We cannot forget that while the iron curtain has been brought down, the poverty curtain still separates two parts of the world community.
—Javier Perez de Cuellar

Introduction

Globalization is certainly the buzzword of the new millennium. The nature and impact of globalization has been the subject of profound debate and concern in economic circles since the mid-1990s. The controversy surrounding the on-going debates about globalization is whether unfettered market forces will further diverge or converge income the world over. On the one hand, proponents of globalization say it has promoted information exchange, led to a greater understanding of other cultures, raised living standards, increased purchasing power (most especially in the west) and allowed democracy to triumph over communism.1 On the other hand, opponents of globalization, such as those who protested against the ministerial meetings of the World Trade Organization (WTO) in Seattle and most recently in Quebec City, say the West’s gain is at the expense of developing countries. These opponents charge that globalization is synonymous with imperialism and does little more than encourage corporations to relocate factories to countries with the cheapest labor and the weakest environmental laws.2 They further argue that, “even in the developed world, not everyone has been a winner. The freedoms granted by globalization are leading to increased insecurity in the workplace. Unskilled workers in particular are under threat as companies shift their production lines overseas to low-wage economies.”3

Mainstream economic thought promises that globalization would lift the poor above poverty, dissolve dictatorships, protect the environment, integrate cultures, and most importantly, reverse the growing economic gap between rich and poor countries of the world.

But the evidence of globalization has spurred a political backlash such as the street protests that plagued the WTO ministerial meetings in Seattle in fall 1999, Prague in fall 2000, Quebec City in spring 2001, and Genoa in summer 2001. This backlash has succeeded in uniting several categories of the protesters from all walks of life to form a common front against the inequalities caused by globalization. For example, cultural custodians have charged that national cultures and identities are under constant threat due to the spread of Internets, satellite TV, international media networks, and increased personal travel. Democrats have charged that MNCs are becoming more powerful and influential than democratically elected governments. Ecologists are overly concerned about corporations’ disregard for environmental degradation. Human rights activists are lamenting the loss of freedom to corporate power. To crown it all, small business owners are crying wolf about losing their market shares to mega-corporations due to economies of scale.

The frequent observation that globalization is not global, meaning that processes and benefits associated with globalization are uneven throughout the world, is reinforced in this backlash. In other words, a large percentage of the world’s population feels excluded from the benefits of globalization. Statistics abound showing how globalization is increasingly polarizing the world into two different camps—impoverishment and prosperity. As the juxtaposition of wealth and poverty at the opposite extremes of the globe continues, thus the orthodox model of development is being held up for closer scrutiny, as we become knowledgeable of the challenges and opportunities that globalization and the so-called “Washington Consensus”4 bring in their wake. Given all the uncertainties about globalization, the time is right to rethink the nature of North-South economic relations in the global economy. Is the relationship based on a “win-win” situation? Finding the answer requires going beyond the modernization thesis and employing an approach based on four related and overlapping, but still distinct concepts: technological innovation and information revolution, trade liberalization, internationalization of capital, and the new international division of labor.

These four concepts are the basic building blocks for explaining the two faces of globalization—while some countries are enjoying the prosperity globalization brings in its wake, others are languishing in impoverishment as a result of globalization. The level of technological innovation and information revolution in one’s country determines whether a country reaps the benefits of globalization or not. The more a country liberalizes its economic and at the same time the more safety valves it creates to protect certain industries determines how competitive that country will be in the international market. Internationalization of capital—the more production and capital are concentrated in few countries (mostly advanced industrialized countries), the more it engenders monopolistic practices and stifles competition; and the new international division of labor—the more some countries specialize in the production of primary products while others specialize in manufactured goods, the more the gap between rich and poor countries will continue to widen.

The degree of technological innovation and information revolution taking place in a country determines the benefits of globalization accruing to the country concerned. Moreover, an expanding high-tech, information-based economy increasingly defines globalization and shapes the business cycles within it. The size of a nation economy protects a nation’s market from trade liberalization. The internationalization of capital favors the rich and well-endowed nations more than the poor ones, and moreover, links more countries to a worldwide division of labor and diminishes autonomous development, thus leading to intensification of the contradictions inherent in capitalism. Much of the flow of capital, labor, service, and goods among Asia, America, and Europe is technology-based. The benefits of the new international division of labor lie in different factor abundance in different countries. These concepts help us make sense of what globalization means and which country is well positioned to reap its benefits and which ones will fall behind.

The ways in which these ideas fit together helps illuminate such crucial globalization issues as the relationship between impoverishment and prosperity, environmental degradation, national cultures and identities, cultural imperialism, global economies of scale, digital divide, mono-cropping, cheap labor, and the interactions among individuals, firms, and governments. These concepts serve as powerful tools for analysis, not as isolated variables but as patterns of interrelationships.

It is my contention here that for globalization to become a win-win situation, rules, regulations, and international conventions must count as much as market mechanism. The way these four concepts—technological innovation, trade liberalization, internationalization of capital, and the new international economic order—interact, shows that without an effective international rules and legal system that protects labor, environment, and monopolistic practices, globalization can lead to oppression, exploitation, and impoverishment. The fact remains: capitalism has always operated within the context of the rule of law.

In trying to explain why globalization is not a win-win game, we must ask fundamental questions in terms of these four concepts: Is the information revolution beneficial to all or to some well-endowed countries? Is trade liberalization really a free trade or there are some elements of protectionism acting as a stumbling block on the way of some countries? Does internationalization of capital add up to monopoly capital, which might stifle competition or does it allow infant industries from the South to compete fairly? Does the new international division of labor engender comparative disadvantage or will it relegate the weak economy to the periphery merely as supplier of raw materials, cheap labor, and market for finished products?

These questions relates to how unbridled globalization—technological innovation, trade liberalization, internationalization of capital, and the new international division of labor—could wreak havoc on some countries while simultaneously opening the doors of opportunity to others. This paper concludes by proposing recommendations on bridging the development gap between developed “North” and developing “South” so as to give the future trends in globalization a human face.

If there is any lesson to be drawn from the event of September 11, 2001, it is that “while many in the first world benefit from free markets in capital, labor, and goods, these same anarchic markets leave ordinary people in the third world largely unprotected.” Because we have become a society glutted on market fundamentalism, laissez faire, and affluence, regulation of the market is being nonchalantly shoved aside. Because we have lost a proper perspective of time, history, and education, Third World development is taking its dying breaths. Even if Third World were the only victim, it would still be a remarkable tragedy in the annals of Western civilization. But what is worse is that all these ills that plague Third World nations reveal deeper problems about the West, most especially the United States and the disastrous direction it is headed. What has become apparent to the rest of us after September 11 is that that same deregulated disorder from which financial and trade institutions imagine they benefit is the very disorder on which terrorism depends.”5

To fully understand the concept of globalization in theoretical and practical terms, globalization, first and foremost has to be viewed from a historical perspective. It is only through an examination of history that one can fully understand the current environment within which globalization dwells and its implications for the poor and powerless.

Historical Overview

The term globalization was first coined in the 1980s, but the concept stretches back centuries and beyond. The forces and events leading to globalization can be traced as far back as 1492 B.C.E., when people began to link disparate locations on the globe into extensive systems of communication, migration, and interconnections. This formation of systems of interaction between the global and local has been a central driving force in world history.

According to Emma Rothschild, “one way of looking at globalization from an historical perspective has to do with the economic and social history of international relationships, and in particular with the history of earlier periods of rapid increase in international trade, investment, communication, and influence.”6 She went on to add that, “the export investment booms of the 1860s and the early twentieth century are just two of the more dramatic examples.”7 Other prominent events and forces shaping globalization that have impacted global history deserve to be mentioned here. In 325 B.C.E. Chandragupta Maurya, a Buddhist, triggered the first globalization revolution by combining the expansive powers of a world religion, trade economy, and imperial armies for the first time to connect the Mediterranean, Persia, India, and Central Asia. Between 650 – 850 B.C.E., Islam followed suit by expanding from Western Mediterranean to India. In 1492, Christopher Columbus and in 1498 Vasco da Gama started navigating the world waterway in an effort to connect the globe. The former supposedly discovered the Americas and the latter discovered the sea route to India. These discoveries set the stage for the inter-imperialist rivalries that engulfed the advanced capitalist countries between 17 th and 19 th centuries. This interconnectedness also paved the way for the slave trade that soon followed in 1650 during the hey-day of mercantilism. By 1648, the imperial powers created the modern state system, which was engendered by the treaty of Westphalia.

Adam Smith’s influential book the Wealth of Nations8 unleashed a new era of market fundamentalism in Europe. In his book, Smith used the “invisible hand” to denote the free enterprise system that was fast developing at the time. Though in its nascent stage, it continued to influence other thinking about economic principles and ideas. Concomitantly, between 1865 and 1871, the mechanism that produced the European Union was set in motion. The power struggles and economic competition that ensued resulted in the partition of Africa in the Berlin Conference of 1885. The economic crises and contradictions associated with inter-imperialistic struggles led to several conflicts the world over, most especially the Great Depression of 1930s. Nation states drew back into their shells on realizing that international markets could deliver untold misery in the form of poverty and unemployment. The cumulative effects of these rivalries and contradictions in capitalism hit all parts of the world simultaneously. This helps to explain the First World War in 1914 and again the Second World War in 1935. The League of Nations, founded after World War I to prevent future wars, came short of expectations when it failed to stop World War II and was later replaced by the UN in 1945. Most scholars attributed its failure to the absence of the US to sanction its authority.

Most European nations emerged out of the Second World War weak, feeble, and powerless. Their weaknesses served as a breaking point for Europe’s inability to reverse the militant nationalist movements that sprung up in their colonies, and as a result, capitulated to the subtle process of decolonization triggered by the colonies’ mass protests and demonstrations, which gradually freed European colonies in Asia and Africa.9

The resolve of Western states to build and strengthen international ties in the aftermath of World War II laid the groundwork for the Bretton Woods System. This system brought together 44 nations in Bretton Woods, New Hamsphire in 1944. The outcomes of that meeting further strengthened globalization, which resulted in the establishment of the three institutions—IMF, World Bank, and GATT.

The period between 1945 and 1989 was dominated by the Cold War as the two super powers competed for both ideological and technological advances. By 1989, after the demise of the former Soviet Union, Francis Fukuyama wrote The End of History, signaling the triumph of democracy over communism. Thus globalization came into full swing with no major opposition. These events, coupled with the industrial revolution, catapulted globalization into the apogee that it presently enjoys today. As this brief historical review has shown, globalization has come a long way. It has survived the African heat, the Soviet winter, the Asian volcanoes, the Turkey earthquake, and finally the Florida hurricanes to become, as Francis Fukuyama10 puts it, a true global phenomenon, and the end of history—symbolizing the victory of capitalism over communism.

Theoretical Perspectives on Globalization

A high degree of conceptual clarity is essential to tracking the historical roots and precedents of globalization and understanding both its causes and its consequences. Unfortunately, what prevails in the burgeoning empirical and theoretical literature on globalization is conceptual confusion and disarray. As Douglas Kellner notes, “the term globalization is thus a theoretical construct that is itself contested and open for various meanings and inflections.”11 Globalization, in the eyes of some scholars, pundits, and policy makers, is a process, a system, a force, an age, or a revolution.12 Others have used globalization interchangeably with words like internationalization, liberalization, universalization, and westernization13 . These competing perspectives have different meanings.

It is difficult to define globalization as a concept because of a vast range of different interpretations. The ambiguity surrounding the term is partly the result of the alacrity with which globalization has been incorporated into the literature. In this paper, globalization is simply defined as a “process consisting of technological, economic, political, and cultural dimensions that interconnect individuals, firms, and governments across national borders.”14 Distinguished economist David Henderson further expanded the definition of globalization into five “related but distinct” components:

In the literature on globalization, one can schematically distinguish three different dominant theories that provide the point of departure for understanding globalization. These theories are realism, liberalism, and Marxism. First, is the realist school that is closely associated with the writings of Han Morgethau, Kenneth Waltz, and Edward Carr to name a few. Niccolo Machiavelli is considered by many to be one of the exponents and originators of the realist tradition. His emphasis on “what is” as opposed to “what should be,” has a tremendous influence on contemporary writers like Hans Morgenthau. Three fundamental assumptions of realism are widely shared in the field. They are that “states are the most important actors, that they seek power, and that they pursue their policies in an essentially rational manner, calculating costs and estimating benefits, typically in a logical fashion.”16

The second approach is liberalism, which draws heavily on the writings of Adam Smith, David Ricardo, and W.W. Rostow. These liberals view globalization differently. For them, globalization is a natural outgrowth of capitalist development. Liberals believe that non-state actors are dominant players in the globalization game and that trade is its primary stimulus—the “engine of growth”—for increasing productivity and raising income levels in developing countries. Integration in the international economy through trade is supposed to stimulate growth, diffuse new technologies, generate investments, and transform traditional social-cultural practices that are incompatible with the market ethos.17 Liberals also believe that a law-governed international society could emerge without a world government, and that the core sources of poverty are internal to a society: lack of knowledge, education and science, lack of the rule of law, lack of institutions that protect people’s lives and property and provide a framework of incentives for individual action and enterprise, lack of capital equipment of all kinds, massive macroeconomic instability, and predatory governments. These same problems can transcend national borders and spill over to hamper markets in their external dimension, that is, globalization.

In 1776, Adam Smith wrote the Wealth of Nations in support of this contention. In his book, Smith’s theory blazed the trail in explaining why unrestricted free trade is beneficial to a country. Smith argued that the invisible hand of the market, rather than government policy, should determine what a country imports and what it exports. The basis of Smith’s argument was premised on the principle of laissez-faire—a “hands off” political economic philosophy.

One of the most influential liberal assessments of the development dilemma in Less Developed Countries (LDCs) to emerge was the work of W.W. Rostow.18 According to Rostow, like the developed nations of the North, the less developed South must undergo a series of changes in their socioeconomic system in order to develop and industrialize. Evolutionary change is represented by series of stages of economic growth that society passes through on its way to development. Rostow identified five stages of the modernization process: traditional society, precondition for takeoff, takeoff, drive to maturity, and age of mass consumption. Rostow’s theory of economic development was based largely on the historical experience of Western nations, especially Britain and the United States. Critics, however, argued that the neo-liberal discourse is both theoretically flawed and not validated by empirical evidence. This perspective led to the next school of thought that vehemently attacked liberalism for failing to take other variables besides the market into their analysis.

The third broad perspective is the Marxist approach, which, since the demise of the former Soviet Union, most scholars and pundits have dismissed as no longer useful in explaining contemporary issues in international studies. Still, from my perspective, the Marxist contentions that capitalism’s perpetual quest for expansion and its various inherent contradictions make the system fatally flawed remain valid. For Marxist and non-Marxist theorists, the evolution and spread of capitalism worldwide explains the growing disparity between the industrialized nations of the North and the underdeveloped nations of the South. In support of this contention, writing as far back as 1848 in the Communist Manifesto, Marx and Engels argued that for capitalism to survive, “ it must nestle everywhere, settle everywhere, establish connections everywhereÂ… In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal inter-dependence of nations.”19 Here, Marxist scholars view globalization as synonymous with imperialism; it’s, nothing particularly new, and really only the latest stage in the development of international capitalism. Rather than making the world more alike, it further deepens the existing divide between the core, semi-periphery, and the periphery.

Among the many writers who explicate theories of imperialism, V.I. Lenin, Immanuel Wallerstein, Andre Gunder Frank, and Samir Amin represent a central dimension of the debate. In his book Imperialism: The Highest Stage of Capitalism (1917) Lenin draws heavily on the works of J.A. Hobson and Rudolf Hilferding, emphasizing the merger of industrial and bank capital into finance capital, the expansion of capital exports, and the increase in military production and militarism. As Lenin puts it:

“Monopoly is exactly the opposite of free competition; but we have seen the latter being transformed into monopoly before our very eyes, creating large-scale industry and eliminating small industry, replacing large-scale industry by still larger scale industry, finally leading to such a concentration of production and capital that monopoly has been and is the result.”20

In his book, Lenin contends that the idea of under-consumption, overproduction, and over-saving is the root cause of capitalist expansion-for-survival and results in postponement of its inevitable crisis and metamorphosis into socialism. This explains according to Lenin why Karl Marx’s prognosis of proletariat revolution did not take place.

Now let us turn to the central theme of this paper, that is, whether the four concepts described earlier—technological innovation and information revolution, trade liberalization, internationalization of capital, and the new international economic order will produce impoverishment or prosperity in LDCs without rules, regulations, and international conventions guarding globalization.

Technological Innovation and Information Revolution

One of the main drivers of globalization is technology. For the past two decades, globalization has been growing by leaps and bounds with the aid of technology. Global production of technology and international trade in high-tech have had an extraordinary growth between 1975 and 1986, multiplying six and nine times respectively.21 The mainstream’s prognosis that technology will spread to LDCs and could produce a “digital dividend” failed to materialize, instead it produced a “digital divide.” The forecast failed because it was based on a faulty assumption. As studies have shown, technological development has proven to benefit the big MNCs and well-endowed individuals much more than the small companies and poor individuals. As a consequence, globalization thus has increased the gap between the rich and the poor. The concept of “digital divide” as it is now called has served as a source of market stratagem in the globalization game used by the rich and well-endowed countries to keep the forces of globalization unchecked.

According to a recent UN Human Development Report, industrialized countries, with only 15 percent of the world’s population, are home to 88 percent of all Internet users. South Asia, with 23 percent of the world’s population, has less than 1 percent of the world’s Internet users. In Southeast Asia, only one person in 200 is linked to the Internet. In the Arab states, only one person in 500 has Internet access. The situation is even worse in Africa. With 739million people, there are only 14 million phone lines, fewer than the number in New York and Paris.

In a speech at Telecom 99 in Geneva, Switzerland, UN Secretary General Kofi Anan warned of the danger of excluding the world’s poor from the information revolution. The issue of technology transfer has not received any significant attention from the developed nations. In spite of the hues and cries about the North’s monopoly of technology, efforts to transfer technology to the South has resulted, in most cases, in the transfer of obsolete technology that is no longer needed in the North and not appropriate for Third World environment. This situation was especially true during the Cold War. After all efforts to transfer technology failed, most countries in the developing world have now resorted to piracy as their last resort. Case in point, China’s piracy of Microsoft software22

In the agricultural sector, the situation is even worse. Most developing countries today still lag behind their counterpart in the north as far as mechanized farming is concerned. To a large degree, the agrarian stage of economic development characterized by primitive farm tools amid traditional farming techniques still looms large in most LDCs. Mechanized farming has been directed to cash crops for export to the North’s industries at the expense of food production. In the final analysis, most LDCs now import food from industrialized countries at exorbitant prices hence, famine and starvation.

Some critics have questioned the role of MNCs in the agricultural sector of LDCs. MNCs have been reluctant to invest in developing economies. In some cases, where MNCs invested in the economy of the developing nations, they employed capital-intensive production techniques that are often antithetical to job creation and creativity of local artisans, which serves as an impediment to industrial revolution and the consequent destruction of infant industries in developing nations. Thus, the phrase “digital divide” becomes the rule rather than the exception.

The “information superhighway”, the internet, e-commerce, cable TV, and modern transportation also involves the dissemination of new technologies that have tremendous impact on the polity, society, culture, and every-day lives of citizens living in developing countries. Time-space compression produced by new media and communications technologies are overcoming previous boundaries of space and time, creating a global cultural village and dramatic penetration of global forces into every realm of life in every region of the world.23 As Renato Ruggiero, director general of WTO puts it: “Telecommunications is creating a global audience. Transport is creating a global village. From Buenos Aires to Boston to Beijing, ordinary people are watching MTV, they’re wearing Levi’s jeans, and they’re listening to Sony Walkman as they commute to work.” This global culture includes the proliferation of media technologies that veritably create Marshall Mcluhan’s dream of a “global village.” These technologies allow transnational media and information to instantaneously traverse the globe. This process has led some to celebrate a new global information superhighway and others to attack the new wave of media pervasiveness in their lives as cultural imperialism.

In the globalization debate between Friedman and Ramonet, Friedman asserted that the “wretched of the earth want to go to Disney world, not to the barricades. They want the Magic Kingdom, not les Miserables. Just ask them.”24 In a response to Friedman’s observation, Ignacio Ramonet referred Friedman to go back and read the 1999 Human Development Report from the United Nations Development Programme, which states that 1.3 billion people (or one-quarter of humanity) live on less than one dollar a day. Ramonet further argues: “Going to Disney world would probably not displease them, but I suspect they would prefer, first off, to eat well, to have a decent home and decent clothes, to be better educated, and to have a job. To obtain these basic needs, millions of people around the world are without doubt ready to erect barricades and resort to violence.”25 It is certainly apparent that many people around the world are going to Disney World, wearing jeans and listening to U.S. pop music; what is less apparent is the persistence of underlying value difference. But the goal of globalization still remains: non-western societies are expected to abandon their traditional cultures and to assimilate the technologically and morally “superior” ways of the West.

Not everyone will believe in this assumption, though. The impression that we are moving toward a uniform “McWorld” is partly an illusion. Fridah Muyale-Manenji notes, “culture is a continuous process of change but in spite of the change, culture continues giving a community a sense of identity, dignity, continuity, security and binds society together.”26 Globalization in Africa “involves one fundamental project: that of opening up the economies of all countries freely and widely to the global market and its forces” argues Muyale-Manenji. From the above analysis, it becomes clear how technological innovation and information have combined to widen the gap between the haves and the have-nots. Technology plays a central role in the drama of inequality, and it seems to be making the situation worse, not better when you put it in the perspective of trade liberalization.

Trade Liberalization

Another challenge of globalization is the perception that trade liberalization has exacerbated the gap between rich and poor countries, and between the rich and poor within countries that have liberalized. In this study, Trade liberalization is defined as the opening up of borders so goods and services can move freely across border without any restrictions from tariffs and non-tariffs barriers. Moreover, this definition encompasses laissez faire—an economic doctrine that opposes governmental regulation of or interference in commerce.

This doctrine has been the main tenet of the so-called Washington Consensus—the idea that “markets are efficient, that states are unnecessary, that poor and the rich have no conflicting interests, that markets perform at the highest level when left alone. It held that privatization and deregulation and open capital markets promote economic development, that government should balance budgets and fight inflation and do almost nothing else”.27 This has been for the most part the driving force of globalization. As Professor Richard Petrella has noted, six logics of the neo-liberal discourse is now analogous and fast replacing the biblical Ten Commandments:

Thou shalt globalise. Thou shalt incessantly strive for technological innovation. Thou shalt drive thy competitors out of business, since otherwise they’ll do it to you. Thou shalt liberalise thy market. Thou shalt not countenance state intervention in economic life. Thou shalt privatize.28

Critics charged that this economic logic is more illusion than reality. Conventional wisdom has it that the market is far from being perfect. Critics argue that the evidence on the ground juxtaposed the propagandas presented by this laissez-faire doctrine. They pointed to empirical evidence—of “weak economies (witness by Thailand, Indonesia, Russia and Brazil) overwhelmed by easy money and vulnerable to volatile shifts in capital flows, of jobs less secure than the livelihoods abolished by globalization, of sweatshops and child labor, of environmental devastation, of wealth not enlarged but distributed upward to local elite and multinational corporations, and of intensified social and political conflict.”29 The reason globalization has failed to spread its benefits, critics further argue, is that, “it has been promoted and carried forward at the behest of MNCs—and their political supporters—with an over riding interest in maximizing profits. Unlike the U.S. economy, which is regulated by labor, health and environmental laws, the global economy is relatively free of such regulated standards.”30

Thus unbridled globalization engenders the wide acceptance of what George Soros calls “market fundamentalism”, which implies that opening up to international trade represents the most certain path to global prosperity. Since 1950, global trade has grown faster than output. After stagnating in the 1970s and 1980s, trade has boomed in the 1990s, led by the rapid growth of East Asian exports. Merchandise trade grew exponentially, but trade in services grew more sharply; the latter share in world exports rose from 15 percent in 1980 to 18 percent in 1995. The string growth of international trade is due to the liberalization of markets worldwide, the achievement of the Uruguay Round, and other multilateral agreements over the course of the past several decades. Tariffs have been falling, and perhaps even more important, non-tariff barriers are being dismantled.

Historically, the U.S. and Great Britain had been in the forefront in the struggle to liberalize trade, but today, “advanced economies have not always been helpful. Despite progress in the postwar era, advanced-economy trade barriers remain stubbornly high against clothing, textiles, and agricultural goods, the very products in which LDCs have a natural comparative advantage.”31 Thomas Hertel of Purdue University and Will Martin of the World Bank found that the average tariff that rich countries impose on manufactured goods from poor countries is four times higher than the average tariff rich countries impose on each other’s goods.32

The irony of globalization is that it is premised on expanded trade, but trade liberalization, which is the gospel of IMF and the World Bank’s standard policies in developing countries, is not practiced in advanced capitalist countries where protectionism still looms large. For LDCs’ goods to enter the North’s market is analogous to the biblical saying, that is, “to pass a camel through a needle’s eyes”, which means literally that it is practically impossible for LDCs’ goods to enter the North’s market as is evident from the terms of trade between the developed and developing countries that are characterized by protectionism and economic nationalism. The question is: how can LDCs benefit from globalization amid protectionism from the North?

The controversy surrounding the issue of terms of trade explains why trade liberalization has not fully benefited the developing economies. A nation’s terms of trade is referred to as the relationship between the prices of its imports and those of its exports. Nations face declining terms of trade when import prices rise faster than export prices, while rising terms of trade occur when relative export prices grew faster. The diminishing purchasing power of Southern commodities in international trade is a prime example of the South’s declining terms of trade. Statistics point to a dismal performance of the most important terms of trade indicator of the South—foreign exchange earnings of primary commodities. In 1992, the overall real price of commodities, with 1985 as the base of 100, was only 71.33 Different regions have been affected to differing degrees. In 1991, with 1987 as the base year of 100, Sub-Saharan Africa’s terms of trade was 85 and south Asia’s terms of trade was 94.34 These movements can translate into billions of dollars: the 3.5% decline in Africa’s terms of trade from 1992-93, for example, meant that the purchasing power of the continent’s exports fell by some $3 billion. And this was not an isolated ‘bad’ year for Africa: from 1991-92, its terms of trade had fallen by 3.4% and from 1990-91, by 7.9%.35 Expanding the focus from Africa, if one looks specifically at exporters of non-oil primary products, the terms of trade records remain dismal. From 1974-80, the terms of trade deteriorated by 5.7% a year; from 1981-86, terms of trade for these non-fuel primary product exporters declined by 3% a year; from 1987-93, the decrease was 1.8% a year.36 Yet, in its 1994 Global Economic Prospects, the World Bank advocated primary commodities as a foundation for economic development, using studies of the USA and Australia to bolster such assertions.37 By 1970s, the terms of trade had turned significantly against developing countries agricultural products while rising oil prices also hit most of them hard. Loans, both public and private, advanced in the hey-day of oil boom, became crippling burdens as the era of high interest rates set in, while the developing countries economic backwardness discouraged any great influx of private capital from abroad.

Another reason why LDCs have not been able to reap the benefits of globalization is that the “Western Keynesian consensus that had sanctioned the agricultural levies, the industrialization dream, the social services sensibility, and the activist state of the immediate post-independence decades—and lent money to support all this—was replaced by neo-liberalism.” For developing countries this meant the winding down of any remnant of developmental state. The new driving premise was to be a withdrawal of the state from the economy and the removal of all barriers, including exchange controls, protective tariffs and massive social service cutbacks. Developing countries felt compelled to comply. Enter then, crucially, “the age of structural adjustment”38 in which the neo-liberal reorientation of economic policy became required medicine for virtually all Third World economies’ woes. This one-size-fits-all economic growth formula has received criticisms, protests, and demonstrations from activists the world over. But proponents of globalization say “nations that adopt the ‘Golden Straightjacket’ begin to catch up with the advanced economies, while those that reject it become increasingly marginalized.”39 There is, in short, a crisis in this “Golden Straightjacket” approach. The more serious charge is that IMF dictates harmful policies to its client states. For instance, aid packages come with conditions: recipients must privatize inefficient state industries, crack down on corruption, lower tariffs, control budget deficits, and so forth. The adverse effect of this policy has done more harm than good to developing countries, as James Galbraith notes, “the crisis of the Washington Consensus is visible to everybody. But not everybody is willing to admit it. Indeed, as bad policies produce policy failure, those committed to the policies developed a defense mechanism. They saw every unwelcome case as an unfortunate exception.”40 During the Asian economic crisis for instance, the IMF forced its clients to raise interest rates and slash budget deficits during a recession, which deepened the crisis. Cases of IMF failures in LDCs abound, but I intend not to delve into them here.

Another compelling reason while LDCs have not be able to take advantage of the benefits of globalization stemmed from the fact that Third World countries’ primary commodities continued to face unfair trade practices even during structural adjustment. Also, as noted above, the developing nation’s irony of consuming what they do not produce and producing what they do not consume persisted. Developing countries mostly import manufactured goods and export raw materials, mainly agricultural and minerals products. The prices of the South exports have continued to fall while the value of imports has continued to rise. Furthermore, the markets for African goods continue to shrink as the developed countries use all types of barriers, tariff and non-tariff.

With low prices for their products and fewer markets, developing countries were forced to borrow in order to pay for the imports. Moreover, the problem was further exacerbated by the already huge devastating debts owed to the Western countries. In most cases, these countries were left to borrow more to pay existing debts with little or no capital left for development, hence the debt crisis.

Another institution that has been very crucial in the neo-liberal crusade to liberalize trade and unleash capitalism is the World Trade Organizations (WTO), an international organization with 134 member countries. WTO is a forum for negotiating international trade agreements and also the monitoring and regulating body for enforcing such agreements. For most of its history, it has served narrow corporate interest more than the interests of poor and the downtrodden. Critics are quick to point to the position taken by the U.S. government premised on the notion that international law and the World Court is for everyone else and the U.S. is not beholden to this world oversight. In the opinion of WTO’s opponents, social, labor, ecology, cultural, and other concerns should take precedence over profit-making everywhere. But in reality, WTO was conceived to cultivate international soil for capitalism to grow without rules and regulations, as is evident from its dealings and deliberations. And as I mentioned earlier, without rules and regulations, LDCs will continue to be marginalized in the globalization game.

The real debate between WTO advocates and their left critics is not about protectionism, therefore, but about who will be protected from the ravages of unrestrained competition. The WTO has no rules to guard those who labor or to protect long-term development or to foster cultural sustainability or diversity. Without such standards, majority of people can actually lose from expanding trade, not only relative to a fair ideal, but also relative to abstaining entirely.

The critic’s theoretical understanding of the WTO as a vehicle only moved by corporate profit-seeking logic is borne out from the WTO’s history to date. In every case that has been brought to the organization challenging environmental or public safety legislation on behalf of corporations, the corporations have won. When foreign commercial shrimp fishing interests challenged the protection of giant sea turtles in the endangered species act, the turtles did not stand a chance. When it was Venezuelan oil interests versus the U.S. Environmental Protection Agency’s air quality standards for imported gasoline, the oil interests won. When it was U.S. cattle producers against the European Union’s ban on hormone-treated beef, European consumers lost. The list goes on.

Ten reasons why critics of WTO want it shut down:

  1. The WTO prioritizes trade and commercial considerations over all other values
  2. The WTO undermines democracy by shrinking the choices available to democratically controlled governments, with violations potentially punished with harsh penalties
  3. The WTO actively promotes global trade even at the expense of efforts to promote local economic development and policies that move communities, countries, and regions in the direction of greater self-reliance
  4. The WTO forces Third World countries to open their markets to rich multinationals and to abandon efforts to protect infant domestic industries.
  5. The WTO blocks countries from acting in response to potential risk—impeding government from moving to resolve harms to human health or the environment, much less imposing preventive precautions
  6. The WTO establishes international health, environmental, and other standards at low level through a process called “harmonization”
  7. WTO tribunals rule on the “legality” of nations’ laws but carry out their work behind closed doors
  8. The WTO limits governments’ ability to use their purchasing dollars for human rights, environmental, worker rights, and other non-commercial purposes
  9. WTO rules do not allow countries to treat products differently based on how they were produced—irrespective of whether they were made with brutalized child labor, with workers exposed to toxins or with no regard to species protection
  10. WTO rules permit and, in some cases, require patents or similar exclusive protections for life forms.41

Another institution that has been an engine of exploitation in the third world and hence impoverishment is Multinational Corporations (MNCs). Since 1960 there has been a proliferation of MNCs. MNCS grew from 3,500 in 1960 to 60,000 in 1999. The aggregate stock of FDI worldwide increased in tandem from $66 billion in 1960 to over $4,000 billion in 1999, as compared with only $14 billion in 1914.42 MNCs have been the driving force for economic growth in the west, but in developing countries, their activities have raised more eyebrows and have done more harm than good. As the MNCs continued to dominate the economies of Third World countries, the strident consequences of globalization and the phenomenon of trade liberalization overwhelmed and devastated their societies. The only options open to them have narrowed as the increasingly shrinking world imposes on them a choice of integration or the severe conditions of marginalization and stagnation. The sharp rise in Foreign Direct Investment (FDI) underscores the enormous and increasing role of MNCs in international trade, and especially in global production.

FDI occurs when a firm invests directly in new facilities to produce and/or market a product in a foreign country. Here we explore the benefits and costs of FDI, first from the perspective of a host country and then from the perspective of the home country. Before we start unveiling the statistics, it is imperative here to distinguish between the flows and stocks of FDI. The flow of FDI refers to the amount of FDI undertaken over a given period. The stock of FDI refers to the total accumulated value of foreign owned assets at a given time. We also talk of outflows of FDI, meaning the flow of FDI out of a country, and inflows of FDI, meaning the flow of FDI into a country.

The assumptions of the neo-liberal discourse is that FDI can make a positive contribution to a host economy by supplying capital, technology, management resources that would otherwise not be available. But the fact on the ground tells a different stories of MNCs stifling competition, engaging in capital flights and threatening sovereignty and autonomy of the host nations.

Now, let us review some of the criticisms levied at MNCs. While there are so many criticisms, our focus here will be on four most constructive criticisms. Firstly, host governments sometimes worry that the subsidiaries of MNCs operating in their country may have greater economic power than indigenous competitors because they may be part of a larger international organization. This is sometime the case in LDCs where MNCs have monopolized the market and raised prices above those that would prevail in competitive markets, with harmful effects on economic welfare of the host nations.

Another variant of the competition argument is related to the infant industry concern. Import control is discouraged by most MNCs in order to invest in the host nation economy. As usual, a beggar has no choice than to accept all conditionalities for FDI flows. These practices have destroyed most local infant industries that could not compete with large foreign corporations. MNCs have also practiced capital-intensive production in LDCs, and as a result, unemployment figures have reached its highest rate in decades. With the demise of labor-intensive industries and peasant agricultural systems, there are no employment opportunities for the youths. In such dire conditions, how can the youths be a productive part of the global economy? In most cases MNCs’ activities have also destroyed local entrepreneurship, local artisans, and capital formation.

Secondly, the possible adverse effect of FDI on a host country’s balance-of-payments position is two fold. First, capital flight—the subsequent outflow of income as a foreign subsidiary repatriates its profit to its parent company. Such outflows show up as a debit on the current account of the balance of payments. A second concern arises when a foreign subsidiary imports a substantial number of its inputs from abroad, which also results in a debit on the current account of the host country’s balance of payments.

Statistics pointing to the lack of finance capital in LDCs reveal that, twenty percent of world’s population in developed countries receives 82.7 percent of total world income, while the 20 percent of the world’s population in the poorest countries receives only 1.4 percent, Malaysian Prime Minister Mahathir Mohammad said. He further asserted that, “the top fifth of the world’s richest countries enjoy 82 percent of the expanding 68 percent of foreign direct investment, while the bottom fifth barely more than one percent.” Linda Weiss points out that, as of 1991, 81% of the world stock of FDI was located in high-wage Northern Countries: the United Kingdom, Germany and Canada. He adds that concentration of investment in these countries has increased by 12% since 1967. Obviously, the world is not one.43

FDI flows into developing countries had a discontinuity in the 1990s. From only $20 billion in 1980 and $23.7 billion in 1990, FDI inflows rose to $166 billion in 1998, a seven-fold increase (United Nations, 1999, 17). In the same period, the stock of FDI in developing countries rose from 5 percent of GDP to 20.5 percent of GDP, whereas exports and imports rose only slightly from 51.5 percent to 56.6 percent of GDP (United Nations, 1998: 8).

Thirdly, another criticism levied at the operations of MNCs in developing countries was that FDI could lead to loss of economic independence for the host country. Key decisions that can affect the host country’s economy will be made by a foreign company that has no real commitment to the host country and over which the host country’s government has no real control. The most egregious example will be ITT in Chile. In 1970, Chilean citizens elected the Marxist Salvador Allende to the presidency. Allende nationalized several foreign businesses including ITT. The senior officers of ITT pressured the Nixon Administration to restore their holdings in Chile. The CIA, through overt and covert operations, overthrew Allende, and ITT resumed its businesses in Chile.

Finally, critics have charged that MNCs have encouraged LDCs to concentrate their production on raw materials to the detriment of food security. Thus cash crops production becomes a dominant mode of production in most LDCs. These productions received primary attention from MNCs by way of incentives for production that by far surpassed that of its counterpart—food crop. This practice has led to the marginalization of women—the main producers of food in LDCs.

In the final analysis, MNCs are viewed as a “vast suction-pump” for obtaining resources from LDCs. This was accomplished successfully without any rules, regulations, or code of conduct. As a result, LDCs have not been able to reap the benefits of globalization with the exception of the Asian Tigers.

Scholars and researchers have been overly concerned in the past about the transfer of financial or material resources from the developed nations to developing nations. Here, I will explore empirical examples to refute this one-way direction of resource flow and reveal the market subterfuge associated with transfer of financial and material resource flow from developing countries to developed countries.

Two witnesses stand out to attest to the validity of this argument: World Bank former president, Eugene Black, once admitted that aid program from USA to developing countries were profitable for American businesses. He further stated that, “foreign aid created a large and direct market for American goods and services and provided impetus for the opening of new markets overseas for American Corporations. It prepared the economies of the countries receiving aid for a free market economy system in which American firms could prosper.”44

The second witness, former U.S. president John F. Kennedy, once concluded that, “any cut back in the foreign aid program would result in a perceptible loss of markets and income for the economy of his country.”45 In terms of human resource flows from South to North, Southern nations invest billions of dollars each year in the education of skilled workers who often leave their countries for greener pastures in the North—the brain drain. The United Nations estimated that between 1961 and 1972, Northern Nations received around $51 billion of “human capital” through migration of Southern professionals.46 The trends that can be discerned by analyzing world trade take on brightly contrasting hues when we turn our attention from liberalism of trade to money.

From the above analysis, it is important to recognize that globalization is not positive-sum-game—it is necessary for some countries to lose in order that others may gain.

The Internationalization of Capital

This section focuses on the growth of international capital movements and the merging of capitals the world over called the internationalization of capital. Despite the uneven nature of its impact, the internationalization of capital is leading to an ever more integrated capitalist world economy. This internationalization implies transformations in the relations of production as new areas are incorporated into the circuits of capital. In some cases, it involves the extension of fully capitalist relations of production and a corresponding growth of the working class. In other areas it involves modifications to or the reinforcing of existing social relations. The impact of the growth of transnational agribusiness on the relations of production in agriculture provides many examples of such processes as does the incorporation of petty-commodity producers through the use of sub-contracting in manufacturing.

Social relations at the periphery are neither frozen into the existing mould by MNCs expansion, nor can they be totally neglected. Rather they are being continuously transformed and redefined by the internationalization of capital, but not in any simple or universal way. The creation of a unified capitalist world economy is accompanied by the extension of the competitive process of standardization and differentiation on a world scale. In other words, there is a growing tendency for the products and production techniques of MNCs to become similar, while at the same time as part of the competitive struggle capital seeks to differentiate itself attaining super profits through the introduction of new products or new techniques, or taking advantage of different local and national conditions.

Internationalization of capital—the flow of capital to profitable opportunities, without regard to national boundaries—has not merely increased a few times since the late 1960s, it has exploded to Latin American, Asian, and African countries in the form of monopoly capital with its defining characteristics—imperialism.47

V.I. Lenin’s Imperialism: The Highest Stage of Capitalism makes an interesting case as far as the internationalization of capital is concerned. To Lenin, capitalism had developed such that oligopolies and monopolies controlled the key sectors of the economy, squeezing out or taking over smaller firms and milking domestic markets dry. The result was to look elsewhere for investment opportunities. This logically entailed the creation of overseas markets. As markets expanded, they required more economic inputs such as raw materials, which encouraged the further spread of imperialism to secure such resources.48 MNCs have capitalized on the nature of international system, which is characterized by anarchy—the absence of a world government or central authority with enforcement mechanism by ignoring the rules of the game. As a result, they nipped competition in the bud and basically engaged in some forms of monopolistic practices.

MNCs have become so pervasive in the global economy to the point that their annual revenues are now compared to that of nation-states. As Table 1 shows, many of the largest economic units in the world are corporations, not states. By these measures Japan’s Mitsubishi Corporation is larger than Malaysia, and the U.S. Exxon Corporation is larger than Israel and Philippines. In other words, economic globalization in the Third World has gone in one direction. Most MNCs have legally taken possession of the natural resources and land in many Third World countries, and the benefits accruing to the local inhabitants are second to none. The MNCs have succeeded in doing so by using technology, capital, and economies of scale—these are scarce factor endowments that are not available to poor countries.

According to the latest UN Human Development Report, the combined assets of the planet’s three leading billionaires, Bill Gates, the Sultan of Brunei, and the Walton family (Wal-Mart) are greater than the combined GNP of the 43 countries held by the UN to be “least developed”. The question that comes to mind is: how can a country tackle the problem of monopoly capital amidst economic depression and a lack of central authority in the international arena?

In the past, evidence suggests that when the United States was confronted with such a dilemma, such as the Great Depression, it responded with the anti-trust legislation in an attempt to prevent businesses from dominating a particular market through monopoly or restraint to trade. If everyone is to reap the benefits of globalization, the case for international anti-trust law should receive primary attention.

In recent years, antitrust has increasingly become an international issue, with the growing number of international mergers and acquisitions. The European Commission dealing with antitrust recently investigated and turned down the three-way merger proposal, valued at $10.6 billion (U.S.), between Canada’s Alcan, France’s Pechinery and Switzerland’s Algroup. The Commission felt that the proposed merger would unduly limit competition in certain segments of Western Europe’s aluminum industry.

In another case, EU, for example, has been extremely critical of the merging of Honeywell and GE based on the premise that international mergers and takeovers will stifle competition. Even internal growth may be challenged by antitrust authorities, which confront the paradox that government protection of intellectual property strengthens monopolies. On April 3, 2000, U.S. District Court Judge Thomas Jackson found that Microsoft was guilty of using its “natural monopoly” in a predatory fashion by building its internet browser with its operating system. A proposed remedy is to impose the opposite of mergers and acquisitions, namely, the break-up of Microsoft into smaller, independent corporations. An examination of these three industries illustrates the changing nature of antitrust hurdles, and hence the difficulty for management in predicting government decisions.

Traditionally, the Merger Guildlines of some antitrust agencies have referred to what is known as the Hirschman-Herfindahl Index (HHI) as a yardstick for measuring monopolistic practices among firms. The HHI is a single number: the sum of squares of the market shares of firms in the market. The HHI value of 2,000 has been seen as the upper limit for effective competition. For example, if there are five equal competitors, each with a market share of 20 percent, then the HHI is exactly 2,000. If the HHI for the market is over the 1,800-2,000 range, then market power is regarded as substantial and competition is regarded as weak, and such a market has been a focus for antitrust scrutiny. With four firms, each of which has a market share of 25 percent, then the HHI is 2,500, which is well above the maximum and effective competition has been judged to be weak.

Financial globalization and the corresponding increase in speculation have been spectacular. It is very obvious that the three monsters of globalization—IMF, the World Bank, and WTO are doing more harm than good when you look at the medicine they have prescribed to the ailing developing nations. Their records in LDCs have sparked riots, demonstrations, and protests. The protesters who swarmed through the streets of Washington, D.C., over the weekend of April 14-16, during the meeting of the IMF and the World Bank are in my opinion, more concerned about the globalization game than globalization itself.

One of the criticisms levied at IMF is that the G-7—the World’s richest countries have used IMF to make some certain unrealistic demands on developing nations’ governments and banking institutions to be accountable, transparent, and to rule with probity. Paradoxically these countries are not practicing what they preach in the international arena. Moreover, the critics also point out that the IMF, private bankers and brokerages demand accountability in the form of “transparency” and “due diligence” from the governments and banks of developing countries while exempting themselves from the same requirements.

Critics argue that “WTO, which makes and enforces the rules of international commerce, espouses an exclusive faith in supposedly self-adjusting markets. In practice, the doctrinaire deregulation of international trade often means that the biggest corporations are free to enter markets and extract resources without worrying much about the health, safety or environmental constraints”.49 During the transitional stage, the IMF’s Structural Adjustment Programs (SAPs) failed abysmally to make provision for the unintended consequences of SAPs to protect the poor and vulnerable from the harshness of the market. The recent IMF structural adjustment program in Indonesia, for instance, “did not revive the economy but plunged it into depression, sending half its businesses into bankruptcy, provoking massive social and political disorder and making it harder than ever to restore confidence of customers of Merrill Lynch and Goldman Sachs.”50

The institutions that in most people’s eyes represent the global economy—the IMF, the World Bank, and the WTO—are reviled far more widely than they are admired; globalization and the policies they prescribed mostly to developing countries have enabled private capital to move across the planet unchecked. Wherever it goes, it bleeds democracy of content and puts “profit before people.”

Now, let us look at the IMF dismal records in LDCs as evident by the same medicine it has prescribed for troubled third world economies for two decades now:

Only when governments sign this “structural adjustment agreement” does the IMF agree to lend enough to prevent default on international loans that are about to come due and otherwise would be unpayable.

Critics charge that the unintended consequences of SAP have taken its toll on the poor and the vulnerable, which are mainly women and children. Tight monetary policy and skyrocketing interest rates not only stop productive investment, stampeding savings into short-run financial investment instead of long-term productive investment, it keeps many businesses from getting the kind of month-to-month loans needed to continue even ordinary operations. This fosters unemployment and drops in production and therefore income. Fiscal austerity—raising taxes and reducing government spending—further depresses aggregate demand, and also leads to reductions in outputs and increases unemployment. Privatization of public utilities, transport, and banks is always accompanied by layoffs.

Hasty removal of restrictions on international capital flows makes it easier for wealthy citizens and international investors to get their wealth out of the country, i.e., removal of ‘capital controls’ facilitates capital flight, further reducing productive investment, production, income, and employment.

Economic development requires the transformation of institutions as well as the freeing of prices, which in turn requires political and social modernization as well as economic reform. The state plays a key role in this process; without it, developmental strategies have little hope of succeeding. If the state is so pervasive in economic development, so why will IMF recommend SAPs that is heavily rooted in laissez faire approach to developing countries as a way of revamping their ailing economies? As Bruce Scott notes, “neoclassical economic theory predicts that poor countries should grow faster than rich ones in a free global market. Capital from rich nations in search of cheaper labor should flow to poorer economies, and labor should migrate from low-income areas toward those with higher wages. As a result, labor and capital costs—and eventually income—in rich and poor areas should eventually converge.”51 The U.S. economy demonstrates how this theory can work in a free market with the appropriate institutions. Unlike the U.S. federal government, multilateral institutions lack the legitimacy to intervene in the internal affairs of most countries.

Foreign aid, also referred to as Official Development Assistance (ODA), is another hot topic that has generated more intense debate whenever the issue of globalization has been discussed. ODA has fallen to 0.24 percent of GDP (1998) in advanced countries (compared with a UN target of 0.7 percent) As Michel Camdessus, former Managing Director of IMF put it: “The excuse of aid fatigue is not credible—indeed it approaches the level of downright cynicism—at a time when, for the last decade, the advance countries have had the opportunity to enjoy the benefits of the peace dividend.” But the dependency theorists believe that foreign banks of the Western Nations gain a stronghold on private lending and these banks are less interested in the development of a country than they are in acquiring lucratic terms for the loans to LDCs. As a result, these inhumane practices, according to the theorists have engendered a genre of financial dependence for the indebted country and generous interest receipts for foreign banks. In the final analysis, the dependency theorists reiterated the political and economic strings attached to such assistance reinforce a dominant-subordinate relationship between the developed and less developed nations.52

Overall, the foregoing evidence has demonstrated that consequences of globalization have been highly uneven. While economic of the countries in the North and their corporations have benefited tremendously the rewards have been unequally distributed. Gaps between rich and poor, the haves and the have nots, the developed and developing regions, have grown exponentially. The wealthier nations continue to exploit the people, resources, and land of the poorer nations, often leaving environmental degradation behind. The debt crisis in which the poorer countries owe the richer ones astronomical sums has increased dramatically since the 1970s. In a situation like this, how can LDCs benefit from globalization?

The New International Division of Labor

Increased trade and investment have indeed brought great improvements in some countries, but the global economy is hardly a win-win stuation.The theory of comparative advantage states that countries can maximize their economic potential by specializing in the production of commodities at which they are most efficient in terms of such inputs as capital and labor. David Ricardo originally suggested this concept nearly 200 years ago. For Ricardo, the notion of comparative advantage was a powerful argument for free trade since an unrestricted flow of products between countries would enable them to use their productive resources most efficiently. As Ricardo has noted, “It is quite important to the happiness of mankind that our own enjoyment should be increased by the better distribution of labor, by each country producing those commodities for which by its situation, its climate and its natural or artificial advantages, it is adapted, and by their exchanging them for the commodities of other countries, as that they should be augmented by a rise in the rate of profit.”53 This kind of specialization, according to Ricardo, would not lead to more wealth for all nations, but to the greatest possible improvement in living conditions for their people. He believed strongly that comparative advantage must work to the benefit of all concerned, and that the poorer governments would only worsen their economic position by withdrawing from the world markets.

Ricardo’s thesis is both simplistic and self-serving, it will only work if “poor nations should be allowed to do what today’s rich countries did to get ahead, not be forced to adopt the laissez-faire approach, and insisting on the merits of comparative advantage in low-wage, low-growth industries is a sure way to stay poor.”54

Until the middle of the 20 th century, when most countries in Africa, Asia, and Latin America won their “independence,” the local economies were a direct appendage of the colonial center, which directed the pattern of development in the colonies. This pattern of development was based on the logic of the capitalist mode of production that dominated the economies of the center states and evolved according to its needs of accumulation, resulting in uneven development between the imperialist center and the colonies, on one hand, and within the colonies themselves on the other.

In general, most of the colonies came to specialize in one or a few raw materials for export and were dependent on the importation of finished manufactured goods from the imperial center. This classic colonial relationship prevailed in a number of developing countries after “independence,” and led to the restructuring of social economic relations on a neocolonial basis—that is, the continuation of colonial relations through the intermediary of a local ruling class dependent on and nourished by imperialism. Ricardo’s comparative advantage thesis informed the South’s development strategies throughout the earliest parts of their independence. Developing nations acting on the advise of the World Bank shifted emphasis away from the production of food crops to export crops (mono-cropping), which resulted in food deficit and the subsequent importation of food with exorbitant prices from former colonial masters. Globalization has exacerbated the adverse effects of the theory of comparative advantage on Third World nations by creating the illusion that free trade will prompt the U.S. and other Western nations to import goods made by low-wage, low-skilled labor and export those made by the highly skilled. Companies, however, undermine that construct by shifting even the most skilled jobs and technologies to low-wage countries. Case in point, General Electric Co. has, for years, been pushing its operating units to drive down costs by globalizing production.

Another component of globalization, propelled by technological innovation, is internationalization of production—different components of a product being manufactured and brought together from different parts of the world to be assembled in one location. For example, the Ford motor company has been outsourcing their different component parts of the Ford Explorer to different companies all over the world and later gathered them for assembly in the United States. Actually, few cars can boast of being made in one location today as they were in the past. Another example is the semiconductor chips that are designed in the United States, where the basic wafers are also produced. These are then cut and assembled in Malaysia, and the final products are tested in and shipped from Singapore. As Robert Went has noted, “this development has major consequences for how labour is organized and for employees’ positions in multinationals. If the company thinks it profitable, it can close or move its operations; more often it can threaten to do so in order to extract concessions from trade unions.”55

Technological breakthrough has made internationalization of production a success story for the industrialized North and a misery and pain for the impoverished South. In the words of Guillermo Gmez-Pena, “ the entire Third World countries have become sweatshops, quaint boredellos, and entertainment parks for the First World; and for the inhabitants of the Southern Hemisphere the only options for participation in the ‘global’ economy are as passive consumers of ‘global’ trash, or providers of cheap labor or material prima. Those excluded from these ‘options’ are forced to become part of a transnational economy of crime (sex, drug, and organ trafficking, child labor, kidnappings, fayuca [smuggled goods], etc.)”56

In another argument on how the new international division of labor breeds underdevelopment, is the emphasis MNCs places on cheap labor supply, proximity to raw materials, and markets for finished products, which in the long run also supports the premise of neo-colonialism discussed above and the attendant ailing economic crisis, environmental degradation, and poverty in developing countries.

The WTO’s Seattle meeting also saw huge demonstrations organized by workers, environmentalists, youth, and fair trade campaigners, confronting globalization’s other face—the loss of jobs in developed countries as companies relocate production to lower their labor costs. Critics argue that, “the real reasons for much of the protest is that everyone knows that the ILO has no enforcement mechanism”.

Suspicion in developing countries intensified when President Clinton endorsed the idea before the WTO meeting. He trumpeted U.S. passage of an ILO convention on child labor, calling on other governments to do likewise. The U.S. government neglected to point out, however, that the convention only banned child prostitution and the most extreme forms of child exploitation. ILO Convention 138, which takes a much stronger prohibition against the labor of children under 14, remains ungratified. One of the main criticisms levied against American government is that it has double standards in international system, which has put the America’s reputation on the line on several occasions regarding several issues. For instance, The U.S. has not ratified most ILO conventions itself, but shouting about enforcing them everywhere else.

According to an environmental group—Friends of the Earth: “Neo-liberal economic globalization encourages the pursuit of profit regardless of social and environmental costs. It is associated with increasing levels of inequality, both between and within countries; the concentration of resources and power in fewer and fewer hands (resulting in erosion of democracy); economic, social, political and economic exclusion; economic instability; spiraling rates of natural resource exploitation; and a loss of biological and cultural diversity.” The evidence presented above is an indication that globalization is not a win-win situation but a zero-sum game.

In theory, globalization provides an opportunity to raise incomes through increased specialization and trade. This opportunity is conditioned by the size of the markets in question, which in turn depends on geography, transportation costs, communication networks, and the institutions that underpin markets.

The Global New Deal: The New International Economic Order Revisited

As I have stated earlier, the global economy today is analogous to the U.S. economy during the Great Depression of 1930s. The Great Depression economy was characterized by slow economic growth, income inequalities, and high rate of unemployment. The president in the White House at the time of the Great Depression was Herbert Hoover. A republican who did not believe in government interference with the market, folded his arms and watched the U.S. economy collapse. The consequences of such inaction kept the nation in economic malaise for a long period of time. It took the genius of Franklin D. Roosevelt’s New Deal legislation to put the economic back on track. The question that comes to mind now is: Will this strategy work in the international arena, where there is no central authority to sanction its implementation?

There is a broad consensus among opponents of globalization who sought alternative approach that completely free unregulated capitalist growth is not likely to address poverty and that some deliberate measure are needed—by governments and international institutions—to facilitate the inclusion of poor countries and people. Some have pointed to the New International Economic Order (NIEO) with some modest modifications from the one previously tabled in the moribund North/South dialogue as a step in the right direction. These modifications to NIEO coupled with some policy prescriptions for national government in LDCs will be referred to here as the Global New Deal:

  1. Creation of an integrated program for commodities (IPC), to stockpile and control the price of commodities during periods of oversupply and scarcity
  2. Extension and liberalization of Generalized System of Preferences (GSPs) in collaboration with the execution of WTO Doha Development Agenda--in which rich nations promise the reduction of their trade barriers.
  3. Development of debt-relief program
  4. Increasing Official Development Assistance (ODA) from rich, developed nations of the North to the less developed South
  5. Changing the decision-making process in major international institutions such as the United Nations, IMF, World Bank, and WTO to give more voice to Southern nations and reduce developed nations’ control of these institutions.
  6. Increasing the economic sovereignty of LDCs. Several initiatives were stipulated under this umbrella. Key among them were: ensuring LDCs’ greater control over their natural resources; increased access to Western technology; the ability to regulate MNCs; and preferential trade policies that would stabilize prices for commodities from LDCs and ensure these countries greater access to developed countries’ markets.
  7. Tackling greenhouse gases—There is broad agreement among Scientists that human activity is leading to potentially disastrous global warming, and that these changes in climate will be especially burdensome for poor countries and poor people. The report urges more effective international cooperation to address these problems.

Fair competition is a buzzword when the playing field is not leveled. Accepting these modifications to the global economy will to some extent level that playing field. Failure to implement this Global New Deal will once again throw the international economy system into disarray, and bailing it out will be more costly than fixing it. In the words of Dani Rodrik, “‘Winners’ have as much at stake from the possible consequences of social instability as the ‘losers’. Social disintegration is not a spectator sport—those on the sidelines also get splashed with mud from the field. Ultimately, the deepening of social fissures can harm all.”57

It is obvious that a Marshall plan for Third World nations after slavery and colonialism could have gone a long way to revamp their economies. Instead, developing countries were dragged into the world economy in what Paul Baran described as through the “Prussian way”—not through the growth of small, competitive enterprise, but through the transfer from abroad of advanced, monopolistic business.

Developing countries can make a vital contribution through effective domestic policies in conjunction with international efforts to ensure sustainable growth and development:

This Global New Deal, according to its proponent will breathe new life into most of the world’s ailing economies if allowed to work properly by the developed world.

Conclusion

Globalization With a Human Face

The twenty-first-century brings in its wake an awesome development challenge—poverty alleviation. The UN has set a target of a 50 percent reduction in the number of absolute poor by 2015. All indications suggest that the target will not be met.

As the gap between the rich and the poor continues to widen, thus “the orthodox model of development is being held up for closer scrutiny, as we become more aware of the risks as well as the opportunities which globalization and Washington consensus bring in their wake.”58 The downturn of the world economy has spurred an intense debate amongst concerned champions of the neo-liberal development orthodoxy. As Professor Robert Fatton, Jr. observes: “Obscene patterns of poverty and inequalities amidst ostentatious wealth are thus the very stuff of our global system. They raise basic issues of morality and ethics for the prosperous areas of the world. We need to be asking whether the current inequalities are legitimate and just? Can something be done to achieve some degree of human decency?” The key question is: can globalization develop a human face?

Opinion differs. For Michel Camdessus, speaking as Head of the IMF, “it is clear that a new paradigm of development is already emerging which entails the ‘progressive humanization of basic economic concepts”59 However, more critical voices see a complete failure to tackle fundamental issues of redistribution in the reform underway, which would require valuing an economic system only if it works for people and the planet.

The neo-liberal discourse argues that “development as economic growth via the classical free market has been successful to date and that what is required now are minor reforms to dampen the worst excesses of globalization, and to ameliorate any opposition to the intensification of neo-liberal development policy.”60

The critical alternative pathway emanating from some NGOs, a few Third World governments, and a handful of academics, argues that, “the dominant model has clearly failed to maximize global welfare and moreover is resulting in increasing global economic instability. What is ideally needed is a radical new approach to defining development and a new development strategy, which puts redistribution and human needs at the top of its agenda. Achieving the most rapid increase in wealth, while necessarily, should not be the ultimate goal of the global economy.”61

If there is any lesson to be drawn from the past, it is that restructuring the international economic system to help reach goals (environmental sustainability, economic equity, poverty alleviation, etc.) will require “thinking outside the box”: not using neoclassical tools and analytical approaches. While autarky is not recommended, emphasis should be placed on de-emphasizing market as a panacea to all poor countries’ economic woes and on strictly following the path of the Global New Deal.

Globalization inter alia must also attend to the growing social inequality that is prevalent in third world countries and to some degree in advanced countries by including the roles played by women in the current agenda, remedy ecological effects of globalization, and create a global civil society that ensures democratic ideals amidst capitalist ethos. For these four related but distinct concepts—technological innovation and information revolution, trade liberalization, internationalization of capital, and the new international division of labor—to converge income the world over, globalization must take a new course and spread its benefits to all.

Endnotes

1. Globalization is the push by First World Countries such as the United States, Japan, and the United Kingdom for an open international economy.

2. Lawrence H. Summers, “Reflections on managing Global Integration.” Journal of Economic Perspectives, 13 (Spring 1999): 3-18.

3. Robin Broad and John Cavanagh, “Don’t neglect the Impoverished South.” Foreign Policy, Winter 1995-1996, pp. 22-23.

4. John Williamson, “What Should the Bank Think About the Washington Consensus?” Institute for International Economics, 1999. (www.iie.com/TESTMONY/Bankwc.htm)

5. Benjamin R. Barber, Jihad vs. McWorld: Terrorism’s Challenge to Democracy. New York: Ballantine Books, 2001, pp. xvii-xviii.

6. Emma Rothschild, “Globalization and the Return of History,” Foreign Policy, Summer, (1999), p.2

7. Ibid.

8. Adam Smith, The Wealth of Nations, Vol. 1 (London: Penguin Books), p.325

9. Peter J. Schraeder, African Politics and Society: A Mosaic in Transformation. Boston: Bedford/ST. Martin’s Press, 2000, p. 131.

10. Francis Fukuyama, “The End of History,” The National Interest 16 (Summer 1989): 3-35.

11. Douglas Kellner, “Globalization and the Postmodern Turn,” (http://media.ankara.edu.tr/~erdogan/globpm.html) p. 3.

12. Rosa Gomez Dierks, Introduction to Globalization: Political and Economic perspectives for the New Century, Chicago: Burnham Inc., Publishers, 2001, p.6.

13. Barrie Axford, The Global System, Politics and Culture. New York: St. Martin’s Press, 1995.

14. Rosa Gomez Dierks, Introduction to Globalization: Political and Economic Perspectives for the New Century, p.17.

15. David Henderson, “The Changing International Economic Order: Rivals Visions for the Coming Millennium,” unpublished document, Melbourne Business School, 9 Sept. 1999.

16. Paul R. Viotti and Mark V. Kauppi, International Relations Theory: Realism, Pluralism, Globalism, and Beyond. London: Allyn and Bacon, pp. 55-60.

17. John Baylis and Steve Smith, The Globalization of World Politics: An Introduction to International Relations. New York: Oxford University Press, 2001, p.6.

18. Walt W. Rostow, The Five Stages of Economic Growth: A Non-Communist Manifesto (London: Cambridge University Press, 1960).

19. Karl Marx and Friedrich Engels, The Communist Manifestos, in their Selected Works in Two Volumes, Moscow: Foreign Languages Publishing House, 1848. 1958, pp. 33-65.

20. V.I. Lenin, Imperialism: The Highest Stage of Capitalism. New York: International Publishers, 1939.

21. Issues in Science and Technology, Summer 1991, p. 92, cited in Ruigrok and Van Tulder, Logic of International Restructuring, p.143.

22. David N. Balaam and Michael Veseth, Introduction to International Political Economy. Upper Saddle River, NJ: Prentice Hall, 1996, pp. 210-211.

23. Guillermo Gomez-Pena, The “New Global Culture”, The Drama Review, Spring 2001, Vol. 45 Issue 1, p7.

24. Thomas Friedman, Dueling Globalizations: A Debate Between Thomas L. Friedman and Ignacio Ramonet”, Foreign Policy, Fall 1999, pp. 110-127.

25. Ibid.

26. Fridah Muyale-Manenji, “The Effects of Globalization on Culture in Africa in the Eyes of an African Woman,” ECHOES, (1998 World Council of Churches) pp. 1-4.

27. James K. Galbraith, “The Crisis of Globalization,” Dissent Magazine, Summer 1999, pp. 12-16

28. Richard Petrella, “Six Commandments” Financial Times, 28 Dec. 1999.

29. ------------------------, “Globalization Under Siege,” America, 05/06/2000, Vol. 182 Issue 16, p3.

30. Ibid, 5-8.

31. Daniel T. Griswold, “The Blessings and Challenges of Globalization” The World and I, September 2000, pp. 267-283.

32. “White Man’s Shame,” The Economist, 25 September 1999, p.89.

33. United Nations, Department of Economics and Social Information and Policy Analysis, World Economy Survey 1993: Current Trends and Policies in the World Economy, New York: United Nations, 1993, p. 227, table A. 21.

34. UNDP, Human Development Report 1994, pp. 168-169, table 20.

35. United Nations, Department of Economics and Social Information and Policy Analysis, World Economy Survey 1994: Current Trends and Policies in the World Economy, New York: United Nations, 1994, p. 96 and p. 227, table A. 20.

36. World Bank, Global Economic Perspectives 1994, p. 15, figures 1.5.

37. Ibid.

38. Bill Freund, “The making of Contemporary Africa” Boulder: Lynne Rienner, 1998.

39. Daniel T. Griswold, “The Blessing and Challenges of Globalization,” The World and I, September 2000, pp. 267-283.

40. James K. Galbraith, "The Crisis of Globalization," p.12.

41. Michael Albert, “A Questions and Answers on the WTO, IMF, World Bank, and Activism,” Z Magazine, January 2000, pp. 24-29.

42. United Nations Conference on Trade and Development (UNCTAD) 1996: ix 4; UNCTAD 1999.

43. Linda Weiss, The Myth of the Powerless States: Governing the Economy in a Global Era (Cambridge, UK: Polity Press, 1988), p. 186.

44. G.V. Paczensky, Wievel Geld fur die Dritte Welt, Bonn, 1972, pp. 48-49.

45. Special Message to the U.S. Congress on Foreign Aid, March 22, 1961. Public papers of President JFK, containing the Public Messages, Speeches and Statements of the President. January to December 31, 1961, Washington, D.C. 1962. P. 210.

46. 1982 UNDP study cited in Martin Khor, ‘South-North resource flows and their implications for sustainable development’, Third World Resurgence entitled “The Drain from the South,” 46, 1994, p.25.

47. Berch Berberoglu, The Internationalization of Capital: Imperialism and Capitalist Development on a World Scale. New York: Praeger, 1980, pp. 105.

48. V.I. Lenin, Imperialism: The Highest Stage of Capitalism. (New York: International Publishers, 1939).

49. ----------------------------”Globalization Under Siege”

50. ---------------------------”Globalization Under Siege”

51. Bruce Scott, “The Great Divide in the Global Village” Foreign Affairs, January/February 2001, Vol. 80 Issue 1, p.160.

52. Teresa Hayter, Aid as Imperialism (Middlesex, England: Pengium, 1971).

53. Pierro Sraffa, (ed.) Works and Correspondence of David Ricardo, Vol. 1 (Cambridge , 1962), “On the Principles of Political Economy and Taxation”, p.132.

54. Bruce Scott, “The Great Divide in the Global Village,” p.160.

55. Robert Went, Globalization: Neoliberal Challenge, Radical Responses, London: Pluto Press, The International Institute for Research and Education (IIRE), 2000, pp.16-19.

56. Guillermo Gomez-Pena, “The New Global Culture,” TDR: The Drama Review, Spring 2001, Vol. 45 Issue 1, p7.

57. Dani Rodrik, Has Globalization Gone Too Far? Institute for International Economics, March 1997

58. Caroline Thomas, “Poverty, Development, and Hunger,” in The Globalization of World Politics: An Introduction to International Relations, Ed. By John Baylis and Steve Smith, New York: Oxford University Press, 2001, p.578.

59. Michel Camdessus, Address to the Tenth UNCTAD, World Bank Development News (Washington, DC: World Bank,). 2002.

60. Caroline Thomas, Poverty, Development, and Hunger, p. 578.

61. Ibid.