Globalization and Wealth Creation in Developing Countries - Essay Example

Globalization and Wealth Creation in Developing Countries The increased level of business taking place between countries in addition to the presence of multinationals in almost all countries in the world has led to the evaluation of the role of globalization has played in wealth creation of different countries. It was only a matter of time before exploration of the benefits shifted to how globalization was contributing to wealth creation in both developed and developing countries. Response to this debate has varied but is generally based on two perspectives were there are those who see wealth creation due to globalization-driven business as being evenly distributed for both developing and developed countries. This is a group that favours activities of by such international institution as the World Bank, IMF and WTO that are seen as creating a level ground for all countries in the world to take part in international trade. However, there is an opposing group of critics of globalization that asserts developed countries have had an unprecedented benefits compared to developing countries. This essay explores how globalization has contributed to the process of wealth creation in developing world by analysis arguments by both proponents and opponents of globalization in order to determine whether globalization has helped or hindered wealth creation. There are a number of areas in which proponents of globalization argue that developing counties have benefited due to wealth creation accrued from doing business with other countries and multinationals. Due to the interconnectedness of the global economy, demand has been created for goods from developing countries therefore increasing the volume of trade. The increased trade has benefited the Newly Industrialized Economies from Asia that have been able to export their manufactured goods. These countries started off as developing countries but it is the access to international markets that resulted creation of wealth from capital inflow into their economies resulting in economic growth. The wealth created from international business has been used to reduce poverty levels by contributing to welfare state in these countries (Lechner, 2009). The level of knowledge and technological exchange that has been brought about by globalization is also an aspect emphasised by proponents of globalization. It is argued by proponents that the benefits of globalization to developing countries are not only in the area of direct foreign investments but the phenomenon has also led to the sharing of technical innovation between developed and developing countries (Lemert, Elliott, Chaffee, Hsu, 2010). Developing countries have benefited from technical advice from expatriates and international agencies especially in areas such as ideas and perspectives on production techniques, effective and efficient management practices, mechanisms of international markets in addition to providing insights about economic and global policies. Such technical collaborations between developed and developing countries has seen improved standards of production, manufacturing and trading practices which has enhanced the bargaining power of developing counties (Lechner, 2009). The assertion that globalization has helped increase wealth creation in developing countries is highly challenged by opponents those who see globalization as benefiting only the developed countries. Opponents argue that benefit from globalization in developing countries has not been sustainable in the long run. Positive effects of globalization are experienced for a short time in addition to failure of wealth creation to reach the rural population. The areas of economic development highlighted by proponents of globalization are not those that can result in wealth creation for a long time to benefit many more. Critics argue that it is the multinationals operating in developing countries that benefit more from the exploitation of resources in these countries. The difference in wealth creation can be demonstrated by the earnings that expatriate executives of Multinational Corporation get compared to what the locals earn (Gills, 2010). A number of researches into wealth distribution since the inception of globalization indicate a widening gap between the world’s rich and poor countries. A United Nations Development Program report for 1999 highlights this ongoing trend covering a period of over thirty. This scenario has been blamed on both the global trade and finance systems that are skewed in favour of the developed countries. Globalization has continued to benefit the developed nations since technological advancements and financial liberation has increased wealth for the rich countries without having mechanisms to redistribute the wealthy to developing counties (Dinello and Squire, 2005). Scholte (2005) blames neoliberal policies for continued existence of hierarchies between the northern states and the south. The author asserts that of the seven studies on wealth creation between southern and northern states, only one indicated southern stares had gained from globalization from 1980 to 2000. Scholte (2005) highlights different areas in which developing countries have continued to be disadvantaged at the benefit of developed countries. This includes infrastructural development where in northern countries for instances, a personal computer will cost a person a month’s worth of salary but a person in Bangladesh will have to save for a year to get a similar computer. This disparity is further experiences in the internet usage where the southern countries have to be contented with low bandwidth and slow networks in addition to more of the revenue collected from usage going to northern countries such as Britain, Japan and USA. Scholte (2005) notes among reasons for the increased gap between the wealth in developed countries and that of third world countries can be attributed to the fact that the concept of free market as envisioned by proponents of globalization has not been the case. The author notes a significant number of world population have not benefited from globalization given that it is only the wealthy individuals who access offshore accounts with the poor only consuming without claiming ownership of financial profits from globalization. Gills (2010) asserts that the neoliberal policies have made it possible for wealth to be concentrated in the US especially in the hands of a few groups of people who exploit the rest of the world population The popular claim by neoliberals that globalization has improved the economic conditions of developing countries by reducing extreme poverty levels and therefore enhance the ability of these countries to increase their wealth has been challenged by many scholars. Arguments against globalization has been based on the assertion that it has increased inequality for developing countries as removal of trade tariffs to stimulate trade has not had the same effect across countries (Lechner, 2009). Given that developed countries highly subsidize their production especially in the agricultural industry, goods from developing countries cannot compete with those form developed countries especially in terms of market price and quality. This puts produce from developing countries at a disadvantage since they go for higher prices as well as some being of low quality compared to those form the developed countries. Apart from subsidies to farmers, disadvantages in market prices and quality of goods can be accounted for based on the fact that developed countries dictate a substantial amount of resources to research in such areas as nanotechnology (Scholte, 2005). International financial institutions such as the World Bank, IMF and WTO have been accused of propagating neoliberal ideals which calls for open markets with open competition without paying attention to special interests held by developing countries. This has created imbalanced trade between developed and developing countries since developed countries have a higher bargaining power than developing countries (Hirst, Thompson, Bromley, 2009). This high bargaining power is due to high technology in production, low asking price for goods and services in addition to having a variety of products ranging from primary goods to those manufactured. Therefore, most of the wealth will flow amongst industrialized countries with developing countries getting a share of the global trade when raw materials from these countries are available. In global trade, available figures also presents skewed returns from participation in global trade where exports from developing world represented only 0.4 percent and imports 0.6 percent of the total transaction in 1997. This is approximately 40% decline when the figures are compared with those of export and import from 1980 to 1997. Although the south have in recent years exported more goods to the northern states, most of the goods are primary commodities that fetch low prices in the global market (Scholte, 2005). These figures clearly indicate the low level of trade that translates into low returns from transactions of developing countries with the developed countries. To ensure that developing countries continue to be depended on the developed countries, concepts such as the Structural Adjustment Program (SAP) which dictate the way counties organize their institutions were introduced. Developing countries have been forced to give up part of their autonomy by being asked to implement de-regulation, liberalization, privatization policies. The implication of these far-reaching adjustments has been abandonment of welfare state as developing nations cease implementing domestic programs such as health services, education, and environmental protection measures. Among the negative effects of such move in the developing countries include cutting down human resource in government agencies resulting in high unemployment levels (Maswood, 2008). The situation is made worse by the fact that private enterprises cannot absorb the high number of unemployed citizens in developing countries due to high costs of capital for operating businesses that result from high inertest rates from banks influenced by IMF policies. By removing barriers to foreign trade, the negative effects of SAP is further reinforced by demands from WTO that allows subsidized and therefore low priced goods to enter markets in developing countries from developed countries. This further destroys the local business enterprises as cheap produce from developed countries enters local markets to compete with local manufacturers who lack government support (Gills, 2010). From the foregoing analysis of the tow perspectives held by both the proponents and critics of contribution that globalization has made in the wealth creation of developing countries, the level of wealth creation experienced in developing countries has been low compared to what developed countries have experienced. Liberalization of the economy introduced by international bodies such as IMF, the World Bank and WTO has benefited developed countries more than the developing countries. Investments in developing countries only benefit developed countries and multinational corporations while the small benefit that gained by developing countries are experienced for a short period of time. Developed countries have been found to control a large section of means of production such as capital, technology and expertise which is offers such countries an advantage over developing countries. Developed countries are also able to subsidize production of goods which when combined with their technological advancement enable them to offer low products of high quality but for low prices. Enterprises from developing countries cannot compete with those from developed countries and are therefore forced to close business as people prefer those of high quality from developed countries. In conclusion, critics of globalization have convincing reasons to claim globalization has not contributed to wealth creation in developing countries since most of the wealth created is by multinationals and the developed countries. References Dinello, N. E., & Squire, L. (Eds.). (2005) Globalization and equity: perspective from the developing world. Cheltenham: Edward Elgar Publishing. Gills, B. (2010) Globalization in Crisis. London: Routledge. Hirst, P. et al (2009) Globalization in Question, 3rd ed. Cambridge: Polity. Lechner, F., J. (2009) Globalization: The making of World Society. Oxford: Wiley-Blackwell. Lemert, C. et al (eds.) (2010) Globalization. A Reader. London: Routledge. Maswood, S. J. (2008). International political economy and globalization. Singapore: World Scientific. Scholte, J., A. (2005) Globalization: a critical introduction. Basingstoke: Palgrave Macmillan. Read More