In today’s interconnected world, globalization is important for collaborative progress. However, to comprehend the complexities of the future, globalization is increasingly being seen with newer perspectives.
The deputy director of the Research Department at the International Monetary Fund (IMF), Jonathan D Ostry, says the three main components of globalization – goods, labor and capital – are associated with different costs and benefits.
“The preponderance of the evidence suggests that trade has positive impacts on aggregate incomes, but many people do lose out. The economic benefits of migration are very high, but it too has distributional consequences and impacts on social cohesion,” he explains in a WEF report. “The case for globalization is weakest when it comes to free flows of capital across national boundaries (‘financial globalization’). The growth benefits claimed for these policies have proven elusive. At the same time, they are associated with an increase in inequality. Hence, they pose a dilemma for proponents of globalization.”
One of the first steps to identify the flaws of globalization and to re-align goals is for governments and businesses to recognize the disadvantages of financial globalization. The deputy director of IMF’s research department says the adverse effects of financial globalization on macroeconomic volatility and inequality should be countered. “Among policymakers today, there is increased acceptance of capital controls to restrict foreign capital flows that are viewed as likely to lead to – or compound – a financial crisis,” he notes.
Ostry also stresses on the extent of redistribution of capital, saying: “This can be done through some combination of increases in tax rates (greater progressivity in income taxes; increased reliance on wealth and property taxes) and programs to help those who lose out from globalization.”
He also sees migration playing a major role in the future of today’s ever-changing world. “As a result of labor migration, compensation to potential losers could be expanded by targeting areas of high entry of foreign workers and this can be done through more generous unemployment insurance benefits and greater resources devoted to active labor market policies to match displaced workers to jobs.”
Nonetheless, the long-term solution for the future is not redistribution; instead, it lies in mechanisms that achieve pre-distribution. Ostry says: “An equal access to health, education and financial services ensures that market incomes are not simply a function of peoples’ starting point in life. This does not ensure that everyone will end up at the same point. But the provision of opportunities to do well in life, regardless of initial income level, combined with the promise of redistribution for those who fall behind, is more likely to build support for globalization than will simply be ignoring the discontent with it.”
The Saudi connection
For an oil-rich country such as Saudi Arabia, globalization is akin to modernization. Even before the oil shock of recent years weighed heavily on the country’s revenue streams, soft efforts to diversify economy have been underway for the past 20 years.
In a recent whitepaper released by the Saudi Embassy in Washington DC, the Kingdom sees its globalization and modernization policies as a steady, ongoing project. For decades, Saudi Arabia has made an effort to improve the lives of its citizens, using the wealth generated from the Kingdom’s natural resources to fund the social and economic development of the nation, says the research paper, adding that every measure of human development – life expectancy, infant mortality, literacy, per capita income, etc. – has improved dramatically in the span of a single generation.
Anticipating the future demands and needs of its population, the visionary leadership of Saudi Arabia came up with Vision 2030, in which Deputy Crown Prince Mohammed bin Salman envisions a stable Saudi Arabia that provides an opportunity for all. “Our Vision 2030 is a tolerant country with Islam as its constitution and moderation as its method. We will welcome qualified individuals from all over the world and will respect those who have come to join our journey and our success.”
There are 24 specific goals for the Kingdom to achieve in economic, political and societal development. Saudi Vision 2030 articulates 18 commitments to achieve these goals, with specific initiatives in renewable energy, manufacturing, education, e-governance, entertainment, and culture.
The Saudi government’s whitepaper, shared with TRENDS, states: “In the economic sector, regulations have been streamlined to encourage foreign investment. A renewed emphasis has been placed on small- and medium-sized enterprises. The Saudi education system is focused on closing the skills gap and training students for the job market. Vision 2030 has led to a major surge in international investment in the Kingdom. Investors have long viewed the Kingdom as an attractive place to conduct business due to the emergence of key opportunities for partnership in a number of industries, including healthcare, manufacturing, and technology.”
The official document also emphasizes that political and governmental development are essential to building an ambitious nation. The state’s responsibilities must continue to keep pace with the rising expectations of a new generation of citizens, it says.
The paper also talks about social causes. “The initiatives currently underway also recognize the role of Saudi women in the economic, political and social development of the Kingdom,” it reads. “More than 50 per cent of Saudi university graduates are women and the Kingdom will continue to develop their talents, invest in their productive capabilities and enable them to strengthen their future and contribute to the development of our society and economy.”
A vision is only as good as its execution and implementation. And it won’t be an easy road for Saudi Arabia. The president of the Arab Gulf States Institute in Washington, Marcella M Wahba, says: “It is easy to be skeptical of such ambitious visions that will require dramatic social change, threaten vested economic interests and inevitably challenge established ways of doing things. This kind of deep structural change is all the more difficult in a conservative, traditional society and culture. For all these reasons, this transformation will not be easy or smooth, but it is absolutely necessary if Saudi Arabia hopes to secure a stable and prosperous future.”
The Arab Gulf States Institute in Washington assembled Middle East experts for a recent conference, titled ‘Saudi Arabia Transforming’.
The Arab Gulf States Institute published recommendations for the Kingdom to attain a bright future. Some of the key points are:
- The Saudi government must remain flexible in its implementation of Vision 2030. If it is too rigid, it will not be able to properly respond to the changing landscape – domestically, regionally and globally. Success will require effective coordination, the managing of expectations and developing rules that can allow policymakers to shift course depending on the changing environment.
- Saudi Arabia must continue to increase its level of transparency and openness with the markets, building up statistical capacity so data can be analyzed and disseminated. This will allow the government to understand and respond to domestic progress and setbacks, promote foreign direct investment and continue to raise debt on favorable igid austerity measures are not the answer. Saudi Arabia is suffering from revenue constraints from the low price of oil, but cutting government expenditures will only hurt the private sector at a time when the government is trying to encourage the private sector’s rapid growth.
- Rigid austerity measures are not the answer. Saudi Arabia is suffering from revenue constraints from the low price of oil, but cutting government expenditures will only hurt the private sector at a time when the government is trying to encourage the private sector’s rapid growth.
- Change the relationship dynamic between the government and private sector, putting both on an equal playing field. Maintain dialogue with the beneficiaries of private-sector reform to continue to receive feedback that can be addressed through policy adjustments.
- Take proper advantage of the massive changes occurring in automation and new technology. Don’t pursue industries with limited shelf lives; look to the future. Equip young people with the skills to survive in the future economy.
- When establishing industrial zones, thought must be given to overcoming constraints and enabling backward linkages. Make sure these zones can employ Saudi nationals and not just cheap labor from abroad.
- Saudi Arabia needs to continue to develop its capacity to respond to the challenges of the region, because the country has an important role to play.
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