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Development and globalisation key issues

Find out about some of the key issues related to Development and Globalisation, from poverty to growth, and the impact that they have on the world.

Growth of NICs

Newly Industrialised Countries (NICs) are those where their economy is developing (often very quickly) at a faster rate than other developing countries. NICs are not considered to be developed. In most cases, this rapid development is due to a huge amounts of exported goods across the globe. The most well-known examples are China and India. NICs have many features in common for example an increase in those working in secondary industry (manufacturing) with a drop in numbers employed in primary industry (for example agriculture). An accompanying effect of this change in industrial structure is the mass migration of the population to urban areas from the countryside as people want to work in a job where they can earn a lot more money.

There is some debate amongst global economists but the countries they agree on as being NICs are: South Africa, Mexico, Brazil, China, India, Indonesia, Malaysia, Philippines, Thailand and Turkey.

Fair trade?

Not to be confused with the organisation ‘Fair Trade’, there are ethical and moral questions about some of the factors that have enabled NICs to become competitive in the global market. Labour costs in NICs are cheaper; there are less Health and Safety regulations (and those that do exist are not always enforced); less consideration for the environment. As a result of this the working conditions of many people has been criticised as had the country’s disregard for their environment including levels of air and water pollution. Foreign investors set up operations in NICs in order to produce their goods for a lower cost that in developed countries. They can pay lower wages, not have to worry about meeting safety or pollution rules and they do not have to comply with union guidelines. This has of course affected manufacturing industry in developed countries as they cannot compete with the benefits of location in an NIC for a company.

Globalisation of services

The service sector (tertiary industry) provides services rather than goods. MEDCs have a well-developed service sector compared to manufacturing (secondary) and agriculture (primary). Both LEDCs and NICs may have expanding service sectors and the most common example cited is the growth of Indian call centres. India does have a huge number of call centres but there is a lot more to its service sector that just these. Advertising and marketing, banking and investment services make up a high percentage of the sector and increasingly there are services offered to individuals as well as companies such as tourism, finance and even education (online tutoring is an example).

Common features of countries that have experienced development of the service sector (not including MEDCs) are that they have a high number of English speakers in the population; a well-developed communications infrastructure (as the sector relies heavily on the Internet); political and social stability – for example, any company wishing to set up call centres in another country needs to know that the level of customer support they are providing will be high quality and consistent.

Offshore outsourcing is a practice where companies hire someone from outside of their company (and country where they are based) to carry out some business function. One example could be a company wanting to cut the costs of its payroll process. If a company has 100,000 employees across many different countries, the cost of running the payroll system would be huge. By outsourcing this offshore they could make savings due to lower costs. There are companies (in India for example) that specialise in running payroll systems for global companies. They can provide an expert and reliable service for the company at the fraction of the cost they could do it for themselves. The payroll company would be providing the same service for lots of other companies too.

Countries at low levels of development

These countries are classified as ‘Least Developed Countries’ (LDCs) by the United Nations (UN). They have the lowest HDI ratings of all countries in the world. Typically these countries do not have a stability in agricultural production which affects their ability to feed the population, and they have unreliable exports so their income is low. Some, but not all LDCs suffer from political instability which may be as extreme as civil war, extreme poverty and disease (for example AIDS).

According to the latest UN listings there are 34 countries in Africa, 9 in Asia and four in Oceania. Haiti in the only one outside of these continents being located in the Americas. These countries have high birth rates, low life expectancy and high infant mortality rates and would be typically in the low stages of the DTM.

Impact of TNCs

Transnational Corporations (TNCs) are companies that have a huge influence on economies at every scale from local to global. A company does not have to be big physically (in terms of employees or premises) as some TNCs have a global influence thanks to the Internet. They often have branches of operations in many different countries and take advantage of benefits such as cheap labour, tax breaks and benefits, government grants to encourage investment and providing goods near to the markets to cut down on transportation costs. Countries often compete with each other for TNCs business as they can be very lucrative for them.

Positive impacts include financial investment in a country by a TNC. A TNC may invest in transport networks to help their own business which will also be available to the host country. Unemployment can fall because of job opportunities which also means that local people have more money to spend which in turn boosts the economy of the country (multiplier effect). Foreign investment will enable the government to improve things like education and healthcare; this helps contribute further to development.

TNCs can also have negative impacts for the host countries. A company may be in competition with local businesses and force them to close because they cannot compete. The TNC may not reinvest its profit in the host country, instead the money is taken away and used elsewhere. If a country has had TNCs and foreign investment for a while then it will inevitably experience development. Part of this process means that standards of living will rise and eventually wages and other operating costs will rise. At this point it may be more economically viable for a TNC to re-locate to another country; because they are sometimes so large this is not a problem for them.

Trade versus aid

There is ongoing debate about the benefits of aid against trade. There is evidence where aid has been both successful and unsuccessful, some countries are worse off than they were originally despite lots of foreign aid. There is a lot of evidence too that trade is a better way for a country to secure its development and become an economical force. The argument is often applied to Africa and Asia as two contrasting examples. Asia countries have developed strong as strong economies whereas Africa has generally become poorer. Asian countries, on the whole, have not accepted foreign aid.

Aid is given to a country usually to meet a short term need, such as following a natural disaster or experience a famine. Countries need the aid to get through the problems such as poor water supply, lack of food and basic medical supplies. Once the aid has run out two things can happen; the country is back where it started before it received any aid or the aid may continue to be given. The best aid is considered to be planned to help a country help itself, such as introducing sustainable projects to improve agriculture with appropriate technology (simple machinery or tools which can be easily fixed and maintained) or educating members of the population which may impact on their quality of life and standard of living. The recipient country is still reliant on external help though and in some cases, where aid is tied aid they have to pay back what they have received.

Trade is a way to secure the long term future of a country. It requires initial investment which may need to come from abroad, in order to begin. Once established, if a country’s government can keep control of the development of trade, then things can flourish. Countries may be allowed to join trading groups so that they have guaranteed markets or financial incentives to help them continue to expand their industry. There will obviously be benefits to the MEDCs of having LEDCs or NICs in their trading groups but it gives a level of security to them both.

Economic vs environmental sustainability

Organisations in MEDCs have to adhere to a whole raft of rules and regulations which are aimed at protecting the local and global environment. For example, emissions of CO2 are closely monitored and companies have to reduce their carbon footprint in order to meet their environmental impact targets; factories may have to process waste (which may be a very expensive process) in order to comply with regulations. It can be difficult for a company to meet these requirements both practically and financially. By relocating parts of its operation to an LEDC a company may find that it has a lot less, if anything, to comply with. This can increase profit easily. The recipient country has a dilemma… should it allow foreign investment into the country which will help its own economy and population or should it pay more attention to preserving the environment?

It is easy for MEDCs to point the finger at LEDCs and NICs to highlight the negative environmental impact their growing industrialisation is having and pressure them to sign up to global agreements on CO2 emissions, but this can then make it very difficult for a country to grow its economy. This pressure could mean that MEDCs can benefit from producing things themselves because they can operate within these agreements where some countries cannot.

There are cases where large TNCs have been highlighted in the media for their unethical practices and disregard for their environmental responsibilities and this can lead to international pressure to do the right thing and operate in a way which preserves the environment for future generations whilst helping countries to develop their economies.