The key difference between our era of globalization and the last one, which ended with the Great Depression, is that, for the first time, many companies are operating on a global basis.

Although this has raised fears among some in both developed and developing countries, it offers new and exciting opportunities for raising living standards worldwide. Dramatic growth in cross-border investment and international trade and explosive growth in global communications and technology is what springs to mind when you hear the word globalization. Foreign direct investment (FDI) flows, which totaled $160 billion in 1991, soared to $1.1 trillion in 2000. And, while the volume of international trade also expanded dramatically (16-fold over the past 50 years), trade in components has grown even faster than trade in finished goods.

The evidence, however, contradicts these generalizations: real wages have risen in the countries attracting FDI, and corporate tax revenues have been rising, not falling. Moreover, the local presence of internationally active companies creates strong pressures to raise local standards rapidly in the key areas of management, technology, and environmental quality and thus enables the host country to participate more effectively in globalization. I am convinced that the vast majority of multinationals conduct their affairs properly. (There are exceptions, of course, but that is what they are.)

The real problem with globalization, contrary to the myths dear to its staunchest opponents, is that the richest countries account for the lion’s share of the increase in cross-border investment and trade. All of the developing countries taken together –including the six big Southeast Asian exporters– attracted just over 20% of last year’s total FDI and accounted for only 27% of world exports. The longer developing countries lag behind, as global supply chains become more sophisticated and complex, the harder it will become for their companies to operate on a global scale.

There is no better vehicle for advancing mutual self-interest than multilateral trade relationships

Many policymakers, business leaders, and ordinary citizens in developing countries are well aware of the need to engage wholeheartedly in globalization. They recognize that openness is vital to raising living standards and offers greater choices and more freedom. Indeed, freer trade offers unprecedented scope to exploit comparative advantage, not only in finished goods but also all along the production chain. Moreover, in addition to bringing economic gains to countries that engage in it, trade is also a channel for importing good policies because it undermines inefficient and corrupt practices, thereby improving the business environment.

One of the most important responsibilities now facing Western trade negotiators and politicians is freeing up trade in key sectors in ways that will benefit developing countries, but the will to do so is less in evidence today than it was in Doha. U.S. President George W. Bush’s decision to protect inefficient U.S. steelmakers and substantially increase farm subsidies is not encouraging. The European Union’s continuing reluctance to reform its Common Agriculture Policy, which effectively keeps farm products from poor countries out of European markets, is equally troubling.

However, a crucial point has often been overlooked – that is, trade barriers are as harmful to the countries that impose them as to the countries whose imports they block. For example, the U.S.’ new protectionist stance on steel and agriculture will hit American consumers of automobiles and farm products – who far outnumber steel and agricultural workers – with higher prices. The real trade wars take place within countries, between consumers and special interest groups. Trade between countries brings mutual benefits. Those who genuinely wish to reduce barriers between rich and poor should strongly espouse free-trade policies, and expose those special interests that urge ultimately self-defeating protectionist measures.

One of the important aspects of trade liberalization is that it increases competition, the lifeblood of a successful market economy. Another is that it combats the corruption that flourishes wherever there is too much red tape and protectionism. In the end, individual nations bear most of the responsibility for their own success or failure. Where good government does not guarantee economic success, bad government does assure failure.