The Forces of Capitalism and Global Economic Interdependence - Research Paper Example

Economic Development How do economic and political ideas translate into practical development scenarios in the developing world' As most of the world is in a state of underdevelopment, strategies of economic development are increasingly important and have a variety of broad ramifications. Although a variety of development scenarios exist and are employed by governments, foreign actors and non-governmental organizations (NGOs), this essay will explore the models of development currently employed today. As such, we will explore socialist economic development, capitalist economic development and growth and the establishment of business-orientated zones (also known as "Free Trade Zones") which blend authoritarianism, statist economic development most commonly found in socialist countries and the principles of liberalism and (relatively) free market capitalism. These Free Trade Zones are becoming increasingly prevalent in the Asian context as officially communist countries such as China are cautiously embracing capitalist market reforms. We then turn to an analysis of Mexico and argue that capitalist economic development is the most potent form of development today. In conclusion we will explore what makes economic development possible and persuasively argue that some economic systems are more successful than others in stimulating economic growth and development. What is Development' According to the United Nations Human Development Index, development includes a variety of attributes and is not solely an economic consideration. The Human Development Index, or HDI, explores development using a wide net and combines a variety of social indicators in its index to account for development including life expectancy, rates of literacy, GDP per capita, educational opportunity, standards of living, and opportunities for advances for women, etc. HDI is used to measure the development of a particular country and focuses on a variety of indicators to do so. Sustainable development, the belief that development can sustain itself, promotes development not only now but also in the future. Development which is long-term and not focuses only on the immediacy is said to be sustainable. The UN Human Development Index explores the sustainability of development and views development through a wide lens. Since the purpose of this analysis is economic development however, the following will focus more on economic modes of development, while keeping in mind the important indexes put forth by the United Nations. The following will discuss capitalist development as the primary engine of economic growth in a global era (United Nations 2008). Capitalist Development Capitalism is arguably the most well-known model of economic development and growth and is responsible for the globalization of international trade, foreign capital and the growth and development of much of the Western world (excluding Cuba and including Australia, which is commonly included in economic analyses of the "West"). Capitalism advocates free market economic principles of development and believes in deregulation, a belief in the invisible distributive hand of the markets and the promotion of a market-oriented society. From this perspective, the role of the state is to promote economic development through policies which are beneficial to market-oriented economic growth. Capitalism has propelled the advent of economic globalization and the strong economic growth and development exhibited in the countries of the West. It is currently being embraced as a development model by the formerly socialist countries of Eastern Europe (former states of the U.S.S.R.) and is responsible for tremendous economic growth on a global scale. In juxtaposition to capitalist economic development, we turn an exploration of socialism and socialist economic development. Socialist Development An ideological paradigm in which social equality and egalitarianism reign supreme, socialism remains an important political theory. Socialism has traditionally advocated a strong state-centric approach to control over the means of production and is critical of private property, private ownership and what it views as the inherently exploitative nature of the capitalist economic system. With a strong role for proletariat social class and the state in promoting social change through revolution, the socialist experiment has frequently been associated with revolution and violent social change. Initially seen as the antithesis to capitalism and capitalist modes of production, socialism today represents a variety of ideas which blend modern capitalism and socialist ideas about redistribution and the role of the state in economic affairs. Current avowedly socialist states include China, Cuba, North Korea, Vietnam and the former U.S.S.R. As the implosion of the U.S.S.R. in the late twentieth century demonstrated, state planning coupled with socialist economic development may not be a sustainable model of economic growth and development. The case of China, as we shall see, makes a case for mixed capitalism Free Trade Zones and "Cautious" Capitalism China has cautiously embraced the principles of economic capitalism in its efforts to stimulate development and growth while maintaining true to its revolutionary socialist credentials. Thus, while not giving up an important role for the state and the statist principles of a command economy, China has engaged in state-led development through the establishment of secure business-orientated zones (Free Trade Zones in China). These zones cater to foreign investors and large multinational corporations. Arguing that this is the most effective way to ensure quick yet far-reaching development, the Chinese government utilizes these zones to promote efficient economic development while maintaining an officially socialist political structure (Naughton 2007). Seeking to address economic stagnation and underdevelopment through direct governmental intervention and the establishment of business-oriented Free Trade Zones, China employs this model as a development path. As the region's growing economic powerhouse, China employs a form of economic development which is inherently Statist and involves direct government intervention in the economic sector to promote quick and efficient economic growth. Under this strategy of development, the state must establish a free trade zone and attract investors (generally large multinational companies or MNCs) to stimulate development. While encouraging direct foreign investment and providing a forum which attracts economic actors to help propel the development of the nation, this model of development does an excellent job of using both the private and public sectors to promote economic growth and development (Naughton 2007). Based upon the principles of economic liberalism but with a strong role for the state, the Free Trade Zone model begins with the creation of attractive economic-oriented trade zones which appeal to foreign investors to stimulate national growth. Industrialization is said to begin within these zones and export-oriented principles of economic development are behind this particular model. Foreign investors are attracted to these development zones through a variety of incentives including low production costs (i.e. cheap labour), tax benefits and a variety of other economic incentives. This development model is a response to the current wave of economic globalization and is a modern attempt at harnessing the forces of global economic capitalism through state-led development. China's leaders argue that this is the best form of development for the country because it focuses on macro-economic concerns (raising the Gross Domestic Product (GDP), decreasing the national unemployment rate, etc.) by attracting foreign investors and utilizing the resources made available by already-established multinational corporations to stimulate growth. Although this form of economic development is currently being practiced around the world, it has been particularly successful as a developmental model in Asia. Accordingly, from 1996 to 2006, China's annual real GDP growth was a whopping 10.5% (Clark & Kim 2005; The Economist 2009). Case Study: Mexico First and foremost, economic globalization has raised the standard of living in Mexico. This rings true around the world and the benefits of economic liberalization can be found in nearly all countries which have embraced free trade and economic growth. Due to the interconnectedness of global markets today, more people are employed, more money flows between countries and subsequently people's standards of living are being raised. Mexico, a developing country which has embraced economic liberalization and is now a member of NAFTA (the North American Free Trade Agreement), has exhibited recent economic gains since joining this regional trade block. With a population of 108.3 million and a GDP of $839 billion, Mexico has benefited tremendously from economic liberalization and market-oriented growth. In response to its inclusion in NAFTA, employment has risen consistently over the past decade and a half and annual GDP growth over a ten year period from 1997 to 2007, is estimated at 3.7%. This level of steady and consistent growth over a period of 10 years is remarkable for a country which has remained underdeveloped relative to its North American counterparts since its creation nearly two centuries ago. Accordingly, as a percentage of its labour force, the average Mexican unemployment rate from 1995 to 2006 stood at a low 2.8%. Compare that with Mexico's neighbor to the south, Columbia which still does not have a free trade agreement with the world's largest economy, the United States, and the results are astounding. Over the same period, Columbia had an average unemployment rate of nearly 15% (The Economist 2009). Criticisms of the Globalization Phenomenon What are the criticisms of globalization and how do proponents of globalization respond to these critiques' Critics of globalization argue that this phenomenon is thinly disguised neo-imperialism and actually represents an insidious attempt to spread Westernization and Western concepts of capitalism, exploitation and greed across the globe. World systems theorists would argue that globalization does nothing more than entrench the dominant economic position of the developed countries of the West while perpetuating an unequal global distribution of wealth thus ensuring the continued subservient status of the developing countries of the world, within the current global economic system. Global economic institutions such the World Bank (WB) and the International Monetary Fund (IMF) often bear the brunt when it comes to criticizing the global economic system and the state of global affairs. These organizations are routinely criticized as being anti-democratic, exploitative in nature and often as agents of Western imperialism. Members of the anti-globalization movement represent a backlash against the dominant economic ideologies of our time including capitalism and neoliberalism as the economic order of the day. Proponents of globalization argue for that many criticisms of globalization are unfounded. Accordingly, they point to the fact that there is a wholesale lack of evidence for many of the claims put forth by anti-globalization activists and argues that capitalism and neoliberal economic principles have benefited people all around the world, including those in the so-called Third World. The embrace of capitalist ideals by nearly all of the countries of the former Soviet Block is seen as evidence of the appeal of neoliberalism and capitalist economic principles (Coburn 2000). Concluding Remarks Globalization represents the forces of capitalism and global economic interdependence. While there are a variety of models of economic development, capitalist-inspired economic growth is the engine of development for much of the Western world and is a model which is being cautiously embraced by officially socialist countries such as China. Socialism today represents a variety of ideas which blend modern capitalism and socialist ideas about the role of the state in economic affairs. Has socialism withered away or is it simply evolving' As the case of China emphatically demonstrates, socialism can remain a potent force if it evolves in line with the global economic community. The case of Mexican development also shows the potency of capitalist reform and global neoliberalist development. Accordingly, avowedly socialist countries which have removed themselves from the global economic community, such as North Korea, Cuba and the U.S.S.R., have withered away or imploded in today's era of globalization. Although Chinese repression and authoritarianism remain infamous, it has successfully harnessed the capabilities of an entrenched socialist state and has successfully blended socialist authoritarianism with the principles of free-market capitalism. The case demonstrates that there are a variety of forms of capitalism and its model of mixed capitalist development can be successful in stimulating growth. REFERENCES Clark, G.L. & W. B. Kim. Asian NIEs & the Global Economy: Industrial Restructuring & Corporate Strategy in the 1990s. Johns Hopkins University Press, New York, 1995 Coburn, D, 'Income inequality, social cohesion and the health status of populations: the role of neo-liberalism', Social Science & Medicine, vol. 51, no. 1 (2000), 135-146. Gat, A. "The Return of Authoritarian Great Powers" Foreign Affairs, July/August 2007. Naughton, Barry. The Chinese Economy: Transitions and Growth. Boston: MIT Press, 2007. The Economist. Pocket World in Figures, 2009 Edition. London: Profile Books, 2009. United Nations. Human Development Report, 2008. Accessed March 21 2009, http://hdr.undp.org/en/media/HDI_2008_EN_Tables.pdf Warleigh, A. European Union: The Basics. New York, Routledge, 2004. Read More