Economics Essays – Globalization Developing Countries

Globalization Developing Countries

Globalization Fuels Exploitation of Developing Countries by Developed Countries

As we advance further into the twenty-first century, the phenomenon globalization has been the subject of much debate. Globalization can be defined as the ability to easily transfer goods and services, money, people, and ideas between different countries around the world (Dickerson & Flanagan, 2006). In their article, “The Globalization Backlash,” Micklethwait and Wooldridge (2001) addresses many of the concerns with globalization.

They present their approval for this phenomenon by rejecting various arguments against it, stating that, in general, globalization is beneficial for everyone. This paper, on the other hand, will argue that as we become globally interconnected, developed countries, with the help of international institutions, can take advantage of this growing phenomenon by exploiting the cheap labor forces and natural resources of developing countries.

With competition greater than ever before, all states and non-state actors are doing all in their power to grab resources, interests, and benefits from the global market. This results in a mass increase of outsourcing of production to developing countries as labor and environmental costs are much lower, and the prospect of profit for multinational corporations is much higher.

Partially due to the creation of international institutions, the poorer states have minute, or almost no say at all, in the entire process. These institutions, such as the World Trade Organization, considerably favor the developed states when it comes to the world’s economic agenda and policy-making. So, as we step into a new era with a borderless world, developing states are unable to prevent the exploitation of their supply of labor and resources due to pressures from foreign countries with the help of international organizations.

Globalization can be seen as to creating a global community that is interconnected in a tightly weaved net of easy accessible information, ideas, and transportation. As this phenomenon accelerates to an unstoppable rate, the number of multinational corporations grows with it. These corporations outsource their production where the costs are much lower and there are fewer regulations on working conditions. Thus, the creation of this borderless world can facilitate the exploitation of developing countries’ cheap labor and services by developed countries.

To counter argue this, Micklethwait and Wooldridge (2001) state that although multinational corporations do outsource production, the amount outsourced to developing countries “is a mere fragment of,” in their example, the “U.S. investment at home” (p. 22). Despite the truth in this argument, this “mere fragment of U.S. investment at home” may be a small trivial part of the large United States economy; however, it can be a significant portion of the developing country’s economy, which can have a huge impact on the nation and its way of life (Micklethwait & Wooldridge, 2001, p. 22).

Another key argument presented by Micklethwait and Wooldridge (2001) is that “multinationals” actually pay higher wages and provide “better working conditions for their employees than their local competitors” (p. 22). However, the word “better” is relative. If the multinational corporations pay the workers one cent higher than the local employers, it may be a “better” wage, but it could still be under the minimum wage requirement of that nation. Micklethwait and Wooldridge (2001) also argue that employers don’t just want “cheap workers,” they want “productive ones” (p. 22).

However, even if this statement is partially true, we cannot deny the existence of sweatshops in developing countries. Wal-Mart, for example, has been criticized for its continuous demands for factories to reduce their prices or else they will purchase goods from elsewhere (Johnson, 2007). Faced with the increased intense competition in the global market, employers must reduce the price of their goods. Then, in order to maximize profits, they must cut workers’ wages and other costs to keep the cost of production at the minimum (Johnson, 2007).

This leads to the increasing amount of sweatshops, where workers’ opinions are constantly suppressed and basic human rights are violated to benefit the employers. Although multinational corporations, like Micklethwait and Wooldridge (2001) argue, may be improving their labor conditions and wages, they are still profit maximizing entities. Therefore, with cheap transportation costs and fewer labor laws, they cannot help but to exploit the cheap labor forces in developing countries to maximize their profits.

As globalization allows outsourcing to occur, Micklethwait and Wooldridge (2001) argue that it “is [not] a zero-sum game” and that foreign investments can lead to economic growth in developing countries and improve the standard of living for everyone (p. 22). This is because, in the economic sense, by increasing foreign investments and exports, the national income per capita, which is equivalent to the standard of living, will increase.

This essentially means that, by definition, developing nations are overall better off being exploited by foreign corporations than if they aren’t. It is true that exports and foreign investment do increase the national income per capita; however, we have to also put into consideration that national income is not necessarily evenly distributed amongst the population. Generally, the majority of the profits go right into the pockets of the owners of the sweatshops and the factories, not the factory workers. In addition, as Meyers (2007) points out, even if the exploitation benefits the exploited individual, it is still considered “morally wrong” (p. 620).

This exploitation is coined as “wrongful beneficence” by Meyers (2004) because these workers gave consent to the treatment only because this option, as bad as it is, is still better than all the other alternatives (p. 324). However, this option is still not the best they can get. If developed countries can pay a bit more for their commodities, rather than encouraging exploitation and the further reduction of prices, both sides would benefit equally (Meyers, 2004).

Developing countries would benefit from this because all workers’ wages would increase and, as a result, the overall standard of living would increase. Meanwhile, the cost of production for developed countries would still be lowered than if the goods were produced at home (Meyer, 2007). On the other hand, this situation is hard to achieve because globalization has opened up a whole market of cheap labor forces where multinational corporations, who want to maximize profits, are able to jump from one developing country to the next easily, in search of cheaper goods to purchase and cheaper labor to exploit.

By creating a tightly linked global economy, globalization also permits developed countries to take advantage of developing countries’ natural resources. Many advocates of globalization argue that it “allow[s] nations to prosper through mutual exchanges rather than solely depending on domestic markets” (Dickerson & Flanagan, 2006, p. 99). In addition, Micklethwait and Wooldridge (2001) argue that this “can improve the lot of everybody by leading to a more efficient use of resources” (p. 22). These arguments may be true; however, this “mutual exchange” does not benefit “the lot of everybody” equally (Dickerson & Flanagan, 2006, p. 99; Micklethwait & Wooldridge, 2001, p. 22).

What we see is that the developing countries play the role as the suppliers of cheap raw materials to developed countries, where the final product is sold at a much higher price. Thus, the majority of the profits go to the developed countries. Facing accusations of environmental destruction by multinational corporations, Micklethwait and Wooldridge (2001) defend globalization by stating that the majority of pollution is “done by local governments, local companies, and even local voters” (p. 17). They also argue that “all business that produces a physical product tends to be dirty;” so, we cannot blame globalization as the cause of pollution (Micklethwait & Wooldridge, 2001, p. 17).

Nevertheless, foreign corporations do play a huge role in the environmental destruction in developing countries. As trade barriers diminish, developing states often have to sacrifice their natural resources and environmental conditions, such as clear cutting trees to provide land for agriculture or lumber, to meet the ever increasing demand for their raw materials. Without the high demands for these materials from developed states, developing countries wouldn’t be required to make hasty, poor environmental decisions to meet that demand. In addition, this exploitation can also stir up political crisis within the developing states.

For example, in order to exploit Nigeria’s rich fossil fuels, multinational oil companies and western governments have been strong supporters of “a series of repressive and corrupt government in Nigeria” (Shah, 2004). This crisis intensified as Shell involved itself in the killing of demonstrators and Chevron provided helicopters that carried Nigerian military troops that opened fire on protestors.

These corporations, and many others, have been strongly criticized for their method of handling the situation in Nigeria (Shah, 2004). So, as globalization open trade barriers, developed countries can also take advantage of the cheap natural resources that developing states can offer, which can lead to increasing environmental and political crisis.

As the world open up to freer trade between nations, international institutions can also aid the exploitation of developing states. Micklethwait and Wooldridge (2001) argue that although it seems as if international institutions have a significant amount of power, “national governments are far more important players in the international order than global institutions” (p.24). However, even if these organizations do not play a huge role in international order, they should still benefit all countries equally, as they were created to do so.

Yet, what we find is that, in reality, developed nations tend to have stronger voices and their national interests are often reflected more in the policies created. A prominent example of such international organization would be the World Trade Organization (W.T.O.), which was created to operate on a “consensus basis, with equal decision-making power for all” (Global Exchange, 2004). Micklethwait and Wooldridge (2001) argue that the W.T.O. is “essentially [just] an arbitration mechanism” where “it deals with issues that clashing governments refer to it” (p. 24). However, the W.T.O. is far more than just an “arbitration mechanism;” it also encourages the global community to follow its set of norms and international laws, which often reflect only the desires of developed nations.

For instance, the W.T.O. disallowed “governments to ban a product based on the way it is produced, such as with child labor” (Global Exchange, 2004). This allows multinational corporations to set up sweatshops and employ child workers without the fear of having its products being banned by certain countries. The W.T.O. has also opened up the international market in many (mostly developing) countries, which allow the production of goods to be outsourced to where “labor is cheapest and most easily exploited and environmental costs are low” (Global Exchange, 2004).

When it comes to the legitimacy of the W.T.O., Micklethwait and Wooldridge (2001) defends it by stating that it is operated by civil servants who “are accountable to national governments” of which the majority “are now democracies” (p. 24). However, the fact that the organization is run by representatives from democratic nations is insignificant, for the organization as a whole is undemocratic. Often, policies were created behind closed doors without the presence of developing countries’ representatives (Global Exchange, 2004).

Even when the representatives from developing countries are present, they are overly outnumbered and their opinions are often ignored (Global Exchange, 2004). Therefore, the W.T.O. allows the developed nations to further exploit developing nations without breaking international law. As globalization continues, international government bodies, influenced by developed states, not only disregard the opinions of developing states, but also promote the exploitation of these states.

While globalization continues to evolve and broaden, Micklethwait and Wooldridge (2001) argue that it is mutually beneficial to all citizens as transportation, information, and communication is more accessible. However, their arguments are not convincing for this growing phenomenon does not benefit all states equally and can lead to the exploitation of developing nations. The diminishing trade barriers between countries has led the developed countries to outsource their production of goods to developing countries where there are fewer health, safety, and environmental regulations and the costs of production are much lower. In addition, heavy global competition has been created by the increasing number of multinational corporations.

This causes developing states to compete with each other by lowering the prices of their goods to lure in foreign investments. This reduction in prices decreases workers’ wages, which in turn leads to the increase in the quantity of sweatshops in developing countries. At the same time, developed countries not only exploit the cheap labor forces of developing states, they can also take advantage of these states’ natural resources.

This not only results in environmental and health concerns, it can also create great political disruption to the nations they invade. Meanwhile, international organizations, with decisions made in favor of developed nations, help, rather than prevent, further exploitation. Overall, the breaking down of trade barriers created by globalization generates a crisis in developing countries as they are exploited for their cheap labor and natural resources, and yet at the same time, have no power to prevent this exploitation due to international policies and foreign influences in their economy.