, our belief in the
probity of the capitalist system has been shaken by
the recent rash of corporate scandals such as Enron,
Worldcom, Arthur Anderson and others. What does
this imply for the capitalist system remains to be
seen. Is it a case of fixing the problems of governance
through better regulation, as we are witnessing
through the emergence of new corporate laws and
codes of ethics? Or, does it require a change in the
capitalist system itself? The ideological debate is still
open.
Brawley (2003: 195) points to the fact that
almost every author who has tried to describe
globalization processes has emphasized the declining
role of the state in regulating these processes. In such
a context, one of the principal consequences most
agree on is that a political backlash against the impact
of market will develop. However, they disagree on
how the state will respond to new demands for
regulations, let alone whether states can respond
effectively.

attention when we attempt to diagnose globalization

and development problems and prescribe solutions.
ECONOMIC DEVELOPMENT AND THE
SEARCH FOR SOCIAL ETHICS
Industrialized countries are often accused of
achieving their relative affluence at the expense of
developing countries.
Debating whether value
judgments such as this one can be articulated into a
rigorous theory of free trade is a complex task.
Pfister (1999), looking at different theories
(qualitative and quantitative), argues that the answer
to the question Are we living at the expense of the
developing countries? (p. 191) cannot be answered
conclusively.
However, an important question
remains: Why is globalization not improving the lot
of millions of the worlds poor? (Grunberg and
Khan, 2000, p. 1). And, given such a context, what
are the implications of globalization for security
policy? (Lvy, 2002) Ricupero (2002) reminds us
that in todays increasingly interdependent world,
developing countries are more vulnerable than they
were in the past to external disturbances. He also
points out that recent experience in the aftermath of
September 11, 2001 has raised questions, particularly
from developing countries, about the effectiveness of
current multilateral economic arrangements and the
need for reforms. The expanding prosperity propelled
by globalization is not shared by all, and resentment
of the gap between the haves and have-nots can give
rise to violence through fundamentalism (Ali, 2002).
Goods, money, people, ideas and technology are
moving around the world at an unprecedented speed
and scale. As a result, the globalization of business
activities is internationalizing environmental issues,
which are high on the international political agenda.
The difficulties in ratifying the 1997 Kyoto Protocol
on global climate change, the debate on genetically
modified organisms (GMOs) and the call for action
toward a more sustainable path of economic
development illustrate the need to better incorporate
governance issues as part of a new approach to
globalization.
One of the problems in this debate is that
globalization means many things to many people. To
address challenging, systemic issues, we must look at
the role of the key players: nation-states, multilateral
institutions, MNCs and civil society. The key
systemic issues confronting us cannot be reduced
purely to their trade or financial dimensions; they
must be seen in a social and security context. For
Michel Camdessus, former IMF director, the ultimate
threat today is poverty (OECD Observer, 2001).
This point of view, as previously pointed out, is
shared by proponents and opponents of globalization

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The challenge of economic development is

to fashion institutions and policies that can give all
developing countries access to decent living
standards for all segments of their population.
Eliminating poverty and gaining access to basic
resources, education, health care, investment and
industrialized countries markets are all aspects of the
Millennium 2000 Development Project. However,
lessons of development remind us that reaching
common goals is not enough (see Vinod, 1993). In
order for us to breach the development divide, we
must not only fully acknowledge that these issues
require collective action.
We also need to
institutionalize new approaches to the equity, social
responsibility and sustainability of the system. With
regards to sustainable development, we need to focus
on effective policymaking in order for us to make this
concept useful in operational term.
For Miller (2003) our failure to do so has
made such a concept a clich. For the author, if the
necessary systemic changes are politically difficult to
achieve and, even then, only far in the future,
initiatives must be taken in the short and medium
term that do not require radical political and cultural
changes in the prevailing system. When we speak of
reform we must define what problems are to be
addressed, what are the policies to be implemented
and what is the appropriate timeframe for reform,
keeping in mind long-term thinking. More articulated
and country-focused policies are required from the
World Bank and the IMF. There is a huge potential
market in the developing world, but at the current
income level of $2 a day, that potential cannot be
realized. Bringing these countries into the global
system will create a market.

According to the 2003 World Development

Report (World Bank, 2003), three billion people will
be added to the worlds population over the next 50
years and 2.8 billion people today already live on less
than $2 a dayalmost all of them in developing
countries. The report emphasizes that ensuring
economic growth and improved management of the
planets ecosystem requires a reduction in poverty
and inequality at all levels--local, national and
international. For Culpeper (2002), the issues related
to the poverty debate and its theoretical analyses may
be best seen as a set of triangular relationships
between globalization, growth and inequality. For
the author, globalization--defined as openness to
trade and factor movements may induce growth as
well as greater inequality. In his view, increasing
inequality in developing countries is consistent with
the Kuznetsian hypothesis (Kuznets inverted Ushaped growth curve). It is also consistent with
Lewiss (1955) model of growth but it is at odds with
the predictions of more conventional economic
theory based on the Hecksher-Ohlin and StolperSamuelson models, in the context of globalization.
For Culpeper (p.37): If a fundamental rationale of
globalization (and by implication the economic
policies of liberalization) is that it stimulates growth
and reduces poverty, a part of the policy debate has to
involve the relationship between growth and
inequality.
This relationship between growth and
inequality has been studied more recently by scholars
of the new growth theory. Rodrik (1999) argues that
the openness required by globalization is no
guarantee of better growth performance or poverty
reduction. For him, the objectives of multilateral
institutions and policy makers should be to manage
the interface between different, but viable, national
systems, rather than to reduce these differences to
some global common denominator. Considerable
debate remains about the role of globalization in
increasing inequality. Dollar and Kraay (2002), for
example, demonstrate that world income inequality
rose up to 1975 (as measured by the disparity
between the average world income and the income of
the typical person), but has decreased since. The
number of people existing in extreme poverty (on
less than $ 1 per day) has fallen by 200 million since
1980. Nevertheless, they acknowledge that this shift
is largely due to the recent rapid growth of
globalizing China and India. Notwithstanding these
positive trends, it is undeniable that some 1.2 billion
people remain trapped in extreme poverty and there
seems to be greater consensus about the urgency of
addressing poverty and making efforts to better deal
with the marginalization of developing countries in
the search for sustainable development.

GOVERNANCE AND SECURITY ISSUES

With globalization and regionalization,
economic and social policies are becoming
inextricably intertwined with politics. As pointed out
in the previous sections, institutional environment
and governance recently have been recognized as the
key parameters for poverty reduction and sustainable
development. So far, however, the institutions that
could perhaps take on a constructive global role lack
comprehensive powers and have only limited ability
to interfere in the economic, political and ecological
affairs of states. The institutions whose mandate is
regional have geographical limitations and cannot
easily extend their influence to the world scene. Still,
improved functioning of the world system is one of
the most pressing challenges.
For neo-classical growth theorists, good
policies and good institutions embedded in the

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acceptable and responsive way when managing their

businesses and operating worldwide.
The dominant role of MNCs in world trade
and finance is clear, with two thirds of worldwide
activities occurring within firms. In response to
pressure from consumer groups (and from a broader
perspective from civil society), many MNCs have
become socially responsible. They understand today
the need to develop positive social responsibility
images (Maignan and Ralston, 2002). Firms such as
Nike, Aventis, BP and Bayer comply with codes of
conduct dealing with human rights, environmental
and social issues, standards and other matters (all
features of the globalization backlash). MNCs have
an important role to play and must become proactive
in shaping codes of conduct and implementing them
worldwide. But, notwithstanding these positive
examples, being committed to social responsibility
takes support at the top and, as Nelson (2003:69)
points out, numerous studies show that many of those
most responsible for decision-making lack
intercultural sophistication and are unfamiliar with
global business ethics expectations. Furthermore, we
cannot expect MNCs to be socially responsible if
such a goal alters profits, unless the costs and
benefits are clear. Enforceable international
legislation and government action have a role to play.
There are positive moves in that direction. For
example, according to the Howitt Report, adopted in
1999 by the European Parliament, European MNCs
are required to comply with the norms of the
European Union treaty in all their foreign activities.
Such MNCs must take into account emerging
national, regional and multilateral legislation and
adjust their practices accordingly. As they develop
codes of ethics, MNCs will increasingly need to
balance social responsibility goals with the traditional
financial objectives. Todays MNC is far too
powerful, and its impact too profound, to leave social
responsibility to the private actions of shareholders
who are remote from its spheres of operation.
The Organization for Economic Cooperation and Development (OECD) and the UN
have been involved in developing codes of conduct
for MNCs over several decades. In June 2000, the
OECD member governments, along with Argentina,
Brazil and Chile, adopted an updated version of the
OECD Guidelines for Multinational Enterprises. The
revisions were developed in constructive dialogue
with the business community, labour representatives
and NGOs (such as Friends of the Earth, Oxfam and
the Worldlife Foundation).
From the OECDs
viewpoint, this is an important step in addressing
public concerns about globalization. Civil society
has also been involved in the OECD Principles of
Corporate Governance, which were adopted in June

institutional structure of good governance were

necessary conditions for the benefits of globalization
to be realized. Have they been? About 10 years
since the emergence of the debate on governance, we
are still dealing mostly with rhetoric. Agreement
exists on what good governance means, but opinions
vary on how to implement it, from an institutional
and a theoretical perspective. For believers in the
global economy, one reason to feel part of the world
beyond ones national borders is the expansion of a
familiar governance model. It implies the expansion
of liberal democracy and of a set of familiar human
and political rights.
Sustaining actual global capitalism and
moving it closer to ideal global capitalism
(Dunning, 2000) requires action and the building of a
society where the key influence of change must come
from
governments,
multilateral
institutions,
multinational corporations (MNCs) and their
interactions within society. Dunning provides a
framework about the institutions of Global
Capitalism (p. 12). He considers three scenarios for
global capitalism:
(1) the creative destruction solution;
(2) the muddling through or band-aid solution; and
(3) pro-active measures to minimize its costs and
maximize its benefits.
He emphasizes that a more systemic approach to the
organization and governance of international
economic activity is needed to implement the third
scenario. For Dunning, the moral imperatives (p.
34) leading to a moral framework are key to
reconciling global capitalism with multicultural
moral values. As he pointed out, the band-aid
solution of the 1990s did not work. There is a moral
imperative for global capitalism to deal with the
human issues of development.
Development is not only about becoming
more competitive on export markets; it is about
producing and sharing the accumulated wealth
induced by economic growth in an equitable way
among and within countries. Development is about
shared values, with a strong emphasis on social
ethics. Today, values are shifting from the pursuit of
material goals toward post-materialistic priorities
(The Conference Board, 2002), which are rooted in
the individuals aspirations to freedom, self-esteem,
quality of life and a sense of belonging, as first
articulated by Maslow (1970). From a trade and
financial viewpoint, there is a need to re-consider the
policies of the Bretton Woods institutions and other
multilateral organizations. These institutions will
probably face increasing pressure to be more
accountable and representative. Likewise, MNCs are
under tremendous pressure to behave in a socially

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basic services, such as health care, education, law and

order. They also thrive on lingering conflicts such as
those in the Middle East, Afghanistan, Indonesia and
Kashmir. Today, national economic interests and
geopolitical concerns are intertwined with security
issues.
There is debate as to whether terrorism and
poverty are linked. The precise relationship is not
clear, but the point is that poverty, exclusion and a
sense of despair create fertile ground for terrorist
activities. Moreover, technology is increasing the
speed of communication and is linking people and
places at an unprecedented rate, exacerbating the
opportunities for security threats. Security issues are
being globalized and must be addressed in global
economic, political and social terms. The events of
September 11, 2001 have had many implications for
businesses.
While there were other important
contributing factors, including the collapse of
irrational exuberance, for the first time in the
modern era of global integration, the worlds biggest
economies, and many emerging ones, have all stalled
at the same time. As a result, cross-border flows of
goods and capital showed no advance in 2001. After
growing by 12 percent in 2000 and by an average of
7 percent a year throughout the 1990s, global trade
virtually stagnated in 2001. FDI flows also slumped,
from more than $1.3 trillion in 2000 to barely half
that in 2001 (UNCTAD, 2002). Investors from both
the developed and developing world are looking for
high standards of global governance, and their
heightened fears about security may increase the cost
of doing business abroad.
The new sustainable development agenda
embodied in the Millennium Development Goals, the
Monterrey Consensus, NEPAD and other initiatives,
could make significant contribution to global
security, while the drive toward greater global
integration continues.

1999. With regard to the multilateral trading system,

the Seattle 1999 WTO Ministerial Meeting had a
clear lesson more needs to be done to demonstrate
the case for trade liberalization, and consultation with
civil society is a key element (OECD Observer, 2001:
4). Consultation is not a panacea, nor will it obviate
confrontation, but it is a necessary part of the
solution. As Foster (2003, p. 3) puts it: Through
civil society and business hearings where ideas and
proposals could be discussed at length, through
roundtable sessions in which civil society and
business leaders could encounter presidents, finance
ministers, the head of major multilateral
organizations like the World Bank and the IMF,
through opening up high-level sessions of the
Economic and Social Council and the General
Assembly to similar participation, the UN is setting
the stage for much more dynamics encounters of
global socio-economic challenges.
Is there a need for new institutions? Recently,
the OECD and the World Bank established regional
corporate governance round-tables involving civil
society groups. These groups are invited to express
their concerns to other major multilateral institutions
such as the UNCTAD, the UN, and the WTO and
regional institutions. The round-table topics include
corruption, environmental policies, development cooperation,
information
and
communication
technology, biotechnology, and food safety. The
conclusion emerging from theses dialogues is that
creating new institutions is not an appropriate
response to the policy debate. According to the
OECD, new institutions, because they are too
independent and fragmented, will not have the
capacity to respond to the challenges posed to public
management systems by the demands for sustainable
development. However, it does seem that existing
multilateral institutions are under stress when it
comes to facing global problems. They might require
new institutional arrangements or modifications of
goals and processes, and for some of them, a
metamorphosis into a new organization better
equipped to deal with the complexity of todays
world, the speed of economic and financial
transactions, and the need for comprehensive
solutions.
Security issues and the threat of terrorism in
the 21st century, which differs from the past in its
fluidity and global reach, are adding a new dimension
to the question of governance and poverty alleviation.
States with poor governance, ethnic, cultural or
religious tensions, weak economies, and porous
borders are likely to become breeding grounds for
terrorism as a result of the failure of their
governments. As Stern (2001) points out, extremists
thrive when the state is no longer able to provide

CONCLUSION
This article approached globalization and
governance issues with economic development as
the key concern. There seems to be an ambiguity
about the effects of globalization as related to growth
and poverty.
It is by no means clear that
globalization reduces poverty or inequalities in
income distribution. In considering the need for
better governance, the article stressed the new
orientation toward including civil society in the
discussion about policy making, along with MNCs
and international institutions. This is an important
step toward integrating concerns about poverty,
ethics, equity, sustainability and social justice into

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international trade theory and policy-making. Global

governance in the 21st century will be about defining
the interplay between multilateral institutions
(reformed or not), state-governments, MNCs and
civil society. The aims and goals of various actors
are bound to differ on many issues. At the same
time, collective action is required, and consensus
building about shared values and development
objectives must be pursued.
Although the functioning of current
multilateral institutions has serious weaknesses, those
institutions are in place and are trying to reinvent
themselves. National governments are here to stay,
and they have a crucial role to play with regard to the
well-being of their populations. Good government in
the third world is a key pre-requisite for the
eradication of poverty, but it is not enough.
Governments of industrialized countries must work
hand-in-hand with multilateral institutions and civil
society organizations to achieve sustainable
development that benefits those whom globalization
has left behind. Good corporate governance is also a
prerequisite for restoring faith in the international
economic system.
Governments of developing
countries must focus on issues of corruption,
economic management, income polarization, health
epidemics and democracy. As for MNCs, the main
drivers of economics, trade and finance, they will
continue to face pressure to become socially and
environmentally responsible. They can facilitate that
goal by playing a more proactive role.

third sector. Specifically, these include voluntary

and non-profit organizations of many different kinds,
philanthropic institutions, social and political
movements, other forms of social participation and
engagement and the values and cultural patterns
associated with them. The debate about civil society
ultimately is about how culture, market and state
relate to each other. Many civil society organizations
(CSOs) work in international development,
environment, food security, alternative trade, gender
equality, human rights, and conflict prevention.

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1

Sustainable development is defined as development

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___________________________________________
Brigitte Lvy is professor of International Business,
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