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Presentation on theme: "RESHAPING GLOBALIZATION FOR THE THIRD WORLD CHAPTER 7 1."— Presentation transcript:


2 RESHAPING GLOBALZATION FOR THE THIRD WORLD The ability of the first world to cause economic development and prevent financial crisis in the third world is very limited. Every developing country has to develop the social capital so that people in those countries can work together to increase everyone’s productivity. 2

3 There are more pressures now more than ever to do something about the third world because of new communications technologies. People in even the poorest part of the world now have their village TV set. They are now able to sit and watch how the average person lives in the developed world. The glimpse of riches sets in motion a worldwide pattern of legal and illegal migration by the poor. 3

4 Similarly, people in the developed world now sit watching third world poverty. The glimpse of poverty leads the rich to have vague beliefs that something should be done about global poverty. There is one place where foreign aid has unequivocally worked - health care. Better health care leads to a more energetic population that can work harder and annual economic output might go up three times as much as the cost of the extra health care. 4

5 Debt relief for the world’s poorest countries is often suggested, but it has to come with other requirements. Debt forgiveness should not allow a failed government to re-enter the credit markets to borrow again and to waste again whatever it has been able to borrow a second time. Furthermore, receivers have to have the ability to get organized. This is of much importance because if they do not have that ability, no amount of better organization on the givers side is going to lead to economic development. 5

6 Not all poor countries should be helped,if foreign aid doesn’t go to the right countries, it simply ends up in corrupt hands. For proof that aid without social organization doesn’t work, one need to look at Nigeria. It has received over $250 billion in oil revenues since its independence, yet its per capita GDP is only one-third of what it was then. The real starting point of economic development is found in social organization. 6

7 THE DOHA WTO TRADING ROUND If the wealthy industrial world really wants to reduce poverty among the poorest of the poor, it will open up its agricultural markets to free trade in the new WTO Doha trading round that has just begun. Nothing would help the third world faster. Agricultural is the one industry where globalization is in retreat. National agricultural self-sufficiency seems to be a first world goal. 7

8 These policies are a disaster for the third world. The developed world wants to protect its farmers while the underdeveloped world wants to protect its service industries. To get the free trade it wants in agriculture, the third world would have to give up the protection it has in services and to get the free trade it wants in services, the first world would have to give up the protection it has in agriculture. 8

9 In the first world there are demands on the left that future trade agreements cover labour standards and environmental issues but the third world do not want the first world setting either their labour or their environmental standards. Poor countries cannot afford the same environmental standards as rich countries, but there are environmental issues that hit the third world just as hard, or harder, than the first world. 9

10 Economic activities that pollute drinking water are one. If the first world gives more aid to help pay for more healthcare without requiring local countries to clean up their water supplies, it would be a waste of money. Clean drinking water is an issue properly debated at the Doha because Water-Borne diarrheal diseases are the world’s second biggest killer after AIDS. 10

11 Trade agreements should not attempt to set wages for third world countries or attempt to export the full range of labour practices seen in the first world, but they can deal with issues such as child labour. Ending child labour is in the self-interest of any country. Those who work full time as children don’t get educated to become productive adults. Child labour is not going to lead anyone into the promised land of economic development. 11

12 It is also morally wrong and sensible WTO rules can be written to specify when children can legally go to work outside of the home. A major Doha agreement was unlikely before the Iraqi war and much less likely after the Iraqi war. Opening up first world agricultural markets requires an agreement between France and the United States. Without an agricultural agreement and the service agreement that would go with it, other compromises are not going to be made. 12

13 THE THIRD WORLD FINANCIAL INSTABILITY Most of the concern about the third world comes from their financial crisis. The real cause for the financial crisis in the third world is the shift to capitalism and not the advent of globalization. Third world financial crashes accelerated in the 1990s. The Mexican loan crisis- seen as caused by globalization- and the Asian crisis in 1997 is some examples. 13

14 This crisis shook the foundations of the third world. Worried about preserving their wealth, insiders as well as outsiders flee to currencies that are not expected to depreciate. Vast amounts of money leave the country, and the value of the country’s currency plunges. With currency values down, the real costs of repaying foreign currency loans rises. A financial crisis becomes a business crisis and then a country crisis. 14

15 Considering Argentina’s meltdown, it had a currency board where the exchange rate between dollars and pesos were fixed at 1 to 1. But no country can forever hold its currency at a fixed rate relative to another currency. To maintain any fixed parity forever, the two countries would have to have the same rates of GDP growth, the same rates of inflation etc. When capital inflows shrank and were insufficient to cover the trade deficit, dollars flowed out of Argentina. Argentina’s internal money supply shrank and a recession resulted. 15

16 The IMF’s main role is to lend foreign exchange reserves to the local country so it has more time to pick up the pieces. The political left in America thinks the IMF cares too much about international lenders, big businesses and it points that it is the poor who gets hurt when the IMF moves in. The political right thinks the IMF funds bailout for lenders, borrowers, and countries that have made bad decisions. In the developing world, the IMF is often accused of not understanding their problems. 16

17 The IMF and the World Bank were both originally designed in 1944 to provide functions that are now no longer needed. The World Bank now exists to help the poor countries develop faster but originally, the World Bank was designed to provide loans for profitable large infrastructure projects that could not be financed by third world countries. 17

18 Today, there is no need for this function. The IMF also exists to protect the viability of the world’s financial system, but originally the IMF was designed to deal with temporary balance-of-payments problems between wealthy industrial countries. It has not performed this function since the early 1970s. The IMF gets too deeply involved in micromanaging third world economies in the aftermath of financial crisis. 18

19 The World Bank should become a global Department of Education. It should have a mandate to co-invest in education with poor countries because Economic growth requires more education and a better distribution of education. The ultimate responsibility for managing local economies lies with the relevant nation –states. Therefore, the new World Bank should not provide money for schools unless countries have demonstrated that they have the social organization to get schools up and running. 19

20 The IMF should continue its focus on the third world financial crisis. Instead, the IMF should run a system of international liquidity insurance much like national bank deposit insurance. The criteria for economic soundness are specified before there is a crisis, not in the midst of a crisis or in the aftermath of a crisis. Once a crisis is underway, the IMF simply disperses the promised funds. The IMF could come to be seen as an agency that speeds up economic growth rather than as an agency that slows down economic growth. 20

21 THE END OF EXPORT- LED GROWTH The most pressing development problem facing third world developing countries, however, is not learning how to deal more effectively with financial crisis. A far bigger issue is for everyone to find a replacement for their current export- led strategies of economic growth. In the export- led model, invented by Japan, local firms export their products to wealthy industrial countries where markets are so large. As a result, exports can grow much faster than the developing country’s GDP, pulling its economy forward. 21

22 The export-led model of economic growth dies when everyone wants to use it. It only works when a few small countries play the game. Because of China, the export-led growth model of economic development is dying in the Asian countries that formerly practiced it. But China too will find that the game has come to an end when the United States can no longer run large trade deficits. Those successful in the future will have to design new strategies for growth. 22

23 The replacement for export-led growth strategies is to be found in internally pulled growth strategies. Foreigners are encouraged to enter local markets and compete with locally owned businesses. Today the needed infrastructure investments should be in communications, transportation, and electrification-which are still needed in most developing economies to pull their economies forward and make them more efficient. 23


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