Kemal Derviş

While no one would dispute that the extending reach of globalization is bringing nations into closer contact than ever before, intertwining the economic and socio-political destinies of people everywhere, this process has not benefited all in equal measure. The dynamics of who gains and who loses have, however, changed dramatically over the last three decades. Historically, up to the 1960s, the industrialized North rushed to capitalize on investment and gains from trade, while much of the developing South was on the periphery, relegated to low value-added production, subject to colonization and reaping minimal benefits. For the most part, wealth — and advances in human development — accumulated in Northern centres of economic activity, where a near-monopoly on innovation ensured  dominance over the poorer nations trying to catch up.

In the late 1970s and early 1980s, Southern countries began to break through this hegemony and experienced substantial economic growth, in many instances outpacing the more established centres of trade and industry in the North. These countries ceased participating in the global market solely as suppliers of commodities, and started moving up the ladder of comparative advantage through innovation, technology and increased financial capacity. Spearheading this advance were a growing number of Southern multinational corporations (MNCs). Today, more Southern countries are rapidly accelerating in terms of economic growth. Consensus predictions are that emerging-market economies will grow as a whole, on average, nearly 7 percent a year in the next five years, and again, Southern MNCs are leading the way — most notably those from Brazil, Russia, India and China, the so-called “BRICs”, as well as countries such as Mexico, Chile, Malaysia, the Republic of Korea and Turkey. This growth is happening not only in business, but often in support of development too.

Globalization has fundamentally altered the architecture of the world economy, and some of the most dramatic and positive changes, particularly in light of their potential to nurture development, have come from the developing world. UNCTAD’s World Investment Reports show a five-fold increase between 1993 and 2004 in the number of MNCs with a home base in developing nations; as Karl Sauvant recently argued in the Journal of World Investment and Trade, 122 emerging-market economies reported outward foreign direct investment (FDI) flows in 2003, up from 70 in 1985, and those flows jumped from almost nothing in the early 1980s to US$46 billion in 2003. In addition, a study by Goldman Sachs revealed that by 2025, the combined economies of the BRICs alone could rival those of the Group of Six industrialized countries. Even if the flow of FDI to developing countries slows in the coming years, as some have forecast, it is clear that for a number of Southern countries their days at the bottom of the global market have ended, and their climb up the competitiveness and development ladder has begun. 

This continuing revolution in the global economy extends far beyond the realm of pure economics, of course: Real-time communication and the ease of world travel have exponentially boosted the exchange not just of capital and goods, but also of information and ideas. Innovation in design, research and technology — long the near-exclusive province of the developed North and a primary perpetuator of the North’s comparative advantage — is now exploding in the multinationals of the South, which are exploiting the freer access to markets, information and capital afforded by globalization just as effectively as their Northern counterparts. Airliners manufactured by Brazil’s Embraer are buzzing in and out of airports around the world. Brazil, India and South Africa all have sophisticated home-grown pharmaceutical firms. And last year, China’s Lenovo Group acquired the PC unit of American icon IBM.  Veterans of years of stiff competition with both national challengers and Northern giants, many Southern MNCs are today far better equipped to compete than many of the Asian conglomerates that preceded them into Northern markets.

In May 2006, Boston Consulting Group included Embraer and Lenovo in its roster of 100 “emerging global challengers”, a group that is growing, on average, 24 percent a year, and whose combined annual revenue is some $715 billion. These companies are anchoring new centres of trade and wealth accumulation in places like Mumbai, Shanghai, Seoul, Istanbul, Moscow and Sao Paulo. Indeed, emerging-market economies, led by their MNCs, are now jumping ahead of the developed world in rates of growth, and by some estimates, these nascent powers could account for as much as two-thirds of world output in as little as two decades.

The good news for development is that Southern countries are not only trading and cooperating with the richer North, but they are increasingly doing business with each other. More than 40 percent of all developing-country exports go to fellow developing countries. South-South trade is growing 11 percent a year, almost double the rate of overall global trade. Corporate investment between developing nations more than tripled from 1995 to 2003, according to the World Bank. And half of the top 10 sponsors of public-private infrastructure projects implemented from 2001-2004 in developing nations were from emerging-market economies.

Certainly, these numbers bode well for a fairer distribution of globalization’s benefits, but considerable inequity remains. The majority of South-South trade is still confined to Asia, and, more broadly, it appears that the old divisions between the developed North and the poor South are giving way to new imbalances, with the economic elites of the South joining the elites of the North in a narrow concentration of wealth and power. Within the borders of many countries — both developed and developing alike — the gap between rich and poor is growing. And the poorest developing countries are still failing to catch up, not only with richer Northern countries, but also with the emerging Southern engines of growth.

This widening gap testifies to the so-far-elusive promise of globalization: “open world markets delivering benefits to all people.” In India, about one-third of the population still lives on a dollar a day or less; about 47 percent of people in China get by on two dollars or less a day. The gap between the world’s richest and poorest countries increased over the course of the last two decades of the twentieth century.

Clearly, the South’s impressive economic growth isn’t reaching everyone. But Southern multinationals, working within the framework of initiatives like the Global Compact and in partnership with UNDP and other agencies, have tremendous capacity to help change this reality. UNDP is engaged in innovative partnerships with business throughout the developing world: on HIV-awareness training, on affordable housing and energy, as well as through broad support for environmental and social standards in business.

Increasingly, UNDP is exploring how to facilitate and develop the capacity of local micro, small and medium enterprises to become part of the supply chains and distribution networks of Southern MNCs. This is one of the objectives of our "Growing Sustainable Business" initiative, an innovative scheme that seeks to facilitate business-led enterprise solutions to reduce poverty and achieve the Millennium Development Goals. These enterprise solutions help to accelerate and sustain access by the poor to needed goods and services, as well as create employment and livelihood opportunities.

These are just a few examples of approaches that are filling gaps in services and promoting development. Increasingly, MNCs recognize that they will have more success in stronger, more equitable societies. Poor governance and ineffective institutions, corruption, social unrest and violent conflict are not only bad for societies; they are also bad for business. Depending on open markets alone to cure all of society’s ills is neither responsible nor realistic.  Only by integrating competitive markets with strong institutions that promote good governance can we achieve a truly inclusive globalization.

Transparent national institutions are and must continue to be the best regulating complement to competitive markets, but surging cross-border flows of goods and capital require a more advanced system of international cooperation than we have. WTO Director-General Pascal Lamy has spoken of the need for a world “pilot” to provide a sense of direction in the rush to globalize. The United Nations and other multilateral international organizations should serve as that pilot, not as some kind of world government or centralized bureaucracy, but rather as a carrier of common values and a promoter of global public goods.

In the surging advance of Southern multinationals we find considerable cause for hope that globalization can deliver benefits to more of the world’s people. But most are still being left behind. We must avoid simply replacing the old, narrow distributions of power and wealth with new inequitable ones.  Responsible public policy, effective public-private partnerships and good governance are the essential catalysts that can transform the global market from a conduit for corporate profit into an unparalleled force for development. Now, more than ever, in a world of dissolving borders, prosperity for all is within our grasp — provided that not only growth, but also equitable growth, becomes our shared objective.

Kemal Derviş became Administrator of the United Nations Development Programme, the UN's global development network, in August 2005. He is also the Chair of the UN Development Group, a committee consisting of the heads of all UN funds, programmes and departments working on development issues. Mr. Derviş was a member of the Turkish Parliament from 2002 to 2005. From 2001 to 2002 he was Minister for Economic Affairs and the Treasury. From 1977-2001 he held various positions at the World Bank including Vice-President for the Middle East and North Africa and Vice-President for Poverty Reduction and Economic Management. Mr. Derviş earned his Bachelor and Master’s degrees in economics from the London School of Economics and his Ph.D. from Princeton University. He has published widely on economics and international affairs. His latest publication is “A Better Globalization: Legitimacy, Governance and Reform.”