Is globalization a threat or an opportunity to developing countries?

LITERATURE REVIEW

Globalization has often been regarded as the ‘cradle’ of global economic development. This so called ‘world liberator’ however has not escaped criticism as opponents claim that it has been the cause of social evils and rising levels of poverty in developing countries. Due to the nature of globalization and in its bid to open up social, economic and political boundaries currently in place, various functions in different countries have been affected (Whiteford and Wright-St Clair, 2004, p. 353; Bhagwati, 2004, p. 4). The effect of globalization in developing countries has been a subject of debate with different views being put forth about the possible outcome of globalization in developing countries. IMF (2001, p. 1) puts forth that most debates generally focus on whether globalisation is a threat or an opportunity for developing countries.

Globalisation as an opportunity

Economic development

According to Baghwati (2004, p. 28) globalisation can be said to be economically benign; playing the significant role of enhancing economic prosperity and offering a new beacon of hope to developing countries. Globalization is often characterised by a reduction in trade barriers such that there is a free flow of goods, services and labour from one country to another (Gangod Gangopadhyay and Chatterji, 2005, p. 281). Richardson (2000, p. 42) contends with these views and adds that that the effect of this is increased trade which in turn translates into increased income for developing countries. Globalisation therefore serves as an opportunity for developing countries to stabilise their economies by taking advantage of trade. These statements can be considered true because globalisation has greatly reduced barriers between countries through elimination of tariffs and import duties. This is noted by Richardson (2000, p. 2) and Dierks (2001, p. 63).

The rise in globalisation has led to increased capital flow into developing countries’ economies. Foreign Direct Investment (FDI) injects a considerable amount of capital into developing countries thus easing their efforts towards economic stability. The developing countries have also benefited in terms of increased financing through loans and grants from developed countries (Aurifeille, 2006, p. 254). It is true that increase in capital inflow serves the purpose of enhancing economic development in a country. What proponents fail to incorporate in their studies however is that net capital inflow could lead to negative effects on trade. Chan and Scarritt (2001, p. 154) note that large capital inflows often result in appreciation of exchange rates and inflationary pressures that impact on the country’s current account. This means that globalisation in an attempt to improve the economy could actually thwart the progress of the economy.

The reduction in trade barriers has led to the promotion of specialisation. This is an economic concept which denotes that countries can concentrate on the production of commodities that they can produce at the least cost (Aurifeille, 2006, p. 252). This commodity can then be traded to earn maximum income for the country while other goods may be imported from other countries. In this regard developing countries should take advantage of globalisation to enhance their income through trading in goods which they can produce most effectively. Such a development not only gives developing countries an opportunity to prosper economically but also to obtain goods that prove expensive to produce in their own countries. Most studies on globalisation contend that globalisation enhances competition as the flow of goods and services between countries becomes easier. According to Corsi (2009, p. 9), competition is an effective way of enhancing innovation and the production of better quality goods.

Technological advancement and knowledge transfer

The transfer of technological know-how has taken an integral part in globalisation. Corsi (2000, p. 9) points out that this has led to increased innovation and better methods of production to developing countries. The direct result of this is increased income and thus appreciation of the countries’ economic development. At the same time, globalisation has led to increased transfer of knowledge and skills to developing countries (OECD, 2000, p. 61). Foreign nationals coming to work in multinational companies add to the knowledge banks of developing countries thus increasing the level of efficiency. Increased knowledge about production methods, economic policies and management techniques present invaluable inputs in developing countries. At this juncture, it would be worthwhile to note that developing countries should use this as an advantage to tap these knowledge and skills because foreign investors are not destined to stay there forever. Training of professionals and development of technology within the country are vital yet they are not effectively addressed in the globalisation literature presented by these authors.

Employment and social welfare

Developing countries have an opportunity to increase their per-capita income following the increase in globalisation. The increase in Foreign Direct Investment following the reduction in foreign investment laws has played a great role in reducing unemployment in developing countries (Welfens, 1999, p. 158). Increased employment levels raise the social welfare of the citizens of developing countries as a result of increased disposable income so that they can comfortably take care of their needs. In consideration to this proposition, increased personal income would be worthwhile for developing countries’ citizens. It is however notable that education in developing countries is not well established. As a result, many multinational companies have to bring in foreign expatriates to take up management positions while local citizens mostly take up positions requiring lower skills. This is barely addressed by Welfens. If developing countries have to benefit from globalisation through increased employment, increased training and education must be provided to the country’s citizens.

Globalization as a threat

Increased inequality

Critics of globalisation propose that globalisation does not negate the needs of developing countries. According to Zedillo (2007, p. 11), globalisation only serves the interests of countries in the developed world such as United States, Europe, Australia and Canada among others. Developing countries are normally left out of major decisions on globalisation even in cases where they are directly involved. According to IMF (2000, p. 6), globalisation serves to amplify the level of inequality between nations. As far as opponents are concerned, developed countries have a larger stake in influencing the world economy to an extent that they influence the economic and social policies in developing countries. Multi-national Corporations have not made the situation any better in developing countries. According to Robert and Lajtha (2002, p. 186), multinational companies take advantage of the cheap labour that can be obtained from developing countries’ citizens. These companies normally provide poor working conditions and do little to upgrade the knowledge of their workers. Consequently, the workers are not in a position to improve their social welfare. It is true that inequality has been on the rise due to globalisation. Studies conducted by the World Economic Outlook indicate that while the average per capita income rose considerably in the 20^th century, the income gap between the developed and developed countries had become wider (IMF, 2000, p. 6). Income distribution was more unequal at the end of the century than at the beginning.

Increased control by developed countries

With increase in globalization, the level of control over developing countries over developing countries has increased. This not only threatens political systems but the social aspects as well. Political leaders in developing countries are under the control of developed countries and the policies taken in developing countries mostly result from pressure by developed countries (Richardson, 2002 p. 2). Zedillo (2007, p. 11) notes that these policies are mostly meant to address particular developing countries’ interests. Developing countries often have to submit because failure to do so could lead to deleterious effects including the withdrawal of financial assistance, FDI and possible trade restrictions through trade embargos. It is notable that even when developing countries receive financial aid from developing countries and international financial organisations, they are not at liberty to spend the finances in the projects that they desire to develop. The projects to be undertaken using the funds are often dictated by the donor countries; most often to promote their own self interests. While the concept of dominance is true, it is a perfect example of the struggle for dominance that characterises societies. According to Joseph (2003, p. 131-133), societies strive to outdo one another politically, socially and politically through development of methodologies to dominate others even if it means using acts that may be considered unethical. To a certain extent therefore, the actions of developing countries cannot entirely be blamed on globalisation.

Threat to the workforce

The ease with which individuals can move from one country to another has been a threat to the level of professional skill and expertise for developing countries. Highly qualified professionals are now moving to developed countries where they are assured of better pay incentives (IMF, 2000, p. 4). The direct result of this is that the developing countries are now experiencing shortage of qualified staff to run local institutions. This is a great threat to the developing countries’ workforce which is bound to decrease as more learned and experienced workers migrate to developed countries. IMF fails to mention the decision to go for higher incentives in foreign countries is a question of rational choice. It is only normal for employees to seek greener pastures and attractive packages in international firms provide them with these.

Increased dependence on developed countries

Reduced trade barriers have led to increased supply of cheap products from developed countries to developing ones. Developed countries are in a position to produce cheaper products due to the availability of advanced technology, capital and economies of scale (Robert and Lajtha, 2002, p. 183). Cheaper goods often lead to unfair competition to companies producing similar goods in developing countries thus putting them out of business. The result of this is that countries now have to depend on imports to furnish their demand for such goods. This increases dependency on developed countries. As far as unfair competition is concerned, this should in fact be a wake up call to developing countries and not a reason to allow the closure of industries. As noted by Whiteford and Wright-St Clair (2004, p. 353), companies should rationalise production so as to ensure that they are as efficient as possible to compete with others in the market. This shows that increased competition could indeed play to the advantage of countries if proper measures are taken to address the country’s shortcomings.

Effect on the socials structure

As far as conservatives are concerned, globalization has been the cause of culture erosion, increase in the level of crime, immorality among other evils. According to Whiteford and Wright-St Clair, 2004, p. 350), the concept of culture erosion has led to wide criticism of globalisation. There is a considerable erosion of cultural identities and boundaries between nations. This is what has been referred to as a borderless world such that leads to the loss of identity as people start behaving in similar ways across the globe. The critics of globalisation under this claim have not taken time to look at the positive side of cultural interaction. Not only does it promote communication across nations thus enhancing interdependency but also eliminates undesirable behaviour such as racial and ethnic segregation hence increasing international cohesiveness. When people interact socially, political and economically, their differences are less visible such that they can effectively work together.

What next for globalisation and developing countries?

From the above review, it is possible to identify that globalisation has both its upsides and downsides. Globalisation is desirable because it draws the world together in a mutually interdependent manner through enhancing trade and breaking political and cultural barriers. Globalisation on the other hand proves to be a threat to developing countries in certain aspects. It is notable however that globalisation is advancing at a fast rate and attempts to stop it would only result in remote results. The question of what next for globalisation then arises. There is a general contention that despite the benefits associated with globalisation; there are downsides of the same which often make globalisation undesirable. Globalisation even then is a phenomenon that is here to stay (Chan and Scarritt, 2002, p. 51). In a way, creation of policies and institutions to reduce the probability of globalisation downsides is what should be adopted in order to make globalisation useful to every country (Bhagwati, 2004, p. 32).

Handling globalisation downsides

The IMF and other international bodies have offered recommendations as to how the developing countries can catch up and to help reduce the negative effects of globalisation. IMF (200, p. 6) cites the presence of factors that hinder the accumulation of human and physical capital and technology advancement as the reasons for slow advancement in poor countries. If these are eliminated through modification of policies, technical and financial assistance, the level of inequality between poor and rich countries could be reduced. In order for developing countries to integrate into the global economy, the following should be addressed: improvement of trade, encouraging foreign direct investment, increase in debt relief for developing countries, macroeconomic stability, increased education and research, structural reforms and outward oriented policies. These developments will not only aid developing countries in benefiting from globalisation but also in enhancing overall development of their economies, political and social systems.

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