Eco Pointers

Will globalization and liberalization be a cause for celebration? Or will it spell a tragic turn of events for local businessmen? Economist and writer Dr. Walden Bello analyzes the effects of the retail trade lib on the country's economic landscape.

Ms. Asia´s Waterloo

Throughout Southeast Asia, reaction is setting in to the policies of globalization and liberalization promoted by multilateral agencies such as the World Trade Organization (WTO) and the International Monetary Fund (IMF). In Indonesia, small merchants are pushing the government to oppose further liberalization as big foreign marketing giants like French-owned Carrefour have, in a few short years, achieved an overwhelming position in retail trade.

In Thailand, small retailers threw their support behind Prime Minister Thaksin Shinawatra’s Thai Rak Thai ("Thais Helping Thais") Party during the recent elections. They hope the new government would take up the cudgels for them in their battle against Carrefour, Makro, Tesco, and other giants that are now said to control over 50 percent of retail trade.

In the Philippines, the Philippine Congress denationalized retail trade last year, under pressure from the now-ousted Estrada administration. It is likely that, despite some safeguards in the Retail Trade Liberalization Law, the country is poised to repeat the experience of Thailand and Indonesia.

This would be tragic since retail is a great absorber of labor. As analyst Rolando Hiro Vaswani points out, with its low barriers to entry, the retail trade sector employs some 11 percent of the work force, or over three million people.

"Even the World Bank has warned that the retail trade sector is the economy’s safety net," says Vaswani. "It absorbs rural people being displaced from agriculture and urban workers being displaced by industrial downturns. It is the national shock absorber. You open it up to foreign participation and you will likely see a rise in open unemployment, with all the implications for social stability."

." The landscape will be changed in other ways. With over 200,000 retail outlets, the Philippines has had one of the best ratios of retail outlets to population, according to an AC Nielsen study, with one grocery store servicing 321 people, compared to 1,531 in Japan, 1,503 in Hong Kong, 876 in Singapore, and 509 in Malaysia. This situation was one of intense competition, and it was good for consumers.

As Edmundo Aguila, a director of the small and medium retailers group Katapat, claims, "the intense competition has made the margin of profit in Philippine retailing the lowest in Asia and possibly the world."

The entry of the big foreign players will change all that.

Is this a Hollywood horror scenario? Not at all if one looks at the experience with Wal-Mart in the United States. Wal-Mart, whose sales of $130 billion is around 40 percent bigger than the Philippines’ GNP, is likely to be one of the beneficiaries of liberalization in Asia, along with mass retailing giants like Carrefour, Auchan, Mitsukoshi, Sogo, and Tesco.

Analyst Donella Meadows reports that in Massachusetts, a typical Wal-Mart adds 140 jobs but destroys 230 higher paying jobs. In Iowa, "within three or four years of Wal-Mart’s arrival, retail sales [of competitors] within a 20-mile radius goes down by 25 percent; 20 to 350 miles away, sales go down by 10 percent."

In the US as a whole, some 17,000 retail firms have been going bankrupt annually since 1991, partly as a result of the predatory pricing practices of mega-retailers like Wal-Mart.

As Canadian journalist and bestselling writer Naomi Klein points out, so deep are the reserves of this transnational giant that many of its smaller competitors claim they pay more for their goods wholesale than Wal-Mart charges retail. In the US, Wal-Mart and other mega-retailers like Home Depot and Makro "are all known as ‘category killers’ because they enter a category with so much buying power that they almost instantly kill the smaller companies."

That is the first phase. Once they dominate a market, the giants resort to controlled, oligopolistic pricing. In Britain, for instance, control of the retail trade by mega-retailers has resulted in consumers spending 40 to 60 percent more on food, cars, and computers than elsewhere in Europe, where retailing is much less concentrated.

Groups like Katapat, the Philippine Retailers Association, and the National Market Vendors Cooperative pointed out the dangers of denationalizing and liberalizing retail trade during a five-year long debate over the liberalization of retail trade. However, interests seeking partnerships with the big transnationals like the Lopezes and Henry Sy threw their support behind the American Chamber of Commerce and the Australian-New Zealand Chamber of Commerce to win the denationalization of retail trade.

This behavior is not at all strange, according to Jimmy Regalario, secretary general of Katapat, who claims that the big Filipino retailers see the concentration of global retail trade in the hands of some 20 transnationals as inevitable.

"They are smart people," Regalario says, "and they have come to the conclusion that when it comes to retail, they would prefer to move from a competitive stance and specialize primarily in providing space or real estate for the transnationals."

Local-foreign partnerships will overshadow local-foreign rivalry, with the result being "not free market competition but controlled monopolistic competition marked by higher and higher prices at the retail level, as in the oil industry."

The big boys will survive. The small players will be thrown to the wolves. Unless, of course, we as a nation develop the political will to oppose and reverse this process of globalization and liberalization whose advocates fraudulently claim will shower benefits on all of us.

ABOUT THE AUTHOR:

Dr. Walden Bello is a professor of sociology and public administration at the University of the Philippines and co-director of Focus on the Global South, a research, analysis, and advocacy program of the Chulalongkorn University Social Research Institute in Bangkok, Thailand. He is also the author and co-author of numerous articles and ten books on Asian political and economic issues, including Dragons in Distress: Asia’s Miracle Economies in Crisis (London:Penguin, 1991) and the recently published A Siamese Tragedy: Development and Disintegration in Modern Thailand (London: Zed 1998). Dr. Bello is also a columnist of the Far Eastern Economic Review.

HIGHLIGHTS:

1. Tragedy number 1 ­ "Retail is the economy’s safety net, employing some 11 percent of the work force, or over three million people. Foreign participation will give rise to open unemployment, with all the implications for social stability."
2. Tragedy number 2 ­ "Partly as a result of the predatory pricing practices of mega-retailers like Wal-Mart, some 17,000 retail firms have been going bankrupt annually since 1991 in the United States. With so much buying power, these retail giants almost instantly kill the smaller companies."