Business
Benefits of globalization
> BY ALEXANDRA SIMOU
Copyright © 2002 by The Earth Times. All rights reserved

The recent global economic slowdown has highlighted the problems and inequitable aspects of globalization. What do you say to globalization critics?

Robert D. Hormats: Globalization has produced enormous benefits for very large numbers of people. A mistake critics often make is to blame poverty and income inequality on globalization. But, in the majority of cases, these are more the result of domestic circumstances in individual countries. For years, industrialized countries put too much emphasis on pressing developing countries to open up their capital markets, and paid too little attention to helping them develop the domestic institutions required to use resources more efficiently and to create economic and social progress. Improving the legal and educational systems and social safety nets of developing countries ought to be global priorities to help these countries cope with and take greater advantage of globalization.

Are you tying successful participation in globalization to democracy?

Hormats: Not so much to democracy. I am a great believer in democracy in that it provides the best opportunities for human beings to develop their talents to the fullest extent possible; it tends to respect personal freedoms, nurtures individual creativity and provides a fertile climate for new ideas and new entrepreneurs. I think a country can participate in globalization most effectively by expanding participation in its political, economic and social systems, and countries don't have to be full democracies to achieve this.

Does development assistance help in dealing with the effects of globalization, and should it be made conditional on specific progress?

Hormats: I'm all for substantial amounts of development assistance. The US should do more, especially for the poorest countries. But the key is to use assistance more effectively to support or complement domestic reforms. Money without internal change doesn't help much. It is in the interest of the recipient country, I believe, that aid should be tied to progress. This doesn't mean that donor countries should dictate terms, but there should be standards to ensure that development aid is used efficiently and appropriately, and by accountable institutions. It's unrealistic to ask taxpayers in the industrialized countries to transfer money to developing countries unless they have the confidence that it's going to be used effectively.

Has the perception of globalization changed for World Economic Forum participants after September 11?

Hormats: It is a very good question. Let me just talk about the US because I know it best. I think Americans have come to understand that our interests are increasingly tied to the interests of other countries around the world. We see that poor countries and dysfunctional governments are breeding grounds not just for terrorists but for profound social unrest, for infectious disease, for the narcotics trade. So it's very much in our interest to help overcome poverty, help governments around the world become functional, representative governments able to satisfy the basic needs of their people and provide opportunity to them. I think there's a recognition that you just can't address terrorism without addressing the ferment, the unrest, the frustration in poor countries which give rise to negative feelings about the industrialized world, the West, the United States.

Your company's function is that of an investment bank, a facilitator of capital movement. Has this changed in the wake of September 11? Are companies, on the whole, developing a stronger social conscience?

Hormats: That was actually beginning well before Sept. 11. Here's an example from our point of view: we were very early supporters of the African National Congress in South Africa. We helped to train a lot of their people, we organized exchange programs, seminars on economics and finance, a whole range of things. We considered that a positive contribution to the future of South Africa, but also positive in terms of our relations with the future South Africa. That's an interesting example of what can be done in one's own interest, but in the broader interest as well. We do the same in China, where we work with Chinese students and universities. For years, many corporations have been taking a broader view in terms of addressing social and humanitarian issues in addition to traditional business issues. I think the record is by and large extremely positive. Corporations certainly must have as their goal to make profits, otherwise they would cease to exist, but many also feel that they can make profits in a broader context in which they also deal with social and humanitarian issues in the countries in which they operate and globally. For instance, I am on the advisory board of [UN Secretary General] Kofi Annan's Global Compact that aims to encourage corporations to play a broader role in society. More and more companies are signing on--because they understand that they need to, but also because they see it as an opportunity. In my view, corporations that identify with broader issues will do better over the long run because they'll get recognition, and because the societies in which they operate will be healthier societies.

What does a global player like Goldman Sachs need to see in a developing country in order to invest there?

Hormats: I'd answer it on three levels. One, countries with flourishing social systems are more attractive investments. It's imperative for the world, for humanitarian and economic reasons, to help poor countries develop such systems because they are fundamental to any kind of prosperity. The second point would be long-term political stability. The third point is broader participation in the economic, political and social system. A country doesn't have to be a full democracy or a full market economy, but broader participation means that people have a greater stake in the system. The rule of law to safeguard property and personal rights, transparency to make intelligent investment decisions, and a legal system to support contracts and offer recourse are all very important. China, for example, is getting a lot of investment, it is moving towards greater rule of law, and more people participate in the economic system. In fact, China has probably accomplished over the last 30 years a more rapid improvement in living standards for more people than any country in history. I remember a conversation I had with Deng Xsiao Ping in the early 80s, when he was still a central figure in Chinese politics. I had come to China before, as Kissinger's economic assistant in the early 1970s, and I remarked on how much improvement there had been since then. Deng responded, "Young man, there are a hundred thousand Chinese now studying abroad--just wait till they come back." He understood exactly. He didn't say "wait till there's democracy, wait till there's a market"--he said these are our people, our talent, wait until they come back. That was one of Deng's great legacies. They did come back and were given huge opportunities, key positions, they ran companies, taught, they were doctors, chemists, physicists. If you were to get that sort of emphasis on practical, economically relevant education in other countries, in the Middle East for instance, what a revolution that would be.

You've been a long-term participant in World Economic Forum meetings. How was this year's meeting in New York different from previous meetings in Davos?

Hormats: The ambience in New York was less informal and more frenetic than in Davos, but the discussions were as thoughtful and interesting. There was a geographically narrower participation this year, mostly Americans and Europeans, and I do believe that broader participation would have made for a better meeting. Americans and Europeans had different perspectives by and large, in that Europeans seemed concerned with what they see as American unilateralism, especially after President Bush's 'axis of evil' speech. Americans, on the other hand, believed that the US had become more international since Sept. 11 and had done a good job of mobilizing support for the war against terrorism. The economic outlook differed on the two sides of the Atlantic. Americans were more confident about the prospects of a US economic recovery, while Europeans viewed America's prospects more skeptically. Some Europeans shared the Americans' reservations about the investment climate in Europe and the slow pace of deregulation and market reform in the European Union.

What emerged from the discussions about globalization?

Hormats: The general view was that globalization has been more successful than it has been given credit for. There was also, however, a growing recognition that, even if globalization is not the culprit, serious problems of poverty and income inequality do exist and must be addressed. The point was made that, though companies are not aid agencies, they can be useful sources of advice on policy and implementation for governments and can play a constructive role in countries in which they operate. Forum meetings are not intended to produce decisions. But they do provide an opportunity for improved understanding and the exchange of ideas. This year's meeting was characterized by the realization that businesses must do a better job of explaining what they are doing to address the many concerns of developing countries. Part of the process of coming to grips with globalization is understanding that corporations do play a broader role than just an economic one--and most of the corporations in attendance at the Forum understand that and seek to do a better job.