Negative aspects of globalisation
But globalisation has become a dirty word, reflecting a greedy world. The economists Stiglitz (chief economist World bank and Nobel prize winner in 2001) led the attack in his book “globalisation and its discontents” Globalisation in its present reality is often bad because of western power and also weak governments in the 3rd world. In reality western dominated Globalisation imposes barriers against free trade from 3rd world exports protecting western industry, multinationals and farmers. Some uncontrolled MNCs may damage the environment and use child labour as some ldc governments may be weak or corrupt and let them. Also sometimes ldc governments should prevent unstable capital flows. FDI may be good but short-term hot money can flood out of a country and wreck its exchange rate, destroy confidence and cause a huge deflationary collapse. Globalisation can be good for the 3rd world but we do not let it happen in ways that help the 3rd world escape poverty. Western taxpayers and consumers get a bad deal as well as 3rd world farmers and manufacturers.
There are 4 main criticisms and areas needing reform.
1.High Western tariffs on manufactured goods, especially textiles and processed food and raw materials – the very products cheap labour LDCs should specialize in under free market (CA) that the West preaches. More real globalisation is needed here – fair free trade.
It is wrong that we import raw coffee and cocoa tariff free, but impose tariffs on chocolate and coffee processed into instant and packaged form. We keep the high value manufacturing to ourselves.
2.Western food export subsidies i.e. dumping of food on world markets destroying attempts by cheap 3rd world farmers to survive, this should be illegal under the Wto, but the EU and US carry on.
3.The huge subsidies given to rich farmers in the EU and US. These are equal to 6 times our foreign aid. They keep food prices high, cost us as taxpayers and destroy 3rd world farmers who cannot specialize in their CA. This is quite clear in cotton, heavily protected in the US and in sugar where we grow it expensively from sugar beet in northern Europe, whereas it would be far cheaper from the West Indies. Our countryside might be better switching marginal land to new villages with large gardens as refuges for nature from farm pesticides, and let LDCs use their cheap land, labour and climate. Rich European landowners get subsidies in the millions, whilst a poor African farmer has to compete with no subsidy at all.
4.The free market demand LDCs open up their capital markets. The problem here is not so much multinational long term investments (usually good), but short term hot money, which flees at the first sign of trouble and causes collapse and deflation, e.g. the South East Asian collapse of 1997, Argentina and Turkey in 2001. Hot money outflow has led to 10-20% unemployment in all these cases. Here the free market ideology of the IMF ignores the quite clear market failure of hot money. To get loans countries that have got into 3rd world debt have had to abandon foreign exchange controls. Both Malaysia and Vietnam ignored this and stopped outflows of hot money and avoided the worst of these recessions.
Reasons for negative results from globalisation
Power imbalances.
(A) The powerful 1st World. The MDCs have the economic power, the power to give loans on their terms, the bargaining power over negotiations to reduce tariffs and quotas as they have the biggest markets, voting power on the WTO and IMF, the power of multinationals not to invest in any country so they can set harsh conditions. Also the power of farmers to gain subsidies and import protection, and the ignorance of consumers and taxpayers of how much all this costs them.
(B) The weakness of the 3rd world- LDCs have small economies and markets and so weak bargaining power at the WTO. Western countries have much lower tariffs with each other because they bargain each other’s tariffs down.
The 3rd world has had to beg for loans from the 1st world due to 3rd world debt. This is partly their fault through borrowing too much and too much waste of money, but in many cases is due to collapsing commodity prices and a sharp rise in oil prices and interest rates in the 1980s. Thus they have had to bring in excessive free market reforms as part of IMF SAPS.
LDCs desperately need FDI and too often turn a blind eye to multinational damage to their environment or bad work conditions and child labour. They need the jobs and exports too badly.
Each LDC competes with all the others. Their bargaining power is reduced by the over supply of tea, coffee, cotton, copper, palm oil and all other commodities. As they develop they concentrate in these C.A.s in their billions. They sell cheaply then to the West, and we get ever cheaper food, they get debt and stay in poverty.
(C) The west imposes free market ideology even where it damages the 3rd world.
You must argue that free trade, when not distorted by western subsidies, is good. That free trade with unprotected western markets allow export led growth and industrialization is the main way ldcs can lift themselves out of poverty, providing good governments create the right, roughly 10 conditions, for a market friendly environment. However the IMF too often imposes these free market conditions too quickly and insensitively to the individual needs of each country. The IMF and WTO are problems under globalisation, they need reform to help the 3rd world develop faster. At the moment the IMF goes for complete liberalization, deflation and deregulation in its SAPS. Also through the WTO we follow the hypocrisy of demanding ldcs open up their markets to our exports and our investments, while we get away with farm subsidies and protect whatever we feel is threatened by their attempts to diversify and industrialise.
(D) We do not let today’s LDCs follow the protectionist route that most MDCs followed when they first established their infant industries to gain long run potential (CA), and capital controls to prevent macro-instability.
Do not forget that the NICS gained much from globalisation and multinationals in every way. They gained rapid EOI (export orientated growth) as in the 1960s to 1980s they had relatively free access to western markets. MDCs and FDI gave capital, jobs etc and a solution to the two finance gaps as foreign savings and investments pored in when they were too poor to save much themselves. Also of course FDI and MNCs do not leave countries with 3rd world debt – the MNCs lose their own money if their factory goes bankrupt, the 3rd world government then owes nothing. 3rd world debt is mostly official loans taken out by governments which must be paid back. Western 3rd world investments bring us profits and cheap imports but the 3rd world gains heavily as they can rarely find capital for growth via their own savings with their low real incomes.
Globalisation's negative image.
The often confused criticism from protestors has focused criticism on much western abuse of its power. At last there is change in the air. Economists have long argued that the WTO rules are too weak to stop western protectionism, subsidies or Europe’s CAP. Now with the protestors and the pressure from the new 3rd world power block G21 plus, there is hope for changes soon.
Multinationals are seen as negative because of exploitation of cheap labour. Consumer campaigns can help but mostly it is good, determined governments in the 3rd world who must demand good conditions. Also economic research shows MNCs pay levels higher than local earnings, certainly much better than subsistence farming. The poor in LDCs desperately need work and injections of capital. Low pay is better than no pay and no work, especially in LDCS with no state benefits. MDCs injection of skill and organisation lead to labour scarcity and higher wages and economic growth. Responsible MNCs are a force for the good in the 3rd world. They can bring prosperity through local multipliers, backward and forward linkages, diversification etc. However some MDCs can damage a local economy by moving in for a while then moving on to a cheaper, lower pay country or one with less tough conditions. This slash and burn approach can abandon an area and leave it derelict. Thus the power of western multinationals can bring instability to a poor LDC. MNCs may damage the local environment, especially if the country’s government is weak and has few regulations. An MNC may make power dualism and corruption worse if they use their wealth to bribe local politicians. They can buttress the elite, stunt democratic reform, take the country’s mineral resources and exhaust them and not bring lasting structural change. They may take their profits and go.
They may damage the chance of sustainable development (that which meets the needs of present generations without compromising those of future generations) if they leave a wasted land with depleted resources. Britain did this to some small Pacific islands; we removed the islanders so we could hollow out the islands to remove phosphates for fertilizers. Those people have lost their own country. This extreme is rare, FDI and MNCs have been essential for the rapid development of all of the NICS and now the big emerging economies.
At Cancun a start has been made
The 3rd world has united. A new group has formed to take on the power of G8, initially called G21 but growing fast. They are fighting for the West to drop its protection of “sensitive industries” like textiles, clothing and footwear, iron and steel and cheap manufactures and processed coffee, tea and cocoa. They want more globalisation not less, they want the chance to sell to us. The want an end to unfair trade, e.g. we subsidise Europe’s cows at 2 dollars a day but let 1 billion people live on less than a dollar a day!
The 3rd world is struggling to break away from dependency. We would gain from this, not just the boost to world growth from more specialization and C.A. but also a more prosperous world would not resort to growing drugs nor be unstable and turn to wars or support terrorism. Instead we abuse our power, we can see this when the US wishes the world to accept GM crops and is reluctant to supply cheap drugs to combat aids in case they are smuggled back to undercut their high prices in the West.
True globalisation means the world shrinks for us all. Travel is cheaper and easier, goods come from all around the world, cheap but good products that we consumers gain from. Globalisation means free migration but the west clamps down on asylum seekers. Globalisation as it is often disrupts and destroys jobs in the 3rd world but we should allow LDCs to protect their infant C.A industries for a while as the US, Europe and Japan all did as they started to industrialize to keep out mainly British products 120 years ago. They, and the Nics protected and helped their infant industries in order to force structural change. True globalisation brings more trade for 3rd world exporters, they freedom to need export more than they need aid. At Cancun the West remained intent on keeping the doors shut to extra 3rd world exports, but we press them to open up.
We have then the wrong kind of globalisation. Economists want more globalisation but mainly by the west opening up to 3rd world exports and removing its trade distorting farm supports designed to help the fat livings of US cotton growers and EU farmers under CAP. The 2002 decision by Germany and France to preserve CAP subsidies until 2010 excludes millions of farmers in Poland etc who join under enlargement as well as 3rd world farmers who could easily undercut EU farmers. Globally we need stronger rules against the minority of bad exploitative multinationals. We need reforms of the IMF and WTO to give the 3rd world a stronger role. At Cancun in Sept 2003 the 3rd world stood up against present, unfair globalisation rules. Cancun collapsed because the west refused all the changes G21 demanded, but the west must change or be blocked out of vast fast growing markets China’s 1300 million people. The 3rd world however needs multinationals and desperately needs more globalisation as free trade for exports to the west. We must not throw this baby out with the bath water. It would be a disaster for the whole world and especially the poor world if we all became simplistically protectionist under the banner of local products for local people.
