INTRODUCTION TO GLOBALIZATION AND

DEVELOPING COUNTRIES

Nicolas FOUCRAS PhdUniversity TEC de Monterreynicolas.foucras@itesm.mx

Concept of Developing Countries

• There is no consensus: There is no established convention for the designation of "developed" and "developing" countries

• Characteristics commonly recognized:• Underdeveloped industrial base (predominance of

agriculture or basic industry with low productivity => low wages)

• Low life expectancy• Low education level according to the international criteria

established by OECD* => controversy because they are elaborated according to an historical and cultural occidental perspective

• Poor people expressed in GDP per capitaÞLow Human Development Index (HDI)

*OECD• Organization for Economic Co-operation and Development• International economic organization (IO) of 34 countries• Founded in 1961 to stimulate economic progress and world

trade => supports other IOs as IMF, WB or WTO• Forum of countries committed to democracy and the market

economy• It provides a platform:

• to compare policy experiences• To seek answers to common problems• To identify “good practices” (interpreted as such by USA and Europe)• To formulate recommendations (education, energy management, economic

development, fiscal policy…)• To coordinate domestic and international policies of its members

• From the MINT Mexico and Turkey are members but not Nigeria and Indonesia (BRICS are not members but there is relationship)

• It has been taking a huge importance after 2008 crisis

Source: OECD 2015

• Whitman: DCs are in transition from traditional lifestyles towards the “modern lifestyle” which began to be developed in the Industrial Revolution (18th centuries)

• The term is criticized among DCs because it implies inferiority and because the criteria are coming from occidental/European history and paradigm

Þ It assumes a desire to develop along the traditional Western model of development

ÞBRICS say that ICs do not have the monopoly of what is “development”, “progress” or “modernity”

• Interesting point: Since the late 1990s DCs tended to have higher growth rates than ICs

Evolution of GDP: ICs Vs DCs

Source: OECD 2014

ICs

• There is not any recognized/official index to qualify these countries

• However we qualify as ICs:• USA• UE (28 countries)• Canada• Australia• New-Zeland

• Most of them are part of the G7 (hard core of the G20); during the 1990s and 2000s Russia was part however it left the group due to its rapprochement with the group of BRICS

• In the actual international panorama ICs tend to attract many factors: financial capital (through stock markets), technological investment or people (migration with dramatic situation)

• Because they are part of the ICs, these countries are expected to take responsibility regarding global challenges (to protect the common global properties): • to take measures to reduce global warming, • to intervene to maintain peace where there are regional tensions, • to preserve the proper functioning of the economy and finance, • to recue the economy after 2008 crisis, • to help DCs to consolidate and to integrate globalization…

ÞMany emerging countries do not want to be considered as ICs (Foucras 2015)

ÞThey do not want to assume these costly responsibilities; China, Russia, India…

Þ They are not very committed with international challenges

We often make the difference between Newly industrialized countries (NICs or advanced developing countries or emerging

countries) and Least Developed Countries (LDCs)

NICs

• We refer to economic development : countries that have moved away from an agriculture-based economy into a more industrialized/manufactured and urban economy

• The concept appears in the 1970s and 1980s (Hong Kong, South Korea, Singapore and Taiwan ie dragons)

• Nowadays it includes: South Africa, Mexico, Brazil, China, India, Malaysia, Philippines, Indonesia, Thailand and Turkey (BRICS and MINT)

• There is not any recognized index to qualify these countries: Economists and political scientists disagree over the classification of these countries

LDCs

• The concept of LDCs was created by the UN to orientate international community efforts to promote “development”

• It appeared in the late 1960s and the first group of LDCs was listed by the UN in its resolution 2768

• It was decided under pressure of the “third world”; basically a group of newly independent countries through The United Nations Conference on Trade and Development (UNCTAD) which purpose: to ease insertion of these countries

• The concept meets 3 criteria:

• Poverty (GDP per capita <992USD)• Low HDI (based on indicators of nutrition, health, education

and adult literacy) • Economic vulnerability, based on (1) instability of agricultural

production, (2) instability of exports, (3) export concentration, (4) percentage of population displaced by natural disasters…

• The concept applies to 48 countries

• Only 3 have gradudated to DCs status since the 1970s: Maldives, Cape Verde and Botswana

• There are some countries which meet the criteria for LDC status but they do not want to be included: Ghana, Papua New Guinea and Zimbabwe

Number of developping countries =

All the countries (193 state members in the UN)

- ICs (32 countries)- LDCs (48 countries)

- = 113 countries

Concept of Globalization

• Growing interdependence (Keohane & Nye, 1979), “Turbulence Model” (Roseneau 1990) or “spider web” (Burton and Balaam & Veseth): What happens in a community is the consequence of an event/decision in an other community (Giddens 1996); examples:

• A decision from the FED in USA to increase the interest rate (or a simple rumor) weakens currencies in the DCs (it attracts financial capital invested in DCs)

• The consumption of Chinese products in USA and Europe causes pollution in China

• The consumption of drugs in ICs causes violence and instability in many DCs

• The consumption in ICs of products from DCs tends to increase their price in the country of origin

Ex.: consumption of Mexican avocado multiplied by more than 4 times the price of this product in Mexico…

Chart of the impact of an expected increase in USA of interest rate on some DC’s currencies (between May

2013 and February 2014): value decrease against USDSome consequences for these

countries (Foucras 2015):- More competitive to export;

however:- Increases the national debt

denominated in USD- Increases the price of

important/sensitive imported goods because most of the international trade is uses USD. Ex.: raw materials, food, high technology products => devaluation reduces their ability to develop

Other interpretations

• Globalization is characterized by:

• Increasing interactions between States due to the growing international flows (IMF)

• Strong interconnection among the production systems and the important speed of circulation of the financial capital (Rouquié)

• Internationalization of the economic, political and cultural processes (Saez)

“Process by which the growing communication and interdependence between the different countries unify the

markets, societies and cultures, through a series of social, economic and political

transformations”

(Rosales)

Question is: this growing Interconnection leads to an unique market/economy and one consumer

society?

Many are worried that such situation could have as a consequence a growing gap between inners

(few people) and outers (most of the global population)

Panorama of the concentration in the sector of agro-industry

Þ Tends to destroy small structures imposing a unique way to eat (homogenization of the products we

consume)Þ The problem is that the sector tends to control/set

the prices according to the places with higher purchasing power (it explains the current growing prices for basic products: corn, wheat, egg…) => it

generates an excluding model and tension/violence/migration (the same situation for

water: few companies tend to control more and more)

What explains the consolidation of the economic globalization during the last decades?

1. Technology and Information which led to (Foucras 2015):• Improve work coordination• Accelerate financial operations• Make easiest access to the clients and suppliers• Homogenize work forms, fashions, life styles, social references

and preferences ÞWhich made easier the extension of MNFs Þ It allowed the establishment of efficient structures of economies

of scale, huge cultural structures from USA (Hollywood)…

2. Cost of transportation have decreased significantly

Costs of transportation and communication have decreased => bringing closer the human spaces

Sou

rce:

UN

DP

(19

99),

3. Extension of the Neoliberalism (with support of IMF, WB, WTO, USA and EU) that carried to liberal policies almost everywhere

After 1989/1991 (collapse of the Berlin Wall and Soviet Union): remained as the unique ideology

Purpose of this global paradigm (global order): ÞTo ensure the proper functioning of the international market Þ To eliminate commercial, financial and administrative barriers or

to homogenize decisions and behaviorsÞVery little margin for democracy and social control over the

destiny

ÞWe have seen over the last decades:• A process of synchronization of the national policies• The weakening of the political frontiers

• Few countries have been able to preserve their Welfare State and own legislation/model: they have been able to do it because they count on a strong counter-powers: civil society (ICs) or strong activist government (BRICS)

• Actually it was not so positive for European countries to preserve a strong welfare state (i.e. strong tax legislation) because they suffered outsourcing/delocalization (Unemployment) towards DCs that are willing to sacrifice their tax legislation as well as other normative frameworks

A challenge for the neoliberal model appeared in the last decade : protectionism (States are taking more an more

protectionist measures affecting the global market functioning)

4. Deregulation of international finance (i.e. abolition of the national obstacles) (and the consolidation of Tax heavens) which accelerated the velocity of circulation of the money around the world (“hot money”)

= “financial globalization” deeper than economic globalization

Deepening is a result of the pressure from banking system, MNFs and ICs. Purposes: • To get access to deep financial market to finance public budget as well as investment and (lower interest rates)

• To improve ability to speculate and to generate high profitability

Hard core of the international economy and banking system (done

by a Swiss Research Center)

ETH-Zurich

Consequences (Foucras 2014):

• Concentration of money management (less and less actors) => easiest to set the price (interest rate)

• Concentration of the access to money: ICs, MNFs and richest individuals• For the rest of individuals, small and medium economic

structures and most of DCs and LDCs: lack of access or with a very high interest rate due to their lack of visibility in a global economy

• Few money is invested in the productive economy (stay in the speculative area: “Capitalism casino” Strange): profitablity is higer

ÞEmploymentÞMany say that globalization is not servind human interests

but financial interests

5. MNF and FDI (Foreign Direct Investment)

Organized the specialization of the countries (division of the global work; “spider web”) which

led to the growing interdependence:

• ICs specialized in high value added and services activities: • it generates important gains from international trade

• but it does not create many employment

• DCs (emerging countries BRICS & MINT) specialized in manufacturing sector and labor intensive activities with very low costs of production (including wages) and low-skilled jobs (Martin: sub-primarization):

• it generates relatively important gains (macroeconomic success) because they turned to be export-oriented economies

• But it affects the consolidation of the economy, society and policy. Reasons: this specialization • Creates huge gaps in the society due to the vertical structures

imposed by the manufacturing sector • Weakens the national legislations due to the desire to maintain

low costs of production => high risk for pollution and violence

• Unless we have an active/strong authority promoting redistribution or industrial upgrading and imposing rules to the global actors

• LDCs specialized in natural resources; it generates low gains and high instability (submitted to violence and migration)

MNFs are looking for competitiveness => have consolidated the worldwide interdependence web

=> They have built up global value chains which includes “the full range of activities that are required to bring a product from its conception, through its design, its sourced raw materials and intermediate inputs, its marketing, its distribution and its support to the final consumer” (ICIMOD 2014)

ÞThis strategy has built Global economies of scale (global perspective in terms of suppliers) that reduced costs of production, distribution and adaptation

ÞConsequence: Growing interdependence between political, social and economic spaces

Global value chain to obtain a 787 (fragmentation of production)

ÞWhen Boeing is wining it does not mean that USA are wining

ÞChange completely our way to analyze the world (globalization break the traditional way: thinking on terms of States)

6. International Order/architecture/institutionalization (IMF, WB, WTO, UN, OCDE, Forums like Davos or G20 or G7, etc.)

• It allowed to ensure mutual trust, lower conflict probability, predictability and stability, coordination and cohesion

• Critics: compare to many governments, there is not any social participation in the global governance (only elitist)

Þ Disconnection decision-making Vs social/local dynamics

Þ Top-down (it is not “constructivist”)

As a consequence:

This governance turned to be technical, bureaucratic, cold, impossibility to take into account changes and understand problems. Furthermore: fossilization of the framework (still functioning as was the situation after WWII => privileging ICs)

=> Many academics propose to reform (Stiglitz, Sen…)

• The effectivity/stability of the international system was due to the fact there was an hegemonic order (i.e. power that guarantees the proper functioning of the international market but at the same time imposes its own cosmovision i.e. world view)

… with an hegemonic currency used by all

=> it has eased trade (used for around 60% of the global trade Vs 20% for euro)

• USA appeared to be a global “stabilizer” or “regulator” after WWII

• Furthermore, we have to consider that the occidental and technical governance (FMI, OCDE…) pressured DCs to integrate the global economy through its actions/programs (with total respect towards established international rules) getting access to some privileged/rewards (credit or aid for development)

Countries with an arrangement with the IMF in 2004

7. Regionalism or “regional integration” favored globalization because:

• It has allowed to speed up interdependence between countries at least at a regional level (actually intraregional trade in very different ICs Vs DCs)

• Most of the process are based on “open regionalism” i.e. the block purpose is to ease the insertion in the globalization for the members (Association of South East Asian Nations [ASEAN],, Pacific Alliance, Southern African Development Community [SADC], Andean Community, Mercosur….)

=> Regionalism = 2nd best

Very low intra-regional trade among african

countries (13%)

Some problems of this globalization process as we described it

A major problem is that policies escape more and more the States/Societies control:

• It is due to the consolidation of international organizations and the asymmetric power with huge private transnational actors (even criminality)

Þinterference in the national decision making process

• Saez: States/societies are losing sovereignty due to the presence of powers and dynamics that exceed the State

• DCs suffer more than ICs: “weak states” face more pressure from IO and MNFs or Banks due to the asymmetric situation

Consequences of the “divorce” between government and society in many countries:

• This situation explains the growing distrust towards public authorities in many DCs due to the:

• Incapacity of the State to resolve internal problems (lack of public resources)

• Interest of many States to respond first to expectations from (a) international actors more than (b) domestic actors (a: generate rewards in terms of macroeconomic indicators [but generally] without social benefits; b: develop solutions outside the direct relation with the State => they do not bother the public administration)

• We see more and more State-society tensions (LAC; African countries; even ICs: Greece, Spain…) and violence expressed through • Migration• informal economy which is a short-term solution• Transnational Criminal Organizations (TCO) which offer employment and basic

services to many people, etc.

• More and more people solve their everyday problems outside the framework of direct contact with the authorities ÞWe see more and more initiatives coming from the society (parallel

globalization): “fair trade”, creation of local currencies, microfinance, informal economy …

ÞWB is more and more interested by these creative dynamics (above all in DCs)

• NGO, civil associations or churches are in charge of more and more problems (new global actors)

Other problem of the current globalization: individualism and the breaking down of the social

fabric (even family links)

• We witness a process of standardization of the cultural symbols, meanings, ideas and political practices (Clark 1997) (shopping centers, airports, fast-foods, way to dress and to eat, expectation from the life…)

Þ Identities tend to vanish (Vite) which affects in a very worrying way the “social fabric”

Þ Increase the probability for violence

It is even more difficult for DCs to tackle this problem: lack of resources to consolidate counter-powers (Nigeria or India developed a strong movie industry to preserve their own values)

• Individualism is privileged by neoliberal globalization to boost (1) consumption and (2) production

(1) Ex.: it is more interesting for the proper functioning of the market that everyone buys a car than to have just one car per family

(2) More we have a competition between each other more efficient will be the market. We are inserted in a context which encourage the “struggle of everyone against everyone” to ensure a proper functioning (Bourdieu)

Þ People feel lonely and seek refuge in the materialism

Þ Vicious circle (individualism → accumulation and materialism → individualism….): this model is hardly sustainable for human race (the improvement of the market efficiency tends to affect the happiness index)

• Finally, globalization (over the 3 last decades) has been built on the search of absolute competitiveness and profitability (Rosales 2009) in detriment of the individual and the environment

• Sen: Nowadays public and private decisions are more favorable to the market than the human

Competitiveness and consumer society leads to:• The dehumanization of relationships (the other is considered as an object and not a subject)

• A growing gaps/violence between human beings and between human dynamics and environment