Globalization and National Economies

The statistics of globalisation tell two stories simultaneously. The first is one of extraordinary success. Since 1990, the proportion of the world's population living in extreme poverty has fallen from nearly forty per cent to under ten per cent. Life expectancy in developing countries has risen dramatically. Much of this progress is directly attributable to the integration of developing economies — particularly in East and Southeast Asia — into global trade and investment networks.

The second story is one of disruption and inequality. In the developed economies that championed globalisation, the benefits have been distributed with striking unevenness. The owners of capital and the highly educated workers whose skills are globally mobile have prospered enormously. The workers in manufacturing industries that moved to lower-cost locations have experienced wage stagnation, job loss, and the hollowing out of the communities that depended on those industries.

The fiscal dimension of globalisation has received less attention but is equally important. The mobility of capital — the ability of corporations and wealthy individuals to locate their assets in the jurisdiction that taxes them least — has created a global race to the bottom in corporate and capital taxation. The result is that the fiscal capacity of national governments has been systematically eroded by the very globalisation that has generated the wealth they might otherwise tax.

Pakistan's relationship with globalisation is characterised by a persistent underperformance. Despite having a large and relatively young labour force, Pakistan's export performance has been chronically weak relative to its economic size and potential. The export basket remains heavily concentrated in low-value-added textiles, with limited diversification into higher-value manufactured goods or services.

The remittances that Pakistani workers abroad send home are, paradoxically, one of Pakistan's most important globalisation dividends. At over $30 billion per year, they exceed foreign direct investment and represent the globalisation of Pakistani labour rather than the globalisation of Pakistani production.

The path forward for Pakistan — and for developing economies more broadly — is not to retreat from globalisation but to engage with it more strategically. This means industrial policy: the deliberate development of sectors where Pakistan has or can develop competitive advantages. It means regional integration — the development of trade and investment relationships with neighbouring countries — as a stepping stone to global integration.

Globalisation is not a force of nature. It is a set of policy choices made by governments and international institutions. Those choices can be made differently. The challenge is to make them in ways that preserve the genuine gains from openness while rebuilding the capacity of national governments to manage the distribution of those gains. Openness with governance: that is the formula.