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The dark side of globalisation

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31 May 2010 14:36

Reading this thought-provoking essay by Mark Bowden on the Conficker computer worm, with its speculations about international computer crime and network attacks, reminded me of the growing literature on the dark side of globalisation.

Mostly, when I write about globalisation, I have in mind a fairly narrow definition: the international integration of markets for goods, services and capital.

Also, I'm usually thinking about the formal, legal versions of these markets, and I'm typically thinking about them as a positive force (albeit with some big — and post-GFC, even bigger — reservations when it comes to the volatility that can be generated by international capital flows). Sure, I understand there can be downsides associated with this definition of globalisation, some of which I wrote about in a Lowy Paper a while back. But overall, I’m a fan.

There is however, another, darker side to globalisation that has become the subject of a growing literature. Moises Naim wrote about the 'five wars of globalisation' for Foreign Policy back in 2003, noting that since the 1990s, the illegal trade in drugs, arms, intellectual property, people and money was booming. 

Governments, he said, had been fighting and losing wars to stem these illicit flows for centuries. But thanks to changes driven by globalisation, 'their losing streak has become even more pronounced.' Naim turned his article into a book, and similar themes have been covered by other authors, including recent contributions from Misha GlennyCarolyn Nordstrom and Loretta Napoleoni

Naim and others argue that globalisation and its key drivers – technology and deregulation – have provided a major boost to international crime. So, for example, financial market deregulation and innovations in information and communications technology have not only made things smoother for legal international capital flows, they have also helped make life easier for money launderers. 

As another example, technological innovation in the form of Ciclosporin – a drug used to control the body's autoimmune response to an organ transplant – is widely credited with spurring the global trade in kidneys, livers and corneas.

How big are the illicit flows of bad globalisation? Potentially, they could be very large indeed. The UN estimates that the amount of money laundered globally in one year is between US$800 billion and US$2 trillion, for example. It also thinks that the illicit global drugs trade can be valued at more than US$300 billion a year. Havocscope puts the size of the global drugs trade at an even bigger US$393.89 billion and the transnational crime market at US$342.1 billion. 

Combine these kinds of estimates with fears of a global crime wave, the sort of disorder seen this year in Mexico, Jamaica and elsewhere, and mix in some post-9/11 worries about the links between international crime and international terrorism, and you can see why writers like Naim claim that 'Global criminal activities are transforming the international system'. Here's another area where international economics and international security and politics overlap.

There is a problem here, though. Given the nature of these flows, it's actually very difficult to estimate (guesstimate?) just how important they are. As RT Naylor puts it in a critical review (behind a paywall) of Naim's book, 'These are alarming developments...The only problem is to find evidence that any of them is actually true.'

Naylor stresses the lack of hard data available, arguing, for example, that the common claim that laundered money represents between 2% and 5% of world GDP, 'far from being the result of assiduous research...was invented on the spot by an aide to the IMF chief when he desperately needed a figure to give to eager reporters at a press conference'.

Still, despite the very real shortcomings of the data, it is clear that there is a 'bad' version of globalisation. Nils Gilman describes it as 'deviant globalisation'. According to Gilman, 'for every legitimate industry that is out there, there's a deviant counterpart'. 

So, for example, the deviant counterpart to tourism is sex tourism; for the pharmaceutical industry, it's the drugs trade (possibly the 'single most globalised business in the world' except for oil); for waste disposal, it's toxic dumping; for the software industry, it's malware, which includes items like Conficker; and for commodity trade more generally, it's illicit commerce in items ranging from exotic animals, stolen art and protected hardwoods through to human organs and people. 

Finally, Gilman makes a couple of interesting points about this kind of globalisation.

First, that the essence of what's going on here is a kind of 'moral arbitrage'. He argues that in a global economy the practical effect of national taboos and prohibitions is not so much to reduce demand as to reduce supply in particular locations (due to differences in either the application of bans or the degree of enforcement), creating large price gaps and hence the opportunity for arbitrage. This might involve trade that is illegal, but it might also just involve trade that is legal but 'yucky'.

Second, and more provocatively, Gilman suggests that one consequence of deviant globalisation is a substantial flow of money and resources from the developed to the developing world, at a scale that he thinks is 'almost certainly an order of magnitude bigger' than foreign aid flows. 

As an example, he cites the case of Mexico, where it is estimated that the cultivation and trafficking of illegal drugs directly employs 450,000 people, and where the drug industry has revenues estimated to be as high as US$25 billion a year, exceeded only by Mexico’s annual income from manufacturing and oil exports. In this sense, Gilman thinks it can seen a (warped?) form of development. 

Photo by Flickr user kirainet, used under a Creative Commons license.

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