Most of the economists all over the world support the notion that globalization should lead to better living standards by increasing access to foreign markets, encouraging positive investments and opening up borders for trade. Globalization refers to the economic process by which there is an increase in the exchange of goods, services, and capital across national frontiers. Globalization, therefore, represents continuously fading socio-economic and cultural borders that exist between nation-states (Boudreaux, 2008). A nation-state is a form of state organization which mostly does not exhibit the tendency to increase their territory. The economic prosperity of a nation state is credited to trade and capital investments.
The important link that exists between globalization and the nation-state is the freedom of a country to remain sovereign. The sovereignty of a state means that the state cannot be controlled by the authority of foreign laws. However in the age of globalization, states are subjected to the limitations of international law (Bhagwati, 2007). Some scholars argue that the national states that are characterized by the divisions in physical and economic boundaries may not be relevant in a world that is globalized.
This paper presents an analysis of works done by Stiglitz and Chang. Stiglitz’s Making Globalization Work gives a summary of some of the problems that are associated with the management of globalization. His work explores the role played by governments in the free markets and their effects by looking at the different elements that constitute current globalization debate such as the World Trade Organization and the World Bank’s role. Stiglitz aim is to find better methods to make globalization beneficial for developing countries. On the other hand, Chang’s work focuses on a critical examination of the Washington Consensus. The consensus is a standard of some set policy recommendations aimed at promoting economic development in developing countries.
Views Expressed in the Texts
Making Globalization Work by Stiglitz
Joseph Stiglitz argues in his book that globalization has failed a larger part of the world’s population that mostly lives in developing countries. People living in developing countries constitute 80 percent of the world’s population while forty percent of this population still suffers from poverty (Stiglitz, 2006).
According to Stiglitz (2006), it is not globalization itself that has contributed to the current economic state but the organization and the management of globalization. His argument is based on the institutions that are given the responsibility of managing globalization, that is, the International Monetary Fund, World Trade Organization, and the World Bank. These agencies have worked in favor of developed nations than developing nations. Developing countries continue to remain poor while these organizations continue to place profits ahead of other important considerations such as environmental health and better living standards.
In the first chapter, Stiglitz analyzes the complexities that are associated with globalization considering the international flow of knowledge and ideas. These include sharing of cultures, global environmental movements, and global civil societies. Governments in developing countries remain in jeopardy as they cannot take social insurance programs (Stiglitz, 2006). Complexities also arise from the environment created by globalization as it encourages the American model of the market economy. Stiglitz concedes that Africa still suffers from the brunt of imperialism as the forces of globalization highly exploit it from as far as the colonial era.
Stiglitz also criticizes the World Bank’s and the International Monetary Fund’s (IMF’s) conservative economic policies which he blames for the discredited models of market fundamentalism. He discusses the emergence of market fundamentalism under the Washington Consensus. The attached lending conditions and economic policies have proved to be counterproductive to developing countries that seek international aid. These lending conditions may at times undermine the sovereignty of those states (Bhagwati, 2007). Sometimes, the requirements for such assistance may be accompanied by spending cuts, massive privatization, lower import tariffs, and exposure to volatile foreign capital. Stiglitz goes ahead to state that most of the countries that have followed the advice and the strict conditions have failed in most cases in their efforts at maintaining economic stability.
Moreover, the United States has too much influence on the whole system. For instance, the US has the veto power assigned to it by the IMF due to its economic size. The US president also has the authority of appointing the president of the World Bank. This lock of power is what Stiglitz refers to as the Washington Consensus. The result of these is a system that accounts more for the developed countries at the expense of the developing countries which they have a significant role to protect.
Kicking away the Ladder: Infant Industry Promotion in Historical Perspective by Chang’
Ha-Joon Cheng looks at economic history as the basis with which he criticizes the Washington Consensus. According to Chang (2003), consensus stipulates that if developing countries are to achieve better economic performance, then there is a need for them to acquire some specified good institutions and good policies. Good policies are things like liberty in trade and investment, favorable macroeconomic policies, and deregulation (Chang, 2003). On the other hand, good institutions are a composition of the independent central bank, democracy, and transparency in all financial institutions.
The paradox presented by Chang is that even though current high-income countries want developing countries to follow some policies in climbing the economic ladder, they themselves did not use such systems. Therefore, Chang argued that developed countries are denying developing countries the opportunity to use the same policies they used in their developmental stage while urging them to adopt democratic reforms (2003). Developing countries are under constant threat from policies that are not effective in their underlying economic conditions. Most of these policies imposed on them are also contrary to their economic interest.
Some disagreements with Chang’s work.
Chang’s notion that infant industry promotion has been the basis with which development has taken place in most countries, and not making available such policies to developing countries has reduced their capability for economic development may be wrong. It is not entirely true that infant industries serve as the basis for economic development. On the other hand, developing countries may also have access to such policies without restrictions. Also, Chang’s argument does not vividly clarify the correlation and attribution nature of his approach to development and globalization. Just because some policies were used and their outcomes were good does not always make positive economic results be attributed to such policies in other countries (Boudreaux, 2008). It may be that developed countries were satisfied with these policies as their institutional contexts were broad and conducive to growth.
Looking at the economic growth in the case of the United States, Chang records that there was positive welfare effect of protectionism. However, he does not analyze the different mechanisms by which trade policies affect growth and how such policies may also lead to economic expansion. His argument is not counterfactual in nature as he does not look at the benefits and the costs associated with the infant industry policies.
The sample size used by Chang is small and therefore not entirely representative. He looks at a small portion of the policies of some countries that developed during the 19th century. He leaves out states that failed in their development efforts during the same period. It is important to look at such countries since they might have used the same policies.
However, Chang’s work is important in providing lessons from the past that are important in guiding the formation of different policies today.
Disagreement with Stiglitz work.
Stiglitz does not, however, discuss to a greater extent the colonial and neocolonial exploitation and its role in Africa’s underdevelopment. His argument about imperialism and its role in Africa’s economic growth are also not supported by other extensive evidence. Moreover, the notion of globalization as a dominant factor and a threat to African economies has been challenged by several scholars.
Stiglitz and Chang’s work clearly indicate that globalization has some potential negative effects on developing countries as it favors westernization thereby putting other nation-states at a disadvantaged position in the system as a whole. It has also led to unfair competition with the developed countries benefitting more than the third-world countries. Globalization also forces developing nation-states to examine and use other economic policies imposed on them by developed nations as they argue that such policies present opportunities regarding international commerce (Boudreaux, 2008). Such policies have led to particular challenges on nation-states as they have to deal with foreign influences on their economies. Another result of globalization is the creation of interdependence among countries which has led to imbalances in power due to the differences in economic strengths (Stiglitz, 2006).
The part played by the nation-state has always been regulatory in nature. Even though the role of the nation-state remains unchanged domestically, globalization has led to a new set of international policies. The effects of economic imbalances may result in reduced roles of some states while other states exhibit superiority among the others.
Bhagwati, J. (2007). In defense of globalization: With a new afterword. Oxford University Press.
Boudreaux, D. J. (2008). Globalization. Westport, Conn: Greenwood Press.
Chang, H.-J. (2003). ‘Kicking away the ladder: infant industry promotion in historical perspective’,Oxford Development Studies 31 (1), pp. 21-32.
Stiglitz, J. (2006). Making Globalization Work (New York: Norton), pp. 74-81, pp. 103-117.
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