To what extent is trade and investment liberalisation producing convergence in the world economy?(1,500 word count) ubaad Mohamed-
The number of those who experience extreme population has been reduced, during recent decades. Chen and ravallion, noted that ‘1/3 of the population of the world lived in poverty in 1981, whereas the share was 18% in 2001’(2004). Economists claim that the transformation from mercantilist-state economy to greater openness generated from liberalisation in investment and trade. This silicified a universal consensus that economic openness is beneficial as it will produce convergence. This claim is due to economic growth of china and India which hosts a large population of the world population. Nonetheless, McKay, claims ‘there are considerable differences between countries and regions’ of those liberalised, as East Asia is converging with industrialised countries, whereas Africa is behind. Industrialised development has been imperative for economic growth and the liberalisation of trade and investment has significance in asserting convergence. Nevertheless, the selectiveness of states taking advantage of this economic growth, demonstrates that there’s no simple answer. In this essay I will explore this argument, section 1; will define convergence, section 2; will investigate global governance contribution to convergence/divergence, section 3; trade liberalisation policies on gender-inequalities, and final section; will conclude the argument.
The relationship between convergence and economic growth have been intersected in the dialogue of the world economy, as this is pivotal to establish the categories of the developed/developing/undeveloped. The neoclassical growth models defined the term as;
‘the growth rate of per captia income of an economy is inversely related to its starting level of per captia income. Thus, poor economies tend to catch up with the rich ones, in other words there is a tendency for convergence in level of per captia income across economies in the long run’
This definition derives from neo-liberalisation, which centres on ‘individuals’ economic interest and competition in the self-regulating free market’, listed by Smith. This incorporates limited-state interference in the market, promoting ‘liberalisation, privatisation and deregulations. This activated the roles of IMF and the World Bank, which extends this knowledge, allowing the market to work freely, as ‘the market knows best’. Re-established of Smith’s bid ‘that the private interests and passions of men are guided by the invisible hand to the maximization of the social good’. Rephrased, humans are linked whereby, individuals surpass their self-interest, to achieve both the societal and individual fulfilment, which funded to the conceptualisation of convergence in the world economy. Subsequent from international free trade based on specialisation firm by the division of labour; ‘exchange goods you can produce for those you cannot’, meaning specialisation as a driver of economic progress and efficiency’. Berstein, accuses that this is ‘a refashion of colonisation’, as the role Foreign Direct Investment headed by MNC extract surplus from developing countries, through SAP invoking liberalisation, yet Somalia is still a ‘failed state’. Johnson, concludes ‘a catching-up rate of 2%……rate of convergence’ though, this might also be defined as a ‘statistical artifact'. This creates ambiguity in the world economy, as anti-capitalists fail, as there’s evidence of poverty reduction, although assertion that liberalisation will bring benefits, is misleading, as there’s massive inequalities. Hence, the application of the concept of convergence is dependable on location and time, so there’s no simple answer.
This trend of liberalisation, Burbach and Robison, claim ‘worldwide convergence’ as the structural division between ‘the first and third worlds’ has reduced. Follow-on from ‘providence had linked mankind by a chain of reciprocal needs which made impossible, a priori, any clash of economic interests’, affirmed by howard. This lined the Bretton wood system, succeeding for an international financial system, setting prospects for economic growth for developing countries. In this regard, global governance supplies to safeguard flow of capital, as against to state working for the interest of the elites, not for all. This institution reformed the configuration of power as states credit-regulations have lessened, validating the shift from mercantile system to convergence. An overarching governance is essential to overlook the market, in a non-basis standpoint. The General Agreement on Tariffs and trade, ‘a provisional arrangement’ has shown prominence in this, after the blockade of the international trade agreement. A US mercantilist response, to protect national-interest of the agriculture sector, as ITO would have interfered. This is problematic, as Latin American producers have the land/resources to obliterate the US-agricultural production, hence mirroring the power relations on the international playing-field. Keynes, is critical of these models, as it assume perfection, as the differences of the countries doesn’t fit with the model.
A core of the GATT is ‘non-discriminatory’, supported by ‘the most favoured nations principle which ensures fair treatment of import products from one member of country from another, that apply same tariffs’. Nonetheless, the free trade agreement is an exception to this principle, resulting from the coal-steel agreement, between France and Germany allowing special trading relationship, whilst excluding others. This legitimised with the idea of furthering liberalisation through FTA, moving towards achieving a free trade system, deriving from various and countless FTA, which will push for a freer trade, for a convergence.
Additionally, the WTO in itself is contested, as the failure of Doha agreement has displayed that FTA are seen more beneficial, surpassing WTO, as big countries play off smaller countries. Chang, has labelled the institutions in ‘kicking away the ladder’, exclaiming the notion of ‘do as I say not as I do’ by the IMF bank. This enforces SAP policies on developing countries to open up in the agricultural sector, whilst permitting the OCED countries to protect theirs. ‘Indonesia’s agriculture-related businesses…who grumble that the flood of imports is hurting them most, as food imports have been growing’. Similarly, since the erosion of comparative advantage owing to trade liberalisation has made ‘it difficult for apples from the mountain areas of India to compete in the domestic market with imports of apples from developed countries’. This proves Stiglitz report, OCED ‘pretending to help developing countries by forcing them to open up their economies while keeping their own economy markets protected’. Alongside, ‘the north-south economic models’, Prebisch-singer thesis, arguing that the international trade faultily assumes ‘international asymmetry in levels of economic development between northern and southern hemisphere’. This displays convergence from WTO policies is dependable on location, meaning the answer isn’t simple.
‘The Heckscher-Ohlin factor proportions model predicts that when different economies open to trade, unskilled wages should increase in less skilled labor abundant economies’. Ohlin, fails to comprehend that the effects of economic activity have a variance outcome between genders, as policies are made by men to favour men. This is recognised in the liberalisation of trade and investment as feminist economics emphases on economic power, evaluating the differential between genders within, amid countries and ‘gender intersects with other sources of disadvantage’. Comparably, ‘trade has gender-differentiated effects’ explained by Aguayo‐Tellez, as the formulation of policies echoes the historical patriarchal-thinking producing women inequality.
Balakrishan and Elson noted, the element of non-discrimination within the WTO, differs from the human rights due to HR’s allowing ‘positive discrimination for the vulnerable’. In WTO, this is regarded as state-to-state special relationship of OCED to developing countries. This decree falls to adhere state intervention to support marginalised groups involved in competition, investment and services. This allows further subjection of women in poverty with ‘the Bangladeshi garment industry generates 80% of the country’s total export revenue. However, the wealth generated by this sector has led to few improvements in the lives of garment workers, 85% of whom are women’. These factories are run by men, which makeup ‘70% of the parliament’, that have investment in these companies, hence showing Bangladesh trade policies are set up to benefit the men in society. The UNCTAD has reported that ‘by looking at the direct effects of exports on women's employment structure as well as the effects of imports on women's consumption patterns and government spending(revenue-effect), shows that women are not benefitting equally in the gains from trade’.
Although suleymenovam, argues that liberalisation can produce convergence, as it pushes for more investment in sectors. For example; in Penang, the negative connotation attached to MNC, should be revisited, as this has helped women in Penang significantly. MNC ensured better working conditions in comparison to those women who don’t work in MNC. This expresses that liberalisation has a differential effect, on women defined on location, therefore there is no simple answer.
In conclusion, this paper has shown convergence in the liberalisation of trade and investment has been dependent on location and time, thus there’s no general in-line of world economy. It should be noted that state-led china is becoming less liberal in line with its economical succession. This denounces Fukuyama ‘emergence of universalisation of western liberal democracy as the final form of human government’. The extent of convergence has been due to agencies of MNC being freer. Currently, there’s divergence, countries becoming protectionists as there is a growing sense of populism, thus the global governance has lost capability of balancing power, which means the world economy will be going through a major transformation, another recession.