Name: Aoife Redmond
Student Number: D16124480
Module: International Political Economy
Assignment Title: Examine the concept of globalisation and what impact it’s having on lesser developed nations
Submission Date: 29th November 2018
Declaration of Ownership: I declare that the attached work is entirely my own and that all sources have been acknowledged:?
Topic: Examine the concept of globalisation and what impact it’s having on lesser developed nations.
For the purpose of this essay I will be discussing the concept of globalisation while focusing on the impact that it is having and that it has had on lesser developed countries.
Globalisation is the integration of economies, industries, markets, cultures and policy-making around the world. It is the process by which national and regional economies and cultures have merged through global trading, communication, immigration and transportation. Initially globalisation focused on the economic elements of the world for example, trade and foreign direct investment etc. however, nowadays globalisation is very much recognised in a range of areas including culture, technology and politics (Financial Times, 2016). Globalisation involves reductions in barriers to transworld social contacts. People become more able – physically, legally, linguistically, culturally and psychologically – to engage with each other wherever on earth they might be (Jan Aart Scholte, (2008). One can easily relate anything to the concept of globalisation as it is so broad, diverse, vague and volatile (Naved Ahmad, 2005).
Globalisation is a theory that has been around for hundreds of years however, the more recent developments of globalisation can be dated back as far as the Bretton Woods meeting back in 1944 after WWII. At this time, the Third World was still heavily trapped in colonial power and had less than 1% of the world’s industrial capacity. The aim of this meeting was to consider how to rebuild the world’s economy as a result of the war. The Bretton Woods system started the fundamental shift of global economies towards different business modes, pushing towards Keynesian economies and neo-liberal economies which both led to the acceptance of more integrated global economies. (Jonathon Clapton, 2010). Keynes influence was at the heart of the development of macroeconomic ideology, he established the use of monetary and fiscal measures to control business cycles as well as ways to reduce the effects of recessions on an economy (Britannica, 2018). Keynes opposed the deregulation of financial systems and he insisted that in order to stimulate economic growth that capital should not be moved from one place to another.
At the Bretton Woods meeting several monetary rules were created in order to manage financial relations amongst the world’s major industrialised nations. The International Monetary Fund (IMF) and The International Bank for Reconstruction and Development were established at Bretton Woods (Britannica, 2018). The intended purpose of these systems was to regulate the global financial systems, which was not quite so straight forward.
Ghana ; Corruption
Back in the late 1950’s most Third World countries began to gain their independence back from colonial rulers. Their governments began to adopt the structuralist theory of development; the people recognised the importance of having a structured government and imposing taxes, enforcing legal systems etc. in order to create good policy within a country. Structuralist ideas for obtaining better governance include policies such as subsidiarity, free exit, independent courts and separation of powers. All of these policies were believed to have been the best option when it came to Third World countries operating independently. (Jacob, 2012).
That being said, Nkrumah, the Ghanaian president in 1960-64, went ahead with Nationalism theory. This is an ideology based on the premise that the individual’s loyalty and devotion to the nation-state surpasses other individual or group interests (Hans Kohn, 2018). He did so in order to create employment and to increase productivity in Ghana. Nkrumah realised that Ghana needed to be industrialised in order to keep up with the ever growing industrialisation of the world. Major projects began to be undertaken in Ghana. Roads, schools and hospitals were all built as part of this nationalist theory, in order to improve the country and make it more attractive to invest in. Nkrumah believed that electricity played a vital role in the success of industrialisation and therefore he became responsible for the Volta River Project which was one of the biggest projects in a Third World country during the 1960s. The project was funded by Valco, an aluminium company along with a loan of US$30 million from the World Bank. Here, we can see the huge influence of globalisation before globalisation had even occurred in a Third World country like Ghana. The preparation in order to attract global companies and to make the country attractive to investment can be seen in this example with Ghana. (Michael Gyamerah, 2002).
The IMF and The World Bank have been actively involved in manipulating the government of Ghana into accepting the privatisation of water services. They were able to do this by imposing conditions onto their ability to take out a bank loan, the main one being that in order to receive a loan; they have to comply with the condition of the policy in place stating their agreement with the privatisation of their water services. As a result, Ghanaians from rural areas must pay in order to receive water. Here we can see that while the IMF has been useful for Third World countries when it comes to assisting with their funding via loans and in time allowing multinational companies to enter the countries, they have also been manipulative and have abused their power over Third World countries. The IMF is allowed to do things like this due to the financial deregulation in terms of globalisation. (Sara Grusky, 2001).
1980 Debt Crisis ; Structural Adjustment Policies
In the developing world there was a financial crisis during the 1980’s. The world essentially experienced a debt crisis in which highly indebted developing regions and lesser developed countries (LDCs) were unable to repay their debts as a result of the policies that had been established by the IMF and the World Bank, which were originally meant to encourage globalisation. (Shah, 2010) These LDCs had to become more dependent on developed nations in terms of trade and employment.
Structural Adjustment Policies (SAPs) have been imposed to ensure debt repayment and that economies will be restructured. In order for these policies to function, the IMF had to get involved; urging the governments of LDCs to reduce their national government spending (Shah, 2010). They insisted that spending on health and education be reduced and conditions were enforced that LDCs had to follow. It should be mentioned that the conditions of these policies contributed towards the poverty in these LDCs while giving MNCs free reign to allocate their capital to different parts of the world, meaning that the LDCs were suffering and the people in these countries had to make great sacrifices while MNCs continued to thrive.
The conditions set out by the IMF Structural Adjustment Policies for LDCs were as follows; 1. to minimise the state’s role in the economy, 2. to privatise any state-owned companies and 3. reduce regulations to attract foreign investment, leading to the rise of MNCs. However, the outcome was not what had been anticipated. The poorer, less developed nations became overly dependent on the MNCs in terms of employment, for example. The LDCs were also exporting their own raw materials at cheaper prices in a way that benefited the corporations in the Western World. The smaller nations with a lower GDP were forced into the global market despite the fact that the IMF knew they would never be able to compete with larger developed nations (Shah, 2010).
The Structural Adjustment Policies resulted in increased corruption and undermined democracy as the LDCs governments were left accountable to the IMF and to the World Bank, instead of to their own people (Shah, 2010). The only way for LDCs to succeed and compete successfully in the global market would be if they have adequate education and healthcare systems as well as good infrastructure, however, due to the SAPs imposed by the IMF, the governments in these LDCs have had to cut their spending in these sectors in order to decrease national deficits. It became almost impossible for LDCs to complete with these global corporations due to their limited resources.
Due to the deregulation of finance, multinational corporations have the ability to move their capital and operate anywhere in the world. This sounds like a positive thing as it is a huge part of globalisation; however it is actually quite the opposite. Supported by international financial institutions, like the IMF, MNCs blatantly choose to ignore the most basic human rights and health and safety procedures in the factories that they choose to manufacture their products in. For these reasons there are many sweatshops all throughout the Third World and LDCs. The regulation is not in place to stop it, so MNCs abuse the rights of these people as they know that they will get away with it (Jonathon Clapton, 2010).
MNCs do not care about the poverty of its workers as long as their productivity is increased and that consumer demands are met. In most cases, the only factor that they care about is their profit and pleasing shareholders. This can be seen in Bangladesh. Disney and Wal-Mart employ “1.8 million garment workers from the ages 16-25 in 600 factories and sewing 900 million garments for the West”, even though Wal-Mart makes US$405 billion a year – fifty-five times more than the GDP of Bangladesh – it does not pay any taxes to the government of Bangladesh (Jonathon Clapton, 2010).
MNC’s have control over the governments and virtually control the economies of poorer nations. They have free reign to do whatever they want to do, they can even threaten to destroy the economies of LDCs by withdrawing foreign investment. Evidently this is a negative effect of globalisation in LDCs. The way in which MNCs operate can be viewed as a form of slavery due to the conditions and the power that the MNCs exert over LDCs. They truly do not care about the conditions or the pay of their workers as long as they are receiving their profits and creating sales. They manage to exploit poorer nations and take over the natural resources of a country. An example of this can be seen in Nigeria, where 60% of their oil goes to the Nigerian government while 40% goes to multinational corporations, due to the policies in place over the government (Jonathon Clapton, 2010). International financial institutions allow for this behaviour to take place as they know that the MNCs will increase employment in a country which reduces poverty as it gives the workers a wage to spend in the country which boosts the economy.
Cuba is perceived as being a Third World country, but the Cuban revolution led by Fidel Castro in 1970s brought a whole new dimension to the economy. The healthcare and food resources of the country were all upgraded, despite the trade blockade that Cuba experienced from the US are the collapse of the Soviet Union. Now, Cuba is the world leader in bio-medicine. This shows how the lack of corruption can benefit a nation. Cuba, despite being a Third World country has managed to cooperate with Venezuela in assisting them to build their own national healthcare system. Cuba has also assisted in the setting up of a strong defence for the Chavez administration. This shows that Castro’s democratic system was not corrupt, he developed a system that he knew could benefit the Cuban people, which it did while aiding another Latin American country. (Michael J. Bustamante, Julia E. Sweig, 2008).
Benefits of Globalisation
Globalisation has helped less developed countries to deal with and attempt to keep up with the increasing economic developments happening around the world which was near impossible in the past, this assists in reducing the poverty of these countries. The World Bank and IMF have encouraged LDCs to go through market reform meaning that they can reduce tariffs and free up their economies, encouraging trade. Globalisation has given jobs to poorer people in the lesser developed countries. Overall, health and education systems have benefitted due to the contribution of globalisation as they are the basic objectives to improve any nation and are often linked with economic growth (Xenia Madelin Bonilla, 2016).
Globalisation has resulted in flows of goods and services across borders, reductions in policy and transport barriers to trade, international capital flows, multinational activity, foreign direct investment, outsourcing, increased exposure to exchange rate volatility, and immigration all of which have contributed to the spread of technology, knowledge, culture, and information across borders (Pinelopi Koujianou Goldberg, Nina Pavcnik, 2004).
Globalisation gives developing countries access to Western markets and the ability to export their goods cheaply. There is now a worldwide market for companies and customers when it comes to accessing different products, there is a huge variety available. The internet is a huge benefit of globalisation and the use of the internet. Information travels so quickly allowing companies to do business together while in two totally different parts of the world (Mike Collins, 2015). Another benefit to globalisation is the ability to use “digital money” to purchase something or withdraw money from an ATM, without even needing to hold the physical currency of a particular country (Jan Aart Scholte, 2008).
Consequences of Globalisation
Globalisation has increased inequality in developing nations between the rich and the poor, the benefit is not universal, often it makes the rich richer and the poor poorer. It is said that globalisation is great for managers, owners and investors but when it comes to workers, it is a not so beneficial (Mike Collins, 2015). With an increase in trade and travel due to globalisation, diseases like AIDS, HIV, Swine flu etc. have the ability to move easily across borders. Another drawback of globalisation is the loss of highly educated and qualified professionals in developing countries, as they usually tend to migrate to developed countries for a better quality of life (Xenia Madelin Bonilla, 2016).
The differences in currencies can cause currency manipulation in order for some companies to receive a price advantage, which is a negative outcome for some LDCs who might end up receiving less than they deserve for their products. Despite the free trade agreements that have been put in place by the IMF, there are still many barriers, like VAT for example which is placed on imports making them quite expensive. MNCs tend to avoid paying taxes in the country that they are based in, which can be seen in the earlier example of Wal-Mart in Bangladesh. As well as the social injustice and unfair working conditions inflicted by MNCs they also disregard their corporate social responsibility with their lack of concern for the environment, the mismanagement of natural resources and the damage that they do to the world itself. There has been a huge increase in child labour too which has led to an increase in human trafficking in order to cheaply produce goods in different parts of the world (Mike Collins, 2015). The self-interested, multinational companies exploit the resources of developing countries and impair development. Wage inequality attributable to FDI as a result of globalisation is a major policy concern in developing countries. (Akinori Tomohara, Sadayuki Takii, 2011).
I have found that the best way to analyse globalisation and the effects on lesser developed countries was to apply the theory directly with examples in different countries as opposed to just providing the theory behind globalisation.
From all of my readings and studying of globalisation I think that it is obvious that globalisation does not come without the negative effects. I personally believe in globalisation and I think that it is vital for the success of economies and global expansion however the level of corruption involved with globalisation is definitely the reason why lesser developed countries are suffering from a lack of economic growth and the reason why they are suffering many of the drawbacks of globalisation. National interests are not at the heart of most governments decision making and as a result, MNCs are abusing their power and abusing the workers of these lesser developed countries.
Akinori Tomohara, Sadayuki Takii. (2011). Does globalization benefit developing countries? Effects of FDI on local wages. Journal of Policy Modelling. 33 (0), 512.
Anup Shah. (2013). Structural Adjustment—a Major Cause of Poverty. Available: http://www.globalissues.org/article/3/structural-adjustment-a-major-cause-of-poverty.
Britannica. (2018). Bretton Woods Conference. Available: https://www.britannica.com/event/Bretton-Woods-Conference.
Financial Times. (2016). Globalisation. Available: http://lexicon.ft.com/Term?term=globalisation.
Hans Kohn. (2018). Nationalism. Available: https://www.britannica.com/topic/nationalism.
Jacob. (2012). Structuralism: a movement for good governance. Available: https://athousandnations.com/2012/07/03/structuralism-a-movement-for-good-governance/.
Jan Aart Scholte. (2008). Defining Globalisation. The World Economy. 11 (0), 1478-1488.
Jonathon Clapton. (2010). The Effects of Globalisation on Less Developed Countries. Available: https://www.ivoryresearch.com/writers/jonathan-clapton-ivory-research-writer/.
Michael Gyamerah. (2002). Did Ghana Lose a Great Vision?. Available: https://www.ghanaweb.com/GhanaHomePage/NewsArchive/Nkrumah-s-Industrialization-Policy-27626.
Michael J. Bustamante and Julia E. Sweig. (2008). – The Annals of the American Academy of Political and Social Science. Public Diplomacy in a Changing World. 616, 223-256.
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Sara Grusky. (2001). IMF/World Bank Water Policies and the Price Paid by the Poor. Bearing the Burden of IMF and World Bank Policies. 22 (9)
The Pros And Cons Of Globalization. Available: https://www.forbes.com/sites/mikecollins/2015/05/06/the-pros-and-cons-of-globalization/#5efedf1fccce.
Xenia Madelin Bonilla. (2016). The Effects of Globalization on Developing Countries. Available: https://medium.com/@BonillaXM/the-effects-of-globalization-on-developing-countries-1e465257c400.