exposing the myths of global is at ion

8/6/2019 Exposing the Myths of Global is at Ion

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Exposing the Myths of Globalisation

Globalisation like free trade is considered a natural historicalprocess, which has evolved into its current form due to theinterconcectness of the world that has made national bordersirrelevant. In economic terms, globalisation refers to thegrowing integration of the world, as trade, investment andmoney increasingly cross international borders. Economic"globalisation" is always described as a natural historicalprocess, the result of human innovation and technological

progress. For this to work all barriers to the free flow of finance and trade requireremoving so the world acts as one global village.

Pro-globalisation thinkers argue Globalisation has been a centuries long process. Earlierforms of globalisation existed according to them during the Mongol Empire, when therewas greater integration along theSilk Road. Global integration continued through theexpansion of European trade, as in the 16th and 17th centuries, when the Portuguese andSpanish Empires reached to all corners of the world. Globalisation became a businessphenomenon in the 17th century when the first Multinational was founded in TheNetherlands. During theDutch Golden AgetheDutch East India Companywas establishedas a private owned company. Because of the high risks involved with the internationaltrade, ownership was divided withShares. The Dutch East India Company was the firstcompany in the world to issue shares, an important driver for globalisation. Liberalisationin the 19th century is often called "The First Era of Globalisation", a period characterised by

rapid growth in international trade and investment, between the European imperialpowers, their colonies, and, later, theUnited States.

The termglobalisation was coined in order to describe the activities of the large Americancompanies in the mid-1990s. The end of the cold war put the US in a conundrum; RonaldReagon funded the arms race with the USSR from influential financial circles around theworld. With the collapse of the USSR the inflow of such large sums of money resulted in therise of the dollar relative to other currencies resulting in an expensive dollar that in turnmade the climate for US multi-nationals to export their goods virtually impossible. UScompanies found it too expensive to maintain a competitive position overseas when it wascosting them so much making the products at home. Hence cheaper foreign markets had to

be found.

During Bill Clinton's reign, Congress agreed to the NAFTA (North America Free TradeAgreement), which eventually George W. Bush signed, with Canada and Mexico. Theagreement enabled American and Canadian companies to manufacture whatevercommodities they wanted to in Mexico, where the workers' wages are extremely low, andsell them in American and Canadian markets.
http://www.khilafah.com/index.php/the-khilafah/economy/575-exposing-the-myths-of-globalisationhttp://en.wikipedia.org/wiki/Silk_Roadhttp://en.wikipedia.org/wiki/Silk_Roadhttp://en.wikipedia.org/wiki/Silk_Roadhttp://en.wikipedia.org/wiki/Dutch_Golden_Agehttp://en.wikipedia.org/wiki/Dutch_Golden_Agehttp://en.wikipedia.org/wiki/Dutch_Golden_Agehttp://en.wikipedia.org/wiki/Dutch_East_India_Companyhttp://en.wikipedia.org/wiki/Dutch_East_India_Companyhttp://en.wikipedia.org/wiki/Dutch_East_India_Companyhttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Dutch_East_India_Companyhttp://en.wikipedia.org/wiki/Dutch_Golden_Agehttp://en.wikipedia.org/wiki/Silk_Roadhttp://www.khilafah.com/index.php/the-khilafah/economy/575-exposing-the-myths-of-globalisationhttp://www.khilafah.com/index.php/the-khilafah/economy/575-exposing-the-myths-of-globalisationhttp://www.khilafah.com/index.php/the-khilafah/economy/575-exposing-the-myths-of-globalisation


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The setting up of production facilities in a foreign country making use of the cheap labour,with very little labour laws and often-outright abuse was termed globalisation. Henceglobalisation is merely a cover for the industrialised world to use cheaper productionfacilities of the third world when their own markets are too expensive.

There are a number of other myths to globalistaion which are outlined below.

1. Globalisation reduces poverty

Since the 1960s, the prevailing theory of economic development has been the opening ofmarkets to global compitition and the exporting of goods known as modernisation theory,The Asian tiger economies of China, South Korea, Taiwan, Singapore and Hong Kong areheld as successful products of the theory, advocates of this theory maintain that

industrialisation and the diffusion of liberal economic ideas would transform traditionaleconomies and societies. These influences would place poor countries on a path ofdevelopment similar to that experienced by Western industrialised nations during theIndustrial Revolution. However very little has changed, consider the following: Poverty isthe state for the majority of the world's people. 3 billion people in the world live on fewerthan two dollars a day, another 1.3 billion people live on less than one dollar a day; thethird world owes over $1.2 trillion in debt, 1.3 billion have no access to clean water; 3billion have no access to sanitation and 2 billion have no access to electricity. Thedeveloping world now spends $13 on debt repayment for every $1 it receives. The thirdworld has 75% of the world's population, however it consumes only 20% of the worldsfoodstuff and minerals and accounts for around 7% of global trade.

The World Bank and IMF have been at the forefront of implementing liberal policies, whichis meant to remedy the situation. However their structural adjustment policies haveensured Africa remains impoverished and its people are unable to even live beyond 5 yearsof birth in some parts. The basic assumption behind structural adjustment was that anincreased role for the market would bring benefits to both poor and rich. This is built uponthe classical economic theory that the market allocates resources better, in the Darwinianworld of international markets, the strongest would win out. This would encourage othersto follow their example. The development of a market economy with a greater role for theprivate sector was therefore seen as the key to stimulating economic growth.

In perhaps the most comprehensive study of poverty to date to date, Scorecard onGlobalisation 1980-2000, Mark Weisbrot, Dean Baker and other researchers at the Centrefor Economic and Policy Research documented that economic growth and rates ofimprovement in life expectancy, child mortality, education levels and literacy all havedeclined in the era of globalisation (1980-2000) compared to the years 1960-1980. From1960-1980 many countries maintained protectionist policies to insulate their economies


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from international markets in order to nurture their domestic industries and allow them tobecome competitive. Those policies are the same ones on which US economic prosperitywas built.

Hence this survey is very clear that Globalisation was the direct cause of poverty for the

third world, the free market in no way helped alleviate poverty, so any continuation ofliberal economic policies in the third world will result in the poor getting poorer.

2. Free Markets are the only means for allocating resources efficiently

Free markets have a proven record of ensuring the rich get richer and the poor get poorer.This was confirmed in December 2006 which saw the culmination of a global study - fromthe World Institute for Development Economics Research of the United Nations. Some of itsfindings are staggering; by gathering research from countries all over the world the study'sfindings concluded that the richest 1% of the world owns 40% of the planet's wealth andthat only 10% of the world's population owned 85% of the world's assets.

Richard Gobbins in his award winning book Global Problems and the Culture of Capitalism'

confirmed this, he said "The emergence of capitalism represents a culture that is in manyways is the most successful that has ever been deployed in terms of accommodating large

numbers of individuals in relative and absolute comfort and luxury. It has not been as

successful, however, in integrating all in equal measure, and its failure here remains one of its

major problems."

The disparity in wealth allocation is not just a phenomenon in the developing world butrather a huge problem even the developed world suffers from. This was highlighted in a2005 report by Harvard in which it was calculated that 60% of earned income in the USwas by the top two highest earning brackets. This means the majority of people in the USonly received 40% of income that was generated.[1] Similar to the US is the UK where thewealthiest own 25% of the nation's wealth but the poorest, which is half of the UKpopulation, they share in only 5% of the UK's wealth.[2] The UK's richest 10% have morethen 50% of the nation's wealth.

3. Globalisation requires the removal of trade barriers, which inevitably leads to

development

The world's industrial nations have used the cloak of globalisation to protect there owneconomies from any foreign competition whilst the developing world is forced to leavethem open in the name of globalisation.


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In reality all the crisis in the last two decades were a direct result of economies beingliberalised (left open) due to globalisation and the problems were compounded due to theeconomies of the nations concerned being unable to control the flow of wealth due toglobalisation, a few examples prove this: -

- Argentina was considered by the IMF to be a model country in its compliance topolicy proposals by the Bretton Woods institutions; however it experienced a catastrophiceconomic crisis in 2001, which was caused by IMF-induced budget restrictions - whichundercut the government's ability to sustain national infrastructure in crucial areas such ashealth, education, and security. The IMF intervened to ensure its loans would be repaid andenforced a set of liberal reforms in order that Argentina integrates into the global economy.Argentina was ordered to structurally change its economy to concentrate on exports inorder to raise enough money to pay off their debts. It was also forced to remove all barriersto foreign trade and foreign capital. What Argentina witnessed was a speculative attack onits currency by large finance houses who wanted to make a killing on the peso; this was

easily achieved as Argentina had removed all restrictions on capital flight in order to bepart of the globalisation movement. Argentina was unable to stop capital flight as suchtools where abandoned on behest of the IMF. In December 2001 on the verge of economicmeltdown Argentina defaulted on its $93 billion debt.

- The fall of communism in 1990 and the break-up of the Soviet Union represented awonderful opportunity for capitalist institutes to transform a huge centralist economy to amarket orientated one. A total of $129 billion poured into Russia with the IMF and theWorld Bank implementing a number of its development schemes. The Russian economywas opened to foreign investment and industry was sold to foreigners leaving the country

vulnerable to swings in world prices. In 1997 due to a loss on confidence in Russiaspeculators begun to withdraw their money and Russia couldn't even defend itself asliberalisation required there to be no restrictions on capital flow. The crisis raised povertyfrom 2 million to 60 million, a 3000% increase. UNICEF noted that this resulted in 500,000'extra' deaths per year. Russia is a clear example that globalisation directly allowed thecrisis to reach the peak it did.

- By 1997, Asia attracted almost half of total capital inflow to developing countries.The economies ofSoutheast Asiamaintained high interest rates attractive to foreigninvestors looking for a high rate of return. As a result the region's economies received a

large inflow ofhot moneyand experienced a dramatic run-up in asset prices. At the sametime, the regional economies ofThailand,Malaysia, Indonesia, thePhilippines, Singapore,andSouth Koreaexperienced high growth rates, 8-12% GDP, in the late1980sand early1990s. This achievement was broadly acclaimed by economic institutions including the IMFand World Bank, as the Asian economic miracle. But then the story turned sour.From 1985 to 1995,Thailand's economy grew at an average of 9% per year. In May1997,theThai bahtwas hit by massive speculative attacks as investors tried to cash in on theirmoney. By withdrawing their cash in large sums the currency collapsed, this set of a
http://en.wikipedia.org/wiki/Southeast_Asiahttp://en.wikipedia.org/wiki/Southeast_Asiahttp://en.wikipedia.org/wiki/Southeast_Asiahttp://en.wikipedia.org/wiki/Hot_moneyhttp://en.wikipedia.org/wiki/Hot_moneyhttp://en.wikipedia.org/wiki/Hot_moneyhttp://en.wikipedia.org/wiki/Thailandhttp://en.wikipedia.org/wiki/Thailandhttp://en.wikipedia.org/wiki/Thailandhttp://en.wikipedia.org/wiki/Malaysiahttp://en.wikipedia.org/wiki/Malaysiahttp://en.wikipedia.org/wiki/Malaysiahttp://en.wikipedia.org/wiki/Philippineshttp://en.wikipedia.org/wiki/Philippineshttp://en.wikipedia.org/wiki/Philippineshttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/1980shttp://en.wikipedia.org/wiki/1980shttp://en.wikipedia.org/wiki/1980shttp://en.wikipedia.org/wiki/Thailandhttp://en.wikipedia.org/wiki/Thailandhttp://en.wikipedia.org/wiki/Thailandhttp://en.wikipedia.org/wiki/1997http://en.wikipedia.org/wiki/1997http://en.wikipedia.org/wiki/1997http://en.wikipedia.org/wiki/Thai_bahthttp://en.wikipedia.org/wiki/Thai_bahthttp://en.wikipedia.org/wiki/Thai_bahthttp://en.wikipedia.org/wiki/Thai_bahthttp://en.wikipedia.org/wiki/1997http://en.wikipedia.org/wiki/Thailandhttp://en.wikipedia.org/wiki/1980shttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/Philippineshttp://en.wikipedia.org/wiki/Malaysiahttp://en.wikipedia.org/wiki/Thailandhttp://en.wikipedia.org/wiki/Hot_moneyhttp://en.wikipedia.org/wiki/Southeast_Asia


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domino affect where financers lost confidence in the region and began moving their moneyout in large sums leading to the infamous Asian financial crisis. The only country in theregion to survive the fall out was Malaysia as it was not under the control of the IMF'sstructural adjustment program and had placed restrictions on capital withdrawal from itscountry which meant speculators could not affect the country. The rest of the region left

their economies open hence they were unable to do anything when speculators withdrewtheir capital, thus proving globalisation was the problem. This problem was aptlyencapsulated by Economic expert Paul Krugman of Princeton University "As long as capital

flows freely, nations will be vulnerable to self-fulfilling speculative attacks, and policymakers

will be forced to play the confidence game. And so we come to the question of whether capital

should really be allowed to flow so freely."[5]

- Turkey in 2001 faced the brunt of the IMF's globalisation policies as US investorswithdrew large amounts of their capital. Turkey was ordered to peg its currency to the USdollar, a peg works on the basis that a currency is linked to another currency by ensuringthe exchange rate remains within agreed bands on the open market. If the currency moves

out of the bands then the government would literally sell or buy currency to bring it withinthe bands. As investors scrambled to buy foreign currency, the Turkish central bankreached the point where it could no longer support the exchange rate, hence it abandonedit and was about to default on its loans. The peg to the dollar was realistically neversustainable and by liberalising the economy it was only a matter of time before foreigninvestors cashed in and moved out. The currency peg, which controlled the movements ofthe lira, was the centrepiece of the IMF-backed financial reform package designed forTurkey. By removing restrictions on capital flight Turkey was unable to defend itself. Akyzand Boratav, well-known economists from Turkey (Akyz is Director of the UNCTADDivision on Globalisation and Development Strategies and Boratav is Professor ofEconomics at the University of Ankara) at the time commented, "In many respects the

Turkish economy today is in a worse shape than it was on the eve of the December1999 stabilization programme." They went on "the policies advocated were based ona poor diagnosis of economic conditions in the country and the Fund was

experimenting with programmes that lacked sound theoretical underpinnings."

1 David H, K Lawrence, Kearney M, The Polarization of the U.S. Labour Market,' Harvard

University and NBER, January 2006, site accessed 3rd Nov 2006,

http://post.economics.harvard.edu/faculty/katz/papers/akk-polarization-nber-txt.pdf

2 Carvel J, Super-rich have doubled their money under Labour,' The Guardian, December 8th2004,Site Accessed 3rd Nov 2006,http://society.guardian.co.uk/socialexclusion/story/0,11499,1368919,00.htmland HMRC\distribution of personal wealth', site accessed 3rd Nov 2006,http://www.hmrc.gov.uk/stats/personal_wealth/13_1_delay_mar06.pdf
http://post.economics.harvard.edu/faculty/katz/papers/akk-polarization-nber-txt.pdfhttp://post.economics.harvard.edu/faculty/katz/papers/akk-polarization-nber-txt.pdfhttp://society.guardian.co.uk/socialexclusion/story/0,11499,1368919,00.htmlhttp://society.guardian.co.uk/socialexclusion/story/0,11499,1368919,00.htmlhttp://www.hmrc.gov.uk/stats/personal_wealth/13_1_delay_mar06.pdfhttp://www.hmrc.gov.uk/stats/personal_wealth/13_1_delay_mar06.pdfhttp://www.hmrc.gov.uk/stats/personal_wealth/13_1_delay_mar06.pdfhttp://society.guardian.co.uk/socialexclusion/story/0,11499,1368919,00.htmlhttp://post.economics.harvard.edu/faculty/katz/papers/akk-polarization-nber-txt.pdf


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3 Joon Chang H, (2003) Kicking away the ladder; development strategy in historicalperspective,' Anthem Press

4 Mary Hennock China's graft: Tough talk, old message,'27th Sep 2004,

http://news.bbc.co.uk/1/hi/world/asia-pacific/3693714.stm

5 Paul Krugman, MIT Professor of Economics, Princeton University, How WashingtonWorsened Asia's Crash; The Confidence Game,http://thenewrepublic.com/archive/1098/100598/krugman100598.htmlandhttp://web.mit.edu/krugman/www/myth.html
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