Explanations of Underdevelopment - Essay Example

? In ‘Promises not kept’, John Isbister has raised very pertinent issues of development theories especially vis-a-vis underdeveloped nations. Underdeveloped economies are distinct in their rural and poverty driven societies. They lack of financial resources, have inadequate infrastructure, low literacy etc which are some of the major factors that have considerable impact on their socio-economic development processes. These are critical factors that make it easier for multinational companies to exploit their vast resources for their own vested interests. MNCs from developed nations have huge resources, especially strong financial backup that gives them more power than government and people of underdeveloped economies. In the contemporary times, the role of MNCs in underdeveloped countries has become controversial because they are being compared to colonial rulers who had stripped them of their riches for their own benefits. But Isbister has presented a wider perspective of the roles of MNCs through his development theories: modernization theory; and theory of dependency. I believe that modernization theory can more aptly be applied in the case of MNCs. Multinational corporations or MNC can broadly be defined as the business corporations that operate across the world and have operation units in different countries. They are not only equipped with huge financial resources but they also have significant abilities to transfer knowledge across the international market. Underdeveloped nations, on the other hand are not financially or otherwise equipped to exploit their own resources. Thus, they become highly attractive business propositions for multinational companies as they can exploit the vast market potential of the region. But that is not the whole truth. MNCs bring their knowledge and use their financial expertise to not only exploit host country’s resources but they also contribute extensively to their socio-economic development. Theory of dependency primarily relies on financial aids to the underdeveloped nations from developed countries or international aid agencies that are frequently misused or used in areas other than infrastructural development. These aids are often in the form of soft loans but they still increase the debt liability of the already poor countries. The money is frequently misused or not used on areas infrastructure development, education, health etc which could benefit the society on long term. The inability of the government to appropriately utilize financial resources results in vicious debt trap. Isbister emphatically claims that they are ‘waylaid by the debt crisis’ (2003: 180). Third world countries like Ghana, Botswana etc are prime examples where vast disparity of income is highly visible. Despite massive international aid, the common man is still reeling under abject poverty. Another important fact is that financial aids are often subject to conditions which are either not practical for poor nations or they fail to instill necessary discipline amongst the policy makers for its effective utilization so that it can filter down to the common man. At the same time, it also provides huge power to the donor which is often exploited by them for their own benefits vis-a-vis low wages to local persons, exploitation of natural resources at low cost etc. MNCs in such scenario may justifiably become the scapegoat for vested interests. Another important aspect of dependency theory is that third world countries get used to the foreign aid because most of them are characterized by unstable socio-political environment. This helps the vested interests in the higher hierarchy of politics and bureaucracy to divert fund for their own interests. Thus, socio-economic growth of the underdeveloped nations remains a dream. Modernization theory, on the other hand, focuses on capitalist principles of market and exhorts underdeveloped economies for more liberal market based policies to facilitate foreign investment. It also makes underdeveloped countries more attractive for MNCs who can exploit the huge market potential and resources of the nations. But one of the most important points that Isbitser has raised is that MNCs also bring with them the expertise that promotes development of the region vis-a-vis infrastructure, literacy, skill development etc. These are extremely vital issues that facilitate sustainable development processes. Indeed, case of Shell Inc in Nigeria is significant because it had pledged $55 million dollars in charities that it used for establishing schools for free education of children. It had also used the funds to provide clean water and develop electric system within the region. It is of course unfortunate that it was also associated with oil spill which was quite catastrophic. But it was not a deliberate act of sabotage and therefore should be weighed against the wider constructive works and objectives of the company in the country. Modernization theory also endorses that role of developed nations is critical to the development of underdeveloped countries. It is true to a great extent. The developed nations have wealth and knowledge that can be used for the socio-economic development of underdeveloped economies where people are deprived of basic human dignity and lack food, shelter and health facilities. The business from developed countries significantly contributes to the development of economy of the third world countries and greatly facilitates their socio-economic growth. The concept of CSR has also probably evolved under the aegis of modernization theory. It has become a highly critical factor in the contemporary environment because corporations cannot continue to exploit the invaluable assets of the society vis-a-vis mainly land and natural resources and human capital. When they use resources in host countries, they also become their temporary custodian (Freemantle and Rockey, 2004). They are therefore obliged to contribute towards the sustenance of the society as a whole through development work. Proactive participation in community development especially in areas like education, infrastructure, skill development etc provides them with opportunity to repay for the privileges that they have been using for their business gain. Isbister further asserts that ‘unless the market can produce a decent life for all the people of the Third World, not just a chosen few, it will come under attack in the future (ibid: 189). This is a very pertinent point. It needs to be taken into considerations by MNCs when they are working in third world countries. Indeed, the role of CSR within the wider business objectives of MNCs becomes vital ingredient of modernization theory in the contemporary times. The MNCs must respond to the social compulsions of the areas within which they operate. It is important that they contribute to the nation’s development process through myriad ways like donation, help in modernizing infrastructure in important areas like education, transport, health etc. Thus, we can conclusively state that modernization theory gives a wider perspective to the role of MNCs’ wider in underdeveloped countries. (words: 1087) Reference Freemantle A and Rockey, N., The Good Corporate Citizen: pursuing sustainable business in South Africa. Capetown: Trialogue. 2004. John Isbister. Promises Not Kept: Poverty and the Betrayal of Third World Developmetn. 6th ed. Bloomfield, CT: Kumarian Press Inc., and Hampshire: Palgrave Macmillan, 2003. 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