Globalisation and finance Guyana the wider world by Dr Clive Thomas Stabroek News January 7, 2000 Welcome to the New Millennium! This week we continue our series on globalisation. As stated at the outset, the ultimate objective of the series is to enrich our understanding of Guyana in the wider world. There remains one area to examine before we will have completed what I would describe as our "basic knowledge" of the economic aspects of globalisation. The intention is to use this "basic knowledge" as a platform for an informed and intelligent exploration of the many issues that impact on each of us daily. As you will see this will give a sharper insight into what is happening in Guyana. Events that we now believe are uniquely Guyanese, we will soon find are playing themselves out a thousand-fold in many other parts of the world. Financial flows The area we have left to examine is finance. It would seem paradoxical to leave this for last, because so many persons see finance as the leading edge of globalisation. The basis for this view is none other than the tremendous explosion of cross-border financial transactions we have been witnessing. Twenty-five years ago, the daily value of such transactions was approximately US$15 billion. Today, the estimated sum is in excess of US$$1.6 trillion, i.e an increase of more than a thousand-fold! Technology and finance What is responsible for this explosive growth? The simple answer is many of the same factors that we have already examined. If you recall, we saw that the pace of modern globalisation would not be possible if it were not based on revolutionary changes in technology. The two aspects of this technological change that are crucial to financial markets, are information and communications technology. High speed computers have transformed beyond recognition the amount and nature of information that is gathered and disseminated. Similar changes in communications technology have transformed our connectivity. This is symbolized in the cellular telephone and the use of geo-stationary orbital positioning. Thus in Guyana cellular phone use is growing exponentially. Firms like Omai are routinely using geo-stationary orbital positioning for scheduling and logistics to guide their transport fleet, which moves materials at the mine site. The regulatory environment Another factor behind the explosive growth in finance is the change occurring in the regulatory environment. As we saw, globalisation is twinned with liberalisation. Liberalisation in turn means opening up markets to all and sundry. National barriers have come down, and so firms, individuals, and governments are free to electronically move funds across the world at will; by simple computer entry. In the 1980s, government regulations prevented the unrestricted movement of finance. Today they do not. Again in Guyana we are familiar with this. The airport searches have stopped. Cambios are everywhere. Many individuals and firms now hold overseas banking accounts. Financial innovation The third factor accounting for the explosive of finance is innovation. As we saw earlier in the series, one of the remarkable features of globalisation is the constant innovation of products and services. As I had indicated, competitiveness is no longer driven by price, but by innovation and improvement in product quality as well. In the financial markets there have been phenomenal innovations. Some like "junk bonds" have acquired their own notoriety. Others like "derivatives" are the cutting edge of new preferred products. Government These three factors combine with two circumstances, whose importance should not be underestimated. One is that governments have encouraged the establishment of national currency and capital markets. Whether it is in the CARICOM region, the former Soviet bloc, or emerging states in Africa and Asia, governments everywhere feel bound to promote stock exchanges and currency markets. All these governments present to their population the position that this is the product of their own wisdom and foresight. Now we know better! In reality, national economic policy is being driven by the pressures to globalise financial markets. Greed and hot money The other factor is really one that is at the base of all activity in a capitalist market environment. That is, the "drive for profit". As we shall see next week this "drive for profit" is often little more than a eupheminism for greed and gambling. Most of the finance that moves around the world is not directly related to productive endevours. That is, it is not related to either investment or the purchase and sale of goods and services. It is based on pure speculation about the future price of money. Such funds are called "hot-money". These are the source of many of the costly disruptions and crises that have occurred in financial markets over the past decade as globalisation has rapidly advanced. Follow the goings-on in Guyana in Guyana Today