Thoughts on Economics

Vol. 18, No. 01

Impact and Consequences of Globalization in

Bangladesh Insurance Industry

K.M. Mortuza Ali*

Globalization means the breakdown of boundaries. Every country rich or poor would have access to the markets of other country. As a matter of right, the rich will have access to the markets of the poor and the poor countries would have access to the markets of the rich. This sounds quite fair as it will be a borderless world. Everyone will be equal citizens of the globe. But what is apprehended by many that this might lead to loss of the independence of the poor countries. This is simply because the poor may lose their economic independence under globalization. If there is only one global entity, there can not be nations and or can not be independence of nations.

The entrepreneurs of developing countries can not compete successfully with the market giants of the west. The effect of economic globalization would be the demise of the small companies of the developing poor countries. Large multinational companies in the developed countries will take over everything. It is also apprehended that a globalized world is going to belong to the powerful dominant countries. They will impose their will on the rest, who will be no better off than when they were colonies of the rich. We are afraid, that in the name of globalization, the process of re-colonization has begun.

Challenges and O pportunities

We are being repeatedly told by the proponents of globalization that the poor countries like Bangladesh will be immensely benefited because of the free flow of capital. It is true that for many developing countries, capital inflows have brought about unprecedented economic growth. But it is also true that capital can flow out and when it does, these countries can be bankrupted.

We observe from the present world market scenario that large banks, insurance companies and corporations of the world are merging and acquiring each other to become even bigger. It is very likely that these super giants will move into local businesses of the poor countries. This will guarantee success for them because of economies of scale. The poor countries are also likely to get benefits by way of employment, cheaper products, quality products, better services etc.

*Managing Director, Prime Islami Life Insurance Ltd.

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May be the quality of our life will improve, may be we will earn more pay. But we will be servants of foreigners. It will be worse when super-giants will control our economy and eventually our governments. Therefore, the real challenge for us is to get benefits of globalization and at the same time to protect ourselves from being exploited.

We shall have to reduce the chances of destroying our economy and independence. We shall have to make rules, regulations, laws and policies to guard ourselves. If we have to regulate trade and services, in order to get benefit from globalization, we must do it. We need to change the concept of globalization for our existence, so that it poses less danger or no harm. Globalization and free trade is not synonymous. Liberalization and deregulation is also not synonymous. What we need now is re-regulations. We need new sets of rules and regulations to face the opportunities and challenges of globalization.

In this respect, the poor countries need to work together. They should plan and execute those for the betterment of their people. We need to interpret the concept of globalization for the benefit of their common people and for that matter we must insist on the rights of our people to cross into the rich countries. We do not have capital to invest in abroad, but we have human resources which should be allowed to move freely around the world. By exporting manpower, we must try to have our due share in the free market economy. If this is not done, we will be faced with tremendous challenge. Globalization in the form that it takes now is a threat against us, and we must help ourselves to get the Devine help from our Creator.

What S trategies W e N eed to Adopt ?

First of all, the developing countries must realize, that it is high time we must be free to decide our future for ourselves. It is extremely important for us to empower ourselves, to think for ourselves to ensure that we have the will and wit to decide our own destiny. Our planners and policy makers should be bold enough to reject those prescriptions of IMF and World Bank, which are not conducive to our own environment and strategies of mass development. We can not allow our economy to grow in a fashion, which will create few hundred or thousand billionere at the cost of the common people.

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Second most important thing that we need to do is to accept the hard reality with firmness and boldness. Whether we like it or not the process of globalization has began. There are many good and bad aspects of globalization. We, therefore, should not simply turn our back or should not embrace it blindly. We should be able to analyze the good and bad effects of it.

We will have to embrace the good and eliminate the bad by rational thinking and wisdom. We must have the far-sightedness, as well as strategies to prepare ourselves. The impacts of globalization will be beneficial to us if we are ready in all respect. We must prepare the standards of ethics, code of conduct of all the players in the market. We must make the grounds ready for accepting the giants. We need to strengthen the moral and financial backbone of the local enterprises. We need to change the mental make up of our entrepreneurs, professionals, bureaucrats, and consumers at large. We should behave rationally and responsibly in the new era.

Furthermore, corruption need to be abated to full extent. Otherwise we will lose in the game. If we fail to create, a corruption free society, the fruits will be eaten up by the vested interest groups and mass people will be deprived again. We must be cautious from the very beginning, because the giants are ready but we are not. They are powerful not only financially but also tactically. They know all the tricks to influence the so called intellectuals. They can buy everyone-the politicians, the professionals, the business community. They can pressurize the entire government machineries to change and or make the laws in their favour, which will be good for them and not necessarily good for us.

If we fail to create an awareness about the good and bad effects of globalization, the waves of globalization will drive us in the deep sea. Our minds will be invaded by them. They will change our thoughts, ideas, values, and religious beliefs. If we want to avoid being swallowed up by the giants, we must know well that globalization is not just about material wealth, but also about values. We must understand the impact of globalization and must realize that we shall have to face it with our will power to overcome the odds.

The poor countries must unite not only to face the process of globalization, but also to interpret it in its right direction. If globalization is properly interpreted and practised, it can result in a more

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equitable world order. If it is badly interpreted, it can destroy the poor. For example, if globalization implies integration of all countries (rich and poor) into one single global entity, then workers, specially the unemployed poor people should be allowed to move freely across the borders. The advocates of globalization must understand that if money is capital for the rich, labour is the capital for poor countries. If this is allowed, cost of production and living of the rich countries would be lower, and will also ensure more remittances to poor countries. The west must realize that globalization must be for the good of everyone and it must be proven to be good for everyone.

Finally, in order to ensure justice and to prevent interference in local affairs, we need regulation. This is necessary because competition is not between equals. Foreign owners are not interested in the social problems of poor countries. They want to maximize profits. For that matter in subtle ways or overtly they will try to interfere in local affairs to protect their unabated right of making profit unless they are regulated. The making of profit should not be regarded as a sin. But profiteering, the exploitation of the poor should be made punishable. We need to be pragmatic and flexible. Globalization should not be viewed as an end in itself, but as a means to an end i.e. better life of our common people and continued freedom from foreign domination.

Facing the Challenge

It is being argued repeatedly that the concept of free market should be accepted by all religiously. However, we observe that the free market is no more than a new name of capitalism. The free market is about maximizing profits. It is not a social organization intended to cure social ills. In the unregulated free market, the weaker and smaller groups will lose and be destroyed by the stronger. Eventually, there can be only one player in one industry. It must be realized that capital inflow can create wealth, but at the same time it can bring about economic and financial disasters as demonstrated by the Asian financial crisis of nineties. Therefore, Globalization be regulated to minimize abuses of the system. A level playing field is a term invented by the rich to employ fair competition. But, what is forgotten is that the players on the field must also be evenly matched.

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It seems that globalization is irresistible. But, this does not mean we should just sit by and watch what is happening. All of us be prepared to accept it. Globalization of course can bring about a better world, if we are ready for it and ready to face the consequences prudently as well as patriotically. We should always be on the lookout for adverse consequences. We must be prepared to take corrective measures in order to ensure that these adverse consequences will not befall us. We must proceed cautiously with globalization. We should not reject globalization altogether.

The world is indeed getting smaller and we are all getting closer to one a other. Nothing happens in one part of the world that does not affect other parts. We can no longer isolate ourselves. No man, no nation, is an island. Globalization is the inevitable consequence of information technology. What is needed now is its careful management. We must now face the challenge of globalization. No one is going to wait for us to get ready for the challenge. So whether we like it or not, we have to face the challenge. The only way that the weak can face any challenge is to present a united front. Through smart partnerships, the poor countries can strengthen each other. We are not without resources. By exchanging our experiences with the other developing countries, we can learn to do what is right and avoid the mistakes that any one of us may have made.

Impact of Globalization on Insurance

The main arguments for liberalization of insurance is that the new order of free trade and services would speed up development and improve the living standard and quality of life in the developing world. On the other hand globalization is viewed as a new form of colonization by the big multinationals and corporations because their home markets are offering little for growth. Many may think that the impact of liberalization in the insurance market will be positive as it means more choices for consumers, who can chose from the different service providers. However, the die hards argue that insurance being so fundamental to keeping the wheels of the economy, it can not be fully liberalized to the foreign sector.

The WTO rules for insurance do not lay down minimum capital requirements, solvency margins, or if there should be a tariff. What is required under market opening measures is that the rules should treat local and foreign insurers uniformly. It further requires that foreign

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companies should be allowed to set up in the local market just as other local companies and that any rules relating to insurance should not be discriminatory in favour of local companies or against foreign companies.

In theory, this will promote greater efficiency, greater professionalism in the market, introduction of more products and services and increase in the size of the market. It is argued that multinationals can also help to create more consumer confidence and improve market conduct practices. They can also enhance the stability and image of the industry by encouraging financial transparency and the adherence to internationally accepted disclosure requirements.

However, the basic fear of liberalization is that it will affect the status quo and local companies must fight to maintain their market shares, with their survival being at stake. Cut throat competition can then threaten the financial stability of local companies and hence will affect the health of the insurance industry. The multinationals would have the advantage of an extensive global networking and of better access to the international reinsurance market. Furthermore, large companies can offer better services at cheaper cost, good staff will be lured away with high salaries. As a result smaller insurers would need to consolidate, merge or establish joint ventures and increase their efficiency.

What W e N eed to do

To compete and survive, local insurers can not continue to follow past practices. They must be proactive, before the time to act expires. The local insurers should prepare themselves by making out and executing a realistic set of initiatives that will position it for long term success. The basic pre requisition to succeed in the market are :