Should Developing Countries Embrace Globalisation?

this is an essay I wrote a while back on developing countries and globalisation. I enjoyed looking into the topic far more than I thought I would so I thought I’d post it here. I’ve split it into two so its (slightly) less mammoth.

Stances on the effects of globalisation have become highly polarised in recent years.  Understood broadly as a process by which interconnectedness and interdependence are expanded and deepened between states, and people, internationally. The debate on whether or not the concept of globalisation is beneficial or to be avoided, or even whether it would be possible at all to try to avoid it, is fierce. Tied with the concept of liberalisation of markets, meaning fewer government restrictions or regulations in the economy, favouring more involvement from private actors, globalisation heralds great change for the notion of development. Broad understandings of development exist, and the forces which act as constraints, aides or even measures for development lack any real consensus. More rigid ideas exist of development as purely measuring the GDP rates of a country, with other notions coming to the fore in recent years such as the idea of including other more societal factors as indicators of development, such as the ‘alternative development’ concept (Brun & Blaikie, 2014). Increasingly, less developed countries (LDCs) are central to the debate on development and globalisation. In particular, it seems that the activities of transnational corporations (TNCs) bear consideration, as they have serious impacts on the ability and willingness of LDCs to embrace and to interact with market liberalisation and the process of globalisation. Poverty has been rising since the 1990s, in all regions but a select few (Rudra, 2008). As Madeley (1999) stresses, government effects on developing countries and the world’s poor are studied carefully, whereas TNC operation seem to escape with scant regard. The focus of this essay will therefore highlight the ramifications of TNCs on developing countries, as agents of globalisation in a manner of speaking, to consider the dangers and benefits introduced by TNC activity with regards to developing countries and globalisation. To this end, the UN’s “good governance” criteria will also be examined to explore the relation of such points to globalisation, development and TNCs presence in developing countries.

In order to examine development and TNC involvement in LDCs, a brief discussion of the UN notion of good governance is useful to see whether these points are harmed or enhanced with globalisation. There are eight central principles to good governance idea. These are: participation, consensus, accountability, transparent, responsiveness, efficiency and effectiveness, equitable and inclusive, and following the rule of law (United Nations economic and Social Commission , 2013).  The idea of “good governance” and the requirements it advises to attain good governance appear to be of limited use, and lacking any meaningful depth as a concept. Yet, it would be difficult to find a recent discussion on development without encountering the term. Former secretary- general of the UN, Annan went so far as stating good governance as “the single most important factor in eradicating poverty and promoting development” (United Nations Developmemnt Programme , n.d.). It is highlighted that the notion is limited for several primary reasons (Gerring, 1999). These are the fact that the term too broad in pinning down the meaning of the idea; lacking in differentiation, of what actually makes a country ‘well-governed’ or not; lacking in cohesion, bringing many seemingly unrelated strands together; and also lacking in any real theoretical utility, adding more confusion to discussions as opposed to the reverse (Gisselquist, 2012). The idea of good governance is often engaged with only superficially and selectively by elites, and the TNCs which deal with them, however. This is demonstrated though the example of Indonesia, using highly selective engagement with and commitment to any form of good governance reform, the elites of the country are able to exert control and manipulate development aid projects to their own gain and maintaining current power centres (Choi & Fukuoka, 2013). The potential for misuse of the good governance criteria is great therefore, and it is entirely possible that the term is harmful to developing countries.

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Scepticism surrounding TNCs amongst the general public and within LDCs is rising. This can be seen in the less favourable policies towards foreign direct investment (FDI) which have emerged amongst the LDCs in recent years (Sumner, 2009). Sumner (2009) demonstrates that in 2005, these less favourable policies began to emerge from developing countries, with around one in five policy changes in LDCs being less favourable to FDI; whereas in the mid-1990s only one policy change in every hundred were less favourable to FDI. Alongside this trend, was a rise in bilateral investment treaties and public interest clauses (such as health, safety and environmental clauses). As Sumner (2009) emphasises these shifts pose an interesting question on whether a kind of ‘boiling point’ has been reached in FDI policy attitude, where the climate turns hostile towards FDI. Korbin (2005) argued the history of attracting FDI in the 1990s was a result of an entrenched wisdom that policy makers saw FDI as beneficial to their countries. Just how true that wisdom is, however, is tested by the dramatic fall in FDI favourable policy recently. The example of the Multilateral Agreement on Investment (MAI), and the collapse of the talks in 1998, reflects the issue of the wariness of LDC towards liberalisation. The aim of the MAI was to lay out a “broad multilateral framework for international investment with high standards for the liberalisation of investment regimes and investment protection and with effective dispute settlement procedures” (OECD, 2011). The agreement was highly contentious firstly as the negotiations took place in secret, without the inclusion of developing countries (towards the breakdown of the talks, even when a small handful of LDCs were included, it was with ‘observer’ status only). The talks were essentially a way to enhance the rights of large TNCs while eroding the rights of citizens of LDCs. If it had succeeded in being passed, the document could easily have initiated a ‘race to the bottom’ for TNCs to act in LDCs for their own gain (Madeley, 1999). The provisions of the MAI would have permitted freedom of capital movement, allowed national treatment for corporations, prohibition of performance requirements, all with legally binding enforcements and ‘locking  in’ the LDCs (Sumner, 2009). The MAI passing would have essentially allowed TNCs to sue states for not allowing or enacting enough liberalisation or permitting TNCs to act within their borders, establishing a one sided right for foreign investors full control of investment policy (Raghavan, 2014). Whilst the negotiations of the MAI did collapse, largely due to global civil society campaigns (Sumner, 2009), it appears hugely significant such a policy was even considered, in particular since similar (albeit watered down somewhat) polices have since emerged discussing the relation of LDCs to TNCs and investment, two of the primary signals of globalisation.

A problem similar to the MAI emerged in the form of a piece of legislation passed through the U.S Congress. This bill is the USA African Growth and Opportunity Act, passed in 2000 (International Trade Administration, 2011). This bill removes many restrictions on investment, in effect prohibiting the regulation of commerce and factors of production, even insisting countries join the World Trade Organisation, which some hadn’t joined due to a disagreement with the ethos (Madeley, 1999). The act essentially sends a message to the African countries that if they want to attract TNCs and bring foreign investment then they must surrender large portions of sovereignty. This is highly problematic for developing countries to ‘want’ to embrace globalisation, since it is presented more as a threat, liberalisation being something they need without any choice in the matter. The consequences of globalisation in this sense are important to consider as globalisation presents a host of issues for LDCs in allowing TNCs in to exploit them.

These issues are linked with claim of international institutions acting in a manner to lock developing countries into their current position, under the more developed economies. Accusations have been levelled against the World Bank to this effect. Some of the claims are that the World Bank and other international institutions control the processes of monitoring, surveillance or “country ownership” in order to lock poorer countries into their current position and presenting those effects as liberalisation (Cammack, 2007). The level of intervention that the World Bank is proposing can be highly problematic for developing countries since, as Cammack (2007) emphasises, the changes are too deep to be reversed yet do nothing other than serve some neo-liberal endgame, to allow corporations and foreign investors to take greater risks in LDCs. The possibility of the international institutions presenting themselves as saviours to these LDCs, yet not really serving them, is connected with the problems surrounding aid fund spending and distribution. To the LDCs, accepting aid essentially comes with the condition of accepting TNCs. It is perhaps no surprise that the donor governments seek to promote their own interests and corporations, though it is certainly troubling that aid agencies do more to help the richer elite of LDCs than the poor (Madeley, 1999). The level of debt in the developing countries amounts to around $4trillion in 2012 (Mead, 2012) while the levels of aid they receive is closer to $133billion in 2011 (Love, 2012). Madeley (1999) highlights this continued imbalance, explaining that the only reason LDCs ‘want’ TNCs is an effort to lessen this debt burden, thereby cutting services and liberalising economies, with huge amounts of pressure from countries elsewhere to do so. These arguments put LDCs at a colossal disadvantage in the globalisation processes, ‘embracing’ globalisation seems not be a choice, but simply  seeking any available aid possible to lessen huge debt burdens which may not be helped by the more developed countries meaningfully.

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