How Far Can Markets Be Considered Free - Term Paper Example

How Far Can Markets Be Considered Free? This paper seeks to examine the concept of free market in the context ofthird world economies with the intention of proving that they stand to lose more than they can hope to gain since what is projected as free market is in essence just an avenue for post-imperial neoliberalism polices designed to benefit the west at their expense. The free market is guided by the new liberal principles according to which, the invisible hand of the market should be allowed to reign unhindered in the market allocating resources in the global market. The paper also discusses the role of multinationals in view of the fact that powerful organizations from the west; often with the backing of their home countries manipulate and take advantage of the poor countries venerable fiscal position. In addition the manipulation and exploitation by global financial institution such as the IMF and World Bank which have in the past compelled developing countries to make structure adjustments on condition as conditions for getting financial assistance which they have over time become incapable of functioning without. The free market has also resulted in an escalation in the levels of pollution in developing nations like China where majority of the developed countries outsource their production process Introduction After the world war two the US pressured the European nations that had colonies such as Britain and France to free their colonies, however, this independence was only superficial. The decolonized counties were left in such a state that they would be dependent on their former colonial masters who would provide a market for their agricultural products while they produced industrial goods such as machines and vehicles. The “freed” African colonies were used as a source of raw materials for the west, the formal colonies were no longer necessary since the transfer of wealth from the former colonies to west could be carried out in a more legitimate way. In a sense colonialism was retrospectively designed to reshape the societies in such a way that they would be dependent on the economic institutions of the developed west and when the economic forces had been put in place the economic forces and marketing systems proved sufficient to perpetuate the exploitation between the mother country and former colony. This are the sorts of relationship that free trade seeks to promote between the poor and wealthy countries involved in the global economy; this paper seeks to prove that free trade is not actually free at all and it examines the post-colonial and neo-liberal ideologies, exploitation and the cultural disruption of developing world through manipulative the manipulative and one sided policies of free trade treaties. Background Globalisation has been one of the catch phrases of the late 20th and the 21st centuries with technological and social cultural developments setting the ground for a shrinking world to bring about the notion of a global village. Key to successfully bringing about globalisation is the concept of free trade which can be described as the liberalisation of markets form government intervention; under free trade policy, it is assumed that all the economic resources from the countries around the world are subject to common laws of demand and supply and price reflection making economic dynamics the sole determinant for resource allocation as opposed to regional and local governments policies (Villalta, and Ohiocheoya 2011. 220). Ideally free trade would be characterised by trade I good without barriers, free movement of labour and capital between involved countries as well as unrestricted access to markets. While not ineludibly guaranteeing fairness in competition, a free market economy essentially allows the same rules for every member country taking a part. Globalisation and free trade interpreted from a western perspective reflects a situation where the barriers to economic exploitation are broken down. The developing countries would have access to the market of the developed ones and the latter would by right bear the same rights on the third world nations. Quintessentially, liberalisation of the global economy would imply that the world economies would economically united as one, however this is only in theory; on the ground, the underlying inequalities exploitative tendencies and historical injustices that have plagued the developing world as a result of interaction with the developed world make it doubtful that the third would stands to gain from the liberalisation of the markets. To get a historical context of the relationship between the developing and developed world consider a first a brief history of the colonial legacy and the neo-colonisation that followed when the imperialists left their colonial domains. After the end of the cold war and the collapse of the USSR, America capitalism triumphed over communism and this was seen as approval for the free market and from the 80’s on the free market euphoria begun to sweep over the world giving to a new age or neo-liberalism. Unlike Keynesianism, Neo liberalism have argued that economic growth cannot succeed unless government intervention is eliminated in all sectors of the economy expect for military and prison departments (Galbraith 1995, p.65). According to the new liberal principle, the invisible hand of the market should be allowed to reign unhindered in the market allocating resources in the global market according to the natural equilibriums of demand and supply era accompanied the end of imperialism and signposted the beginning of a new age of indirect colonialism of the third world colonies by their former colonial masters. Incidentally, the nee liberal onslaught on the developing world appears to have developed before it did in the determined industrialized nations. Since the end of colonialism, the third world has always been encouraged to take up liberalism of trade and free market economies because it was seen as means assisting them transfer wealth from the developed nations like the US and Europe to them. One of the first events that precipitated the trend was the U.S instigate coup in Chile in 1973; while the popularity of neo liberalism may appear to be in contradiction to neo colonialism, it only served to even more strongly entrench neo colonial policies on third world countries (Philip 2001, p.4). As a result, the World Bank and other international institutions which incidentally are all controlled by the west gave Africa “development” level which however came with strings attached. These loans required that the subject nations adopt certain policies and structural adjust programs which were designed to open their economies to easy entry by the western powers. At the end of the day, these policies are designed to increase the level of exploitation and despite the façade of development they only encourage the enslavement of the developing nations adopted “structural adjustment programs” designed to open their economies to western markets. Certainly, these guidelines did not bring about growth, but only more extreme underdevelopment for developing nations and further making them dependent on the western “benefactors”. The liberalization of trade is today used as a façade to disguise the undying exploitation of the neo liberal empire that is embodied in the capitalist power of multinationals which are primarily based in the triad (Villalta and Ohiocheoya 2011, p.230). Their economic ends are supported by western powers through one sided policies of direct brute force as has been evinced in Iraq and other developing nations that have run afoul of the western agenda. This is most evident in the fact that the underlying rule in the global economy are severely restrictive to majority of states in that they lose the capacity to design their own customized development strategies (Bruton, 1998. 911). In fact the free market is seen as a straightjacket in which the developing countries are forced to follow uniform models of integration which are however designed to favor their western counterparts who are after all the ones who originate the relevant policy (Kenneth 2006, p.546). In a way, free trade creates a seeming fair platform for trade. However when they sign the agreements for free trade, the poor third world countries directly pit the private institutions in the developing countries with the powerful multibillion multinationals with the backing of the developed powers and international organizations (Kenneth, 2006. 546). Hypothetically one may describe it as a match between Manchester United and the Haiti National team, the playing field may be even but the former is more experienced with access to better resources training and generally they have more exposure. At the end of the day, there fairness and free trade are not necessarily the same thing since the developing world is not able to cope with the competition. Without the intervention of the government, the private sectors which in case of small third world nation involve small subsistent farmers and small and medium scale manufactures whose economies of scale are significantly lower than the international market owing to the comparatively lower cost of production. Take the case of Senegal when it opened its market between 1994 and 2001, it was producing over 73,000 tonnes of tomato concentrate. However after it opened its doors to the free market and eliminated the tariffs, they were only able to export 20,000 tonnes. This was a result of the increase in supply of tomatoes from the EU given that the import of tomato paste from the EU increased from 62 to 5,400 tonnes. The supplies in the EU and the US have significantly economies of scale since they are produce huge scales which marginally lowers the cost per unit. Since then the production of tomatoes for the Senegal’s processing industry from Senegal itself has been stagnant with the price remain low as a result to the influx of cheaper paste from the west. This example restates the position that free market economy may be free but it is far from fair since it will always serve the interests of those with the highest economies of scale which are inevitably the western powers. As a result of the impact of the free market on the rural small scale agricultural sector, there have been protest in many parts of the world and the system is considered to have been a failure by many. In the Philippines and South Korea the privatisation and delegation policies which have occasioned direct negative consequences on the rural livelihoods (Bryceson 2000, p.3) Philippines was one of the countries that have born the blunt of the neo-liberalisation of trade, like Senegal and other developing countries, it has moved from an exporting to an importing country as a result of embracing the liberal trade movement. This is because the developing strategies proposed by the developed nations do not address issue like persistent poverty and inequality since these are after all not common problems in the relatively well-off western world. Exploitation One of the main challenges facing the acceptance of free market globalisation of trade is the negative association with exploitation and colonialism and globalisation does not appear as an opportunity but rather one of exploitation marginalisation, exclusion and direct and indirect oppression (Wade, 2004. 570). Globalisation and market liberalism represent a world where indigenous people are displace with their land taken away and the exploration of natural resources not to mention the over exploitation through western tools such as IMF WTO and IMF. These organisations tend to use their imperialist power and influence which in many cases transcends even those of governments and they control the market to their advantage (Skarstein 2007, p.347). One way through which the exploitation in manifested is through manipulation of factors of production by multinationals so as to increase their level of influence and control over the economies of the developing world. Take an example of African countries, over the years many of their economies which are founded on an agricultural foundation such as Senegal and Kenya are no longer food secure even though they were during and for a time after colonialism (Woller, 2002. 304). This is because when most of them signed up for they opened their local markets to influxes products from the developed world. Obviously, with the unfair competition the farmers could not make as much as they used to and consequently the local production of food went down. The west had a major advantage since they produced GMO which are easier to grow more plentiful and by far cheaper in bulk than what the impoverished third world countries could manage to grow. Gradually the developing nations have their agricultural sector cripple by cheap imports while at the same time they become dependent on the food supplies from the west (Bruton 1998, p.910). Ironically some of the GMOs that are sold to the developing world are not allowed in the west, however the corporation take advantage of the ignorance and abject poverty therein which to some extent they are responsible for to exploit them and force them to buy the imported food instead of boosting the local agriculture. Enslavement by Multinationals The liberalisation of trade has allowed eases of capital and resources across international borders and this has brought about numerous western firms outsourcing their production process to the developing countries where labour is comparatively cheaper (Fafchamps and Shilpi 2008, p.50). For example, a significant percentage of the merchandise in the US is manufacture in third world countries by workers who make as little as 12 cents an hour working in conditions that are often dangerous and in contravention of human rights. These are referred to as sweatshops and the most affected industries are apparel and technology such as mobile phones (Meyers 2004, p.320). This sort of exploitation would be difficult impossible in the developed world since there are laws and policies that prevent forcing people to work under such conditions. However using the free market multinationals exploit the developing nations by offering them jobs and infrastructural upgrades which they badly need. On the other hand they not only over exploit their resources and force them to sell cheap or loose the high capital investments which eventually play a critical part in the nation’s economy (Garforth, Phillips and Seema 2007, p.372). The most visible aspect of exploitation of the developing countries is however the extreme levels of pollution that result from outsourcing, China despite being one of the biggest economies in the world is still in more ways than one a developing country with a high poverty level and struggling to achieve food security. Thousands of companies mostly form the US and EU have pitched tent there in their operation they have causes the levels of pollution in china to rise such that it is currently responsible for a third of the air pollution in the world. Currently over 3 million hectares of land in the country have been rendered un-arable owing to the extreme levels of land pollution caused by acid rain use of industrial chemicals and the release toxic chemicals on the land most of them which can be traced to the foreign industries in china. The American and European firms are well aware that the levels of pollution they can cause in china and other developing countries would never be tolerated by their home countries. The west has over the years continued to promote the environmental degradation in third world countries which in turn results in destruction of water air and as well as climate change. Ultimately the western powers are interested only in their welfare and they have repeatedly proven that they are willing to go to nay lengths to protect their economic interest even if it is at the cost of the future of the developing world. According to Congressman Henry Clay, a nation’s true wealth is measured by the level of protection it offers to its industries while poverty is determined by the extent to which it exposes its industries leaving them vulnerable to the actions of foreign powers. Free trade cannot be considered free given that in most cases, the cost of free trade tends to be higher than the benefits. In the without a doubt, free trade provides an opportunity for poorer countries to attract investors and improve their prospects of growth however, ideally this implies that free trade is the panacea for all the economic development problems in the third world (Stiglitz 510, p.203). However, in reality this can only work if the industries in question have a relative level of competitive advantage, in truth, very few of the firms have the advantage to compete with the multinational and when deprived of the protection offered by government which is a prerequisite for the free trade agreements. In most of the third world countries, as soon as the free trade agreement has been signed, chances are left alone, small companies are easily bulldozed out of their own market which is then quickly flooded with cheap imports effectively killing of local supply. Cultural Crisis The inequalities in the so called free trade are further underpinned by the fact that when a country opens its markets it allows not only movement of resources and capital but also labour, the impact of FTA can actually be seen a chain reaction that triggers circumstances that make it easy for the reach country to sustain its activities. When country A which is a third world country signs a TFA with B presumably a developed nation, one of the first impacts will be movement of professional workers from A to be in search of greener pastures since the salaries and conditions are obviously better. As a result the labour left in country A is cheap and this serves to attract firms from visitor country. Free trade also has negative implications on the cultural and human aspects trade, Joseph Stiglitz criticised the IMF for pursuing the neoliberal ideology and market fundamentalism from and extremely simplistic perspective (Jonathan 2004, p.886). He argues that the definition the free market and related terms are often measured in terms of monetary and economic implications while other factors such as environmental emotional cultural and the human side of it. For example different cultures understand poverty and progress differently, as a result as a result the west may think by opening the market it helps them become wealthy in the western sense (Wade 2004, p.581). Nevertheless, in some developing countries economic and infrastructural growth is directly proportional to cultural erosion which may matter more than the materialistic ideas of the west. The most dominant players in the free market are multinationals whose primary objective is making profit in many cases at any cost. Therefore, in their exporting of the western definitions of culture, they risk occasioning societal problems and causing cultural and social crisis. The international financial organisations such as the IMF have however not been acting in a very democratic manner, in many cases as aforementioned, the policies imposed in relation to FTA are often forced on the developing world is easily manipulated given the dependency on loans and grants as well as high debts which were created by the west to start with (Woller 2002, p.302). Many critics have argues that the prevailing form of global capitalism is not based on a natural process but enforced political projects engineered by EU and America. Conclusion In a nutshell, it is evident that free trade is only free in as far as the name is concerned, every country should maintain social and economic order for the sake of the welfare of its citizens. Ideally equality of trade is a very noble idea and from a layman’s point of view it would appear to be the best thing for all the parties involved. Nevertheless, when one takes to account the big picture, it is evident that equality for its own sake is ultimately injurious to the developing nations since as mentioned previously equality in the market in not the same thing as fairness. Third world countries should be very cautious before signing FTAs especially with the developed world since despite the apparent economic advantages, in the long run the smaller countries stand to lose out on flexibility and autonomy and find themselves enslaved by a free trade policy that is actually not free at all. References Bruton, H, J. 1998. A reconsideration of import substitution. Journal of Economics Literature 36(2): 903–909. Bryceson, D. 2000. Rural Africa at the crossroads: livelihood practices and policies. Natural Resources Perspectives . 52: 1–4. Fafchamps, M and Shilpi, F. 2008. 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