Schneider
4623 words
Frederick
International political Economy
Taking altogether economic globalisation has had positive effects so far. Evaluate.
Discussion about globalisation is one of the most passionate in the field of economics.
While some see it as a huge opportunity to allocate resources in the most optimal way
worldwide, others accuse international institutions and rich countries promoting it of
exploitation of the Third World.
There is no doubt about the fact that globalisation is a complex set of
processes which cannot be assessed easily. One of the origins of the divergence in
view about it is because all the commentators do not mean exactly the same thing
when they speak about globalisation. In fact, there is no single definition of this
concept. It can be seen very narrowly as the free trade among countries or very
broadly as a force which not only determines (or puts into a framework) policy
outputs in different countries but also drives the changes in political relations, in
cultural convergence, in making peace, but also in provoking wars. As we will see
later, some even believe that there is no globalization at all. Joseph Stiglitz defines it
as “closer integration of countries and peoples of the world which has been brought
about by enormous reduction of costs of transportation and communication and
breaking down of artificial barriers to flow of goods, services, capital, knowledge and
people across borders.”1 He stresses that this has been accompanied by the emergence
of international institutions which aim to regulate and to promote these processes. He
says that parallel to that an international civil society emerged.2 We will use his
definition of globalization in this paper, as it is seen as a compromise between this
describing it simply as a free trade system and the broad vision which encompasses
also global political, cultural, environmental and security aspects. This doesn’t mean
that those two other definitions are wrong, but that the concept pf globalisation as
defined by Stiglitz will be useful for the purposes this paper.
Globalisation is not a static idea, but a dynamic concept. It is why, a
temporary framework is needed. We will describe it as a process which began in 1945
and grew progressively until the present moment (although it was not a linear
progression). This is not the first period of free trade in mankind history (the years
between 1870 and 1914 were also characterised by an intensive trade among
1
2
Stiglitz, J. 2002. Globalization and its discontents. Penguin Books: London, p. 9.
Ibidem.
countries3), but the idea of globalization didn’t appear previously, as the impression of
leaving in a globalised world due to the removal of borders controls, rapid means of
transportation and telecommunications, and transborder networks was not present yet
at this time.
So, what are the arguments of the defenders of globalisation and of its
opponents? How credible are they? Are opponents of globalisation opposed to free
trade in general or do they just protest against the present regulation of this process?
First, we will analyse globalisation in general. We will briefly introduce the
theoretical framework concerning it, evaluate different arguments for and against free
trade, and wonder whether we live in a globalised world. Second, we will see the
consequences of globalisation in different regions of our planet. To analyse each
region would be too long and useless for the purpose of this paper, therefore just some
examples will be picked up. Europe, the ASEAN, Pakistan, Chile, China, and India
will be presented very briefly and particular emphasis will be put on the four “Asian
Dragons” to see why these countries in particular were able to take advantage of
globalisation and whether in would be possible for some African countries to follow
their example. Third, the Uruguay Round will be assessed. Some see it as an
opportunity for the Third World, others perceive it as a threat for those less developed
countries. Fourth, we will speak about globalisation of economic policies. The IMF
and the World Bank encourage certain economic policies known as the “Washington
Consensus”. Moreover, the competition among states induced by globalisation oblige
governments to stay in a more or less broad liberal framework. Parts 3 and 4 have
been split formally to make the work and its structure easier to understand and can be
seen as a single part as they both concern institutions and organizations linked with
globalisation and as they are shorter.
3
Hirst, P. Thompson. G. 1996. Globalization in Question. Polity press: Oxford.
O’ Hearn. D. Is Trade an Agent of Development? In McCloskey, S (edited by). 2003.
From the local to the global, Pluto: London.
I)
About economic globalisation, its benefits and costs in general
The father of modern economics, Adam Smith, did not concentrate much on
international trade. However, he stresses that because of comparative costs, vent for
surplus and the perspective of productivity increase, free trade can be a factor of
growth for underdeveloped countries.4 In the wake of the smithian thought, David
Ricardo introduces the concept of comparative advantages. He takes the imaginary
example of England and Portugal producing two goods: textile and wine. He says that
if a country is better in producing textile and the other in producing textile, both will
benefit of a specialization in these two sectors. That are absolute advantages.
However, even if England is more efficient in producing both wine and textile, these
two countries should specialize in one of the areas (in this in which they have
comparative advantages).5 Malthus says that free trade is an opportunity for
developing countries, because there suffer from a lack of demand on the domestic
market as the citizens can not afford to buy all the goods. External market represent
an interesting opportunity for the suppliers to grow.6 John Stuart Mill adds a
contribution to these arguments speaking about indirect effects. In fact, he says that an
extension of market means a deeper division of labour, a greater use of machinery and
makes entrepreneurs more likely to make inventions and improvements in the
processes of production.7
Karl Marx is the major theorist opposing free trade and he has inspired many
Marxist economists dealing with international trade. He argues that imperialism
emerges as the last stage of monopoly capitalism. According to him, capitalism
attempts to maximize the rate of exploitation and when the domestic market is totally
exploited, there is no alternative to expanding abroad.8
4
Pincus, J. 1967. Trade, Aid and Development- the Rich and Poor Nations, McGraw-Hill book
Company: New York, p. 94.
5
O’ Hearn. D. Is Trade an Agent of Development? In McCloskey, S (edited by). 2003. From the local
to the global, Pluto: London, p. 111.
6
Pincus, J. 1967. Trade, Aid and Development- the Rich and Poor Nations, McGraw-Hill book
Company: New York., p. 95
7
Idem, p. 98.
8
Pincus, J. 1967. Trade, Aid and Development- the Rich and Poor Nations, McGraw-Hill book
Company: New York, p. 102.
Undoubtedly, there are obvious advantages of free trade.9 Trade can occur
between rich countries or between poor countries, but the most vivid discussion about
globalisation concerns trade and investment between rich and poor countries. In fact,
free traders claim that it is a win-win game and protectionists warn that it is a danger
for workers in both developed and developing countries and that multinational
companies are the only ones to benefit.
The first argument put forward by free traders to show that rich countries can
benefit from intensive trade with third world countries is that it leads to much lower
prices. In fact, as the wages and social protection are much lower in developing
countries, the labour costs are hugely lower and, although the products have to be
transported from those countries, the prices of these imported products can be very
low. A study made by an American institute stresses that protectionism in the field of
textile and clothing costs American consumers $18 billion per year.10
Globalisation also means greater choice. Multinational companies are very
often implemented world and the consumers can chose among the national product
and foreign similar products coming from different countries.11
Higher incomes are the most obvious benefit for developing countries as a
result of trade with Western countries and of foreign direct investment coming from
those countries. As Joseph Stiglitz says, even low paying jobs at Nike are better than
growing rice for many people in different developing countries12. Moreover, western
investors bring with them technologies that developing countries can reproduce.
Globalisation can also lead to reduced inflation because high inflation makes
domestic products abroad less competitive. In some cases, free trade can even
decrease political corruption which may arise from lobbying for protectionism and
import licenses.13 Globalisation also leads to a certain interdependence among states
which potentially prevents wars. Moreover, in the Philippines, the World Bank (an
9
Idem, p. 123.
10
Dunkley, Graham, 1997. The Free Trade Adventure, Melbourne University Press:
Melbourne, p.147.
11
12
13
Idem, p. 144.
Stiglitz, J. 2002. Globalization and its discontents. Penguin Books: London, p. 4.
Dunkley, Graham, 1997. The Free Trade Adventure, Melbourne University Press:
Melbourne, p. 144.
emanation of globalisation) provided jobs to members of the guerrilla, which means
that globalisation can also end conflicts.14
C) Costs
However, only extremist economists deny that globalisation has also negative
effects. In fact, very often investments in Third World countries are a consequence of
relocations from First World countries. Numerous factories are closed in developed
countries and employees who were working there are laid off. Besides, very often
local producers can not compete with multinational companies which offer very low
prices because of the scale economies they make. It has also an adverse consequence
on the consumers because it can lead to uniformisation of goods rather than
diversification what was suggested above. In fact, if we take the sodas sector, if CocaCola Company has very low prices with which no one can compete, all competing
companies will have to close. Joseph Stiglitz stresses that Uniliver ice creams led to
the collapse of many local ice cream makers around the world.15 Superiority of
international huge competitors on domestic ones is particularly true when it concerns
infant industries of the country. Mahatma Gandhi said that unrestricted entry of
foreign products proved disastrous for many of India’s indigenous industries.16
Moreover, Stiglitz affirms that globalisation has been an important factor of
increasing poverty. He says that in the 90s the number of people in poverty increased
by 100 million, while the World GDP grow by 2,5% per year.17 This means also
obviously increasing inequalities. The gap between the poorest and the richest
countries increases constantly. The richest 20% of earth’s people earn 85% of world
income.18 Globalisation also increases disparities within nations. “ Coastal provinces
[in China] have the grand advantages of access to the global market, and therefore
14
15
16
Stiglitz, J. 2002. Globalization and its discontents. Penguin Books: London, p. 5.
Idem, 55.
Carl, B. 2001. Trade and the Developing World in the 21st century, Transnational
Publishers: New York, p. 460.
17
18
Stiglitz, J. 2002. Globalization and its discontents. Penguin Books: London, p. 5.
Carl, B. 2001. Trade and the Developing World in the 21st century, Transnational
Publishers: New York, p. 457.
they are more prosperous”.19 About 300 million in the West of this country have
standards similar to these known in Western Europe and the remaining billion of
people lives in poverty. Mexico20, Brazil and India know similar problems. Moreover,
crises due to globalisation have led to urban violence in Latin America and to ethnic
conflicts in Indonesia21, so we see that the link between globalisation and less
violence and peace is not automatic.
D) Wrong assumptions?
Protectionists claim that free trade theories are wrong because they are based
on wrong assumptions. In reality, markets do not work perfectly with simplistic
models which assume perfect competition and information.22 Free traders also assume
that there are high elasticities, which is not always true.23 They are also blamed for
having created a static model and for non taking into account unequal terms of trade.24
E) Are we in a globalised world? 26-27
Until now, we have assumed that we live in a globalised world. However,
before we move on, we should wonder whether it is actually true. In fact, economists
such as Hirst and Thompson assert that the idea according to which the world is
dominated by uncontrollable market forces is wrong.25 National states still have their
sovereignty and they can act autonomously. Increased foreign trade and increased
international flows of capital do not mean necessarily that globalisation is a reality.26
They argue that the world is in reality nowadays an inter-national economy, which
means that nations remain the main actors. They say that national autonomy is greater
now than under the gold exchange standard and that the current economic
19
Womack, B. Zhao, G. The many worlds of Chinese provinces: foreign and trade diversification in
Segal, G. Goodman, D. 1994. China deconstructs- politics, trade and regionalism. Routledge: London,
p. 169.
20
Carl, B. 2001. Trade and the Developing World in the 21st century, Transnational
Publishers: New York, p. 461.
21
Stiglitz, J. 2002. Globalization and its discontents. Penguin Books: London, p. 8.
Idem, xi.
22
23
Dunkley, Graham, 1997. The Free Trade Adventure, Melbourne University Press:
Melbourne, p. 141.
O’ Hearn. D. Is Trade an Agent of Development? In McCloskey, S (edited by). 2003. From the local
to the global, Pluto: London, p. 111.
24
25
26
Hirst, P. Thompson. G. 1996. Globalization in Question. Polity press: Oxford, p. 1.
Idem, p. 6.
environment is less open than between 1870 and 1914.27 They believe that we could
speak of a globalised world if markets and production would become truly global.28
However, this interpretation depends on the definition of globalisation they have. It is
true that politicians often abuse of the concept of globalisation to explain painful
reforms and to justify the lack of efficiency of their policies. It is true that markets are
not totally uncontrolled. But it is also true that the world tends to have lower custom
tariffs and that you can have a single car assembled in Europe using technology from
the United States, parts from East Asia and raw materials from Africa.
II)
How successful has globalisation been in different regions of the world?
We have seen the advantages and the costs induced by globalisation. We should
show now the repartition of these around the world, the two variables being the time
and the space.
If we take 1945 as a starting point, Western Europe was undoubtedly the first
country that has hugely benefited from globalisation. The average GDP in this part of
the world was the half of the American one after the destructive Second World War.
Western Europe never filled the gap and still lags behind the World superpower but
the decrease of the difference of development between these two regions between
1945 and 1973 was impressive. Of course, there were internal factors explaining that,
each country made internal economic reforms but “reduction of barriers to both
imports and exports contributed appreciably to the growth of some European
countries.”29 “Globalisation brought incontestable welfare gains to Europe through
enhanced international division of labour”30. Western European countries specialized
in specific sectors and started to export goods from this sector to other Western
European countries, but also to the United States and to the rest of the world. As they
were not able to rebuild all the sectors destroyed during the war, imports were also
very useful to these countries to satisfy to needs of the consumers.
27
28
Idem, p. 49.
Idem, p. 10.
29
Denison, E. Chung, W. 1976. How Japan’s economy grew so fast?, Brooking
Institution, Washington, p. 89.
30
Schwanhold, E. Pfender, R. German and European Responses to Globalization, in Dettke, D (edited
by). 1998. The challenge of Globalization for Germany’s social democracy. Berghahn Books: Oxford,
p. 20.
But this is nothing compared to the benefit from globalisation that the four Asian
“Dragons” were able to take. South Korea and Taiwan were poor countries after the
Second World War (Taiwan’s GDP per capita reached $100 in 1947, which was
similar to the level of the GDP in India31). The situation of Hong Kong and Singapore
was better, but these countries were far from the development of the industrialized
countries. But in the 50s, all these four countries started an intensive industrialization.
They realised that the import substitution industrialization was a self limiting process
and they began rapidly an export-oriented one. They started a diversification of
exports in the 70s, more skill and capital intensive products have gained ground in the
Asian NICs.32 Electrical machinery increased dramatically with a more than 50%
increase in the share of product category in manufactured export. As a result, total
export grew on average of 25% annually in the 70s. We should also stress, that
imports also rose rapidly, because some think that you must have a high level of
exports and a low level of imports to develop properly, which is not true. Ratios of
exports to GNP in 82-83 reached 76% in Hong Kong, 138% in Singapore, 42% in
South Korea, and 49% in Taiwan, but ratios of imports to GNP were even higher
(respectively 84%, 183%, 46% and 41%).33 Someone could argue that these are very
small countries and that this example does not really show that globalisation is
advantageous for the world. However, it shows that there is a potential in opening up
for huge economic growth and industrialization. Therefore, the reasons of this success
should be analysed more deeply to see whether the East Asian model could be
exported to other regions of the world. Looking at the Asian dragons, we see that the
conditions to have export-oriented development are: more efficient allocation of
resources; flexibility in resource deployment; ability to captive dynamic gains
associated with export-oriented strategy; competitive abilities arising from production
for contestable markets abroad; good work habit; and learning of the managerial and
technological skills.34
It is not surprising that the direct neighbours of the Asian Dragons, the members
of the ASEAN (Association of Southeast Asian Nations) tried to follow their example
31
32
Vogel, E, 1991, The Four Little Dragons, Harvard University Press: London, p. 15.
Hughes, H. 1988. Achieving Industrialization in East Asia, Cambridge University
Press: Cambridge, p. 84.
33
34
Idem, p. 64.
Idem, p. 92.
(even before the association was formed). These countries first developed import
substitution industries but this failed to generate sustained manufacturing output and
employment growth. Therefore, they tried to make an export-oriented policy similar
to this in the Dragons. In Malaysia for example, the Investment Incentive Act was
endorsed in 1968 and it provided incentives to producers and exports.35 The effects of
these policies were not as positive as in the Asian Dragons, but Malaysia and
Thailand have achieved real annual growth of manufacturing in excess of 10% in the
60, which can already be regarded as a success.
The spread reached also other countries in Asia. Although it was not as successful as
the Four NICs, Pakistan had also an industrialization open on the world and “in
general one can see rapid changes within industrial sector which were related to (…)
considerable growth of manufactured exports”.36 China started a progressive
liberalisation of its economy in 1979 and has a two-digit growth almost every year
since thirty years. India also followed the path of internal and external liberalisation
and became a leader country in different industries such as computing.
Success in opening up has not only happened on the Eurasian continent. Chile for
example has also benefited from globalisation. Between 1974 and 1979, Chile was
transformed from a highly closed economy into a totally open economy. This resulted
in very important improvement of efficiency and productivity in the manufacturing
sector. Non traditional exports diversified and grew very fast in this country. Because
of the parallel increase of imports, number of goods became accessible to lower
middle class and to blue collar workers. This includes TV sets, washing machines and
cars.37
So, of course, there are regions which did not know such a dynamic growth.
Very often Africa is quoted as an example of abandoned continent which did not
profit from globalisation. According to Joseph Stiglitz, “Sub-Saharan Africa saw its
income decline by more than 2% as a result of trade agreements”.38 Beverly Carl
35
Ariff, M. Hill, H. 1989. Export-oriented Industrialization: the ASEAN experience, Allen and
Unwin: London, p. 20.
36
Lewis, S. 1970. Pakistan- Industrialization and Trade Policies, Oxford University Press: Oxford, p.
15.
37
Edwards, S. Edwards A. 1987. Monetarism and Liberalization- the Chilean
Experiment. University of Chicago Press: Chicago, p. 131.
38
Stiglitz, J. 2002. Globalization and its discontents. Penguin Books: London, p. 61.
asserts that Africans are eating 10% less than 20 years ago.39 African’s share of
developing countries exports declined between 1960 and 1978 concerning the main
export products of Africa such as palm oil, ground nut oil, maize, bananas and cocoa.
The oil crises in the 70s have provoked fluctuations in primary goods prices. This
made the Africa’ external economic environment very difficult. No one denies that
Africa suffers from declining terms of trade. Some see it as a natural process and
others perceive it as a sign of western imperialism, but the result is the same: Africa
earns less and less on its exports and spends more and more on its imports. Moreover,
there is a problem of accessibility of markets for African exporters because they
suffer from Western protectionism on products that could potentially be exported
from Africa and of lack of knowledge.40 So the question is whether Africa could
follow the path taken by the Asian Dragons. In fact, free traders argue that
development through globalisation is only a matter of time: in the 40s and the 50s, it
was beneficial to Western Europe, in the 60s to the Asian Dragons, in the 70s to the
ASEAN countries and then to the two Asian giants (China and India) and to different
countries in Latin America. Sub-Saharan Africa would be logically the next to come.
However, ironically, the presence of minerals for example is said to be a bad thing for
the growth potential of Africa.41 In fact, it encourages African countries and foreign
investors to concentrate on their exploitation and not on modernisation of
infrastructure or industrialisation. The paradox is that the lack of raw materials in
South Korea, Taiwan, Hong Kong and Singapore was the engine of their post-Second
World War growth. This forced these countries to industrialise. On the contrary,
ASEAN members (except Singapore) had raw materials and this is why they did not
succeed as much as the Dragons. Moreover, Africa suffers from a huge lack of initial
diversification. Therefore, the potential of diversification is low. This potential is also
limited by the high level of illiteracy in Africa: this continent will certainly not be
able to specialise rapidly in skills intensive production like South Korea did. So, to
conclude, we can say, as Joseph Stiglitz does, that “removal of barriers to free trade
and closer integration of national economies can be a force a force for good and that it
39
Carl, B. 2001. Trade and the Developing World in the 21st century, Transnational
Publishers: New York, p. 466.
Lewis, S (jr). Africa’s Trade and the World Economy, in Berg, R (edited by). 1986. Strategies for
African Development, University of California: Berkeley, p. 481.
41
Ibidem.
40
has the potential to enrich everyone in the world, particularly the poor”42, but that in
the present moment different internal and external factors make that regions such as
Sub-Saharan Africa suffer more than they benefit from globalisation. Stiglitz
compares small developing countries to small boats. A rapid trade and capital markets
liberalization for these countries is like putting small boats on a rough sea before the
captain has received training, life vest put on board and hols in their hulls repaired.43
However, the costs of “non globalisation” seem even higher. Totally isolated
countries such as North Korea and Cuba know a very deep poverty. They lack
technologies and stimulations to innovate. So, isolation is not really an alternative.
The question is more how to benefit from globalisation than should we play the game
of globalisation.
III)
The Uruguay Round and the Creation of World Trade Organization: an
opportunity for the Third world or a manipulation by the First world?
All the free trade system we have spoken about corresponds to a precise set of
international rules. They have been first established by the signature of the General
Agreement on Tariffs and Trade in 1947. It concerned first only 23 countries but later
expand to almost all the countries of the world. Progressively, with the Annecy Round
in 1949, the Torquay Round in 1951, the Geneva round in 1955-1956, the Dillon
Round in 1960-1962, the Kennedy Round in 1964-1967, and the Uruguay Round
(which established the World Trade Organisation) in 1986-1993, world trade has been
liberalised. Currently, the Doha Round (started in 2001) attempts to bring even more
liberalisation.
For a long time, the GATT was a club of relevance to OECD countries.
Developing countries did not participate fully in the agreement. Generally, three
phases are distinguished. First, third World countries had a small scale membership.
They benefited from special treatment (1947-1964). Then, the phase of substantial
broadening of developing countries membership occurred. (1964-1986). Now (since
42
43
Stiglitz, J. 2002. Globalization and its discontents. Penguin Books: London, p. ix.
Idem, p. 17.
1986), we have a phase of deepening integration of those countries.44 The Uruguay
Round was in fact the most important in regard of the matter of integration. This made
it also the most controversial: some see it as a chance for the Third World, others call
it a manipulation made by the West.
Advocates of the Uruguay Round argue that it is a total nonsense to speak about
manipulation of less developed countries (LDCs) which would occur during the
negotiations, because LDCs actually “participated actively in the Uruguay Round
negotiations”.45 They say that actually lines of divergence did not even separate
countries rich from poor countries, but that they were different groups of countries
with specific interests. They quote the example of the Swiss-Colombian coalition
which included different medium-size countries from all other the world (as well rich
as poor ones) and which had a mediating role between the United States, the
European Union, Brazil and India. They assert that developing countries freely chose
free trade in the 80s as a result of debt crisis, the collapse of communism, and the
demonstration of efficiency of export-oriented policies (like those implemented by the
Asian Dragons). The Uruguay Round contains many favourable provisions for the
Third World: they have a lower level of obligations, developed countries declared that
they will take into account interests of developing countries and provide technical
assistance, and LDCs have more flexible implementation timetables.
Different estimations of the Uruguay Round benefits have been made.46 Peter
Sutherland, the GATT Director General, assured that it would bring peace, prosperity,
and that it would have only winners. He estimated that World GDP would grow by
1% thanks to the Uruguay Round. According to an official communication of the
White House, the Uruguay Round would be worth $6 trillion over 15 years. It was
said that the additional growth for China would be of 4,5%, for the Asian NICs 8,2%,
for Japan 2,7% and for the European Community 2,8%.47 However, all these
44
Hoekman, B. Kostecki, M. 2001. The political Economy of the world Trade System,
Oxford University Press: Oxford.Stiglitz, J. 2002. Globalization and its discontents,
London: Penguin Books, p. 385.
45
46
47
Idem, p. 381.
Idem, p. 392.
Dunkley, Graham, 1997. The Free Trade Adventure, Melbourne University Press:
Melbourne, p. 137.
estimations have been poorly argued. Free traders assured that if they would be any
losers of the Uruguay Round, the winners would compensate them.
However, opponents of the GATT have a totally opposite view. They claim
that Uruguay Round declines more and more terms of trade for LDCs and that it
increases inequalities. NICs are the winners of this agreement and the ACP (AfricaCaribbean- Pacific) countries lose. They speak also about a possible dangerous
reduction in world food stocks.48 They warn that Uruguay Round has a wide range of
socio-economic adjustment costs for the Third World, which leads to income loss,
social disruption, and involves retraining and relocation costs. They emphasize also
the loss of tariff revenues by governments. According to them, it is not true that poor
countries took part in the negotiations, they were rather passive spectators. They had
little understanding of what was going on and they are now paying dearly for that
ignorance. LDC can not even afford to bring a case to the WTO. 15 out of 38 SubSaharan countries belonging to the WTO had no resident representation in Geneva in
1999. Most of others have just one or two staffers.49
Opponents of the Uruguay Round also speak about Western hypocrisy. They
emphasise that it did not bring liberalisation of trade in the field of agriculture or
textile because rich countries feared that they would be able to compete in this area.
Level of agricultural subsidization within OECD countries jumped from $182 billion
in 19995 to $362 billion in 1998. Moreover, the WTO focuses especially on issues
that favour rich countries such as telecommunications, finance, TRIMS, and
intellectual properties. According to the UNCTAD, developing countries could export
an addition of $700 billion each year if developed countries would open their markets
more widely.50 Among many others, opponents of the Uruguay Round quote the
example of Thailand to show the adverse effects of liberalisation which resulted from
this round. Thailand liberalised the pig market and local breeders were pushed out and
48
Carl, B. 2001. Trade and the Developing World in the 21st century, Transnational
Publishers: New York, 466.
49
Hoekman, B. Kostecki, M. 2001. The political Economy of the world Trade System,
Oxford University Press: Oxford.Stiglitz, J. 2002. Globalization and its discontents,
London: Penguin Books, p. 396.
50
Ibidem.
repaced by agro-conglomerates, which led to a decrease of income of Thai farmers
from 38000 baht to 26 000 baht between 1995 and 1998.51
IV)
Globalisation of policies: the IMF, the World Bank, and competitiveness
This part is an extension of the previous one. Economic globalisation is, among
other things, the emergence of global institutions and organisations. In addition to the
GATT and the WTO, the world saw the emergence of the International Monetary
Fund (IMF) and the World Bank.
In its original conception, the IMF emerged as an organization to correct the
imperfection of the markets. Its spiritual father, John Maynard Keynes, believed that
markets do not work well and that there is a need of collective action at the global
level for global stability. But progressively it took a more liberal path. IMF’s goal is
to ensure stability. Previously, it has encouraged increase of expenditures, reducing
taxes and lowering interest rates. Now, it favours cutting deficits, raising taxes and
interest rates.52
The IMF and the World Bank had first distinctive policies. Now, they are
increasingly intertwined. The World Bank is more focused on structural issues such as
the content of public expenditures and the labour market. The World Bank rents
structural adjustment funds, but now it does it only if the IMF gave its approval.
Joseph Stiglitz, the former economist in chief of the World Bank, is the major
opponent of the instructions given by the IMF and the World Bank to different
countries. He stresses that their advices have led to the Asian and Russian crises in
1997 and 1998.53 In fact, they have been the result of the financial markets opening up,
which was encouraged by these organisations. He accuses also these organisations of
being at the origin of the deepening these crises. The IMF encouraged Russia and
South East Asia to focus on fighting inflation and closing collapsed banks. He stresses
that countries that have refused to follow this path have recovered more rapidly. He
51
Carl, B. 2001. Trade and the Developing World in the 21st century, Transnational
Publishers: New York, p. 465.
52
53
Stiglitz, J. 2002. Globalization and its discontents. Penguin Books: London, p. 12.
Idem, p. 144.
also affirms that states that did not want the help of the IMF such as Ethiopia and
Botswana performed better than their neighbours.54
We agree with Stiglitz that the IMF has been sometimes doctrinal in its
advices and that fighting inflation was probably not always the most crucial thing to
ensure stability and that privatisation and liberalisation of financial market did not
happen very often in the right way. However, Stiglitz is wrong when he says that
South Korea (during the Asian crisis) and Poland (during economic transformation)
did not follow the prescriptions of the IMF, which enabled them to develop or recover
faster. In reality, they did exactly what the IMF advised and this has helped them
truly.55 Generally speaking, the IMF had a crucial role in the recent development of
Central and Eastern Europe and Latin America.
The IMF and the World Bank advises certainly contributed to a convergence
in liberal economic policies. Competition among states is another bias of convergence
of economic policies induced by globalisation. Although it is true that growth in one
region does not induce recession in another, Paul Krugman is wrong saying that
countries do not compete in the world economy.56 It is obvious that an investor will
preferably chose a country which provided to it incentives to invest than another one.
Therefore, even left-wing parties in different countries in Europe took consciousness
of the importance of reducing labour costs to attract investors and be able to export
goods.57 We believe that this is beneficial for the consumers, because it leads to lower
prices.
54
55
Idem, p. 39.
Carl, B. 2001. Trade and the Developing World in the 21st century, Transnational
Publishers: New York.
56
Krugman, Paul. 1997. Pop Internationalism, Cambridge, Mass., London : MIT, p. 9.
Schwanhold, E. Pfender, R. German and European Responses to Globalization, in Dettke, D (edited
by). 1998. The challenge of Globalization for Germany’s social democracy. Berghahn Books: Oxford,
18-28.
57
To conclude, we can say that globalisation is a very complex phenomenon.
We believe that it has had more positive than negative effect so far, although it is not
possible to deny the adverse effects it has, especially on poor countries and on poor
people in developed countries (because of relocations which hurt mainly less qualified
workers). Arguments of the opponents of globalisation are understandable.
Undoubtedly inequalities between rich and poor have increased.
However, our position is that to stop globalisation would not be a solution. In the
contrary, free trade has not been successful especially in areas where in has
encountered obstacles and not where it has been completed. Therefore, we support
liberalisation of sectors such as agriculture and textile, which are still waiting.
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