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Politics Of International Economic Economics Essay

What is it? Why is it becoming such a controversial subject? When did it start and why it started? Who are the players, the winners and the losers? Will it reverse or will it continue regardless of what we think of it? But most importantly, is it possible to manage it in a way that can benefit all?

According to United Nations Economic and Social Commission for Western Asia (ESCWA):

Globalization “is a widely-used term that can be defined in a number of different ways. When used in an economic context, it refers to the reduction and removal of barriers between national borders in order to facilitate the flow of goods, capital, services and labor”.

Although Globalization includes the processes of integration in the social, cultural and communication fields and the movement of labor, its most important element is the integration of the economic and financial fields which are driven by the increase in the amount of trade exchanges throughout the world. Globalization is facilitated by the skyrocketing developments in the information technologies and mainly shaped by politics.

Globalization, if defined as the exchange of goods and labor across the globe, has existed during different periods of time in history, but in modern days, it has become much more noticeable and its speed much faster than ever due to the new discoveries of this century as the UN SG noted while introducing Jagdish Bhagwati, Jeffrey Sachs and Joseph Stiglitz at the Headquarters lecture, “Globalization:  Winners and Losers”, on 14 March 2003: “Human beings have traveled, traded and interacted across borders and large distances for millennia.  But globalization today is different.  It is more rapid.  It is driven by new engines, such as the Internet.  And it is governed by different rules — or, in too many cases, by no rules at all.” [1]

After two world wars and one great depression, world leaders tried to find a way to foster development and peace throughout the world. Thus the idea of universal institutions like the IMF, the United Nations, World Bank and GATT (to become later the World Trade Organization: WTO) that was set forth during the Bretton Woods Conference in 1944.The goal of the agreement that was signed then was the creation for a framework for the global exchange in trade and finance that the created institutions would oversee.

At the beginning, Globalization was looked at as a process that would put many opportunities at the reach of all for: unprecedented growth, innovations and enrichment since it would permit the specialization of each region in the area where it does best. And indeed, it has the potential to benefit all and it did create enormous benefits, but it also had many harmful consequences especially in the developing world due largely to the way it has been managed and due to the fact that: “the rules of the game have been largely set by the advanced industrial countries and particularly by special interests within those countries” [2] .

Globalization and the developing world

Countries in the developing world were the least to benefit from the globalization. Instead of seeing their trade grow, it was poverty and employment that saw rise. Some have blamed those countries for their failure citing the fact that they were not opening their markets enough. But even if they were, the chances that they register as much growth as it the developed countries are very slim: trade rules that are in place are in the advantage of the developed world who succeeded in removing or lowering tariffs on goods that they produce while not applying the same rules to agricultural and textile products that are the main exports of the developing countries. Worse, the fact that developed countries pay subsidies to their farmers allows them to flood the market with cheaper products that the developing world farmers are producing and thus driving them out of the competition and join the unemployment forces.

In addition to unfair trade rules, the developing world countries face also many other problems as a result of Globalization: first, much of their profits if any from trade have to go to debts that come usually with many conditions that they have to fulfill undermining their sovereignty instead of going to social services. Second, much of their skilled workers move to more developed countries leaving them with mostly unskilled workers who are neither welcomed as migrants nor able to hold jobs that can be competitive in an open market. Third: the population growth in those developing countries is winning by large any economic growth that they can sustain making them more vulnerable and unstable.

Developing countries have also a disadvantage when it comes to developing new industries in order to be competitive: they do not have the required infrastructure, they do not have the ability to protect those new industries at the beginning as the developed countries did with theirs in the past. As those industries come to be, they face competition from the developed world companies who can afford to sale with lower prices, driving the infant industries out of business before they become strong enough to be able to be competitive as opposed to what other western did for their industries to allow them to prosper, plus developing countries government often find themselves unable to act faced with the strong market forces that were forced on them.

Globalization also exposed developing countries to more risks and volatility especially in the financial sector where speculative money can come in and leave in a short time leaving the country in disarray. While the loss of jobs in developed countries can be alleviated by the safety nets that are in place: savings accounts, social benefits and the possibility of finding a different job, the same thing is not available for workers in the developing world

East Asia and especially China are usually cited as a support for the idea that Globalization has indeed benefited developing countries, but the truth is that those countries that did succeed in pulling many of their people from poverty were the ones who managed Globalization with care and their government did not leave everything to the market to decide. those who were most successful were the ones who especially did not rush into liberating the finance market and did not allow speculative money to flood their countries and even were the ones who did not follow the IMF requirement but instead followed their own wisdom developing the industries that they saw important and encouraging saving and allowing their investments to come from their own people [3] .

Globalization and the developed countries

Although developed countries were the main player in the instigation of Globalization, most of its opponents are found there. The main concerns started by a fear of a loss of jobs to developing countries where wages are low and the labor is abundant. Never less, those countries were the most beneficiaries of the phenomenon: the multinationals that are able to move to places where they can get labor cheaper, worry about less demanding tax and environment requirements have definitely made unprecedented benefits, while the consumers in those countries were able to find goods that are now available at much cheaper prices.

There is also the fear from workers Unions that the availability of cheap labor in the developing world would depress wages and remove the benefits that workers have struggled for a long time to achieve, but this issue can actually benefit the developed world. If a labor intensive industry started producing and exporting, it will accumulate capital, which will encourage those industries to move to more capital industries and as a result, the prices of the labor intensive products would not go down and the wages of the workers who produce them would not decrease either.

If there is some negative impact in those countries, it is mainly at the lower classes and the unskilled workers who might find their jobs either moved to other countries or taken over by less demanding migrants. But in any case this impact is less detriment since workers have access to some social services, have the ability to benefit from some training and move to other jobs. As for companies and farmers, they have more power in the developed world to voice their concerns and pressure politicians to adopt policies that protect their interests than those of the developing world. Interest groups in developed countries can even lobby and push for higher standards abroad and force on exporting countries standards that might not be appropriate or desirable from the perspective of the exporting country [4] .

Many times safeguards and dumping duties were applied against a developing country as a result of pressure on politicians from farmers and companies that saw their interests at stake, but those same measures were rarely used by developing countries mostly because of their weak position or their inability to follow up on the matter legally.

Developing world countries have also more leverage in their negotiations during the trade rounds and they are more in a strong position to pressure countries from the south to adopt regulations that are in the developed world benefit such as the agreements on manufactured goods and the free flow of capital that usually moves where it can get the highest return, leaving out agreements on agriculture, textiles and labor, the only agreements that have a real positive impact on the developing world.

Finally, Developed countries succeeded during the last Uruguay Round in Marrakech to get an agreement on the Trade-Related Aspects o Intellectual Property Rights (TRIPs) which ensures especially the monopoly of pharmaceutical companies in the west but would keep medicine prices very high for the developing world people to purchase. The argument presented to support such agreement is to give companies more incentives to innovate, but the opposite might just happen and less innovation might result.

Can Globalization benefit all?

The few rules that are in place to manage Globalization were primarily set up by the developed countries who were of course working to make advances in agreements that would benefit the companies or the groups from which they were getting more political pressure. It is argued that Globalization and mainly free trade have benefited the developing world as well since more trade is equivalent to more development, but trade as it is now is neither free nor fair.

The world leaders got together during the millennium summit and committed themselves to make strides against many ills that plague the developing world including the eradication of poverty, reduction of the number of children who have no access to education and other basic human needs. The fact that there was a need for such meeting and commitments did not came from a void, but rather because of an alarming situation of those who are most vulnerable. Even though Globalization came with many hopes for the creations of opportunities for growth and prosperity, the reality is that the way it is managed now has led to many negative results.

Poverty has gone up in many countries, inequalities have become more pronounced and worse those who are at lost are more aware of those injustices, and the environment has known the worse assaults than ever in human history.

Developing countries are struggling because the whole Globalization process started while they were at disadvantage. In addition to the fact that developed countries were more able to shape the rules at their advantage, developing world countries lack the needed infrastructure, their population is less educated, and their policies are many times influenced by other countries or some international institutions.

Although the last Global financial crisis triggered many protectionist measures

(From 62 trade measures that were enacted in ESCAP countries between October 2008 and June 2009, 42 were restrictive and 20 were liberalizing [5] ), Globalization is probably a process that is here to stay and it is important that all countries be able to take part in it. If developing countries are only to take its negative consequences, it will be not just a moral issue, but rather an economic issue since it would be a lost market and less consumers in the global trade.

It is true that in theory trade enhances growth and growth reduces poverty, it is possible that at times growth, as Bhagwati put it, can immiserize a country and its poor. Growth in the production of a good can at the beginning bring profit to the country, but as the growth continues, prices of the product can go down and lead to loses rather than gains. Thus, developing countries need more than trade in order to be able to stay on track in the Globalization process.

To be able to grow, Developing countries do need to open their markets and be able to export to Global ones, but they also need to be able to have the possibility to protect their infant industries, use certain measures to protect their economies and financial markets, produce generic drugs that their own people can afford to buy, and keep some social services run by the government until their growth enables them to be competitive at equal footage. But even with those measures, they still will need some help from developed countries in order to address the many problems that they are facing. Debt of those countries also needs special attention so that it does not continue consuming most of the profit that they get from trade.

For many years, Developed countries and their Multinational companies have found in the developing world an expanded market, they have found opportunities for low cost investments, cheap primary products and labor and they have been able to attract their skilled workers. The problems that are facing mainly the developing world will have an impact on all including the degradation of the environment and the population explosive growth in population of the poor countries.

The World has become so connected in many ways that a decision or a change in one part of it can impact all the rest and the many problems that face us today are universal and cannot have but universal solutions. The astonishing growth that many countries have known is the result of Globalization, but so are the environment degradation, poverty, insecurity, traffic in human beings…

Directly or indirectly, Globalization has brought us many good services and innovations, but it has also exposed us to more hazards at the economic, social, cultural, environmental, security, and health levels. Those are new problems that the world had never experienced before and they need new rules and new institutions if we are to lessen the explosive situations that are probably in the making and find a way to navigate into a safer and promising path and maybe instead of a complete disaster we might experience only what Homer Dixon calls a catagenesis.

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