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.