To What Extent Does Globalisation Help Economic Development?

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Mehdi Al-Katib

AHE Int. Politics – Development

26/03/11

To what extent does globalisation help economic development?

Joseph Stiglitz, Nobel Laureate and former World Bank Chief Economist defined globalisation as “Fundamentally, the closer integration of countries and people of the world which has been brought about by the enormous reduction of costs of transportation and communication, the breaking down of artificial barriers to the flow of goods, services, capital, knowledge, and to a lesser extent people across borders.

Development has traditionally been viewed in materialist and economic terms. The Liberal view of development is a materialist definition based upon economic growth which is simply an increase in production of the economy and is supposedly done through ‘modernisation’ which is structural reformation of the economy away from reliance on primary sector raw material and agricultural production dependency to manufacturing and ultimately service sector production. Environmentalists, ecologists, neo-colonialists and dependency theorists see this form of ‘development’ as domination and exploitation. These left-wing schools of thought would take the liberal definition of development as given but criticise its desirability. Neo-colonialists view the development of the West as coming about through the ravaging and exploitation of the global South through imperialism and economic neo-imperialism allowing wealthy owners of capital to extort their wealth off the backs of the peripheral poor workers in developing nations. Andre Gunner Frank, a neo-colonialist summed this up neatly arguing, “Development and under-development are the opposite sides of the same coin” as developed nations benefit by exploiting the developing nations’ resources and capital. In the developmental politics context, globalisation can be attributed to what is known as the ‘Washington Consensus’ implemented by the International Monetary Fund (IMF) and the World Bank (IBRD) whereby they give conditionality loans to mostly developing nations based on the neo-liberal approach to development through the liberal economic paradigm of free trade and specialisation (comparative advantage). These Structural Adjustment Policies (SAPs) are comprised of four main programmes: trade liberalisation where the barriers to trade are removed for exporters to earn the currency needed to repay debts by allowing imports into the country; privatisation where protectionist state-owned enterprise must be sold to the privatesector to prevent excess spending on subsidisation; capital market liberalisation (FDI) by removing foreign exchange controls and other investment restrictions to allow the free movement of financial ‘portfolio’ money i.e. bank loans, bank purchases, share purchases and foreign direct investment through bricks & mortar FDI and mergers & acquisitions by MNCs; and the regulation of the budget (reducing budget deficits) by increasing taxation, decreasing government spending and limiting inflation.

Classic Free Market Liberals (such as Adam Smith) in the global development arena believe that the free market is the most efficient manner of making economic decisions through David Ricardo’s theory of comparative advantage raising global productivity, increasing consumption and living standards. They, like Adam Smith, would rally against the Mercantilist approach of selective protectionism. Liberals see the process of development synonymous with economic growth, a product of modernisation. Modernisation is the process of industrialisation and structural change in an economy diversifying from primary goods (commodity) production to secondary manufactured goods production. Neo-Liberals aim to re-assert the power of the free market and classical liberal ideas, born from a ‘reactionary’ doctrine. Within the politically rightwing spectrum ideologies lies enlightened liberals who advocate a more interventionist state to remedy excess of free market,...
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