Begegnungen
Schriftenreihe des Europa Institutes Budapest, Band 12:87–97.
ATTILA CHIKÁN
Globalisation and the Co-ordination of Economic Activities*
The paper deals with globalisation in three groups of topics. It opens with a summary of concepts and content of the phenomenon itself, in the second part the characteristics and processes of globalisation are discussed, finally, the third part is devoted to some thoughts on Hungary’s linkages to globalisation. In a brief paper like the present one any discussion of a phenomenon as complex as globalisation can only be done in “outline” (and, needless to say: with inaccuracies of concept and structure), therefore the reader is kindly requested to be lenient. At the same time I presume that it would not be without interest to approach the topic from the angle taken up by the paper, namely from that of the co-ordination mechanisms of the economy, of business world.
On the concept and content of globalisation
There is a plethora of definitions of globalisation, and several of them are acceptable. It is a phenomenon which can be approached from more than one point, thus it has not only one definition reflecting its essential features, and validly applicable in a given approach. In this paper I restrict my analysis to the globalisation of the economy, and approach it only from the angle of the business world. (I wish to stress that naturally I accept the validity and importance of other approaches as well.) Simply put in this approach the globalisation of the economy means that the agents of the economy assess opportunities emerging all over the world, when they make decision, when they consider their potential investments, consumers and possibilities of the acquisition of resources. This is a loose definition, but as hopefully it will be seen, it is suited as a basis of meaningful thoughts on globalisation.
Before turning to economic globalisation, it is important to note that globalisation is not at all specific to this particular sphere, moreover, this sphere cannot even be considered as a pioneering one. The globalisation of culture or sports, for instance, may be considered a far older one: Beethoven is played all over the world since centuries and the rules of sports are generally accepted world-wide. The globalisation of science is not of recent date either. (It is worth mentioning, that I do not know of any analysis that would thoroughly discuss the mutual influence of these processes.) As far as I am concerned, this time I would definitely limit the sphere of my investigations to economic globalisation, but I wish to call attention to the fact that even the economic processes are not free of these mutual effects (one should only remember the global advertisement, and hence business force of certain cultural events, or, of sports). Therefore I am of the view, and I wish to prove it, that the lessons of what I want to say, go beyond the economic sphere.
Why does a global economy emerge, why are we currently up to the eyes in the process of globalisation? It is the inherent aspiration of capital, which is an immanent mobilising factor of the economy, to find its optimal distribution among the possible investments (which happens, according to the basic laws of economic science, when each of its constituent units is equally effective). To achieve and maintain this distribution, capital needs great mobility to be able to adjust to the constantly changing conditions. It tries to overcome or remove everything that may be in the way of that mobility, – and national boundaries are certainly very important barriers.
In order to comprehend how and through what mechanisms capital is able to move towards an allocation of maximal effectivity, it is expedient to go back as far as Adam Smith, the father of economic science. He was the first to expound consistently (Smith, 1992) in the 18th century the significance of the social division of labour from the angle of efficiency, stressing that specialisation of economic agents is a basic factor of economic efficiency, which necessarily goes together with the exchange of the (results) of activities, based on it. Specialisation and the exchange of activities jointly lead to a need for co-ordinating mechanisms which constitute a framework for the processes of exchange.
Co-ordinating mechanisms
The mechanisms of co-ordination have a literature of sizeable quantity and value. As far as I am concerned, I still use most willingly the train of thought of János Kornai (1983). Kornai says that four basic mechanisms of social co-ordination (and of the economy within it) can be distinguished, such as: the market, the bureaucratic, the ethical and the aggressive co-ordination. Kornai stresses that we have not yet seen a society where there would be only one single co-ordinating mechanism (thus we always meet some kind of combination of the mechanisms mentioned above), and at the same time, there is always a dominant co-ordinating mechanism in any society.
Apparently the twentieth century has brought about the victory of market co-ordination. Recently a special issue of Fortune magazine analysing the future of “business” was published – it calls this century to be the “century of capitalism”. In that special issue Paul Krugman, who is currently one of the most influential economists in “serious” as well as “popular” literature, explains (Krugman, 2000), that (”adapting” his words for the terminology of the current paper) it has been ultimately proved that the market is the most effective of all the co-ordinating mechanisms one may envisage, and all attempts wishing to deviate from it have failed. Naturally, we do not base our faith in the efficiency of market co-ordination only on Krugman’s explanation: it can be supported by empirical, as well as theoretical arguments. Our major empirical argument is derived from the process of transition in the Central and East European countries, during the course of which an almost incredible improvement of efficiency has set in all over the region. With that statement I do not assess transition as a whole: a comprehensive analysis of the consequences cannot be the topic of the current paper. However, it is hardly doubted by anyone that we have experienced a dramatic growth of economic efficiency, either if we look at the speed of structural transformation, the marketability of products, or at productivity. The logic of the general argumentation for the efficiency of market co-ordination is summarised in the following items (Chikán, 1997):
1) It is market co-ordination, which, of all the possible alternatives, is most capable of infusing dynamism into society. Competition, a basic means of market co-ordination, creates pressure for constant adjustment to consumer demand, which leads to the necessity for constant innovation, which, through the proper functioning of the economy leads to the rapid growth of social well-being.
2) Another extremely important characteristic of market co-ordination is that it is capable of creating transitions among the different spheres of the economy, while leaving their relative autonomy intact. It is capable of creating contacts between the economy and other spheres of existence, it is capable of mediating the consumer’s value judgement in respect of education, health care, or art, without directly interfering into their special internal affairs, hence it helps produce a harmonious social structure.
3) Finally, it is a very important characteristic of market mechanism, that it has several features having positive impact on the society: it creates the freedom of making decisions by participants, it evolves and maintains the framework of honest competition, it builds on the equal standing of agents. These are values which people generally consider as important ones.
Naturally, the implementation and efficiency of market co-ordination have their limitations too. There are highly important values in society (such as the idea of the equality of opportunities), which cannot be properly handled by the tools of market co-ordination. Therefore I am of the view, in contrast to certain radical economists, that other co-ordinating mechanisms (first of all the other one of long-term stability, namely bureaucratic co-ordination, based mainly on the role of the state) are also needed, not only because of market failures, but because of the complexity of the value structure of the society. In view of the main topic of the present writing no detailed discussion of this issue is necessary here.
The duality and the institutional system of global co-ordination
Market co-ordination has been present in human history for many centuries; it is not a new phenomenon. But it is worth considering what are the causes of its expansion and of its breaking through national boundaries during the past decades and becoming a global one. Naturally a chain of complex interrelationships (approachable from many sides) may have led here, of which I would mention two factors I consider the most important ones from the angle of the business world (though their significance goes beyond the business world). The explosive expansion of consumer demands (general growth and the broadening of scope) has created the need for an increasingly extensive internationalisation of production and consumption, while technical development (the development of IT and logistics first and foremost) has created the possibility of the global economy.
The internationalisation of market co-ordination and its ultimate globalisation means the doubling of the working logic of the world and of the co-ordination of global issues. Until recently the issue of co-ordination of the world was based mainly on the logic of bureaucratic co-ordination. Its main carriers since the 19th century have been the nation-states, which have set up international organisations based on political rationality. This resulted in the extension of the logic-of-their-own operational rationality. Naturally considerations of the market and of the economy have been markedly present in this bureaucratic and political logic, but only as external factors to be considered. The main agent of operation based on nation-states and on bureaucratic co-ordination is the vote-maximizing politician. This operational logic fundamentally differs from the main agent of the market co-ordination, who is the profit-maximizing businessman (with multi- and trans-national companies as his organisational background), who tries to govern the functioning of the society on the basis of economic and business rationality.
The functioning of today’s world is determined by this duality of political and economic rationality. No one can predict future development, all the less since this duality is a rather new phenomenon by historical dimensions. However, it is sure that the dominance of politics (bureaucratic co-ordination), experienced for centuries, has been questioned in the handling of international issues, and it would be difficult to say which of the two kinds of co-ordinating mechanisms actually governs the world today.
Some remarks are necessary in relation to the current situation. It is very interesting that a number of important similarities can be found between the two, basically different kinds of logic. One of them, making their harmonization particularly difficult, is that both types of main actors, the vote-maximising politician and the profit-maximising businessman move along a path they are forced to take by their preferences. It is easy to comprehend theoretically as well as empirically that if they do not carry on with their maximising behaviour corresponding to their own logic, they are lost. (Here I wish to note that when I speak about maximisation, I do not follow the narrow view of the basic textbooks and the basic critics. Limiting conditions may be considered when we wish to express maximum in concrete form, or even mathematically – in other words, a lot of compromises may be linked to one theoretical maximum. Yet it remains a fact that if the income of a businessman is not larger, and lastingly so, than his expenses and that of his competitors have; and if a politician does not collect more votes than his rivals, then “game is over”, as it is often said.)
Further on, it is an important similarity that society expresses such ethical expectations towards market as well as bureaucratic co-ordination and their implementation which guide us over to the realm of ethical co-ordination. In principle and at a first glance these ethical expectations are alien to the profit-maximising businessman as well as to the vote-maximising politician, as they limit the autonomous efficiency of these people. I shall come back to this topic later in the paper.
Finally, it is important to note that both types of actors are prone to aggression. Kornai says that there is no vacuum of co-ordination in society: wherever the three other mechanisms do not work, and wherever some opportunity opens up, there aggressive co-ordination would appear. In fact it clearly derives from inclinations towards maximisation; as wherever one of the other co-ordinating mechanisms does not function, there apparently a new space seems to open up for the politician, or for the businessman (since some limitation, or regulation has disappeared), where he has to penetrate, otherwise his competitors will do it.
Whether the operational logic of the world thus doubled takes the development of mankind into a good direction is an open question as yet. One thing is sure: we cannot be very proud of the performance of the nation-state and bureaucratic co-ordination based on it, which has dominated the world by implementing an ever more sophisticated system of institutions during the past one, or one and half centuries. In its spirit and within its framework naturally a lot of good happened: schooling systems have been developed, culture and knowledge have become internationalised, social and health care have been expanded, and the list could be continued. But (besides the current efficiency of these beneficent developments being increasingly challenged) wars acquiring territory and the variegated forms of the oppression of nationalities and minorities were also based on the logic of the nation-state, together with the limitation of basic human rights. I do not think that the expansion of market co-ordination would by itself neutralise, or solve the problems indicated above, but at least it is going to seek new answers to them by shifting the issues to a different plane in many respects.
It is extremely interesting to see how the institutional system of globalisation changes. Naturally the main actors are the nation-states on the one hand, whereas there are the multi-national companies on the other. It is a special and important condition that so far institutions for the globalisation of bureaucratic, as well as market co-ordination have been set up by the nation-states, in keeping with the rules of political logic. The international organisation of the multi-national companies is still to be created on the institutional level. The beginnings are there: such groups of companies and strategic alliances have been established which dominate over a branch of industry (or even a region). This is of course not the institutional system of market co-ordination – moreover, since elements restricting competition can (also) be found in them, often they are against the market. A global co-ordination institution based on the activity of the business sphere is not yet “invented” and it is a question whether it is possible at all. At any rate, state-established interstate organisations try to regulate market co-ordination today: WTO, IMF and the World Bank, for example, intending to influence the trade and monetary regulation of the world (and in a sense fiscal policy as well) function much more along the political, than economic logic – not mentioning the economic organisations of UNO. Not much of bravery is needed to stating that these organisations do not represent a suitable framework for the dissolution of the contradictions between political and economic logic, as it is clearly demonstrated by their ever more obvious functional disturbances.
Those international organisations that help bring together managers personally, have a special role and may have even more in the future. The international professional organisations (in marketing, prochasing, etc) may be mentioned as a formal framework, which do not only carry on with the exchange of ideas in respect of professional, ethical and organisational issues of a profession, but also play the role of defining norms directly as well as indirectly. I may state on the basis of personal experience that they forge ahead at high speed, if measured by historical dimensions, towards regulating business life. These organisations do not directly make decisions on business or regulation, but the broad ability for co-operation of their members and the skills accumulated and activated in them represent a significant force influencing behaviour of business actors.
The appearance of the institutions of the civil sphere is an extremely important element in co-ordination. These institutions are mostly dissatisfied with both types of co-ordination, namely with the market as well as with the role played by the state. These organisations represent an extremely heterogeneous structure: representatives of environmentalists, as well as supporters of the poor trade unions, unionists groups of highbrow intellectuals and of all kinds of views are represented. Their becoming active, and what is more, their globalisation has been the phenomenon of the past one or two decades, and it definitely adds a new colour to the handling of the issue of economic co-ordination. The “Battle of Seattle”, (the first major clash between the organisations of global regulation and the civil organisations grown to have global significance), was soon followed by the “battles” of Davos, and most recently of Prague. (As the demonstrations in Seattle, where I was the head of the Hungarian delegation, practically hindered the opening of the sessions of WTO, I spent most of the first day, together with other members of the Hungarian delegation, on talking to the demonstrators. Hence I can say on the basis of my own experience that these people mostly expressed meaningful things, though their demands moved along a broad scale, right from a demand for the stoppage of the clear-cut of Canadian forests, to the solution of human rights problems in China. What was common among them was that they did not much know what WTO was, against which they had been demonstrating.) Thus the roots of global co-operation among diverse groups are quite clear and meaningful, however, no common goal is worded, at least for the time being, which could be taken up for the sake of something and not against something (mainly against the existing institutional system). As I myself consider the civil sphere in many respects to be the carrier of ethical co-ordination (and I think I am not alone with it), I regard the phenomenon as remarkable and I am of the view that the importance of the role of these organisations in global co-ordination is going to grow.
The heterogeneity of organisations interested in globalism raises the issue: how far can globalisation itself be considered global? I am of the view that even economic globalisation in its narrow sense is of quite a different extent in certain areas, most prominently in various markets, and that is an important cause of part of the recent international crises. It is the globalisation of the financial sphere that has been completed most rapidly and profoundly in international economy, quite possibly causing to a large extent the significantly larger returns of financial investments than the real ones during the past decades. I agree with those who are of the view that there is a financial bubble floating on top of the real sphere, which causes various kinds of disturbances while it is moving around in the world. The financial and real processes are being separated from each other, and it causes financial problems even at places where the functioning of the real sphere would not justify it (according to experts last year’s Indonesian crisis is a textbook example to it). The real sphere has progressed a great deal towards globalisation. Here, in addition to the development of information technology, the development of logistics has been of major significance, but this sphere lags behind the financial one in respect of the extent of its globalisation (actually it could hardly be otherwise: material processes cannot compete with the practically unlimited mobility of money). The Globalisation of the labour market has, understandably, begun only to a rather humble extent, and with the exception of some market segments it cannot be expected to grow within the foreseeable future. It can be regarded natural partly because labour has a far smaller mobility even than goods have, and partly because the political sphere and bureaucratic co-ordination have a significantly bigger role in this sphere. Finally, it should be mentioned, that the explosive globalisation of information represents a new and extremely significant challenge to market as well as to bureaucratic co-ordination. It fundamentally changes the internal operation of the other parts of the market and their interrelationships as well. As it is commonly known, this explosion is the phenomenon of the present, with consequences practically impossible to assess at the moment.
What can be expected of globalisation?
When we wish to summarise the assessment of globalisation, it is expedient to set out from the fact that nothing, including globalisation, is good, or bad in itself: it has its favourable as well as adverse effects. Certain phenomena suggest, whether we like it or not, that human needs are becoming increasingly uniform, in close interrelationship with the phenomenon of globalisation. Today exactly the same products are on sale at all the airports of the world, the same pens are on display at the stationary shops, children demand the same soft drinks, the same TV-programmes are successful and the same hits are being hummed (or shouted) everywhere. And the satisfaction of demands is also becoming increasingly uniform: I myself do not quite precisely understand why Europe has adapted the American culture of shopping malls, but I do understand whyexactly the same courses have to be taken up at every business school of the world if somebody wants to obtain an MBA degree. Apparently a general consensus, for many of elements of human life, is about to emerge, which globally asserts itself, and if we wish to be optimistic (and why not) then we may believe in that local (national) cultures would be, and may be based on it, and can dissolve dead boring uniformity. There are signs to it in the cultural life of the more developed countries, though their presence is not always convincing, but this issue also does not fall into the main thrust of the present paper.
Nevertheless, globalisation, with its logic, may offer an answer of historical dimensions to some major problems of mankind, even to problems we link to the market and to others we have not been able to manage within the framework of nation-states. To dwell upon nostalgia, or to curse globalisation would lead nowhere: whatever we do, people will never again spend long winter evenings in the spinners’ house, singing songs to one another; or, if they do so, they would do it out of choice and not because there are no alternatives. The responses we are in quest of, may, in my view, primarily be found in moving towards a society based on knowledge. It would teach us to more profoundly respect man and human value, including the ability to harmonise one’s own culture with foreign ones. Ethical co-ordination may acquire a space far bigger than it currently has on the basis of these values, in the regulation of human society, including the economy, allowing for the co-ordination of such factors as well, with which the two forces, the market and the state, currently struggling for dominance, are unable to cope.
Globalisation and Hungary
It is expedient to start the discussion of the relationship between globalisation and the Hungarian economy by saying that, in my view, Hungary is by and large among those countries which enjoy a positive balance of the damages and benefits of globalisation. In addition I assume that this situation can be maintained. In this respect systemic change has taken place at a definitely favourable period of time (if such a statement has any meaning in history): it had taken place at a time when the world economy was in the phase of strongly opening up, in the upward progressing period of globalisation, hence its receptivity towards the countries newly introducing market economy was bigger than usual. (Even in this respect it is not accidental that far more sceptical voices can be heard today in relation to our integration into the world market and the EU.)
In principle this statement is valid for each of the so-called economies in transition – among them Hungary had access to particularly favourable opportunities, as it had attracted foreign capital significantly more than the average, due to three main reasons. One is a relative social and economic stability, the other one is the well-trained and relatively cheap labour, and the third one is that foreign investors and managers regard Hungary to be a “liveable” place, where they come to work with (relative) pleasure.
The intensive participation of foreign capital in the Hungarian economic/ social transition has greatly facilitated our joining the global economy, which is of inestimable significance for the future of the country (even together with its undoubtedly existing problematic features). Naturally it is not indifferent under what concrete conditions that linking up takes place, and it is important to assess its effects realistically. I wish to call attention only to a few significant theses, the consideration of which is fundamental to the participants (and particularly the managers) of the process of globalisation.
It is highly significant to understand that globalisation is inevitably going to change also the domestic rules of the game, and that the global norms, and standards are to be applied internally as well. Thus its effects are not limited to companies, individuals and organisations present in the international market (too), but all of us have to reckon with them. Similarly, it is important that the country should not split into two, either regionally, or in respect of technical development, or material wellbeing, into economic actors participating in the global economy, and not participating in it respectively. And it is also equally important not to lose our international attractiveness – we should preserve it in the process of globalisation, in the cultural as well as economic sphere.
Having said all this, the question arises: What can be done in the interest of effectively joining global economy and of properly considering the above warnings?
Perhaps what is most important is that globalisation can be favourably managed only in countries which have a balanced and consciously implemented social and economic policy. Over-enthusiasm as well as nostalgia for the past should be avoided, and particularly the introduction convulsions into the functioning of the economy, into our political and economic relationship to globalisation: it would project us as an unreliable partner, which is severely punished by the global economy. This is not an easy task at a period when clear post-transition values are still missing, which would demand an efficient co-operation of the forces of politics, science, culture and the economy, based on mutual respect and reinforcement.
In the long run it is of basic significance that linkages with the global economy should be developed as organically as possible. This requires the activation of a multi-dimensional system of activities. The implementation of reforms is making, for instance, the system of Hungarian energy supply, or health care Euro-compatible, we should enhance the legal security in the economy; the infrastructure should be developed, – unfortunately there are still many things in a state which is regarded at least strange by the developed world. For instance, a precondition of organic linkages is the development of the system of foreign representation. We have to be present at the international events of diplomacy, business, culture and science (I must say that in my view this is currently realised with a very low intensity). As far as I am concerned, I would also consider it right to extend the number of Hungarian representations abroad (of the economy, of tourism, culture, etc.)
Last but not the least we should help all such developments that would enhance the adaptability and flexibility of the country. I would mention education and training in the first place. I am deeply convinced about the importance of the idea of the knowledge-based society. A country that takes more effective steps in this respect may almost without any doubt become a winner of globalisation. An environment favourable to the competitiveness of enterprises is to me a technical precondition to survival in the global economy. Further on, I consider the development of the civil sphere very important. Earlier I have referred to the role of this sphere played in globalisation. Ten years, of course are a short time in history, but we are still very far away from the (possibly somewhat illusory) image in this area (too), which we had sketched for ourselves at the time of systemic change. A well-developed civil sphere could be instrumental in offering the social net which would protect people from the numerous unwanted effects of globalisation (much more than the protective arms of the state).
One may rightly ask to whom I should assign the above tasks. I think that such a train of thought may be useful by itself, without having a concrete programme of action attached to it. But I wish to stress: I am convinced that such a programme can be drawn up and can be implemented in Hungary today. Remaining within the logical network of my present writing, what is needed to its realisation is an effective ensemble of the market, state and ethical co-ordinations. To put it in a technocratic way: it means the co-operation of the actors of the economic, scientific and cultural spheres, based on the mutual respect and consideration of the others’ values and operational principles.
I wish to close the topic of globalisation fittingly, with a summary in American style: globalisation is inevitable, and it should not be regarded as a disaster but as an opportunity. The history of mankind is a series of challenges – there have always been winners and losers. This is so and this is going to be so in connection with the challenge, called globalisation today. In my view we have a good chance of joining the winners.
References
1. Kornai, János (1983), Bürokratikus és piaci koordináció. (Bureaucratic and Market Co-ordination). Közgazdasági Szemle, 1983. No. 3.
2. Krugman, Paul (2000), Unleashing the Millennium. Fortune, March 6, 2000. F16-F20.
3. Chikán, Attila (1997), Vállalatgazdaságtan (Business Economics). Aula Kiadó, Budapest
4. Smith, Adam (1992), A nemzetek gazdagsága (The Wealth of Nations). Közgazdasági és Jogi Könyvkiadó, Budapest
Attila Chikan is Professor at the Budapest University of Economics. Presently, he is also President of the same institution. He was Minister for Economic Affairs in Hungary in 1998–1999. The lecture presented here was given by him on April 26, 2000, under the auspices of the Europa Institute Budapest.