Sarah McClelland, Witold Piecuch
Research question: Why did conflict between the North and the South emerge in regard to trade and the WTO? What are the possible solutions and consequences?
1 Introduction
2 Methodology
1.
Choice of theories
2.
Definition of the North and South
3 Theory
1.
Neo-realism (SM)
2.
Neo-liberalism (SM: paragraphs 1, 5, 6; WP: paragraphs 2, 3, 4)
3.
Putnam’s two-level-game (WP)
4 Analysis
1.
Neoliberal approach to world trade (WP)
2.
Lack of trust from developing to the international regimes (the WTO, the IMF)
(SM)
3.
International institutions have not resolved the problems of developing nations
(SM)
4.
Neo-liberalism: How it has caused conflict to emerge? (SM)
5.
North’s protectionism and agriculture (WP)
Solutions
6.
North-South Redistribution (WP)
7.
South-South Cooperation (SM)
8.
Global Governance (SM)
5 Conclusion
Bibliography
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1 INTRODUCTION
Since World War II, trade liberalization has become prominent and as a consequence each country has responded differently based on their domestic economy, political situation, and development status. There is a broad division between the North and South according to how trade liberalization has impacted them and what it has to offer based on their economic capabilities. Generally, the Northern states are characterized by industrialization, free markets, productivity, technological innovations and a high gross domestic product per capita. On the contrary, the Southern states could be depicted by low productivity, subsistence farming, inadequate technology for mass production and a divisive gap between the rich and poor within their societies. These differences complicate relationships and alter perspectives of development and global trade. They make it difficult for countries from the North and South to come to mutual terms on trade policies. This project attempts to explain the reasons for conflict between the North and South in regard to trade.
In order to pinpoint the reasons why conflict has emerged, the theories of neo-realism, neo-liberalism, and the two-level game have been applied. Neo-realism is a theoretical approach to explaining the intentions of states based on their own needs and desires. Neo-realism attempts to explain the behaviors of states and the ways in which they respond and interact with one another. Neo-liberalism as an ideology of trade liberalization and should also be considered in this project as it impacts the structural level of domestic economies and their willingness to participate in trade agreements. The Putnam’s two-level game is a theory that explains state behavior when they try to balance international and domestic agendas.
Conflict between the North and South in regard to trade and the World Trade
Organization has emerged based on many circumstantial factors. There is a divisive gap in the world economy which the Northern nations have responded to with trade barriers to protect their own interests and maintain their economic dominance. Southern nations suffer from these barriers and constraints in trying to gain a prosperous interest in the world economy and market and find current and past policies unfair, viewing them as personal blows to their economic integrity and ability to flourish. These Southern nations, defined as developing countries primarily geographically located in the southern hemisphere, have become reliant on their ability
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to negotiate with and persuade developed nations to allocate them the aid they require in order to integrate into the world economy.. However, these negotiations often come with attachments imposed and designed by developed nations which can drastically restrict developing nations.
Many different approaches from developing nations have resulted in a variety of responses from developed nations. However, the success of these nations in the world economy is not the sole responsibility of developed nations. Developed nations can help them to help themselves, but still they need to develop and establish a domestic arena which is capable of higher productivity, allocating their resources (both human and natural) efficiently, and a willingness to respond to the economic demands of the world. If they maintain their focus on the resources, products, and crops they are already familiar with, they may not be seen as beneficial to the world economy.
Nations which have made the transition from developing to industrialized have incorporated aspects of sustained domestic growth and an unfaltering entrance into the world economy. In order to sustain their domestic growth, it often requires borrowing capital from developed nations and international financial organizations in order to establish technological advances which allow them to increase their efficiency to a level which generates production on a large scale enabling them to feed the world economy, not just sustain their own population’s needs.
When developed nations are unwilling or unable to assist developing nations by alleviating some of their financial and structural deficits, conflict emerges. The developing nations become resentful of the gap which sets them apart from the North, giving them a lower standard of living and fewer opportunities to prosper. Global inequality equates to countries from the North having more global wealth and political power. This influences perspectives, worldviews, causal beliefs, expectations, material self-interests, principled beliefs and emotions of both rich and poor nations which further complicates negotiations and economic harmony
(Roberts and Parks 2006: 26).
Determining the reasons conflict has emerged between the North and South in regard to trade will allow us to understand the roots of the problems which have prevented global economic equality thus creating an environment for widespread complications to develop.
Understanding the reasons for conflict will provide a baseboard upon which we can analyze the
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circumstances and policies which have caused problems to arise, and from there, we will be able to attempt to find solutions which could resolve these conflicts or alleviate some of the main concerns.
Resolving conflict in the trade arena is important and relevant for a multitude of reasons.
Firstly, equality of human living conditions and economic opportunities is a value that has become prominent, particularly in the Western world. Not only is it a humanitarian issue of relieving citizens of developing nations of burdensome survival measures, but also global inequality makes it difficult for rich and poor nations to identify socially shared understandings of fair solutions to both local and global complications (Roberts and Parks 2006: 27). Gaping divide in global wealth and power could affect international outlooks, cultural values, economic expectations, national self-interests, and the willingness to cooperate of both rich and poor nations (Roberts and Parks 2006: 26). One instance of global inequality leading to differing international outlooks can be found in the U.S. relations with tropical regions during the 19 th century. While the tropical regions often suffered from the violation of local human rights through intensive and demanding forced labor, American companies often were ignorant to the realities found within these tropical regions. They were under the impression that they were contributing to an increased global economy, opening their markets to these areas and helping to form a faster paced economy which supported industrialization. Prior to the realization that the environment requires protection, Americans often viewed exploitation of the environment as utilizing nature’s gifts to create better lives for humans and better access to goods (Tucker 2000:
7). Perhaps this attitude was driven by the abundance of unexplored and undisturbed nature on the North American continent at that time. The availability of natural resources may have appeared to be limitless and plentiful.
Secondly, inequality amongst nations poses a threat to democracy. When people are forced to live in extreme poverty due to lack of opportunity because their nation is incapable of becoming an active member of the global economy, the security of that nation becomes jeopardized (Brainard and Chollet 2007: 1-3). Without having basic living needs met by the government, citizens often lose respect for the government causing it to lose its legitimacy.
Nations which are not generating enough income through trade fail to meet the needs of their
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citizens in regard to healthcare, welfare, education, and basic infrastructural commodities.
When the centralized government does not meet these needs, citizens turn to local solutions to sustain their life. While some become self-serving, this can also create an environment which allows for local leaders to emerge which can upset democratic processes and cause riots, protests or a general discontent with governing practices jeopardizing the stability of their government. In the global order, governments which lose legitimacy and cannot maintain stability are a danger to the international community as it increases the chances of black markets, drug production, or terrorism. Global equality, therefore, is important for global peace (Christensen 2006: 86).
Environmental degradation is also linked to global inequality. Developing nations often fall victim to environmental damage caused by the exploitation of their resources by developed nations who wish to use resources to benefit their own economy. Producers and consumers in developed nations often rely on the importation of raw materials or products from developing nations. For example, since World War I, the United States has been the largest consumer worldwide of tropical natural resources, imported primarily from Central America, South
America, and the Pacific islands. (Tucker 2000: 1) Colonial America relied on tropical regions to provide colonists with resources which were unavailable in their temperate climate, such as sugar and mahogany. Colonists often cooperated with local elites in the tropical regions to form mutually profitable agreements. Landowners often relied on local cheap labor and transformed their land from its natural state to a profitable production field which often translated to become an environmental burden as local resources became exhausted and reduction of nature was necessary to create a platform from which to make the products exportable (Tucker 2000: 30-
35).
Lowland rainforests in Central America and northern South America attracted U.S. corporations for the mass production of bananas beginning as early as the 1890’s. Banana crops first required leveling the rainforest in order to provide adequate space for banana trees. The elimination of these unique ecosystems and the replacement of a single species of plant effectively destroyed the natural habitat of the area. Although the banana production was known to be an unstable cropping system, no modifications to the production methods were
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implemented until the 1950s when stable systems were introduced, but were simultaneously introduced with excessive use of pesticides (Tucker 2000: 8-9, 131-137).
Sugar from both Latin America and the Philippines was a major import for the U.S. starting in the 19th century. In Latin America, and particularly Cuba, cane sugar production was made possible through crude slavery systems and destruction of forest regions. Not only were forests cleared to create area for crop fields, but surrounding timber on hillsides was also utilized as an energy source for making sugar suitable for export as well as providing fuel needs for workers. The US took no responsibility or active stance against either the human exploitation or environmental degradation involved in the process of the sugar production. In the Philippines,
US interest holders provided local landowners with equipment, industrial technology, funding, and means of transporting the goods to the US. However, the US played no part in regulating the labor conditions in producing the cane sugar or attempting to reverse or limit watershed damage in the local areas (Tucker 2000: 8, 15-17).
In developed countries, typically economic development has lead to increased efforts for environmental stability and protections. However, these nations, as above exemplified by U.S. practices, do not carry the same attitudes towards the developing world, which they often view as a viable option for reducing costs and maximizing profits at no or low environmental costs to their own territories and furthermore, no violation of human rights to their own citizens.
Despite many reasons why both developed nations should theoretically take interest in building stable economies and active economic trade with developing nations, this interest often appears to be overshadowed by neo-realism. Neo-realism theories of economics are founded on the idea that states fundamentally strive to maximize their self interests. Self interests satisfy primary desires which are essential to survival (Kamarck 2002: 23). When states are concerned first with their own survival, this is an ego-centric concern which does not allow for the consideration of how maintaining survival will affect other states. Stemming from this natural rational inclination to perform the steps necessary to survive, comes a sense of intrinsic greed which can drive state actors to make decisions based on benefitting themselves most, not only to prevent state failure, but also to place a safety cushion between the state’s status and failure. This
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can evolve into a pattern of reckless selfishness which does not comply with global cooperation and contributes to disparities in matters of global equality.
Self-interests of states sometimes overlap, and then it is the best self-interest of both states to cooperate in a manner where both will ultimately benefit. The neo-realism theory would align with the notion that this is why trade agreements between states are formed, and with advancements in technology, communication, and transportation lead to the existence of a globalized economy. Neo-realism offers logical explanations as to the existing trade relations in the global economy as well as why they were originally formed. In some cases these relationships between nations are based on a cooperative basis while others lack coercive efforts.
Economic relationships between states are sometimes difficult to examine because there are many factors which influence relationships aside from individual domestic economies. For instance, the United States sometimes sets trade barriers on nations based on their ideology, such as Cuba or North Korea. Although opening U.S. markets to Cuba, for example, may be mutually beneficial, the U.S. has refuses to lift its embargo based on conflicting political standpoints and systems. Similarly, Cuban political leaders, primarily Raul Castro, Fidel Castro’s successor, do not prioritize trade with the United States as they have no intentions for regime change and are comfortable with regional trade agreements, backing themselves with leftist sympathizers such as Venezuela and China. Neorealist theory contends that outcomes between state relationships are not only a result of interactions but also based on structure. Similarly, as classical realist
Morgenthau explains, the struggle for power is caused by interactions between states whereas the desire for power is based on structure. The realist explanation between state economic interactions is based upon the nature of humans. Morgenthau asserts that when humans compete for a limited number of resources which aid them in survival, a power struggle will evolve
(Morgenthau 1978: 4-15). The struggle is a consequence of multiple players desiring the same resources. The power struggle is represented on a state level through trade policies, barriers, embargos, and sanctions. The structural desire for power is represented by states inclination to pursue avenues in trade relations which will most benefit themselves. Neorealism differs from realism in that it links desires to actions rather than accepting desires at their face value and linking them directly to the effects they have on economic agreements. Neo-realism focuses on
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establishing security with power serving as a means to this end while realism views power as the ultimate goal of states.
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2 METHODOLOGY
The purpose designated to this research analysis of why conflict emerged between the
North and South in regard to trade and the WTO is to determine the reasons for conflict so that they can be reflected upon in order to hypothesize potential resolutions in order to create global equality. We began with reviewing readings on globalization in order to identify specific areas where conflict emerges, such as agriculture and structural differences between states, as increased globalization has created a platform for more extensive interactions and interdependence economically. Conflicting perspectives have unfolded as a result of these interactions. Understanding these conflicting perspectives, requires both realizing why conflict emerged and how the perspectives were formed based on ideology and the historical backgrounds within individual states.
2.1 Choice of theories
To better understand these conflicting perspectives we applied theories which provided a basis to analyze the determinants of states’ positions and the consequences of those positions on economic relations and trade agreements. The theories we selected were neo-realism, neoliberalism, and Putnam’s two-level game.
Generally the conflict between the North and South states emerged due to the selfinterests of countries which is compatible with neo-realism theory principles. These principles focus around security, power, and survival which are the domain of the studies of neo-realists.
This is applicable to our research question because states have a tendency to integrate these characteristics into their economic agencies. There are states that share similar positions regarding power, influence, and development status. They can be identified by two basic categories, the developed countries which form the North and the developing countries which compose the South.
2.2 Definitions of the North and South
In this research, the North is characterized by industrialization, economic productivity, high income levels, high human security, developed free-market economies, and some degree of established economic stability. During our research we treated notions such as the North,
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developed countries, industrialized nations, and the first-world as interchangeable. On the other side, the South is conceived by less developed industries, low levels of economic productivity, low income levels, widespread poverty, under-developed free-market economies or highly planned economies, and lack of economic stability and access to global markets. Throughout our research concepts such as the South, developing countries, unindustrialized nations, and thirdworld countries were interpreted as synonymous.
Many of the policies practiced by the North and adopted by the South have been characterized by neo-liberal approaches and therefore investigating neo-liberal assumptions was prudent to understanding the basis upon which the policies were formed. Although neo-liberal policies in Southern economies are encouraged by the North, they often do not resolve Southern economic incompetency or reduce global inequality. In regard to world trade, these policies maintain the advantaged position of the North and marginalize the role of the South.
Given the conflict between the North and the South, the positions of the countries can be explained by both international and domestic interests. Here, Putnam’s two-level game applies providing theoretical insights on those two levels which are international and domestic politics and which states strive to reconcile with these separate interests.
Determining a solution to alleviate conflict we came across a few options. Firstly, North-
South redistribution proposed by Scholte. Secondly, the formation of South-South cooperation has the potential to strengthen the position of the Southern nations. Finally, international cooperation could be established on a representative basis to give the South the opportunity to participate in decision making processes regarding their economic policies.
Limitations to the research conducted include the broadness encased by the essence of our topic. There is great variety within the two categories of North and South and it can be difficult to generalize or justify the common perspectives as in many regards failed cases, positions or statuses of the countries within one category can vary greatly. More time dedicated to this topic would allow for more extensive and in-depth research on case studies and more variety in attention to details.
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Throughout the project we tended to follow a qualitative research approach as seemed appropriate due to the nature of our topic. The research question is based on causal links to the conflict that emerged.
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3 THEORY
3.1 Neo-realism
Neo-realism offers a sufficient foundation for analyzing why conflict has emerged between the North and South in regard to trade and how resolving economic disparities can be achieved. Neo-realism is based on the assumption that states’ most critical interest is in establishing and maintaining security, or the probability of survival, and the quest to achieve security influences their decisions, policies, agreements, and actions (Lamy 2008: 127).
Behaviors of states are assumed to be a consequence of promoting and protecting national security in terms of political power, economic stability, and relations with other nations. Neorealists believe that state behaviors are influenced by the structure of the international system.
Given that the global order exists within the context of an anarchic atmosphere, states are left to tend to their security and well-being on their own without the interference or assistance of a central authoritative figure or body. Foreign policy guiding state interactions forms as a response to the structure of the international system (Lamy 2008: 127-128). This equates to states becoming self-reliant to safeguard their own self-interests. Waltz claims that states do not feel that they can trust other states to respect their interests nor is there an elevated institution or organization to regulate interactions ensuring fairness, and therefore states must prioritize the protection of own their self-interests. Neo-realism contends that in the international system states are constantly attempting to maintain their status within the global order. This requires achieving a level of security which enables states to guard their resources and economies (Lamy,
2008: 127-131).
In order to maximize security levels, states rely on the accumulation of power. Offensive neo-realism suggests that a state constantly obtain as much power as possible. Defensive neorealism is often a reaction to gains in relative power by other states. Defensive neo-realists contend that the constant accumulation of power can weaken relative power because other nations will respond by increasing their own power as they may feel threatened or vulnerable and instead aim to maintain their relative position in the international system. (Fiammenghi 2011:
129) Both offensive and defensive neo-realists assume that states will respond to power increases in other states by increasing their own power in order to create balance and maintain security.
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While weak states always benefit by an increase in power, there is a threshold of maximum power that will lead to security maximization (Fiammenghi 2011: 133).
Neo-realism attempts to explain conflict between states through determining the underlying sources of conflict. Ultimately, all nations want the best for themselves, and in that struggle to maintain the best, there inevitably will be winners and losers. When developed nations refuse to settle for a limited amount of resources to satisfy their basic needs, developing nations will end up not having enough resources to satisfy the needs of their citizens. Hobbes identifies three reasons for conflict or disagreement between states, namely, competition, diffidence, and glory. (Piirimaee 2006: 5) Competition for a limited number of resources, for access to markets, for beneficial trade agreements, and for influence on economic policies all are quite visible in global economics. Diffidence is a natural consequence of competition, as states naturally suspect other states to be prioritizing their own self-interest first and foremost.
Similarly, states seek to secure their own economic institutions as they cannot be certain that other states domestic economies will not fluctuate in such ways that their trade agreements could lose value.
3.2 Neo-liberalism
Neo-liberal policies attempt to stimulate economic growth and productivity through market competition. Neo-liberal theory generally advocates free-trade, privatization of industries and services, limited government intervention in trade, and reduced public spending by the government. These principles are formed on the basic assumption that free markets with few government restrictions and primarily private actors will be more efficient and competitive.
Neo-liberal theories are often demonstrated in IMF and World Bank policy, particularly with the privatization of industries.
In economics neoliberalism builds on assumptions of classical liberalism that a free market “will bring prosperity, liberty, democracy and peace to the whole of humankind”. In terms of trade, liberal theorists are persuaded that economic exchange should pass states borders freely without constraints of tariffs and other official bounds in order to efficiently allocate resources in the world economy (Scholte 2000: 34).
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Neo-liberals have successfully in recent decades resurrected arguments of classical liberalism against proactive state interventionism guiding or restricting operations of the market, now in an increasingly globalized economy. As a matter of fact, what has been neoliberals’ argument is a belief that the state is not capable of globalization control. The advice then is that public agencies should let global markets work unimpeded by public limitations. Certainly, the role of governments and multilateral institutions is needed, yet should be limited to facilitate globalization on neoliberal terms. For instance, international regimes are generally indispensable in harmonizing technical standards between countries. What is more, implementation of a neoliberal agenda depends on strong insistence from the state and/or international agencies like the IMF. Still, neoliberals persuade that ‘the public sector should not attempt to direct the course of market forces in the global realm’ (Scholte 2000: 34).
In neo-liberals’ eyes, then, appropriate approach to globalization is a large-scale retreat of official regulation. Particularly, neoliberals advocate for the free flow of money, goods, services and capital between countries and the abolition of most state-enforced limitations on them. In regard to indicators of value, neoliberals have prescribed the removal of state controls on prices, wages and foreign exchange rates. Thereafter, neoliberals have demanded a major contraction of state-owned productive assets, consequently, unadulterated privatization.
Continuing, another postulate by neoliberals has been reductions in state provisions of welfare guarantees, being replaced instead to market arrangements and the voluntary insurances. All in all, neoliberals have disapproved the statist strategies of economic agenda that dominated in various forms across the world between the 1930s and 1970s (Scholte 2000: 34-35).
The phrase ‘Washington Consensus’ has been applied to a set of neo-liberal policies that the US government and international financial institutions based in the US formed and applied to nations seeking financial assistance or debt relief. When in operation, these policies were intended to create macroeconomic stability and integrate countries into the global economy. The
US and these institutions advocated the adoption of these policies in every nation with the presupposition that they would lead to economic growth. Supporters of neo-liberal approaches are insistent that policies formed in a neo-liberal manner will curb inflation and resolve domestic financial qualms by drawing foreign capital. The World Health Organization concentrates these
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neo-liberal policies into a list of basic reformations imposed through implementations from these international financial institutions. This includes fiscal discipline to limit budget deficits, public expenditure priorities, expansion of the tax base and cutting marginal taxes, financial liberalization, trade liberalization, adjustment of exchange rates, reducing barriers to encourage foreign direct investment, privatization of state projects, deregulation of policies which limit the entry of new firms into competitive spheres, and reduction of the role of the state in economics.
(World Health Organization 2011) Essentially, the application of these policies would lead to a neo-liberal approach to the globalization of economics of developing countries.
The ‘Washington Consensus’ appeared in conditionality policies referred to developing countries by the IMF and the World Bank. However, neo-liberal strategies to resolve economic disparities and improve economic growth have not been accepted by economists and politicians everywhere and have received numerous criticisms. Despite claims that neo-liberal policies harm already impoverished groups within developing nations’ societies and inflict negatively upon national policy autonomy, neo-liberalism has remained a dominant economic approach throughout the world based on Western ideals of individualism with democracy and liberal economies realizing this vision. (Griffith 2006:4)
3.3 Putnam's Two-Level Game
Arrangements and negotiations are a complex process and complicated with at least two factors. First, they proceed simultaneously at two levels: international and national. Negotiators representing countries and domestic interests must coordinate negotiation position and guarantee ratification of agreements achieved among countries (Mingst 2006: 122-123). Second, arrangements and negotiations are partly influenced with cultural conditionings (Mingst 2006:
122-123). Liberals pay special attention to cultural differences between countries that demonstrate in different negotiation styles (Mingst 2006: 122-123).
Robert Putnam’s two-level-game theory shows interdependence between international
(level one) and domestic politics (level two), where none of those levels can be ignored (Putnam
1988: 434). At the international level, state-leaders try to satisfy the national interests and expectations while minimizing the negative consequences of foreign developments (Putnam
1988: 434). On the other hand, state-leaders are under pressure of domestic groups of interest
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(understood as either public opinion, social classes or lobby organizations etc.) developments
(Putnam 1988: 434). They also try to build power on coalitions with those groups. According to
Putnam (1988: 436), “in many negotiations, the two-level process may be iterative, as the negotiators try out possible agreements and probe their constituents’ views”. Furthermore, the constituents’ views may evolve during the negotiations (Putnam 1988: 436). Finally, when the agreement on the international level is achieved, the state-leaders seek the acceptance for its results on the national level (Putnam 1988: 436-437). The main limitation of the ratification process is that the identical agreement must be achieved on both levels. Any domestic modifications to the outcomes approved on the international level end up with the rejection of agreement (Putnam 1988: 437).
The source of complexity of two-level game is that “the moves that are rational for a player at one board […] may be impolitic for that same player at the other board” (Putnam 1988:
434). According to neo-realists, the main limiting factor is the structure of international system while liberals acknowledge the importance of pressuring factors and internal motives (Mingst
2006: 122-123).
One of the factors affecting a chance of successful domestic ratification of agreement is the character of governance in a country (Putnam 1988: 436). A previously described negotiation process seems to be typical rather for democracies than other political systems (Putnam 1988:
436). The need to secure electoral majorities in democracies may be a limitation for the ratification of agreement (Putnam 1988: 437). Nevertheless, according to Putnam ‘ratification need not be “democratic” in any normal sense’ due to the fact that it may be influenced primarily by establishment or powerful groups (Putnam 1988: 437).
Putnam defines the set of possible arrangements (called ‘win-set’) on the level one that would possibly give the positive (‘win’) result with the ratification process on the level two
(Putnam 1988: 437). The larger win-sets on the international level (especially, when they overlap between countries involved), the larger chance of successful ratification on the domestic level
(Putnam 1988: 437-438).
The differences in the size of the win-sets among the negotiating states influence their negotiating position. For instance, states with smaller win-set sizes (and thus the smaller
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negotiating room) ‘push around’ the state with relatively larger win-set size to limit it within their win-set range (Putnam 1988: 440). Therefore, states with the weaker domestic position may have a stronger negotiating position on the international level (Putnam 1988: 440).
On the contrary, “the smaller the win-sets, the greater the risk that the negotiations will break down” (Putnam 1988: 438). Furthermore, Putnam characterized voluntary and involuntary defection to the ratification process. First, refers to level one, and the second to level two.
According to Putnam (1988: 438), “voluntary defection refers to reneging by a rational egoist in the absence of enforceable contracts – the much-analyzed problem posed […] in dilemmas of collective action. Involuntary defection instead reflects the behavior of an agent who is unable to deliver on a promise because of failed ratification”. The risk of voluntary defection on the international level is reduced among players who expect to meet again (Putnam 1988: 438). On the other hand, the risk of involuntary defection is greater when the win-sets are smaller, because the negotiator is not able to guarantee a ratification of the agreement (Putnam 1988: 439).
Finally, Putnam (1988: 441) suggests three main determinants that affect the win-set size.
He distinguishes between:
1) the distribution of power, preferences, and possible coalitions on the level two (Putnam 1988:
442),
2) political institutions on the level two (Putnam 1988: 448), and
3) the negotiators’ strategies on the level one (Putnam 1988: 450).
With reference to the first mentioned set of factors, Putnam (1988: 442) argues that the win-set size correlates with the cost of “no-agreement” on the international level. No-agreement seems to maintain the current state of affairs, however sometimes it may lead to a deterioration of situation (Putnam 1988: 442). The low cost of no-agreement predisposes constituents to generic opposition to agreement on the international level (Putnam 1988: 442). And on the contrary, constituents who may risk more on no-agreement, are more eager to support the agreement (Putnam 1988: 442).
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Another issue is the politicization of the issue concerned and variation of participation rates in the ratification process across groups of interests what has implication in the win-set size
(Putnam 1988: 445). According to Putnam (1988: 445), when the main costs or benefits of an agreement are relatively concentrated, the groups that may be most affected with its results should be expected to be more active in the ratification of agreement.
Furthermore, it cannot be omitted, that the negotiations involve more than one issue and therefore it affects interests of various groups in different extent (Putnam 1988: 446). It leads to the necessity of hierarchization of the negotiated issues (Putnam 1988: 446).
The second set of determinants that affects the win-set size consists of political institutions on domestic level. Putnam (1988: 448) illustrates his thesis with an example of the distribution of votes and powers (i.e. veto power which can lead to rejection of worthy agreement) during the ratification of agreement on the national level.
The last determinant that affects the size of the win-set are the strategies of the negotiators on the international level. The tactics of negotiators are influenced with the interests of states and personal interests of negotiators. Putnam (1988: 450) claims that the negotiators tend to maximize other side’s win-set, however the optimal size of his own win-set is not so obvious. The size of negotiator’s win-set reflects in the other negotiator’s tactic (Putnam 1988:
450). According to Putnam (1988: 450), state’s win-set may be widened by the political sidepayments which may increase the chance of an agreement.
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4 ANALYSIS
4.1 Neo-liberal approach to world trade
Neo-liberalism has proven to be the ideology of the reigning policy framework in present-day globalization. Scholte (2000: 25) argues that the neoliberal approach “has generously served powerful interests, particularly those related to dominant classes and countries in today’s world”. Most governments – especially those of the major states – have put forward neoliberal policies toward globalization, particularly since the 1980s. Multilateral institutions such as the
IMF, the WTO, the OECD also have continuously connected globalization with liberalization.
As Scholte notes (2000: 35) ‘champions of neoliberal globalization have also abounded in commercial circles, particularly in the financial markets and among managers of transborder firms. Business associations like the International Organization of Employers and the World
Economic Forum have likewise figured as bastions of neoliberalism.’ Furthermore, neoliberal policies found general support also in the mass media, for instance business-oriented newspapers such as the Wall Street Journal and the Financial Times. Eventually, either academic circles led by mainstream economists (including Nobel prize recipients like Friedrich Hayek and Milton
Friedman) and influential Western think-tanks (e.g. the Institute of Economic Affairs, the
Peterson Institute) are regarded as a general supporter to the concept of global free trade markets and other neoliberal policies (Scholte 2000: 35).
Scholte (2000: 35) concludes that “neoliberalism has generally ranked as a policy orthodoxy in respect of globalization.” He argues that since the late 20th century neoliberalism has been unquestioned and accepted as ‘common sense’. Thanks to strong back up in official, business and academic realms, neoliberal approaches have usually been the easiest to implement
(Scholte 2000: 34).
The ideas of world trade reflected in the policies of contemporary international regimes came from the already industrialized countries of the North after the Second World War. These policies have been based on neoliberal foundations. Scholte (2000: 236) in his critical work on globalization considers neoliberal approaches as a distributor of costs and benefits that usually favors the already advantaged and marginalize the already unprivileged. As a result global relations have, to date, been responsible for further widening resource gaps and reinforcing
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social hierarchies, particularly those related to “class, country and urban/rural divides”. In the matter of countries’ stratification it means that existing hierarchies have pursued globalization through avenues which benefit the North considerably more than the South.
Although Scholte does not blame globalization solely for social injustice in the contemporary world, he sees it along with prevailing neoliberal policies of world trade as trends that are partly responsible for inequality in at least four substantial broad ways:
First, (…) countries (…) have had unequal opportunities to access purportedly ‘free’ and ‘open’ global spaces. Second, on its mainly neoliberal course, contemporary globalization has often undermined the redistributive mechanisms that were built up through the state during the first three-quarters of the twentieth century. Third, global regimes (that is, the rules and institutions that govern supraterritorial communications, markets, finance and the like) have thus far generally underwritten an allocation of benefits and harms that favors the already advantaged. Fourth, contemporary globalization has substantially undermined the capacity of traditional, territorially based social movements like trade unionism and anti-colonialism to campaign for a fair distribution of capitalist surpluses.
On the other, more positive hand, globalization has frequently allowed a growth of social movements that have supported the idea of ‘right to development’ for every country (Scholte
2000: 236-7).
4.2 Lack of trust from developing to the international regimes (the WTO, the IMF)
The World Trade Organization, the World Bank, and the International Monetary Fund were created by the United States and other developed countries in order to aid in creating a better life and economic advancements in developing countries. In the year 2000, a public realization that these organizations were not succeeding at reducing poverty, increasing economic stability or protecting the environment resulted in mass protest towards the policies of these three alleged economic stimulators. Protestors argued that these organizations benefitted the developed world more than the countries which they were created to aid. The protestors suggested, “The primary beneficiaries of World Bank, IMF and WTO policies have been multinational corporations, private-sector financiers and corrupt government officials.” (Hansen
2001). When the organizations established by the industrialized world did not deliver the positive outcome which they were designed to produce, the intentions of the industrialized world began to appear self-oriented rather than genuinely concerned with the betterment of the human living condition and reducing inequality across populations.
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The measures taken by the WTO, World Bank and IMF have often been structured poorly since their creation. Lack of organization, corruption prevention, and long-term visions of the policies implemented and actions taken have created deeper problems rather than resolving them. Their large scale of influence meant that these poorly executed decisions had a great impact on the economies and abilities of developing nations to establish financial security.
Brian Hansen summarizes these problems saying,
“The loan programs supported major development projects throughout the Third World. But the loans — and the projects they funded — also ensnared many developing nations in financial quagmires that plague them to this day. Borrowing nations fell into financial troubles for a number of reasons. Corruption ran rampant in the first few decades of the bank and the fund: Frequently, loan funds were diverted from projects and kicked back to local officials. Money was skimmed off to purchase luxury items for local elites.” (Hansen 2001)
In addition to poor structure within these organizations, the developing nations that were recipients of loans often did not put the money to good use, investing in infrastructural projects rather than their national economies. As a result, they did not generate enough profit to keep up with their loan payments, driving their debt deeper as they secured new loans to pay off the old loans. The World Bank and the IMF realized that the increasing debt would have no realistic chance of being paid off in a reasonable timeframe. They made negotiations regarding debt repayment with developing nations that required the developing nations to introduce structural adjustment programs (SAPs). These programs were aimed at fulfilling economic and social reforms which would allow the nations to make debt payments regularly. In order to make these payments on time, these nations often relied on obtaining the funds through measures such as reducing workers’ wages and government financial support in addition to reducing government spending allotted for domestic enhancements. Economically, exports were the most viable option to generate money to pay off debts. Many of these nations sold their natural resources to global markets, which made them less self sustaining and reliant upon the world market to meet their populations’ needs and demands. In compliance with the World Bank and IMF, they privatized public assets, lowered corporate taxes and removed foreign investment. (Hansen
2001) Ultimately, this benefitted corporations originating in the developed nations as they saw it
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as an opportunity to outsource and take advantage of the low wages, availability of cheap natural resources and few legal restrictions.
In Nicaragua, the IMF and World Bank’s negligence towards long-term visions has caused many of the already poverty-stricken civilians to face worsening living conditions. As a condition for debt relief and financial aid, the IMF and World Bank demanded privatization of electricity and the liberalization of the cotton industry. (Jubilee USA Network 2008:3)
Nicaragua embodies the notion that despite qualifying for debt relief under the Heavily Indebted
Poor Countries (HIPC) initiative, the nation still is unsuccessful in creating a sustainable economy, reducing poverty, and becoming competitive in the global economy. The HIPC initiative’s intended purpose was to rid developing nations of unsustainable debt in extreme cases. Despite the reforming and securing of the political, social, and economic institutions in
Nicaragua and economic growth, their poverty levels still remain high. In fact, in 2003, the
United Nations Human Development Report revealed Nicaragua held the leading rank for having the highest percentage of their population below the poverty line. (Rios-Morales 2006: 3) Strict guidelines for spending of IMF loans have left Nicaragua with little money remaining to invest into social structures to boost suffering people out of poverty.
The privatization of electricity in Nicaragua is a prime example of a corporation being the beneficiary of IMF policies rather than the citizens of Nicaragua. When the IMF insisted upon this measure, Nicaragua had to sell the electricity distribution companies, which went to the highest bidder, a Spanish multinational corporation Union Fenosa. (McGuigan 2007:4) This privatization requirement theoretically was intended to make electric companies more efficient and less corrupt than they were under state operation. This approach conforms with neo-liberal theories, as it places emphasis on the private sector rather than the public sector. However, operating as a monopoly in providing electricity in Nicaragua, Union Fenosa has increased electricity coverage expenses for customers while decreasing the quality of the service, as frequent black-outs impede citizen’s ability to turn energy into products and merchandise, ultimately lowering productivity within the economy. Additionally, with higher prices, the poorest citizens no longer could afford to make payments, which denied them access to electricity completely. Electricity and affordable access to energy is prudent to rising out of
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poverty, particularly for small business owners, and for stimulating economic productivity and growth. Ultimately, while Nicaraguans have been forced to pay more for this service while receiving sub-par quality and consistency, a foreign investor, Union Fenosa, scrapes in profits which do not benefit the Nicaraguan economy, but rather hinder it (McGuigan 2007: 18-23).
In the case of Nicaragua, the predominant neo-liberalist approach to economic reforms as advised and enforced by IMF conditional policies have hurt them economically due to the monopolization of the privatized electricity distribution. When policies structurally designed by the IMF are adopted by developing nations with haste, it is possible that these policies will not have the desired outcome. If Nicaragua had already established effective laws regarding competition, then perhaps a monopoly in their electricity supply would not have emerged. As
Joseph Stiglitz indicates throughout his book Globalization and Its Discontents , privatization is only plausible and logical once effective antitrust laws have been implemented. He claims,
“Financial market liberalization unaccompanied by an appropriate regulatory structure is an almost certain recipe for economic instability - and may well lead to higher, not lower, interest rates, making it harder for poor farmers to buy the seeds and fertilizer that can raise them above subsistence. Privatization, unaccompanied by competition policies and oversight to ensure that monopoly powers are not abused, can lead to higher, not lower, prices for consumers. Fiscal austerity, pursued blindly, in the wrong circumstances, can lead to high unemployment and a shredding of the social contract.” (Stiglitz, 2002: 84)
Bolivia, under influence by neo-liberal policies advocated by the United States and international financial institutions, essentially opened their market economy to foreign investments which equated to selling many of their non-renewable national resources, particularly in the mining and energy sectors (Christensen 2006: 90). When Bolivia underwent
HIPC renovations, debt relief was provided to the government in exchange for conditional policy implementation, primarily neo-liberal based. These policies created opportunities for multinational companies regarding Bolivia’s natural resources and access to industries
(Christensen 2006: 91). Structural reforms took place in the forms of privatization, less influence to unions, and a tendency to cut budgets. A “Washington Consensus“ through agreement between the US Congress, the World Bank, and the IMF led to these neo-liberal reforms.
Because Bolivia did not have a lot of investment capacity, they relied on external investment to
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save their weakening state. Water became privatized upon the advice of the IMF which led to a loss of public goods and new taxes due to necessary reforms. With a high rate of people living in poverty, this became controversial and protested as water is essential to survival. Ultimately, these reforms, guided by the expertise of international financial institutions, did not promote development, reduce poverty, or help strengthen government structures (Christensen 2006:93).
The application of neo-liberal based policies to developing nations has been extensive, yet it seems they have not resolved global inequalities. In November 2006, Rajesh Makwana,
Director of Share The World’s Resources, an NGO campaigning for global, economic, and social justice wrote,
“The WTO openly asserts its intention to improve global business opportunities; the IMF is heavily influenced by the Wall Street and private financiers, and the World Bank ensures corporations benefit from development project contracts. They all gain considerably from the neo-liberal model.“ (Makwana 2006)
Makwana indicates that the US and the EU push neoliberal policies on developing nations while contradicting these policies themselves. While they promote removing trade barriers, Makwana contends the US has one of the most protected economies in the world
(Makwana 2006). Meanwhile, many IMF and World Bank conditionality policies benefit corporations and the markets of developed countries. This indicates that these countries are using neo-liberal policies as a tool to achieve neo-realist satisfactions.
4.3 International institutions have not resolved the problems of developing nations
Many developing nations rely on the WTO, World Bank, and the IMF in order to get their economies to a stable, able, and competitive position. In many developing nations, the inability of policy reforms to solve their problems effectively lead to the realization that these international financial institutions were operating largely on a political basis which did not have genuine concern in the best interest of recipients of loans and policy reforms and a general distrust and resentment towards the developing nations and international financial institutions emerged. Although some nations, such as Chile, Mexico, and South Korea have benefitted with the aid of these organizations which allowed them to open their economies to the rest of the world, others still remain victims of trade barriers and policies which prevent them from
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establishing economic stability or good living conditions for their citizens. As Kevin Danaher, co-founder and public education director of Global Exchange, a self proclaimed education and action resource center which seeks to create social, environmental, and economic justice through local delegations, “These institutions have had over 50 years to prove themselves, and they've failed. There's more inequality and environmental destruction now than there was when they started. They're helping multinational corporations and hurting people.”
Disenchantment with the work of the WTO, World Bank, and the IMF became a prominent expressed view through demonstrations and the media beginning in 2000. However, not every country has suffered at the hands of these organizations. With their help, some nations have increased their economic status and have seen great benefits in the forms of poverty reduction, increased wages, and more economic activity and stability. Perhaps most notable in successful development have been the East Asian nations, however their economic growth typically involved distribution under an authoritarian regime (Kohli, Moon and Sørensen 2003:
1). Countries which have successfully entered the global market through free-trade agreements have largely been given opportunities by developed nations based on what they have to offer the industrialized world. When developed nations realize that lifting trade barriers will create new markets for their exports, while simultaneously providing them with cheaper imports, they are more willing to cooperate with these developing countries. Typically, these developing countries already have a domestic economy which is able to support the manufacturing of goods for exportation. Developing nations that lack technologies and formation of industrialization and are dependent upon subsistence farming in many regions are less valuable to the global market. Yet, in order to secure better standards of living for their citizens, entering into global trade agreements is crucial. Mark Cooper suggests:
“In the view of free-trade supporters, history shows that eliminating barriers among countries hastens a fairly predictable process of economic development, one that moves from subsistence farming to industrialization, from authoritarian to democratic political systems and from poverty to modern living standards.” (Cooper 2000)
The elimination of trade barriers therefore could also serve as a platform to spread Western ideals and values into developing countries as an ulterior motive.
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4.4 Neo-liberalism: How it has caused conflict to emerge?
Essentially, neo-liberalism has led to the emergence of conflict between the North and
South economies because of its impact on the policy implemented in Southern states. Promoted by northern ideologies, state actors, and northern-led institutions, neo-liberalism has been integrated forcefully into southern political, economic, and social agendas regarded as a solution to their financial inadequacies. Yet in reality, neo-liberalism has rarely led to sustainable solutions to reduce poverty or give southern states a competitive edge in global markets and the international economy. Temporary debt relief is offered in exchange for access to southern resources and control of industries which primarily benefits northern-based corporations and economies.
4.5
North’s protectionism and agriculture
One of the most avid areas of global trade that causes international disagreement is agriculture. This area of economics is peculiar because states of the North support their domestic agriculture production and protect their internal market against overseas exporters. This protectionism in the market of agricultural products of the North “may be the extreme example of the differences between trade theory and trade conduct” (Kerr and Gaisford 2007: 15).
Why then is agriculture one of few exceptions in the developed world’s approach to global trade? Why do countries of the North change their mind and withdraw from the freemarket idea, instead implementing regulations and subsidies? The reasons for such a behavior of developed countries will be examined primarily on the example of the Common Agricultural
Policy of the European Union. The case of agriculture is also very telling in regard to the previously presented theories of neo-realism and the two-level game. These two theories will be evaluated later on with aim to provide explanation for a linkage between the theoretical assumptions and empirical evidence that is clearly visible in agricultural trade. Finally, the impact of North’s protectionism in agriculture on the trade conflict with the South will be investigated.
The Common Agricultural Policy (the CAP) since its establishment in the 1960s has been liberalizing and increasing uniformity within the trade of agricultural products within the EU
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single market, simultaneously conducting strong protectionist policy towards agricultural products from abroad. At the beginning, the CAP was designed to provide sufficient amount of food for a Europe struggling over a decade with war-induced shortages. Since then, the EU has subsidized production and supported prices for farmers by buying surpluses. Although in recent years these methods were largely abounded (Gateway to the EU), their influence on the conflict with the developing world remains important for the question raised in this research.
Nonetheless, the EU has not withdrawn from farm policy and still maintains its support but with different goals which are: production of sufficient quantities of safe, high-quality food for domestic customers, a full contribution to diversified economic development in rural areas and providing high standards of environmental care and animal welfare (Gateway to the EU).
Among other goals that were significant for implementation of the CAP, there can be indentified: maintaining strict linkage between agriculture and the economy and providing consumption for domestic agricultural products, consequently securing employment for the farming involved. As a result providing high prices for producers and low for consumers, the
CAP has contradicted with the policy of free competition and has lead to distortion of the freemarket economy not only internally but - what is more important in our investigation – also externally.
Negotiating liberalization of the agricultural trade, the representatives of the European
Union are under pressure of the interests of its particular members and are concerned about adverse outcomes from the third side (at the negotiating table this side is the second side as due to the single market the EU acts as a state, representing its members externally) development.
The EU, as one side of the developed North plays a game of negotiations and making trade agreements with countries of the developing South that is characterized by the already presented two-level game theory. According to the two-level game theory each side of the negotiations is influenced by both domestic and international politics. Negotiators seek for the biggest possible win-set that is a collection of agreements on international level which would be possible to accept on the domestic level. The smaller the win-set is, the less likely that the negotiations will be successful. This is applicable to the lack of success in the current trade negotiation round of the WTO.
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The round began in Doha, Qatar in 2001 and was given the name by the city. In the Doha
Round the developing world requested that the EU and the US make meaningful commitments on agriculture (Lanoszka 2009: 205). This has not been addressed by those two largest world economies in a satisfying way for the developing countries. The EU was limited in its ability to compromise due to strong internal relations and interests.
Member states of the European Union using the CAP make agriculture production profitable for the European farmers which guarantees development and social security in the rural areas. In order to agree on free access for the agricultural products from the South, the
European Union has to deal with concerns of groups of interests of the level two in the two-level game. Unwillingness of the United States and the European Union to reduce their own subsidies comes from “political pressures and demands for protection from their agricultural lobbies”
(Lanoszka 2009: 209). On the other hand, among other determinants is the cost of ‘noagreement’ on the level one. On this level the EU needs to decide what is more important – to maintain status quo or to complete negotiations on new agreements. Given the risk of consequences of a blockade of agricultural imports from the South, the EU may revise its interests. For instance, the possible consequences like underdevelopment of the Southern countries may result in their weakness and unpredictability that could cause a security threat to the developed world.
The opportunity to export agricultural products has always been a key issue in the South.
Many poor nations, given nondiscriminatory trade in agricultural products, could substantially benefit from global economy (Lanoszka 2009: 205). Hence, the access to food markets of the global North is an issue of great importance for many developing countries in talks on trade liberalization. Importance of this point and determination of the poor states is well explicable in neo-realism theory. As agriculture maintains a basic area of the economy of the poor states, their primary interest is to provide possibility to benefit from world economy by exporting their agricultural products. Being deprived of access to wealthy markets of the global North, states of the South find themselves excluded from competition, marginalized and rejected the right to economic development. Neo-realism explains this unequal condition in Kenneth’s Waltz theory of structural realism. It posits that international relations take place in an anarchic system in
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which states have different capabilities. Given the capabilities of the powerful Northern nations and the powerless least developed countries of the South, there is evidence that the assumption that “states with greater power tend to have greater influence” is relevant. A way in which weak states may respond to this situation on international forum is setting up an alliance of the countries with similar security dilemmas (Baylis et al. 2008: 127).
The South already challenged the North with such a multilateral strategy in the WTO negotiations. It was after the failure of the Seattle meeting in 1999 when a number of Southern states lead by India and Brazil forced the WTO to implement development aspects in its agenda.
As Lanoszka (2009: 204) concludes “the changing dynamics in the WTO eventually resulted in the Doha round.” Since then the rising power and activity of the South and its persistent striving for implementation of developmental goals within the WTO have made negotiations more challenging to complete. Consequently, it proved to be unlikely to find an agreement between the organization’s members each characterized by different economic development statuses and needs which resulted in the breakdown of the Doha Round negations. The likelihood of a future resolution to the conflict between the WTO members seems to be small without the support of the leading global players as neo-realists proclaim that any substantial agreements need the support of the major powers in order to be effective (Baylis et al. 2008: 127-128).
The impasse in the negations remains a serious problem especially to the most vulnerable side of the conflict that is the poorest states of the global South. It is assessed that 75 percent of the world’s poor are in the rural areas of the developing countries (Guadagni and Kaufmann
2004: 83) and to them North’s protectionism in agriculture is particularly harmful.
An opening of agricultural markets in the global North is an essential condition for eradicating poverty in rural areas of the global South. In fact, the developed countries not only block the free access of imported products from the developing world but also perturb the world markets subsidizing agricultural production and exports. A possible reduction in global poverty is not possible unless the poorest nations would not be enabled to achieve economic growth.
According to Guadangi and Kaufmann (2004: 87) the global trade order does not favor the poor as they usually produce labor-intensive (such as textiles) and agricultural products. Moreover, vast differences in the levels of protectionism experienced by countries of the North and South
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contributes to global inequality in the trade arena. Ironically, the exports from the poorest countries to the North face the highest tariffs (Guadangi and Kaufmann 2004: 89). In fact, subsidizing policy of the developed world not only does not improve the opportunities of the
South by providing it an access to the wealthy market but even depresses world prices of the agricultural products (this is applicable to e.g. subsidized wheat from the EU) (Guadangi and
Kaufmann 2004: 92). These aspects of the North’s policy to agriculture lead to inevitable conflict with the South because it places the latter in a strongly disadvantaged position.
SOLUTIONS
4.6 North-South redistribution
Globalization has an impact on the poverty and inequality, however, it can be related both to the opportunities and to the risks for the poor nations. The globalization of the economy can reduce the poverty, however, it brings a possible risk of an increase of poverty due to the unequal participation of the North and South in its benefits as well as the unequal distribution of its costs
(Kacowicz 2007: 566).
Kacowicz (2007: 571) distinguishes the following possible links between globalization and poverty: a) globalization can lead to poverty or make it worse (radical perspective), b) it can reduce or even eradicate poverty (liberal perspective) – especially by promoting free trade, c) no link between globalization and poverty (realist and agnostic perspectives).
Regardless of the above mentioned possibilities, the nature of links between the globalization and poverty is complex and vague (Kacowicz 2007: 571) due to the possible twoway effects of the relationship – not only can globalization have an effect on poverty but also the poverty and inequality triggered by globalization can have an impact on the “social violence, political and social instability, ethnic conflicts, and civil and international wars that shape the
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global system” (Kacowicz 2007: 574). According to Kacowicz, the implications of these links are: a) normative (poverty leads to the violation of human rights and therefore should be eradicated. Furthermore, ‘the links between globalization and poverty should encompass a dimension of distributive justice in terms of global equity, fairness, and the redistribution of resources’) (Kacowicz 2007: 578), and b) practical – poverty and inequality can result in destabilization of safety (emerge conflict, export terrorism, cause political or social instability, spread diseases etc.) (Kacowicz
2007: 578-579). Due to the interdependence of the international economic system, the economic growth and development of the South has a beneficial impact both for developing and developed nations (Kacowicz 2007: 579).
Scholte suggests several reforms of globalization that could lead to reduced imbalance between North and South. According to him (2000: 300-301), the scope of reforms should encompass: a) global economic regimes and decision taking formulas, b) particular sectors of economy (especially in global communications), for instance more resources could be spared to support and promote development journalism that describes developing nations point of view (Musa 1997: 146), c) global monetary affairs, d) the area of global credit, and e) the necessity to improve the equity in global trade.
Currently in a global economy decision making processes favor major states (Scholte
2000: 300). The developed nations are also supported with activities of several economic institutions (i.e. BIS, OECD), where services are inaccessible for poor states (Scholte 2000: 300).
The developing states have better strength and greater representation in the United Nations.
However the UN organs for global economic cooperation and development are rather feeble, and
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therefore should be reformed so to improve their influence on international economic affairs
(Scholte 2000: 300). Moreover, the discussions concerning the rearrangement of the UN are dominated with the voices of developed nations as well as the organizations representing their interests (WTO, EU, IMF) (Budnikowski 2003: 388-389).
With reference to global monetary affairs, Scholte postulates the ‘SDR-aid link’ – to link the distribution of SDR (Special Drawing Rights – supplementary foreign exchange reserve assets defined and maintained by the IMF) allocations mainly (or even exclusively) to the South.
Such proceedings are supposed to reduce the economical dominance of developed nations
(Scholte 2000: 300). The South should also be financially supported in building up their own central banks as to liberate the poorer nations from the financial dominance of the North (Scholte
2000: 300). The increasing access to capital for developing nations may enlarge the possibility of financing the business activity and the implementation of reforms at the macro level, what may result in the economical and social growth (Wojcik 2002: 157). However, it must be emphasized that the availability of capital is not a sufficient condition (i.e. it is necessary to manage and allocate available funds efficiently) (Wojcik 2002: 157).
The commercial credit markets are unavailable for the South, therefore there is a need for greater provision of preferential loans to the poor nations (Scholte 2000: 300).
Furthermore, there is a need for improvement in the equity of global trade – the greater reduction of barriers for the developing economies to the North markets (Scholte 2000: 301), introduction of alternative trade schemes (i.e. using the Internet to sell the goods from the South, linking the nonprofit buyers in the North with the producers in the South etc.) (Scholte 2000: 247 and 301), the greater commitment of the WTO in the development of mechanisms supporting exports from the South and the protection of poor nations of exploitation (Scholte 2000: 301).
However, the last argument may be questionable. The differences in wages between nations are natural though the developed nations’ popular opinion is based on the stereotype of “a poor man ready to work for a bowl of rice” (Budnikowski 2003: 216). The cost of human resources is often compensated with the capital costs (Budnikowski 2003: 216).
According to liberals, the ideal market economy strives for free trade which makes it more efficient (Krugman, Obstfeld 2002: 152). Because protected markets decrease competition
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and increase profits of specific subjects, many companies may be interested in being covered by the protection which may lead to abuse (Krugman, Obstfeld 2002: 153). However, the economical rationality sometimes has to be sacrificed to achieve social or political goals
(Budnikowski 2003: 214). The general increase of economical growth in some developing nations that started during the 1990s was a result of the undertaken economical reforms (Jasinski
2002: 79-80). The mentioned reforms were based on the rules of the free market, constant increase of export and keeping borders open to foreign capital (Jasinski 2002: 80).
4.7 South-South Cooperation
South-South cooperation through trade and investment is a feasible potential solution to
North-South trade conflict and could allow developing nations to overcome obstacles which prevent them from realizing economic growth. South-South cooperation generally refers to any kind of bilateral or multilateral collaboration assumed between countries of the South. Through partnerships, the reduction of trade barriers and the establishment of cheaper transportation of goods between states in the South, the need to rely on Northern economies, policies and markets could be greatly reduced. South-South cooperation may not be a long term solution, particularly in terms of trade liberalization, but it could certainly help to create sustainable economic growth in countries of the South.
Trade between South-South economies has seen significant increases since the 1990’s.
The results this has had on poverty reduction and the strength of their economies could be indicative of what increasing South-South cooperation could mean for the future of these states and the economic well-being of their businesses, resources, and citizens. In 2004, the World
Bank suggested that if developing nations completely eliminated their reciprocated manufacturing and agricultural trade barriers, they could generate significant welfare gains of over US $60 billion every year (Lamond and Dwyer 2007: 63).
South-South cooperation could allow developing nations to progress towards economic and financial security. Breaking free from economic dependencies on the North would allow
South economies to flourish and prosper and could protect the South from becoming victims of economic fluctuations that are rooted in the developed world. Reducing or eliminating economic and political dependence on the North would increase the bargaining power of developing
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nations. Agreements between developing nations would extend their markets and present these nations with the opportunity to exploit economies of scale and specialization through trade.
(Fontaine and Seifert 2010:3) Establishing regional marketplaces would promote economic development by teaching developing nations to effectively learn how to market and distribute their products through exportation. These nations could establish policy framework giving them better access to global markets and better negotiating positions. Increasing markets serve as a vehicle for domestic companies to develop and expand. Experiences with international trade would expose developing nations to business opportunities that do not exist within the confines of their domestic economy (Lamond and Dwyer 2007:67). Lamond and Dwyer propose,
“It is important for trade officials and the trade community of developing countries to single out the concealed geographic, thematic or sectoral agendas pursued by national, bilateral and regional institutions and special interests and weed out the promotional components that are not in their long term self interest.“
Effectively encompassing routes to long term self interests is crucial for developing nations to generate profitable and successful economies. Establishing a stable economy will satisfy the needs of the population giving the governments credibility and legitimacy which will lead to an increased probability of state survival, therefore ensuring security.
4.8 Global Governance
Some sacrifices by the industrialized world are required in order for there to be improvements in developing nations world-wide. Yet these sacrifices have been slow to be realized. With other mounting pressures and rising competition from countries which have successfully established economic stability, developed nations are hesitant to take measures which could hurt their own interests, even if, in a utilitarian manner, it would produce a net benefit for human conditions as a whole. Additionally, politicians in democracies are programmed to attempt to create an illusion of improvement of living standards within their own nation first and foremost, so as to maintain popular support and thus remain in power. Here,
Putnam’s two-level game experiences the dilemma of determining whether to prioritize national interests or satisfy international concerns.
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While the European Union, the United States and Japan all support and encourage the ideals behind democratic states, they don’t advocate the same ideals in the global economy.
Instead they hold almost exclusive power to make decisions which affect the economic fate of developing nations. The globalization of the economy requires all nations to work together, and it would be logical that the countries holding the most political power would wish to work in a way consistent with the ideologies, values, and beliefs they so persistently have encouraged for all nations across the globe to adopt. If this style of international cooperation on a representative basis were established and functional, global inequality would diminish. Nations could still look out for the best interest of their own citizens and domestic economy, but one nation or small group of nations concerns would not be prioritized based on their development, industrialization, or economic success. This would instill a sense of fairness between nations, which could reduce tensions and resentments and make negotiations and interactions more peaceful.
The global economy that has resulted from increased technology, global order, and a willingness to work together for mutual benefits requires global governance. Without governance, unlike in domestic economies, there would be no global environmental regulations or human rights regulations. Developing nations could use this to their advantage economically, but as a consequence, their citizens’ well-being and the planet’s health would be at stake.
Leading industrialized nations have primarily been the governing agents creating policies and carrying out regulations, as they are in a political and economic position which allows them this privilege. In doing so, they have often neglected the voices of developing nations who are crying out in desperation to help them without imposing burdensome barriers or tight restrictions which prevent them from participating in the global economy effectively. The relationship between international law and the developing world is unjust when compared to that of the developed world, thus contributing to the divisive gap in equality (Attar and Thompson 2011:67).
TWAIL (Third World Approaches to International Law), an organization devoted to forming a relationship between dominant economic powers and developing nations, aims to rethink and reconstruct international law in a more equal manner as to better serve humankind.
The promotion of human freedoms has become the forefront of international relations and foreign policies as leading powers promote and push democracies to form in developing parts of
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the world valuing the concept of individualism. Humanitarian interventions, poverty reduction, and the betterment of the global human living condition have become prevalent in the international agenda. Resolving conflict between the developed nations and the developing nations regarding trade is essential to overcoming the obstacles that developing nations face, preventing them from providing their citizens with a good quality of life. TWAIL’s aspirations serve as a good baseboard for the modernization of the world where humanitarian notions promote the reformation of the world economy so it is able to serve and meet the needs of all humans and rid the world of exploitation and divisive gaps which allow high poverty levels to exist. Attar and Thompson claim that,
“TWAIL seeks to democratize governance structures, both national and global, and make them more responsive to the aspirations of Third World peoples. It also aims to eliminate conditions of powerlessness and under-development that they continue to suffer under. In this sense, a reclaiming of the humanity, dignity, and agency of Third World peoples is the end goal of TWAIL.” (Attar and Thompson 2011: 67)
Increased global governance, particularly in the economic sphere, could reduce or eliminate conflicts triggered by trade relationships between the North and South. The presence of international institutions and transnational legal regimes has made developing nations responsive to regulations and policies, yet none of these institutions or regimes originated within developing nations, essentially making these nations subject to the rules established by the developed world. (Attar and Thompson 2011:68) Globalization has created an international trade arena which lacks governance that is accountable to every nation. Maniruzzaman claims that “the collapse of the transnational corporation Enron because of its fraudulent corporate activities have proved that the role of the regulatory state is quintessential for the stability in the global marketplace, otherwise anarchy and chaos are inevitable.” (Maniruzzaman 2004:8)
Maniruzzaman sets forth some possible models for global governance. The most feasible model favors increasing the power of international institutions by reallocating national trade regulation authority to an international level. (Maniruzzaman 2004:5) Convincing states to agree to relinquish portions of their economic sovereignty to a body of global governance, states will have to be guaranteed that this body represents the best interests of all states involved. As
Panitchpakdi puts it,
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“If the multilateral trade regime is to be credible and legitimate, and to promote economic governance for development, it must reflect the trade, development and financial interests and needs of all its members, especially developing countries, allowing them to maximize the gains and minimize the costs of their participation in international trade.” (Sampson 2008:
187)
Adjusting the structure of the international system with the adoption of global governance from a neo-realist perspective would have a direct impact on state behaviors and treatment regarding one another. With global governance, authoritative figures regulating interactions would bring justice between international trade affairs, alleviating state concerns of self-interests.
If nations had trust amongst one another and were forced to respect the interests of other nations, state behaviors would no longer need to be based on self-interests but rather could focus on the improvement of international conditions or international economic growth and development.
Developing nations would no longer fall victim to the economic greed of developed nations and human and environmental exploitation would diminish.
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5 CONCLUSION
As the world’s economy becomes increasingly globalized, it is crucial that nations, regardless of economic status, are able to conduct interactions in a fair, inclusive, and collective manner to prevent rifts from emerging and to maintain global stability both politically and economically. As developing nations turn their attention from their domestic situation to the global atmosphere, it is important that they do not feel their condition is being sabotaged so as to benefit the developed world. The leading powers which promote democracy will not be able to maintain their legitimacy if they do not hold true to their values in the world economic sphere.
Conducting world economic policies on a non-representative basis which results in the suppression of some national economies contradicts the values which the US, EU and Japan promote politically. This contradiction could prove dangerous and become increasingly detrimental to their global reputation, having a domino effect on global stability.
Conflict between the North and South in regard to trade has emerged as a result of global inequalities, neo-realist approaches to policies, and ineffective policies enforced in the South by the North. As neo-realism unfolds, the countries of the North are primarily concerned about themselves, their position and own interests. The North contradicts the neo-liberal policies that they advocate to the global trade. On one hand, they promote neo-liberal approaches to economies of the South while simultaneously maintaining protectionist policies in areas where their domestic industry and agriculture could not compete effectively with the cheaper products from the South. Despite promoting neo-liberal policies in the South, the North makes exceptions to some areas of trade when it is beneficial to their interests. The North acts under pressure from domestic groups of interest as explained by the two-level game theory. When it comes to negotiations and making agreements, the processes to which the two-level game and neo-realism refer take place. These two theories justify the stances of the North and South attitudes towards trade liberalization. It can be argued that the North promotes neo-liberal economic policies because it was a condition and reason of growth in its own economies. However, on the global scale, there are national self-interests to acknowledge, which sometimes contradict with neoliberal theories, in which case the North is likely to prioritize their self-interests. Looking at recent trade negotiations, we could have noticed a number of preferred developments of trade
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agreements that corresponded with North interests while marginalizing the South. However, the
South has become more powerful and assertive and managed to persuade the North to respond to issues that were in their self-interests. Conflicts are further aggravated by Northern oppression of economic opportunities for the South through conditional policies, corporation interests, and the pursuance of self-interests by the North.
Resolving conflicts holds long-term merit for both North and South nations. By alleviating conflicts, global economic and political stability will be easier to achieve. Links between poverty and conflict threaten the security of the developed world while creating hostile living and economic conditions for citizens and governments of developing nations where poverty is most visible. Economic stability reduces poverty and creates opportunities for developing nations which reduces contrasting international outlooks which complicate North-
South cooperation. Conflict also creates avenues which encourage corporations to exploit humans and the environment to maximize profits. The elimination of conflicts offers net gains for the global community as a whole. Given the economic growth of the South led by China,
Brazil, and India, which pretend to be new powers in the global order, it could be perceived that the position of the North is declining and in the future, the North will be forced to recognize the capabilities of the South and address their economies. The role of the South will be increasing as a recent economic crisis demonstrated. The leaders of the North states encouraged emerging powers of the South to contribute to resolving economic hardships. Additionally, the North encouraged South-South cooperation through regional trade hoping that some of their economic problems would disintegrate without the North having to take any action.
In this project, we made an attempt to explain and provide reasons for why the conflict between the North and the South emerged in regard to trade and the WTO. After investigating areas of international trade and world politics, mutually exclusive attitudes of states appeared.
Using the theories of neo-realism, neo-liberalism and Putnam’s two-level game theory, we were able to analyze the causes of the conflict. Finally, we were able to establish potential solutions for preventing these conflicts from arising. Prevention is possible but will require international cooperation, either through North-South redistribution, South-South regional cooperation, or a system of global governance to reduce neo-realist tendencies.
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