Not all aspects of globalization exacerbate inequalities and unleash violence and instability. Although globalization and economic integration generated many positive benefits for development and economic change, they have resulted in disparities in developing nations. Technocrats have forced developing countries to liberalize at an unprecedented pace, affecting local industries and small businesses. I argue that globalization and economic integration can reap positive benefits if appropriately managed—where technocrats work with local stakeholders, and the pace of liberalization is decided upon by local stakeholders.
Defining Globalization
To define globalization, I utilize Keohane and Nye’s broader definition. He describes it as the internationalization of the economy, which includes territorially-based exchanges across borders, as well as the globalization of the economy—a process which transcends time and space. For Keohane and Nye, the three conduits of globalization are; exchange, information, and marketization. I will touch upon all three conduits of globalization as described by Keohane and Nye. When “globalization” appears in this essay, it refers to these three conduits.
Dependency Theory
In Vincent Ferraro’s “Dependency Theory: An Introduction,” he argues that the condition of underdevelopment is due to developing countries being coercively integrated into the European economic system as producers of raw materials and serving as repositories of cheap labor. In consequence, developing nations were thus denied the opportunity to market the resources that enabled them to compete with the developed world, highlighting the inequality brought by what Keohane and Nye describe as the first conduit of globalization.
Dependency theorists characterize international capitalism as a force behind dependency relationships. Dependency relationships are characterized by two agents: the dominant, center or metropolitan state, and the dependent, periphery and satellite state. The first agent is the dominant state these are the highly advanced economies characterized by possessing high GDP per capitas. The second agent include the dependent states of Latin America, Asia, and Africa whose GNP per capita rely on the export of a single commodity for foreign exchange earnings.
Dependency theory suggests that alternative uses of resources are preferable to the resource usage patterns imposed by dominant states . For example, one of the prevailing state practices most often criticized by dependency theorists is export agriculture, where many poor economies experience high rates of malnutrition even though they produce vast amounts of food for export. Many dependency theorists would argue that those agricultural lands should be used for domestic food production to reduce the rates of malnutrition.
Dependency theorists rely upon a belief that an apparent "national" economic interest exists, in which each country articulate their interests. In this respect, the dependency theory shares a similar theoretical concern with realism. What distinguishes the dependency perspective is that its proponents believe that this national interest can only be satisfied by addressing the needs of the poor within a society, rather than through the satisfaction of corporate or governmental needs. Trying to determine what is "best" for the poor is a difficult analytical problem in the long run. Dependency theorists have not yet articulated an operational definition of the national economic interest.
Jagdish Bhagwati prescribes one of the most significant counterarguments to Dependency Theory in “In Defense of Globalization.” His central contention is that economic globalization, when properly governed, brings merits and is the most potent force for social good. Bhagwati defines economic globalization as the integration of national economies into the international economy through trade, foreign direct investment by corporations and multinationals, and the flows of technology and human capital. He argues that there is a global trilogy of causes driving discontent with globalization. The first is discontent with capitalism. Bhagwati argues that capitalism fails to address the issue of social justice. These sentiments are grounded on World Trade Organization (WTO) pronouncements, only favoring multinational corporations while failing to address the rights of the citizens in the developing world. Bhagwati prescribes that growth is the principal strategy, but not the only strategy in raising incomes. In utilizing this strategy, Bhagwati argues that it is not a passive trickle-down strategy. Instead, it necessitates an active pull-up strategy which requires a government that would enable infrastructure development and growth—contrary to a laissez-faire hands-off policy.
Technocratic Autocracy
Bhagwati’s approach to growth and poverty is indeed warranted. However, dependency theorists like Ferraro will argue that these strategies are employed by technocrats who prescribe policies without knowing the local context and culture of the countries they are mandating these policies for. William Easterly also explains the notion of the technocratic illusion. Easterly asserts that the conventional approach to economic development ignores the exact cause of poverty. In his analysis, he contends that the technocratic approach ignores the unchecked power of the state against the poor. To dispel Bhagwati's argument, he would argue that the country is complicit in producing inequalities. The technocratic illusion explains that poverty results from a shortage of expertise instead of a scarcity of rights. It is no longer a debate about the market versus the state, as the state is complicit in violating the individual’s rights. By choosing the side of the “market”, the leader of the state still has agency and influence on what a “market” policy is. The state leader can pick and choose whose rights and which types of rights individuals may temporarily enjoy, such as the economic freedom to trade with whom one wishes. These rights are never secure when restraints on state power are absent, or when the principle of equal rights for all individuals in all spheres of activity is not recognized—further explained by his example regarding Uganda. There, improved forestry aimed to solve poverty, however, this was not a viable solution for the Mubende farmers. The illusion that the problem was technical completely disregarded the rights of farmers, further exacerbating inequality. Although the state comprised of elite technocrats are well-intentioned, the country is still able to violate the rights of individuals .
Economic Remedies
Jeffrey Sachs explains one commonly held view of enduring poverty in his book, "The End of Poverty: Economic Possibilities for Our Times." Sachs argues that the Poverty Trap is a cause of economic stagnation. When poverty is extreme, the poor cannot get out of a mess. Thus, to manage this accordingly, Bhagwati recommends a new sub-discipline called Clinical Economics, which requires a guarded prognosis before diagnosing a prescription. Clinical economics remedies economic decline by providing a more nuanced model that avoids a “one-size fits all” strategy. He describes several important clinical remedies or checklists to diagnose the causes of economic decline and formulate the necessary cures: 1) Treat the nature and distribution of poverty as the ultimate cause by looking at commodity price fluctuations and climate shocks. 2) Increase government spending to provide infrastructure development. 3) Consider factors such as physical geography, including transportation, and agronomy—taking into account population density as well as the disease landscape. 4) Address civil rights and corruption through good governance. 5) Take into account cultural barriers such as gender and ethnic divisions. 6) Impede cross-border threats by delving into the geopolitics in the region. By looking at a myriad of factors, policy prescriptions will be able to cure better the malady which Sachs describes as a failed economy.
Another widely held view is the argument that worsening inequality is the inevitable outcome of free-market capitalism—echoed by Thomas Piketty's "On Capital." Piketty argues that the more perfect the capital market is, the higher the rate of return on capital is in comparison to the rate of growth of the economy, and thus the higher the inequality is. The inequality relationship exists if the rate of capital remains permanently above the rate of growth in the economy. One of the solutions provided by Piketty is a progressive global tax on wealth. This tax aims to prevent the transfer of assets to countries without such levies—a global tax would thus restrict the concentration on wealth and place a limit on income flowing to capital. Examples include taxing stocks, bonds, property, and other assets that are not usually taxed until they are sold—allowing the redistribution of tax revenues, and the drop in labor would increase the share going to capital. However, this poses a unique problem caused by the increase in unemployment rates. As Piketty suggests, it is unfeasible to establish a global wealth tax because it reinforces his previous arguments concerning inequality. Mike Collins reverberates this type of inequality in his essay, "The Pros and Cons of Globalization." Here, Collins contends that globalization benefitted multinational corporations and Wall Street, allowing many developing countries access to markets and the ability to export cheap goods and services. Meanwhile, globalization has left out blue and white-collar workers and has caused the “deindustrialization of America. ”
Calomiris argues that globalization alone will not be able to eliminate poverty or oppression. Economic growth is due to what he describes as an outward economic orientation combined with favorable domestic institutions. Cities and countries that discovered the right combination thrived. In his example, he states that Europe surpassed China because of its superior institutions, while China looked inward as government intervention caused market inefficiencies. Calomiris views competition in trade—which allows for gains and capital flows— as a net positive to ensure capital and people move to countries with superior institutions. He asserts that while the flow of labor and capital produced substantial benefits, there has also been potential anti-globalization and anti-liberalization backlash. One of the most significant policy implications of his arguments is that developing countries should indeed open themselves to competition in trade, especially to foreign firms. The theoretical underpinning behind Calomiris’ argument is The Lerner Symmetry Theorem, which states that tariffs or taxes on imports undermine rapid growth in developing countries today and that protectionist policies produce rent-seeking behavior. Thus, he illustrates how governments should invest their money in systems such as education rather than subsidizing import substitution. To further augment his point, Calomiris points out that Japan successfully achieved its first wave of industrialization without tariff protection; thus protectionist policies are not a precondition for growth.
To refute Calomiris' arguments, I take a policy implication of dependency theorists. The market only rewards productivity; however, dependency theorists make a clear distinction between economic indicators such as GDP and GNP versus social indicators, which emphasize happiness and well-being as being more telling of development. For instance, dependency theorists such as Easterly highlight the Myrdal-Hayek contrast, which he describes as the “blindness to rights violations by the colonial autocrats.” Another rebuttal to Calomiris’ argument of opening up developing countries to trade is one put forward by Stiglitz. Stiglitz contends that trade liberalization—as evidenced by the current U.S-China trade negotiation—was set by special interests in the north.
To counter my rebuttal is a view held by Panagariya in her “Miracles and Debacles: In Defense of Trade Openness,” where Panagariya believes that India did not experience GDP growth as high as Korea experienced, due to India’s protectionist trade policy regime. Korea’s open trade policy allowed them to import machinery from abroad, whereas India continued to manufacture out of date domestic machinery. Due to South Korea's success in moving away from import-substitution to outward-oriented trade regime, they were able to open their economies further. Panagariya offers a compelling argument highlighting how trade liberalization leads to the reallocation of resources. Thus, the solution for misallocation of resources is the creation of adjustment programs which will allow for more subtle policy change.
Mischief Managed
Countries seeking to protect themselves from globalization will naturally take precautions to reduce their openness. It is thus necessary to ascribe to globally coordinated regulatory frameworks and bodies. Without the coordinated regulatory agencies, this leaves room for the fragmentation of the economy. This necessitates taking account not just member states in the G20, but rather a more concerted effort to include stakeholders from developing countries. The Washington Consensus led to economic crises in developing countries, as prescriptions tended were limited in scope by mostly employing a “one size fits all” model .
To manage the inherent clash between globalization and domestic social arrangement, Rodrik proposes three solutions. First and foremost, the tension between the global market and national democracy can is manageable by picking two out of three options in the trilemma. The first option is to restrict democracy at the interest of minimizing the transaction cost. The second option is to limit globalization in the hope of building legitimacy at home, while the third option is to globalize democracy at the expense of national sovereignty. Global governance offers limited help in solving these issues because social cleavages and deep divisions within society illustrate that there is not a single model worth emulating.
Despite the discontentment with globalization’s consequences, there are ways to manage discontent for globalization that benefits all. One way forward is to re-write the rules of globalization in ways which are fairer to developing countries. For instance, multilateral organizations such as the European Union can impose costs on other countries by levying taxes to discourage negative externalities. Global standards can be imposed and policed by any multilateral organization, which should set global rules by which all countries must follow. These include the setting of safety standards, labor standards, and financial regulation. Global standards should not favor certain groups. This necessitates membership diversity from all levels of society including interest groups, politicians, farmers, and manufacturers, allowing all voices to be heard — secondly, the imposition of market-based solutions—such as providing information to importers and consumers about logos and labeling—so that consumers will be able to have the information required to make the right choices in purchasing products.
The Way Forward
Globalization mismanaged produces widespread inequalities. Trade liberalization that benefits a few at the expense of developing nations is the perpetuates what dependency theorists call, underdevelopment. Deepening economic and global integration has the potential to help all sectors of the economy, provided that multiple stakeholders who are involved in the negotiating table. Once all areas in society equally establish buy-in, prospects for inequality will reduce. Economic development should never arrive at the expense of social development. As a delegate for Trade in Goods at the Regional Comprehensive Economic Partnership, it is evident that some sectors are still resistant to trade liberalization, particularly the agricultural industry. Protectionist policies only serve to protect local domestic industries from competition. Trade liberalization, when conducted gradually and negotiated by multiple stakeholders, will reap benefits.