GLOBALIZATION & DEVELOPING NATIONS. Economic globalization – the formation of a single worldwide economy – could further disadvantage the developing nations. Do exogenous growth models explain the poor growth rates of LDCs?
Economic globalization – the formation of a single worldwide economy – could further disadvantage the developing nations.
Can anti-globalization protests (WTO, McDonald’s) compel creation of a New World Order? Or, will MNC-dominated hegemony prevail?
Globalization refers to processes that increase connectivity among societies & their people, institutions, organizations. Globalization intertwines cultural, political, and economic interdependencies that challenge traditional arrangements.
“The growing extensity, intensity, and velocity of global interactions can be associated with their deepening impact such that the effects of distant events can be highly significant elsewhere and specific local developments can come to have considerable global consequences.” (Held et al. 1999)
Globalization institutionalizes the diffusion of a secularized world culture, Western in origin, that trumps all alternatives.
“Globalization processes spread a legitimated world cultural order of universally accepted, rational, & democratic ideas reshaping national states, organizations, and individual identities.”
(John Meyer et al. 1997)
The 1648 Treaty of Westphalia, ending the Thirty Years’ War, destroyed the Holy Roman Empire and loyalties based on religion. It created today’s system of sovereign nation-states.
Is globalization slowly eroding nation-state sovereignty?
Are new supranational orgs (EU, UN, NATO, World Court) constructing a multilateral, intergovernmental system?
Will international orgs acquire enough legitimate authority to gain control over the means of violence among nations?
After World War II, trade negotiation rounds under GATT drove economic globalization, resulting in treaties to remove tariff barriers to "free trade” – as now interpreted by World Trade Org.
Four key dimensions of economic globalization involve the flows across national boundaries of: goods & services; financial capital (FDI); labor (human migration); technology & knowledge.
What explains the differential economic growth of nations? Does ΔGDP indicate well-being?
Developmental economics models try to explain long-run growth
In the neoclassical Harrod-Dobar model, Growth Rate = s/ β (where s = saving rate; β = capital-output ratio). If unchanging technology fixes the short-run capital-output ratio, only saving rate will determine growth: whatever a nation can save will be invested.
Robert Solow’s exogenous growth model added technological change to savings, to predict that poor nations’ income levels would catch-up / converge with the rich nations’. But, the evidence revealed divergence: a positive slope for the regression of 1960-90 average growth rates against 1960 GDP per capita. The most developed nations grew much faster than the LDCs! (Japan’s rapid growth was a notable exception.)
Endogenous growth theories of 1980s proposed that “virtuous cycles” could generate new technologies and human capital: Incentives to exploit innovations would improve firm and worker productivity. Then, innovative knowledge “spills over” to other economic actors, who increase their capacities to innovate. Hence, governmental investing in education and subsidizing R&D could boost long-run growth rates, even though aggregate saving rates might be unchanged.
As measured by changes in Gross Domestic Products, many LDCs experienced stagnant, lagging, or negative growth rates.*
SOURCE: UNCTAD 2004 Development and Globalization
* In 2004, African nations grew 4.5%, with 5.0% predicted for 2005, sufficient to increase real per capita incomes.
Two oil shocks & structural adjustment programs left African nations with massive external debt burdens – a barrier to savings, investment, & growth.
MNCs commodify, commercialize, & exploit all sources of profit. For example, since 1990, six water utility firms won contracts to privatize public waterworks affecting 300M people in 56 countries.
These MNCs – Bechtel (U.S.), Suez, Vivendi Environnement, Saur (France) United Utilities (UK), Thames Water (Germany) – claim to be more efficient in providing cheaper, clean water than often-corrupt public utility companies.
Working with the World Bank, water barons lobby governments, trade & standards INGOs to change municipal and trade laws. By 2020 these firms may monopolize 67% of current public water.
The WTO, created in 1995, is a primary target of activists in the anti-corporate globalization movement.
“The WTO is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.” <www.wto.org>
The WTO multilateral trading system is negotiated and signed by governments. These contracts guarantee member nations’ trade rights & bind governments to keep trade policies within agreed limits. Their purpose is to ensure that trade flows as predictably and freely as possible, by helping producers, exporters, and importers of goods and services conduct their business smoothly.
Core WTO principles are “Trade without Discrimination” & “Promoting Fair Competition” among nations.
Anti-globalists criticize the WTO for its allegedly undemocratic decision-making and lack of openness in reaching agreements. They claim the 25 richest developed nations manipulate trade deals to the disadvantage of 120 poor developing countries.
LDCs often lack staff and expertise to win favorable tariff reductions. Textile quotas block clothing imports from low-wage countries. US, EU, and Japanese subsidy rates are $20,000 per farmer.
Some analysts denigrate GDP as economic-growth indicator: it fails to measure national well-being & sustainable development.
(1) GDP omits nonmonetary activities serving basic life needs: homecare, volunteering, leisure time, …
(2) ignores environmental degradation / depletion costs
(3) adds expenses for diminished well-being (medical & security costs), disaster clean-ups (hurricanes), …
(See slide note on GPI measurement)
Genuine Progress Indicator (GPI), based distributive justice and sustainable development ideas, encompasses uneconomic / harmful growth. The GPI measures whether changes in amount of goods & services really improve or degrade national welfare. GPI growth = 0, when increased costs of crime, family breakdown, pollution, … offset growing GDP of goods & services.
What public policy implications might flow from GPI as a measure national development? Identify necessary changes in taxes, fees, & fines to redirect resources away from costly to beneficial activities?
The Bruntland Commission defined sustainable development as “meeting the needs of the present generation without compromising the ability of future generations to meet their needs” (Our Common Future 1987).
“The intensified and unsustainable demand for land, water marine and coastal resources resulting from the expansion of agriculture and uncontrolled urbanization lead to increased degradation of natural ecosystems and erode the life supporting systems that uphold human civilization. Caring for natural resources and promoting their sustainable use is an essential response of the world community to ensure its own survival and well being.” (UN: Sustainable Management & Use of Natural Resources)
Some UN and INGO initiatives promote sustainable development in ecology: using forests for wildlife tourism, not poaching and burning trees for charcoal. Others seek economic development of African and Asian nations, typically by sponsoring small-scale demonstration projects in health, education, agriculture, finance, technical assistance.
A classic case of sustainable development is the Grameen Bank, created in 1976 by Prof. Muhammad Yunus, that makes tiny loans to poor Bangladeshi women for starting small crafts businesses.
Five borrowers from a village form group, but only two are initially eligible to receive $100-300 loans. After both borrowers repay principal plus interest within 50 weeks, then the other group members become eligible for loans. Peers pressure members to repay all loans; thus, collective responsibility serves effectively as collateral and social control
Despite interest rates of 20%, more than 98% of loans are repaid. By 2003, Grameen Bank’s 1,195 branches served 43,681 villages, or 60% of rural Bangladesh. Grameen has granted $4.18B in small loans to 3.12 million Bangladeshis.
Grameen claims members’ incomes are 50% higher than nonmembers, while only 20% live below poverty line vs. 56% of nonmembers. A 1998
World Bank study found that extreme poverty (less than $1 per day) among Grameen Bank’s borrowers fell by 70 percent within five years.
UN Millennium Development Goals were adopted in 2002 by a consensus of experts from the UN Development Programme, OECD, IMF, and World Bank.
The goals for 2015:
1. Cut extreme poverty & hunger in half
2. Achieve universal primary education
3. Promote gender equality & empower women
4. Reduce under-five mortality by 2/3rds
5. Reduce maternal mortality by 3/4ths
6. Reverse spread of HIV/AIDS, malaria, TB
7. Ensure environmental sustainability
8. Global development partnership - aid, debt
Are these goals Utopian? Cost estimates for meeting most MDGs by 2015 would require additional $50B/year in official development assistance – doubling current aid levels. No G-7 nation has reached agreed target of 0.7% of developed countries’ GNP (only Scandinavia & Netherlands have).
“[D]onor resources can play an important role in strengthening the ability to use resources effectively. This is a focus of UNDP work in many countries in partnership with governments, donors, and civil society.”
United Nations Development Programme’s Civil Society Division works with a differentiated conceptual framework. “The new task of UNDP … is to identify and work with all parts of the private sphere that can contribute effectively to [social & human development].”
Civil society develops at the interstices of several subsystems
Summing up the complex field of economic sociology isn’t possible. We’ve much to learn, also much to contribute to economic knowledge.
What direction should theory construction take? Should economic sociology seek to maximize its differentiation from mainstream neoclassical economics? Or should it build on economics’ utility-maximizing insights, while extending its explanatory power by identifying important origins of social action?
How can economic sociology become more legitimated and institutionalized within sociology, and the social sciences in general? What can you do in your career to popularize and promote this specialty to your colleagues and students? How might you, as economic sociologists, influence public policy makers to make wise decisions for global well-being?