30 KWARTALNIK NAUK O PRZEDSIĘBIORSTWIE — 2018 / 1 Biliang Hu The Belt and Road Initiative and the Transformation of

Globalization is now facing one of Globalization is the biggest challenges in the history: an Objective Historical Process… British exit from the EU (Brexit), USA’s …and nobody can stop it. Globaliza- quit from the Paris Agreement on cli- tion, broadly speaking, is a kind of phe- mate change, USA also quitted from nomenon of global integration of many TPP agreement as well as from UN- different things, including trade, invest- ESCO. People start worry about the ment, people’s mobility etc. [Kolodko, next moves of globalization. Therefore, 2001]. It should also include the dialogue we need to discuss the future of glo- among different cultures and civiliza- balization seriously. tions, exchange of knowledge and so on [Stiglitz, 2006]. Clearly, economic glo- Clearly, globalization brought very balization is one of the very important positive impact on economic, social, po- areas, which means the tightened integra- litical and cultural developments for all tion among countries by increasing the the countries including the developed as flow of , services, capital and labor. well as developing economies. However, globalization also brought some nega- My personal understanding is that tive effects, such as the income disparity the essence of globalization is the process among different groups of people and dif- in which global connectivity and global ferent countries. It has been continually contact continue to expand (breadth) and enlarging, not narrowing down in the deepen (depth). From the ideal point of process of globalization. view, global integration will eventually be How to deal with the continual glo- presented. In other words, the intercon- balization? Of course there are different nection among countries, companies, and ways. We have been seeing the rising of people will continue to be strengthened, the nationalism, the protectionism in with higher degree of scope and depth. some of the countries, we have been see- Such process, I think, is the essence of ing withdraws of some countries from globalization. From this point of view, the global governance institutions. At the the emergence and development of the same time, we find that China has been European Union is in line with the basic making great efforts not only pushing for- developmental direction of globalization. ward the continual globalization but also From the coordinated usage of resources trying to transfer the old style globaliza- (coal, steel, etc.), security and defense, and tion to the new style globalization which commodity market to the integrated la- is what I called the transformation of glo- bor market, , even to single balization in the new era through the Belt currency (Euro), EU is on its way to be- and Road Initiative. come a unity with wider scale and higher Na marginesie 31 degree of depth, so the general direction doing international businesses, theoreti- should be correct. cally speaking, are also relatively higher. The process of globalization is not a The third motivation comes from new phenomenon, but rather has a long technological advances and innovations, history of development. Some people even particularly the rapid development of think that the ancient Silk Road can be information technology and digital tech- seen as part of the globalization at that nology. These innovations will drive glo- time, which implies that globalization balization to evolve in a higher degree of has a history of more than two thousand depth because of the constant innovation years. and improvement of information, digital Once the globalization is launched, its technology and other technologies will momentum is irreversible. There are three continue to cut costs. main motivations. The first is that because The emergence of the Internet is a of different geographical location each revolutionary innovation. Internet has country has its different resource endow- reduced the transaction costs down to al- ments, thus its comparative advantage is most zero for all people at a certain level, not the same. For example, Saudi Arabia and it provides public platform and public is rich in crude oil resources, Russia and goods for all. It is because of the Inter- Kazakhstan produce oil and natural gas, net, a variety of “Internet +” new models Brazil has abundant iron ore resources, appear which provide new jobs and new and France, South Africa, Chile, Aus- profit margins. With further improve- tralia, Argentina and etc. produce good ment of the Internet, coupled with the de- wines of superior quality. China’s reserves velopment of Internet of Things, the digi- of oil, natural gas, iron ore are not much, tal economy will prosper, and as a result, so China needs to import to meet its de- the global production net will be built up mand. Thus, international trade and in- which directly deepens globalization at vestment are unavoidable due to the large the same time. differences in resource endowments ob- It is precisely because of the above jectively, which are beneficial for different three forces together, the breadth and countries. depth of global interconnection will con- tinue to strengthen; even for some special The second important motivation of reasons, for example, the connectivity globalization is the power of the market, was temporarily slowed down and even which is the most fundamental driv- suspended due to the impact of the First ing force. Capital, labor, technology and and Second World War, but afterwards a other economic factors are ultimately to stronger momentum would rebound and seek high returns, which, in the context recover the process. Therefore, globaliza- of globalization, is to seek high returns on tion is an objective process of historical a global scale. Driven by interests factors development, and its momentum and such as capital, labor, and technology will trend cannot be stopped. flow to countries or regions where returns on investment are higher, through trade, Dividends and Drawbacks foreign direct investment, or through of Globalization mergers and acquisitions. Because re- Globalization is an objective, fairly source endowment gap among countries long historical development process that is usually larger than that of domestic re- reflects the basic trend of human deve- gions, the comparative advantage is also lopment, which means that globaliza- relatively larger, thus the benefits from tion represents the positive side of human 32 KWARTALNIK NAUK O PRZEDSIĘBIORSTWIE — 2018 / 1

development. But this process has also tries have the chances to study or work in been criticized by many, and even politi- developed countries and so on. cians have adopted hardline attitude and Based on the empirical data, we find policy of anti-globalization. Therefore, we that Foreign Direct Investment (FDI) has should give globalization a fair and objec- shown the fastest growth due to globaliza- tive evaluation in order to better play its tion. Taking the last three decades of the advantages and limit its negative impact, twentieth century as an example, in 1970s, so as to promote sustainable and healthy apart from individual years, the nominal development of globalization. growth rate of FDI was about 30%, and the 1980s and 1990s not only continued On the positive side, the theoretical such growth, but the nominal growth rate analysis shows that globalization is of para- grew more than 30% in many years. The mount importance to economic growth growth rate of the first decade since enter- in general [Barro, Sala-i-Martin, 1995; ing the 21st century was also high, except Sachs, Warner, 1995; Greenaway et al., for the two years that had been seriously 1998; Vamvakidis, 1998; Frankel, Romer, affected by the international financial cri- 1999], especially for the rapid develop- sis. The nominal growth rate of interna- ment of developing countries [Dollar, tional trade, despite the fact that FDI had 1992]. The main reason is that globaliza- grown much more, was relatively stable at tion continues to reduce costs, especially a level of nearly 8% (real growth rate was based on the development of Internet about 5%).The growth of international and digital technology, which greatly ac- investment and trade has contributed di- celerates the dissemination of knowledge rectly to economic growth. In the past 40 and ideas among different countries, thus years – expect for special occasions – the bringing industries to expand among nominal growth rate of the global econo- countries. As a result, industrialization my has been stable at more than 6% (real becomes a common phenomenon, and growth rate was about 3%). economic structure and income in differ- ent countries show the clear trend of con- As for the impact of globalization the vergence. basic understanding is shared by most, In addition to the impact of globaliza- that globalization has greatly contributed tion on economic growth, many have also to global investment, trade, and economic studied the impact on the overall quality growth. Both developed and developing of life of developing countries and they countries are the beneficiaries of globali- generally believe that globalization has a zation. Developing countries has gained great significance in promoting the qual- relatively rapid growth, and in the process ity of human development, especially in global poverty can be greatly alleviated reducing poverty [Bourguignin, 2004; and reduced. China, for example, in the Neutel, Heshmati, 2006; Rodrik, 2002; early days of its reform and opening up, Nissanke, Thorbecke, 2008]. J. Stiglitz’s was basically in the general state of pover- study [2006] also shows that the results ty. After nearly 40 years of development, of globalization will greatly improve the China’s population under poverty line standard of living for all the people of was reduced by more than 700 million, the world, especially for the people of the and the country will get rid of extremely poor countries, because they gain more poverty by 2020. If there is no positive opportunities from other markets – the support of globalization, China would be poor countries get more foreign invest- very difficult to reach such great achieve- ments, the people from developing coun- ment. The Belt and Road Initiative and the Transformation of Globalization 33

Globalization also brings some draw- countries, thus it directly causes the high- backs and problems. The first problem is er unemployment rate, and it especially that although we claim that globalization makes the less-educated people difficult benefits everyone, but the degree of ben- to find jobs. Since software development, efit for each country is diverse, thus cre- corporate call centers, data centers and ating a widening income gap on a gene- some other relevant business are often ral basis. Objectively speaking, it’s quite outsourced to developing countries, even reasonable due to the impact of market people with better education in the Unit- forces, different people or countries, due ed States and in some of the European to different level of education, resource countries, have also difficulties to find endowment, and development basis, gain jobs [World Bank, 2017]. different opportunities, which will lead to The fourth problem, along with the an income gap [Silva, Leichenko, 2004; globalization of markets: more and more Rudra, 2004; Beckfield, 2006; Meschi, investments concentrate on few industries Vivarelli, 2009; Bukhari, Munir, 2016]. with relatively higher profits (also higher risks) worldwide, such as finance, real es- The second problem is that along with tate, IT consulting and so on. When the the development of the global production occurs in the very net some industries have been transferred few sectors, also in the very few places to to developing countries. Particularly a certain extent, it may cause bubble and some of the manufacturing industries further it may cause economic crisis when have been transferred – partially due to the bubble bursts. These are the reasons cheaper labor and other factor costs, par- why some people always blame globali- tially due to the bigger markets in deve- zation with the responsibility for several loping countries. The developed countries problems, and hence we see from time to are normally responsible only for a small time some reversal happening in the his- part of the business, mainly high-end part tory of globalization. of the business such as design, R&D, etc. Apple’s global production network sys- Two Different Attitudes tem is a typical example in this regard. Towards Globalization As the global production network system Since globalization brings dividends continues to develop in depth, the origi- and benefits, as well as drawbacks and nal production process in some countries problems, then how to make the choice? gradually moves to other countries, which At present, there are two different atti- causes some countries gradually form the tudes and choices. phenomenon of hollow industry, espe- The first one emphasizes more on the cially the emergence of hollow manufac- shortcomings and problems of globaliza- turing industry phenomenon [Bluestone, tion. Countries with this attitude choose Harrison, 1982; Modie, Trautlein, 1985; to retreat from the international multila- Batholomew, Kochanowski, 1986]. As a teral organizations, multilateral govern- result, the economic development of these ance system such as the European Union, countries undertakes a certain degree of as well as from the multilateral coopera- influence. tion agreements such as the Paris Agree- ment on Climate Change etc. Even with- The third problem is directly related drawal from the very important global to the second one, due to the transfer of governance institutions happens, what some of the industries, particularly the reduces the provision of global public manufacturing industries, out of some goods, conducts trade protection through 34 KWARTALNIK NAUK O PRZEDSIĘBIORSTWIE — 2018 / 1

different forms, calls back home of invest- globalization are mainly manifested in ments in other countries. Some countries three aspects: strictly control foreigners and immigrants 1) Due to the influence of “Washing- from entering their own countries, and ton Consensus” sweeping the world, even have built or plan to build high walls the degree of privatization, liberaliza- between countries. tion, and marketization continues to deepen. However, there appear “mar- The second choice is to evaluate the ket failure” in some countries, which benefits and drawbacks in an objective calls for effective monitoring and and calm manner, and strive to develop management of the process. In some the advantages of globalization and take cases situations are out of control, for practical policy measures to overcome its example, the innovation of financial shortcomings while firmly promoting glo- derivatives and the monitoring of fi- balization, in order to better benefit the nancial institutions did not play a very world and the people. good role. 2) The poor management capacity of Actively Promote the some countries, especially less-devel- Transformation of Globalization oped ones, lead to political instabil- Till today, the benefits to mankind ity and sometimes to social unrest. brought by globalization are self-evident. There is often a lack of infrastructure More importantly, we need to achieve the construction, education is underdeve- re-balance of the process of globalization. loped, and the problem of “govern- I believe that under the new historical ment failure” emerges. conditions, the correct attitude should 3) There are some serious problems in be based on the new situation and prob- the aspect of global governance, which lems, and we should actively promote the are mainly manifest as inability of transformation of globalization, so that it existing global governance system to can reach a better, more appropriate stage, meet the needs of reality, therefore the level and model of development, thus the ability and efficiency need to be -im positive effects of globalization on human proved through reforms. development will continue to be fully reflected, while limiting and restricting In view of these major problems in its adverse effects. By promoting such a relation to global development, the basic global transformation, globalization will idea of promoting global transformation evolve, with a lot of different characteris- should be to establish a strong and effec- tics both in form and content. China will tive tripartite system, including the con- play a vital role in advancing such a global struction of a more effective market sys- transformation. The process and the new tem globally, and further to improve the type of globalization after the transforma- efficiency of the allocation of resources tion will have certain Chinese character- worldwide. Meanwhile, improve govern- istics. ment management capacity, including do- As for how to determine the direc- mestic policy coordination, government tion of this transformation, I think we affairs management capacity and the abil- should improve the situation by properly ity to monitor and manage globalization, addressing the current problems, while at which requires timely management and the same time further playing advantages correction. According to G.W. Kolod- and positive aspects of globalization. The ko [2014a] New Pragmatism , the fundamental problems in the process of higher level of globalization, the more ef- The Belt and Road Initiative and the Transformation of Globalization 35 ficient government – sometimes also big- possible and achieve common prosper- ger government – is required, and I agree ity. This is exactly the same as the goal with his idea in this regard. Third, there of inclusiveness and common prosperity is a need to build a more effective global of the transformation. Again, the princi- governance system through cooperation, ple can be used for reference. The basic including reforms, and adding new global principle of the Belt and Road Initiative governance institutions. This is similar to and its construction is to achieve shared what G.W. Kolodko’s New Pragmatism growth through discussion and collabo- theory refers to as “reinstitutionalisation ration. This principle can be learned, be- of globalization”. cause current process of global transfor- Based on the current problems and mation and development does not reflect the basic ideas of transformation, the di- such idea. There are some joint efforts to rection of globalization transformation promote globalization, but the efforts are should include several aspects: insufficient and fragmented, so the trans- • to be more open; formation should learn from the principle. • to be more inclusive; Finally, the spirit of the Belt and Road • to thrive for most positive effects; Initiative is in line with the essence of • to build a better global governance sys- globalization. Five types of connectivity tem to better guide the transformation, (policy, infrastructure, trade, finance and and achieve sustainable development people to people) reflect the basic spirit of of globalization. global connectivity, which is precisely the essence of globalization. In the process Promoting Globalization Transfor- of promoting the transformation and de- mation through the Belt and Road velopment of globalization, this essential Construction feature should be maintained and carried Globalization needs to have a “big forward. push” to promote its transformation. So, how to achieve the transforma- From the current point of view, one of the tion of globalization through the Belt important pushing forces to achieve the and Road? The following aspects need successful transformation is the imple- to be given special attention in the cur- mentation of the Belt and Road Initiative rent circumstances, and we should strive proposed by China. Why the Belt and to achieve the effective docking of them. Road Initiative can achieve the successful First, the concept, objectives and princi- transformation? ples of building the Belt and Road can In short, the concept, principles and provide the institutional basis for the practices of the Belt and Road construc- transformation and development of glo- tion are highly aligned with the basic balization. The current framework of glo- direction of the transformation. First of balization is essentially a continuation of all, they share the same concept. The ba- the previous rounds of globalization, with sic idea of the Belt and Road is openness. no major changes, whether trade coopera- This initiative and its construction create tion, investment cooperation, technical an open system without boundary, no cooperation, etc., are based on the previ- discrimination, welcoming all who will- ous framework for cooperation. Building ing to participate in to the cooperation the cooperation of the Belt and Road is through appropriate ways. a brand new way of international coope- Second, they share the same target. ration. It is worthwhile to learn from the The Belt and Road Initiative’s ultimate concept of openness, inclusiveness, mu- goal is to eradicate poverty as soon as tual benefit and balance and apply it to 36 KWARTALNIK NAUK O PRZEDSIĘBIORSTWIE — 2018 / 1

the process of transformation of globali- achieve integrated growth and mutual zation. Especially through cooperation to benefit among countries. China will build the Belt and Road, ultimately cre- provide samples and experience for ating the community of shared destiny the transformation and development should be the overall goal and direction of globalization by actively promoting of transformation of globalization. the construction of the “green, healthy, Second, the Belt and Road project intellectual and peaceful Silk Road”, can support the activation of global eco- which implies a kind of balanced nomic momentum, to support the world overall development, just as what economy to get out of sluggishness, and G.W. Kolodko [2014b] mentioned in to achieve the integrated growth among his New Pragmatism theory as triple countries. From China’s current eco- balanced: economic, social and nomic strength and the situation of policy ecological. communication and coordination with • Fourth, through the construction of relevant countries, the construction of the win-win cooperation of the Belt and Belt and Road can immediately activate Road construction, the supply of new global economy from three aspects to sup- global governance can be provided for port the economic globalization transfor- the transformation of globalization. mation and development: In order to promote the construction • First, use infrastructure construc- of the Belt and Road and promote the tion that is mature and ready to be long-term development of developing launched, to increase investment and countries, China together with coun- stimulate global investment growth, so tries should base on objective needs as to increase employment opportuni- of the new period of development, ties; through joint efforts, and increase the • Second, through the promotion of number of institutions involved in trade and investment facilitation ne- global governance and institutional gotiation process and system improve- supply. ment, to promote trade and investment growth among China and relevant China has also set up a the Silk Road countries; Fund specifically to support the construc- • Third, we need to promote interna- tion of the Belt and Road projects and tional financial cooperation and in- has already invested in a number of pro- novation for China and other countries jects related to transportation and energy to find good international investment infrastructure construction, which has a opportunities, and use these funds certain positive significance for the im- to activate the relevant countries to provement of the existing global financial develop resource development, en- governance system, and the promotion of hance human capital etc., so that to the transformation of globalization.

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Professor Biliang Hu, Dean of the Belt and Road Research Institute, Beijing Normal University, China.