REGIONALIZATION
AND GLOBALIZATION OF ECONOMIES
By
Gabriel Leandro, MBA
Economist
INTRODUCTION
The insertion of economies into the international order
is supported by external and internal elements. To achieve
that insertion it is essential to attain competitive
capacity of the productive sector, a transparent and
simple foreign trade regime and a clear and aggressive
commercial policy. Accordingly, state policy has been
supported. In other words, reduction of trade protection,
the opening of currency market, deregulation of production
activities, simplification of foreign trade regime,
and the scheduling of negotiation processes and agreements
in which the country must take part, are some of the
aspects encouraged.
The integration to global economy implies greater worldwide
competition besides, it is the best motivation for economic
agents to allocate their resources advantageously, which
will provide to consumers a greater and better variety
of products at competitive prices, and at the same time
it will help them to improve their real income and their
welfare.
On the other hand, enterprises are motivated to renew
their equipment and to broaden their market which brigs
about an expansion of their production plant and a greater
exploitation of economies-of-scale. Economy is affected
by a greater investment flow that comes from the rest
of the countries which results in a greater sustainable
and stable economic growth.
To take full advantage of this opportunity, to enter
the global market through trade opening, will lead to
high salaries, to an increase of profits and to the
improvement of tax revenues.
To take advantage of these opportunities depends more
on the competitive capacity of the enterprises than
on the government support, exports subsidies, tax-exemption,
subsidized credits, protectionism, and exchange policy
management.
All these can be achieve through an increase in the
efficiency of production factors which depend on the
quality of raw-material handled such as technology and
human resources. This insertion also demands from enterprises
big efforts to adjust quality standards, to develop
new products, to modify their customer service system,
to improve their products and above all to learn the
rules of the opening process.
This challenge can be faced by all countries if they
depend at great extend on the strength of their economies
and on the clarity of their objectives and not on the
possession of production factors or in the size of their
economies.
A
REGIONAL INTEGRATION WITH SHARED BENEFITS
Lately, the international atmosphere has been changing
to such an extent that all the long term and short term
plans are not significant anymore. Nowadays the market
laws are set with none apparent opponent.
In this stage there are two fundamental processes: globalization
and regionalization. Globalization represents the universalization
of the market laws in all the countries, Globalization
represents the universalization of the market laws in
all the countries, I refer to the invisible hand in
which the market turns into a global market whose principles
are related to social work division.
Market is considered free up to the borders of the bloc
of countries, beyond the bloc even when the market works
based on the same principles, it is not the same. That’s
why all the products that come from abroad face difficulties
due to the protectionist barriers erected by the market
inside its domains.
Some believe that the integration of countries in blocs
is due to political and economic reasons. The bloc formation
increases negotiation capacity in areas of greater development
and protection in relation to other opponent blocs.
Integration implies to pursue greater efficiency in
the allocation of resources to reach comparative advantages.
Bloc formation is the result of multipolarity in the
northern industrial world where disputes and alliances
to gain supremacy of the market, production, finances,
technology, intraregional politics, take place. To these
countries, this is the way to be immersed in the first
world.
BLOCS
AND THE FREE TRADE
Nowadays free trade blocs have been formed: European
Economic Community (EEC), recent industrialized Asian
countries have formed the oriental or pacific bloc and
finally the NAFTA bloc. All of them are characterized
by their protectionism.
There are some tools to control these trade blocs, such
as high tariffs and quotas favouring the products manufactured
by them.
INTEGRATION
AS AN ECONOMIC CONCEPT
Integration deserves more attention to be considered
as an alternative to development and not just like a
common tool for economic growth. For this reason the
concept must be defined and understood as a social relation
to which business-relations are subordinated.
Integration implies conscious approach among individuals
or groups of other countries who are urged by common
problems that can be faced and then get better results
through collective effort. This is not only about business-relations
but also social relations, in wider sense.
WHAT
IS THE PURPOSE OF SOCIAL INTEGRATION?
The most important aspect of integration resides in
the solution of big economic, financial and technological
problems, in the reinforcement of peaceful political
relations, in dealing with common social imbalances,
in the solution of unemployment and finally in the defence
of common interests. This is a process that implies
a variety of interrelations and social interests that
cannot be limited to the commercial field, that’s
why social integration brings about anxieties to different
social groups.
This implies to define integration as a more significant
process, as a social process alternative to development.
It is essential to emphasized that for integration to
take place there must be a goal in common that motivates
a collective approach. So that different groups of people
have access to material and spiritual goods to satisfy
their needs.
ECONOMIC
AND SOCIAL HOMOGENEITY
This economic and social homogeneity refers to the integration
of some nations where the economic European interests
of the European capitals are disseminated. These European
capitals are relatively homogeneous and they influence
to great extent integration in order to facilitate free
capital flows and to mobilize the skilled and semi-skilled
workforce. To Europeans it is very common to speak different
languages, even three languages. Employees are very
competitive and they are able to move around the whole
community.
THE
NEW INTEGRATION
REGIONAL INTEGRATION OF WORK
In
the developing countries there is a disintegrated production
structure. Industry in general, as well as agriculture,
is supplied by imported raw material. This is due to
certain factors such as the dependence on foreign technology
and the lack of vertical and horizontal integration
of industrial and agrarian countries.
A productive trend characterized by the disintegration
of industry and agriculture remains, which explains
the disintegration of the countryside and the city.
There is an economic and social stagnation and deterioration
because this productive trend brings about accelerated
destruction of the natural environment and work force
exploitation resulting in systematic deterioration of
the quality of life of population.
Regional integration attempts to idealize a common market
based on the urban area due to the proportion of population
with consumption capacity that resides in such area
and at the same time, it attempts to exclude big rural
and informal conglomerates that represent majority in
that area.
The rural market is not appealing because rural population
have needs but not incomes to satisfy them. That is
why there is no motivation to the majority of the population
because it is not an alternative to solve their main
problems.
It is convenient to implement a social order that relies
on a regional integration of work. We refer to a social
order able to link agriculture with industry to achieve
the integration of population to produce goods and services
for the local or foreign market. In other words it would
be a modality that facilitates the merger of regional
capitals or the optimal capacity exploitation.
It is very expensive for a country to quickly develop
its own industrial park with great production capacity
because it may lack enough capital to venture in new
levels of production and competitiveness. The regional
integration of work is able to develop a market whose
potential facilitates to lay the basis for capital accumulation
based on foreign investments.
Capital Centralization implies to mobilize the dispersed
savings to make investment funds. Regional integration
of work includes production, trade and financial processes.
Regional Integration of work is incompatible to work
division because integration means to bring together
countries into one bloc and division means to separate
nations. Integration is the way in which countries will
be able to share advantages.
By means of regional integration of work, countries
as a group will be able to negotiate their export supply
and to strongly penetrate the international market,
to negotiate international credit and finally, to develop
production infrastructure of regional magnitude. It
is expected that countries achieve shared benefits with
the rest of the world.
SHARED
BENEFITS
Shared benefits are the result of the regional integration
principle, in the sense that countries integrate their
economies to take more advantage of natural resources,
to allocate capital and human resources more efficiently
and to broaden the market. In this process, the benefits
resulted from the exploitation of available resources
are shared.
Shared benefits differ from the principle of compared
advantages because the latter are consistent with the
principle of work division which state that the stronger
takes advantage of the weaker.
This principle has been rejected and substituted by
the principle of regional integration of work in order
to share benefits produced as a group and not to fight
or compete in a disloyal way for these benefits.
KEY
TOOLS TO ACHIEVE REGIONAL INTEGRATION OF WORK:
THE MARKET:
The market will be in charge of providing information
about prices, costs, consumption, and technological
changes, but also the state will play a very important
role. In a commercial-.association, supply and demand
are interdependent, but in a less developed market,
demand can be independent of supply depending on the
accessibility to consumer’s means of production.
In the developed market, where land produces for market
and all the urban work force supply is included in the
labour-market, every consumer-good is considered merchandise.
In this situation interdependency between supply and
demand is absolute providing life to the market.
INCOME
DISTRIBUTION
Supply and demand constitute a team in commercial activities
so neither the first nor the latter can be separated,
in other words every producer depends inexorably on
consumer behavior and vice versa. If the consumer is
facing bankruptcy, he transmits such condition to the
producer. For the market to respond to dynamics of offerers
of these countries, it is essential that the population
increase their incomes.
THE
CUSTOMS-UNION
The Customs Union is one of the vital tools that favored
regional integration of work. This is the key to accelerate
the market.
The acceleration of the market will bring about the
diversification of global supply of goods and services,
demand will be more elastic, monopolistic and oligopolistic
control of the market will be reduced and quality will
be improve which at the same time will increase offerers
competitiveness and will stabilize prices.
Summarizing, the customs union can be conceived as a
free trade are to the rest of the world, as convenient
to regional interests.
MONETARY
SYSTEM
It is essential to consider the monetary system as the
one that makes possible the exchange relations, with
all the difficulties that this implies.
The situation demands an efficient monetary system,
which is the result of a multinational agreement. This
may bring about a global currency standard. If this
happens, the world would enjoy an increase of trade,
financial stability, greater investments in the area
and cost stability.
A monetary system would homogenize the remuneration
of all production factors in an atmosphere of competitiveness
and social welfare.
REGIONALIZATION
SCENARIO
The new in world wide order is characterized by two
fundamental economic processes: globalization and regionalization.
There are two types of regionalization: one that is
offensive and erects protectionist barriers to strengthen
economies that link their resources to conquer international
markets and the defensive that erects protectionist
barriers for certain industries to survive and some
activities that would not resist free international
competition.
The word “regionalization” has different
meanings. One of them is as an economic process in which
trade and investment of a specific region grow faster
than trade and investment in the rest of the world.
The second meaning of regionalization is related to
politics. Regionalization consists of groups or blocs
whose goal is to reduce intra-regional protectionist
barriers to trade and investment. The raising of such
barriers is result of political decisions.
One of these decisions is to implement an institutional
framework. The point is to explain the purposes of these
political decisions. These purposes may be political
or economic. The formation of a bloc that increases
the negotiation capacity in areas of greater development
in relation to other opponent blocs may be the consequence
of a protectionist purpose which, in the best case scenario,
can be temporary while international competition for
a specific activity is reinforced and developed, like
in the case of a new industry.
GLOBALIZATION
OUTLINES
Regionalization usually gives great importance to commercial
trade, but the growing importance of investment flows
sometimes is ignored. Direct foreign investment and
capital flows, technology, training and trade as part
of it, have became the main tools to integrate a great
number of countries into the international economy.
Nowadays, there is a tripolar approach. There is a trade
bloc constituted by Japan, Canadian Bloc and United
States and the European Economic Area, where complex
processes of globalization take place. In 1989, the
investment that the members of this trade bloc engaged
in each other was about half of foreign investment of
the world.
This huge agglutination is the result of technological
competition, international intra-industrial production,
privatization and deregulation of services and its opening
to foreign capital. Regionalization processes raise
fears of an eventual erection of protectionist barriers
for this reason, transnational corporations protect
themselves by investing behind these barriers in other
words, investing in the trade bloc.
One may ask what factors encourage direct foreign investment
flows in this trade bloc. In the Economic European Area,
the transnationals of this community have a strategy
to reach size required to compete with American and
Japanese transnational corporations.
In the European Community the introduction of the single
market has brought about an unexpected increase of intra-communitarian
direct foreign investments. Consequently, there is a
growing regionalization of industries and services of
the community which at the same time has become a trend
of merging and purchasing enterprises. Some other enterprises
have specialized themselves, as the case of chemical
industry. All these enterprise are able to compete with
American and Japanese subsidiaries in the single market.
The new strategy that deals with internationalization
in the European Union, as in United States and Asia
through the implementation of a regionalized and independent
investment networks centralized in these areas.
This kind of regionally centralized networks have different
goals such as market accessibility preventing protectionism
which threatens Japanese exports. Another aim is to
take full advantage of the opportunity to export from
the community to the rest of the world thus, reducing
Japanese trade balance surplus which is frequently criticized.
The strong competition between transnational corporations
that operates in industries that invest in investigation
and development tools such as electronics, computers
and communication equipment, represents one of the globalization
factors of direct investment, mainly in the trade bloc.
Expenditure on investment is quickly increasing in huge
proportions for this reason is essential to globalize
sales to amortize the excessive expenses of such activity.
This goal is not easy to reach due to the decrease of
technological innovations.
The importance of investigation and development intensifies
the competition for markets which explains the increasing
merger and purchases of enterprises by subsidiaries
or even by transnationals themselves. This kind of procedures
takes place in and out of the countries.
It is important to highlight that investigation does
not tend to be centralized exclusively in the country
where corporations were originated. This phenomenon
is the result of the new communication technologies
which make possible an instant information flow from
any place in the world.
According to all the aspects previously discussed, this
information seeks to support the hypothesis that establishes
that there isn’t any irreconcilable opposition
between regionalization and globalization since the
current changes in worldwide economy and politics are
results of both processes.
EVOLUTION
OF COSTA RICAN FOREIGN TRADE
In the economic and trade field we are experiencing
two main phenomena of great magnitude that will affect
international trade all around world. In the first place,
we have the conclusion of the most m ambitious process
of multilateral negotiation, Uruguay Round, which will
set the future rules for foreign trade. In second place,
the consolidation of large trade and economic blocs
in Europe, the Pacific and America which at the same
time are engaged in worldwide economic globalization
processes.
The world Trade Organization (WTO) will represent the
new international trade axis. The establishment of WTO
is very important to the all the nations specially the
small ones like Costa Rica, which depend on the implementation
of an strong institutional order consolidated to defend
the interests of stronger trade partners who have greater
economic power.
Soon, we will adopt an international binding norm or
body of rules for dispute resolution, subsidies and
dumping which is very important to small developing
countries that do not have methods to defend their interests
and also lack international norms to turn them away
from protectionism.
Costa Rica has directly participated in negotiation
of agriculture and market accessibility. This country
has also kept its eye on the evolution of the negotiation
group’s challenge. Costa Rica has sought for a
greater economic linkage with other countries to eliminate
all the barriers to international trade.
Negotiations with USA have been carried out to achieve
such expectations. We must also carry out negotiations
in the area of textiles, always attempting to attain
a continual access to the American market. With Mexico
and along with the rest of the Centro American countries,
we have signed a multilateral agreement which allows
us to advance in market accessibility negotiations.
The NAFTA and Uruguay round imply a rearrangement of
the commercial relations that determine the reorganization
of international trade in which Costa Rica must participate.
This reorganization will bring about positive aspects
to the country because a new opportunity to increase
country’ wealth is rising, however; it is possible
to face some negative consequences due to a deviation
of investment and trade that an agreement similar to
the NAFTA’s quality and style can lead to. For
this reason, it is essential for countries to become
part of the bloc.
Costa Rica must participate as an active partner in
this bloc so that all the efforts that have been made
to reform economy; find the required complement to have
a market as huge as the NAFTA. To participate in this
trade bloc is crucial to Costa Rica and at the same
time to the NAFTA it does not represent any risk because
of the size of Costa Rican economy.
In the bilateral field, Costa Rica has maintained conversations
with other Latin-American countries such as Venezuela,
Colombia and especially with Chile and with some other
countries like Jamaica, Argentina, Brazil, and Paraguay
and particularly with Canada.
