impact of international trade on less developed countries

8/10/2019 Impact of International trade on less developed countries

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2009 113

van den Cate R.- The Impact of International Trade on Less Developed Countries

Roel van den Cate

THE IMPACT OF INTERNATIONAL TRADE ON LESS

DEVELOPED COUNTRIES

Roel van den Cate (MSc)

Abstract

The very idea of Free Trade is, of course, a noble one. The idea is to bring the third World nations of Latin

America, Asia, and Africa into a fair competition with, and economic parity with, the Western countries.

The many strong pro- and con- convictions of a number of respected authors do deal with the fact that

the original framework, which was based on the Industrial Revolution has vanished. It has already been

mentioned that the idea of a borderless economy is now a fait accompli. The world, therefore, no longerconsists of a series of closed national economies, each with its unique set and factors of production.But

there is a problem with this view of the world. Today it is increasingly irrelevant(we now) confront...

the inevitable integration of national capital markets into a single, powerful global market.1

1Bryan, Lowell and Diana Farrell: Market Unbound, New York: John Wiley & Sons, 1996, p. x


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Business Intelligence Journal - January, 2009 Vol.2 No.1

114 Business Intelligence Journal Janu

Introduction and Overview.

Calvin Coolidge once said that the

business of America was business. This isnow true of every nation in the world. Of

course, business is a far more structured andsophisticated part of the First and Second

world countries. In fact, their globalization

efforts are now creating opportunities as

well as mischief in the less developed

countries. By mischief, of course, one must

understand the rituals for getting plants,

roads, infrastructure, a work force and aplace to train them and a splitting of protsand royalties with the governments (and, not

incidentally with those who have the powerto grant licenses and overcome bureaucratic

snafus).

On the next pages, we will examine

whether the concept of free trade remainsan oxymoron, and whether agreements such

as NAFTA and the successors to GATThave any positive impact on less developed

nations.

The recent WTO meeting, disruptiveand unsuccessful as it was, gives signs

that emerging nations hold the power topass, block, or delay any meaningful tradeagreements. This WTO meeting, in otherwords, accomplished nothing, since the

representatives of these lesser nationsdecided not to make any denitive actions.

What the WTO meeting did signifywas that this organization tends to be more

protectionist than ever, and that these

lesser developed nations see the removal

or reduction of trade barriers as a means of

shutting them out from signicant prots.In addition to free trade, we need to

take a look at how foreign capital providesmore opportunities. The globalization of theworlds corporations and its market placeshave created an inux of capital into areaswhich were dormant, or under-served, at

best.

There is a need to look at the utilization ofthe work-force in the less developed nationsto see if merely being employed is equal tobeing in a better economic situation, and an

upwardly mobile opportunity which would

include improvements in living standards,education, adequate housing and a social

life not dominated by some dictatorial quasi-

military force.

Finally, we will need to look at whetherthe competition among less developed

nations for the largesse of the Capitalist

countries will create animus, political in-

ghting, and perhaps even military action.While the current example of Russian troops

destroying Chechnya is economically based,may be moot. But, certainly a look at thevarious new soviet republics is warranted to

see if stability through economic growth can

be forecast.

There are three economic developmentsin the past decade that make InternationalBusiness and its management a vital meansof economic domination. First, there is

the communications explosion. Second,

the development of the euro currency

which makes the whole of Europe (theEU) a predominant economic and nancialforce to be reckoned with. And, the thirddevelopment is the rise and fall and rise of

various Asian nations. Currency uctuations,and speculation, have caused severe nancialstrains in recent years, but Thailand, SouthKorea, Singapore, and Japan are makingstrong comebacks. How will this teeter-totter effect inuence the less developednations in Asia, Micronesia, and even reach

to India and Pakistan and Sir Lanka?There is frequent use of the term global

village now, since national borders tendto disappear with the internationalization,

mergers, and acquisitions of rms throughoutthe world. If there is one thing globalization

can provide, it is economies of scale in

manufacturing as well as in marketing.


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2009 115Roel van den Cate

This means that many global companiescan now show a far improved bottom line,

with a reduction in the overhead costs of

warehousing and shipping.

With attractive opportunities in the less

developed nations, there can be a greaterexibility in the strategic location of plantsand distribution centers, regional ofces, andthe hiring and training of locals to implement

foreign management which, with some good

training results, could eventually fade, so

that the local presence is strong and visible.

Economists who are globally minded

will also have to look beyond the concern ofgiving mainland China Most Favored Nation

status, and adapt some of their strategiesto implementing opportunities in the less

developed nations.

Why are we calling these countries lessdeveloped? Two major reasons: First,there is no foundation of self-sufciencywithin the country. Even when, as in the

case of a Nigeria, there are abundant natural

resources available, for political reasons

those professionals best equipped to control

and manage these resources and turn them

into bankable goods for export have left.Nigeria is a wasteland for professionals.

Globalization might, therefore, help

stabilize such local economies which are

tottering under the weight of political unrest

and instability The second reason is thatthe opportunity to negotiate fairly has been

absent, partially due to the xenophobia of

the LDCs, and partially toward an overly-benign and condescending attitude on the

part of the Western corporations and their

ofcials.All this is changing, because the

competitive nature of the world of business

is boiling over. It is not necessarily greed

of shareholders and security analysts

recommendations, it is the fact that

international corporations are now spread so

wide in the various industries they control

that more attention must be paid to nding theresources available in the once-overlookednations that have been under-developed.

There is a downsize risk of course: Over-development, in the sense of too much too

soon. The key to successful development isa mutually benecial, even-handed approachwhich can satisfy the giver (i.e. the nation)and the taker, (i.e., the global company).The time is past for colonial thinking. Justbecause the nation is under-developed does

not necessarily mean that the goals and the

understanding of local ofcials and managersis under-developed, as well.

Free Trade and Its Effect andMeaning on Less DevelopedNations.

We are living at a time when

Microeconomics has reached the same

plateau as Macroeconomics. We are dealing

now with the study of individual markets...how it explores how consumers, workers, andcompanies behave in specic situations. 2

What is the impact of microeconomics on

free trade? More than likely the fact that itis consumer-driven. It begins with a single

consumer, his wants, his needs, his desire

to purchase goods and his ability to pay for

them. The less developed nations have theconsumer base, and certainly the desire, but

without free trade that has goods owing intothese countries for sale at affordable prices,

the consumers ability to pay is minimal,

What do we know about this consumer?First of all, every consumer has a set oftastes for the commodities that he can buy in

a market, and these tastes are a given in thesense that they are not affected by a change

in his income or a change in the price of any

commodity. 32 Samuelson, Robert J.: God is in the Details NEWSWEEK

Magazine, April 20, 1998, p. 47

3Dewey, Donald: Microeconomics: The Analysis of Prices and

Markets, New York: Oxford University Press, 1975,



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What this view, however, fails to

distinguish is that a consumer in a developing

countrys desires may be for a new

automobile, but the prices and his income

prevent such a purchase. His desires, then,

must be reduced to the affordable goods-clothes, food, furnishings and appliances

for the home, perhaps farm machinery and

tools. Of course, the original assumption

of microeconomics is that the consumer

has a certain priority for his commodity

preferences: milk before bread, bread beforeeggs, eggs before bacon, etc.

But, a fair question may well be- why

introduce the subject of microeconomics in

a discussion of free trade. The simple answeris that free trade can only be successfullymanaged when the needs of the consumer

and his ability to satisfy those needs with

purchases are taken into consideration.It is the old marketing clich of sellingrefrigerators to Eskimos. If Free Trade isto be successful with, and among, the less

developed countries that trade has to include

goods that can be easily purchased, rather

than stored in some massive inventory for

future use. Nigeria, for example, has oil toexport. It needs no fuel to import. But, it

does need tools and materials to improve

its infrastructure. So, a trade for paving

materials, additional cement factories, buses

and/or railroads to transport goods and

workers, and appliances for those Nigeriansin the labor force who need an incentive to

remain on the job and not mobile, moving

from place to place to seek other work.We need to pause in the aspect of

examining Free Trade and how it affects theless developed countries to realize that the

whole notion of less developed4stands fora lack of a trained and effective labor force.We have none other than Adam Smith to

look to, for the assumption that labor is themost important means of judging the riches

of a nation. Smith sees two circumstances

that are far more important than fertile

soil, extent of territory, or climate; namely,

the skill and dexterity and judgment withwhichlabour is applied, and secondly,

by the number of those who are employed

in useful labour, and that of those who arenot employed. In other words, the wealthof nations lies in the useful employment of

its workers, and not in the monetary resultsof that labor. Free trade, then, according to

these basic tenets, is to establish the basis for

full employment so that the results of that

employment can then be bartered or traded.

While this may make good sense in a bookwritten a hundred or more years ago, the fact

remains that Free Trade cannot work underthose concepts because the employees are farfrom equal. An American worker, it is safeto say, is far more productive and effective

during his hours of work per day than, saya Thai or a Ugandan. This is not racism. Itis a fact of tradition, training, and different

approaches to the fulllment of personal,family, and even government needs.

The very idea of Free Trade is, of course,a noble one. The idea is to bring the third

World nations of Latin America, Asia, andAfrica into a fair competition with, and

economic parity with, the Western countries.

Eugene R. Black, as president of the WorldBank, told these under-developed countries:Give us the right atmosphere an d we willsow towns and cities in place of theories

Without sacricing your ancient traditions,we will carry forward the historical revolution

in the way people everywhere long for.5

However, since this statement was made,

it is obvious that ancient traditions have

fallen by the way side, bulldozed by the

hi-tech and communications revolutions,

by globalization and mergers, acquisitions

4 Smith, Adam: The Wealth of Nations, Chicago: The Great Books

Series, Vol. 39, 1956, p. 1

5Turner, Louis: Multinational Companies and the Third World,

New York: Hill & Wang, 1973, p. 5


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and the need to nd, open, and dominatemarkets other than those already saturated.Information and capital now migrate aroundthe globe in the blink of an eye.6Free tradecan ourish, many economists, believe

because we have now created a borderlesseconomy. Most visibly, the nation-stateitself- that artifact of the Eighteenth and

Nineteenth Centuries- has begun to crumble,

battered by a pent-up storm of political

resentment, ethnic prejudice, tribal hatred

and religious animosity.(But) as the owof information creates a growing awareness

among consumers everywhere about how

other people live, tastes and preferences

begin to converge. Global brands of colas,blue jeans, athletic shoes. And designer ties

and handbags are as much on the mind of

the taxi driver in Singapore as they are in the

home of the school teacher in Stockholm.7Free trade, therefore, is at the mercy of so-

called global consumer desires.Is this borderless global economy the

result of free trade options, or is it the

reverse? The fact, as Ohmae points out, isthat the desires for global products- whether

blue jeans of Coke are just as strong in theunderdeveloped nations as in the major

Capitalist ones.

Free trade is the prop that now holds

the worlds economies together. That is theopinion of the powers who attempted to makethe WTO meeting provide open markets andaccess throughout the world. The reasonwhy this was (and still is) desirable can beseen in the sheer numbers. As recentlyas 1957, the total volume of services and

goods traded across national borders was

$57 billion. In 1989, that amount had risento $12.7 trillion.8

One of the key factors that many pro-freetrade economists now proclaim is needed is

education. Economic educators have theconsiderable job of making clear that tariffsdont protect jobs (actually they destroy

6 Ohmae, Kenichi: The Emerging Global Economy, Cambridge

MA: Harvard Business Review books, 1995, p. xiii

7Tibid, p. 130

8Bender, David, (ed.) Trade: Opposing Viewpoints, San Diego

CA: Greenhaven Press, 1991, p. 13

9Peterson, William H. Free Trade is the Best Trading System,

essay in Trade: Opposing Viewpoints, p. 23-4

10Greaves, Bettina Bien: Free Trade: The Necessary Foundation

for World Peace, quoted in Trade: Opposing Viewpoints, p. 35

11 Robertson, James Future Wealth, quoted in Trade: Opposing

Viewpoints, p. 27

jobs!)that the rich hardly become richerby exploiting the poor (actually they getricher in a market economy by enriching thepoor, and by raising living standards through

capital formation)The market system is a

moral system, a system of voluntary socialcooperation.9

Another positive view of free trade

states: To minimize conicts in the future,we should aim to create a world in which

people are free to buy what they want, live

and work where they choose, and investand produce where conditions seem the

most propitious.Would-be traders should

encounter no restrictions or barriers to trade

within and across national borders10

There are opposing viewpoints to FreeTrade. Needless to say, we are all familiarwith the anti-NAFTA diatribes of RossPerot. But there are many who feel that freetrade, as it is now constituted, is harmful.

The world has never had a genuinely freeand fair trading system. Ever since people

argued whether trade follows the ag or theag follows trade , trade has been based ondomination and dependency, and has been

an instrument of them.11

The many strong pro- and con- convictionsof a number of respected authors do deal with

the fact that the original framework, whichwas based on the Industrial Revolution has

vanished. It has already been mentioned

that the idea of a borderless economy isnow a fait accompli. The world, therefore,no longer consists of a series of closed



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national economies, each with its unique

set and factors of production.But there

is a problem with this view of the world.

Today it is increasingly irrelevant(wenow) confront...the inevitable integration

of national capital markets into a single,powerful global market.12

There can be no doubt that the prosperityof the industrialized nations sine World War

II has been largely to global specialization

and interdependence. No single country

does all tasks today- products are designedin one country, produced in another, and

assembled in a third.The fair tradeargument for protection is but one of several

false arguments(There is) 1) the cheaplabor fallacy- that the advanced industrialnations cannot compete with cheap foreign

labor.2) the unemployment fallacy- that

free trade creates unemployment; 3) the

infant industry argument.and the cheap

foreign currency argument- that protection is

necessary to counter the alleged competitive

disadvantage imposed on domestic producers

by countries with cheap currencies.13

As was mentioned earlier, Ross Perot

led the ght against NAFTA. But, in thetestimony of Philip M. Condit before theSubcommittee on Trade of the HouseCommittee on Ways and Means, he provided

some positive gures on NAFTA. In therst year under NAFTA, U.S. exports toMexico rose over 22 percent. Even with

Mexicos economic problems, 1995 exports

to Mexico were 11 percent more than pre-

NAFTA gures. In 1995, U.S. exports toCanada increased 29% overt the 1993 pre-NAFTA level.14

There is no doubt that the emergingnations of the world have been led astray by

the socialist theories The LDCs are caughtin the vicious circle of povertyTo breakout of that circle, apart from foreign aid,

calls for vigorous taxation and government

development programs; on this point opinion

is nearing a consensus.15 This consensusseemed to believe that state, and not private

enterprise, will determine the major features

of industrial development in the low income

areas. So, it will be the governments of,

say, Nigeria, or Zaire, Thailand, and Gabonwho will have to take some power into theirown hands. The problem is that the politicalclimate in these countries is so tentative

that anything positive, such as taxation for

development, might well topple some of the

governments anxious to move their nations

economies to a higher level.

Free trade, however anxious some

people are to grab bulldozers, shovels,

and establish deep-water ports, highwaysystems and so on, still has a problem about

putting the cart before the horse. Albert O.

Hirschman, in The Strategy of EconomicDevelopment explains that if we endowan underdeveloped country with a rst-classhighway network, with extensive hydro-electric and perhaps irrigation facilitiescan

we be certain that industrial and agricultural

activity will expand in the wake of theseimprovements? Would it not be less risky and

more economical rst to make sure of suchactivityand then let the ensuing pressures

determine the appropriate outlays for social

overhead capital and its location?16

In returning to the social arguments of

the so-called human rights advocates whointend to block any additional free tradewith the less developed countries, one can

read a column, which Krauss cites, thatappeared in the New York TIMES: Wouldyou buy a rug wove in Indian by ten year

olds who were beaten if they did not work

12 Bryan, Lowell and Diana Farrell: Market Unbound, New York:

John Wiley & Sons, 1996, p. x

13Krauss: Melvyn: How Nations Grow Rich: The Case for Free

Trade, New York: Oxford University Press, 1997, p. xiii

14Condit, Philip M. Trade Myths and Realities The Business

Roundtable, www.altavista.com 1998

15Krauss (quoting Walter Heller) p. 85

16Krauss (quoting Hirschman) p. 87


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fast enough? Would you wear a shirt if it had

been sewn by a nine-year old locked into afactory in Bangladesh until that days quota

was met?17

Trade- or, rather, trade restrictions- has

become the weapon of choice for the U.S.human rights advocates who want to bludgeon

poorer countries- India, Bangladesh, the

Philippines are all examples- into acceptingU.S. fair employment standards for their

own countries. There have been columnswritten about toys made by slave laborers

and child labor in China and elswhere in

Southeast Asia, we have seen Kathy LeeGifford vilied for allegedly having her

brand-line of clothes made by sweat shopsin Guatemala and Nicaragua.

Decent, as the efforts of the many writersand advocates are, the fact remains that

different cultures have different values,

and we really have no right to impose ours

on them. Free trade, as many pro-trade

economists and humanitarians will admit,

is just that: these developing nations shouldhave a right to handle the way their laborers

perform in their way, and not according

to the rules and regulations of a far moreadvanced society such as that of the U.S.

We have to remember that, as late as

the 1920s, there were still sweat shops

turning out garments in New York, with theadmonition on the wall that said If you dontcome in on Sunday, dont bother to come in

on Monday. There are still illegal sweatshops, often in Chinatowns, or Koreatownsscattered throughout various metropolitan

areas in the U.S.

The WTO meeting in Seattle provedone thing: getting some 130 countries asvaried as Malaysia and Sweden to agree on

common labor or environmental standards

is next to impossible. The majority ofcountries represented were LDCs, and theywere not about to let the U.S. and other

powerful industrialized nations interfere

with their internal policies. The Asiannations have made it clear that they will

not be bullied into adopting Western human

rights standards.These self-condentnations will not capitulate to foreign human

rights ideas regardless of the commercialpressures placed on them18

The Asian nations, for example, have anoption. In East Asia, intra-Asian trade is nowon the same level as trade across the Pacicand is likely to grow much faster as Asiannations reduce their trade barriers and takeadvantage of one anothers prosperity.19

The Asian nations are also now willingand able to spend more on research and

development. There is signicant untappedtechnological promiseMeasured as apercentage of GDP, for example, Taiwanand South Korea spend as much on researchand development as do most European

countries. For other ASEAN nations likeThailand and Singapore, the rate of growthof investment in R & D surpasses that ofvirtually all industrial countries.20

The eventual realignment of nationaleconomies in the increasingly borderless

economy will turn some of the LDCs intoBEMs- Big Emerging Markets. There are ten,according to Mr. Garten- Mexico, Argentina,

Brazil, South Africa, Poland, Turkey, India,Indonesia, China, and South Korea. Whileeach of these so-called big emerging marketsis important as an individual country, it is

the combined effect of the group as a whole

that will have a critical impact on the U.S.

interests, both at home and abroad.

What makes these ten specic markets soimportant is that they are a key swing factor(as Garten calls it) in the future growth of

17Krauss, quoting Anna Quindlens November 23, 1994 column,

p. 49.

18Krauss, p. 52.

19Garten, Jeffrey E.: The Big Ten, New York: BasicBooks, 1997,

p. 32.

20 ibid, p. 32.



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world trade, global nancial stability, andthe transition to free market economies inAsia, Central Europe and Latin America.21

Nevertheless, these ten countries and their

economies can be an explosive factor as we

enter the 21st Century. India, for example,now has nuclear capabilities. It also has a

most unstable political situations, fueled by

traditional religious and ethnic differences.

Turkey has the same ethnic instability. Brazilis just emerging from a treacherous ination,and is still overly dependent on coffee as its

main export. What will happen in Mexico

if the ruling PRI party, which has had apolitical lock on the national government

for generations, suddenly becomes lessof a majority party? Will South Koreaovercome the problems some of its major

industries are facing, with downsizing and

even bankruptcy a social disaster? What willhappen if China does not get that Favored

nation status it so desperately seeks,. And,if China becomes a Big Emerging Market,what of Taiwan., Surely the leaders in Taipeiwont go quietly.

And, perhaps most important of all to the

U.S., what will happen during the ElectionYear, 2000- and the possibility of a change

of administrations. Does George W. Bushunderstand global economics well enough,

or will Al Gore follow the precedents set

down by the Clinton administration?

The world will not , and it cannot wait,for a possible change of White House

leadership. American trade experts will have

to do the best they can, supporting the idea of

free trade with the less developed countries.

It seems to be the only positive alternative

to increasing the dominance expected by

American industrialists.

The Flow of Capital and its Effecton LDCs

Capital is on the move. Its ow is no longerrestricted to the well-off nations. It no longer

comes in the form of risk investments in theThird World. Billions of dollars now movefrom a nancial institution in Country A toa provider of jobs, factories, manufacturing

know-how and distribution and infrastructuredevelopments in what may still be considered

an Emerging Market, under-developed butripe for implementation.

We now see investments by companies as

diverse as IBM and General Motors and Philip

Morris in mainland China. The nancialdebacle in southeast Asia which may wellhave been fueled by greedy speculators likeNick Leeson in Singapore, and caused tidalwaves ion Bangkok, Manila, Seoul and evenTokyo seems now to have straightened itselfout and moved back upward, increasing thecondence of overseas investors.

Financial institutions and their investor

branches are looking at the LDCs as if theywere oases in an otherwise drying up market,

over-developed through the years.The role of foreign capital is still not

properly dened or proven. The collapseof the Asian nancial markets in 1997painfully demonstrated the interdependence

of economies throughout the world.22This,and some tottering economies in Uganda and

Nigeria currently, for example, make foreigncapital investments in so-called emergingnations still risk for some. The entire ideaof free trade, then, still is tempered with the

concerns of politics, not raw materials or a

potential labor force. There are experts who,in looking at some of the political instabilitiesin the LDCs, still feel that corporations mightgo ahead with capitalization, provided they

are willing to diversify capital investment

portfolios or share the risks, even withcompetitors after the same markets. As Mr,

21ibid, p. 3.

22Thompson, Maurice K.: Common Sense Global Investing, Chi-

cago: Dearborn Financial Corp, 1998, p. vii.


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Thompas has it Diversication is the refugeof the timid. 23He speaks, in his book, fora number of nancial institutions poised tosend capital overseas. He feels that too much

diversication can hide bad investments,

sometimes until it is too late.The real facts, of course, are that foreign

capital plays a far greater role in the bottom

line of international companies than it does

in the development of emerging nations.

Nigeria, for example, ooded with petro-dollars until recently, and able to makepositive legislation which enabled a high

percentage from international rms likeRoyal Dutch Shell, now nds itself in serious

economic straits due to the precipitous drop inoil prices. In some areas, obviously, it hardly

pays to drill and transship, until oil prices

rm and rise, which OPEC is attempting todo, even as this is written.

It is interesting to go on the Internet to

nd trade commissions and government websites of foreign countries, eager to promote

their areas as ripe for investment, and, for

doing so, they offer various incentives.

For example, Siping, China, has a web

site which, in English, promises expedienthandling of real estate and tax matters, and

even certain fee abatements for up to three

years. The web site begins with Article1: In order to improve the investmentenvironment in Siping, to encourage

foreign capital, technology, and equipment

and administrative experience, to expand

export potential and speed up the economic

development of our city, we have instituted

certain preferential policies.24

What would be the role of foreign capital

here? To provide an economic advantagefor Siping over competing Chinese cities,

and for its citizens as well as the territorial

and local government ofcials, who are(obviously) under orders from Beijing,to create opportunities for export and for

employment of Siping citizens.

However, there has been a change -

and not really a subtle one- for the role of

foreign capital in China. It has nothing so

much to do wu\ith the current government,

or the Communist recent past. It goes well

back to the time of the Opium Wars inChina. And, outward-looking Chinese arewell aware of what colonial policies did

elsewhere, the literal raping of the naturalresources of the Congo by the Belgians,

for example. The Chinese, as well as otheremerging nations who want a place at the

economic table are not seeking foreigncapital- regardless of incentives offered or

their need- without having some say in how

that capital is spent, and where, and what theeventual consequences will be for the nation

or area offering its facilities and land and

labor force for the capital infusion.

One look at Africa today and it is obviousthat even the poorest nations, those who

continue their ethnic cleansing (Rwandaand Burundi are two current examples of a

devastating mass slaughter of tribes people),

still are not willing to cede total autonomy.

As was pointed out in Chapter 2, these

nations are not willing to be bullied intotransforming their culture and tradition

to conform to Western standards. The factthat concessions, such as Siping is offering

on the internet, or that other nations offer-

Nigeria promised dredging ports for the big

tankers, and, with money to build cementplants, developed a highway system to

bring the oil from drill site to ports (Apipeline is still in the discussion stage)-

nevertheless, the governments will insist

on a favorable concession for royalties. Of

course, depending on the stability of the

government, into whose hands those dollars

or yen or Deutschemarks or euros ow isstill a chancy proposition.

23ibid, p. viii.

24Siping Investment Opportunities www.chinesebusinessworld.

com/business/vnng/policies.htm



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While in Chapter 2, the advocates for

Human rights were mentioned, there has

been another role required for the ow offoreign capital into less developed countries:environmental issues. As investors search

the globe for the highest return, they are oftendrawn to places endowed with bountiful

natural resources but handicapped by weakor ineffective environmental laws. Many

people and communities are harmed as the

environment that sustains them is damaged

or destroyedvillages are displaced by huge

construction projectsForeign investment-

fed growth also promotes Western-style

consumerism. (Note the previous mention

of global consumerism,)25

Here, theenvironmentalists are concerned with

everything from the growth of fast-

food restaurants, car ownership, and a

conversion to a Western life style notnative to the indigenous population. In

other words, for all the economic goodthat foreign capital from the West does, it

also has the power to corrupt and upset the

balance of both nature and population.

WorldWatch, in its position paper,

encourages adding some environmentalconditions to bilateral and multilateraltrade agreements. In one aspect, this

environmental concern is already having

an effect. The U.S. Export-Import Bankwhich provides subsidized loans to other

governments for the purchase of U.S. goods

and services has taken steps to strengthenits environmental policy.26 Unfortunately,other nations have not followed suit, causing

American investors and companies to lose

out on some enormous projects, such as the

Three Gorges project in China, which wasturned down by the Ex-Im Bank.

Foreign capital infusion, however, is

not merely aimed at developing countries.

Here in the U.S. we are faced with foreign-

owned companies in direct competition with

American-owned and operated rms. So,

capital ows to capital, not merely to whereit is most needed.

There is still a major concern amongmany governments and economists about

how foreign capital is affecting the world,

and if it is somehow skewing the balanceof trade, and the incursion by overseas

interests within the domestic policies of

LDCs. Conservative legislators thinkthat the investment in foreign nations, for

whatever reason, is disguised foreign aid,

and they want to curb it, or eventually stop

it altogether. One reason for this concern is

simple: it has tended to create dependence onthe part of the borrower countries(and )no

longer either advance U.S. interests abroador promote economic development.27What is happening, therefore, is the joining

of foreign capital and its role with political

functions. Of course, there are times whenforeign capital ow into emerging nationsis not merely for prot, but for politicaladvantage. But once that advantage is

achieved (or denied) the next step must beto maximize that capital investment.28

Economic forecasts continue to see more

and more capital owing into the LDCs,even at the possible expense of domestic

savings. This can be determined by the factthat more and more American investors,

to name just one nation, are investing in

multi-national corporations whose capital is

now being committed to LDCs. Estimatessuggest that in the next ten years, the gap

between domestic savings and investment

needs in the developing nations will likelyexceed $2 trillion in real terms. This gapis the minimum level of required external

25 French, Hilary: In Focus: Capital Flows and Environment,

WorldWatch Institute, Vo. 3, No. 22, Aug. 1998, p. 1

26ibid, p. 3.

27 Glickman, Norman J. and Douglas P. Woodward: The New

Competitors, New York: BasicBooks, 1989, p. 7.

28 Vasquez, Ian: What Congress Should Do online: www.al-

tavista.com.


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capital. And, as these nations join the global

capital market, some of their existing capitalwill leave the country as ight capitalas domestic savers seek to diversify theirrisks.29

The red ag of capital ight might wellbe hoisted when and if there is the sort of

Rwanda-Burundi conagration where capitalis so severely at risk that leaving it there forthe possibility that matters will be settled is

ludicrous and certainly indefensible scally.Figures during the decade of the late 1970s

to the early 1980s when there were so manyproblems in African developing countries,

show that well over $100 billion ed the

area.However, on the positive side, money

managers, investing companies and

international corporations are more willing

to take some risks now. In fact, it might beconsidered that these managers are now

working in a different environment.These developments have had three

broad effects. First, at the macroeconomic

level, they have made it possible for capital

to be shifted instantaneously anywhere in

the world. This means both that the capitalows no longer need to be tied to physicalmovement of goods, and that, by extension,

the traditional forms of trade represent only

a minute and decreasing fraction of cross-

border trade activity. 30This gives managersa distinct advantage since they can knowfar more quickly in real time what theircustomers need, where they need it, and

when. Responsiveness, therefore, is one of

the advantages of this instantaneous move

of capital.

Again, it needs to be emphasized that

the ow of capital is in sync with the newglobal demands of consumers. This meansthat economic nationalism exerts an even

smaller inuence on purchase decisions.31

Foreign capital and its usefulness to

the development of the LDCs is reected

not merely in the utilization of natural

resources, a labor force, and the location for

effective and efcient distribution of goods,but on the wants and needs of consumers

who, as has been stated in this thesis time

and again, are now the wants and needs of aglobal economy. Again, wanting something

and needing something and being able to

purchase it are not necessary as closely

linked as capital investors might like. (In thenext Chapter, there will be ample discussion

of the globalization of local economies and

its effects on the ability to buy.)

Money still talks, of course. And, whilethere seems to be plenty of venture capital

available, there is still competition for thatow of capital. We have seen how, evenon the Internet various cities and areas

throughout the developing world, there is

competition and the offering of substantial

amenities to receive capital in-ow. Froman objective observer, studying the ebbg

and ow of capital, of risk investment, ofthe downside of greed and even fraud, there

should be ve caveats for capital ow toLDCs:

Capital invested in an LDC requires1.patience. This means that any investment,grant, or cession should not be consider

a quick turn-around opportunity, a get-rich-quick scheme which would rob theLDC of any incentive to continue onuneven terms.

The Investment cannot be done on a2.national or dominant theme. In other

words, if it is EU money, the dominance

should not necessarily favor ONLY the

EU or its member nations, but should be

primarily concerned with the building

29Bryan and Farrel, p. 123.

30Ohmae, Kenichi: The End of the Nation State, New York: The

Free Press, 1995, p. 27

31ibid, p. 28.



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of a stable and growing economy in

that LDC. This may be an extremelydifcult item to control, since thepurpose of the investment is to gain an

economic advantage. Capital ow is not

philanthropy any more. Governmentswill no longer shield corporations from

a conict with the rules and regulationscovering foreign aid, for example.

Fraud, bribery, kick-backs, private3.enrichment of government ofcialsmust be avoided. There has to be anethical and moral standard for capital

investment. If the WTO or the UN

cannot provide such safeguards, then theentire international system of building

LDCs is lost. We cannot continue - inthe 21st Century to see LDCs as bananarepublics, those feeble moraland ethical characters reminiscent of

Graham Greene. We cannot continue to

cause South East Asian nations to see

U.S. involvement as the intrusive UglyAmerican.

While there are still the old boys4.club investors and risk takers who seethe LDCs as a playground for dollarsor pounds sterling or francs, these

nations must be treated in a way that

the investment and capital ow goal isto permit the investment to be returned,

and the LDC able to stand on its owntwo economic feet. Capital investment

is not an allowance for doing goodthings for the investor. It is like movingfrom walker to crutch, from crutch tocane, from cane to an orthopedic shoe,

and then complete freedom to walk orrun.

The motivation for investment must be5.a objective one, not based on traditional

or ethnic preferences. It can be a case

of the wolf lying down with the sheep

and reaching an entente. All too often,

the LDCs are seen as being differentfrom the Western world because of the

religion, habits, customs, history, ethnic

and moral standards which may welldiffer from Western outlook on things.In short, we cannot bind LDCs with ourown moral and traditional precepts. As

has been said several times now, these

nations do not want to be bullied. On

the other hand, investors from the West

do not want to transfer funds in eight

and nine-digit amounts and, at the same

time, wink at what they might consider

the amorality of the deal.

Of course, with the development of

the sort of instantaneous communication

and funds transfer, the problem areas are

switching from costs in terms of time and

real time, to the continued rise of what could

be considered regionalism. The EU, ofcourse, is perhaps the prime new example of

that. ASEAN and even NAFTA are regionalbundling of a sort.

However, there is still a traditionalanimosity among some of the countries that

stands in the way of foreign capital ow.Korea and Japan have problems, and have hadfor thousands of years. Turkey and Greece,the various small Russian Republics, Chile

and Argentina, India and Pakistan- these aresome of the cultural and traditional inimical

situations which capital infusion may not

solve. The rise of regionalism in Europeand the Western Hemisphere threatens to

leave Japan and East Asia the odd men out.

Unable to join either America or Europe

by virtue of its geographic locale, Japan is

also unable to form a free trade area of its

own in the Pacic Basin for want of willingpartners. China is the most logical partner,

but is years, maybe decades, away from


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such an arrangement, South Korea wants nopart of a partnership with Japan.32

There is a new development for a tradefree zone now under discussion among the

so-called Pacic Rim nations. It will be

2020 at the earliest before this becomesa reality. Right now it seems to include

some, but not all, of the 18 APEC nations:Australia, Brunei, Canada, Indonesia, Japan,

South Korea, Malaysia, New Zealand, thePhilippines, Singapore, Thailand and theU.S. were the original members. China,

Taiwan, Hong Kong, Mexico and PapuaNew Guinea were accepted later.

APEC agreed in principle two years

ago to dismantle tariffs and other barriers tocommerce and achieve a free trade among

the industrialized members by 2010 and the

developing members by 2020.33

Trade, trade barriers, capital infusion,speculative movement of foreign capital,

political unrest and instability: these are themajor areas which are both positive andnegative in the development of international

trade that could provide a boost for the

LDCs.

The Third World and under-developednations continue to look to the U.S. forsalvation. And that can be both a problem

and an opportunity. Just as there are many

who now reject the notion that the U.S.

should be the policeman of the world, there

are those who feel this country should not

be the international banker of rst choice, aswell. Yet, when the EU, Japan, or some other

capitalist country gains a foothold (the ThreeGorges project was mentioned earlier), then

the outcry begins.

The fact is that the U.S., more than anyother country, possesses an enormous pool

of investment sources. The problem liesin how that capital is allocated- at what

rates and into what development. One

consideration is whether there is over- or

under-investment. A second is whether an

investment is complemented by associated

investmentand a third is whether private

investments also create benets for societythrough spillovers or externalities.34

With all that money lying around

the form of the competition for its useand investment has drastically changed.

There is now a premium on investment inincreasingly complex and intangible forms-

the kinds of investments most penalized byU.S. regulators.

The American economy has become farmore exposed to global competition than it,

perhaps, bargained for. There are many inthis country who continue to oppose Japan

and Germany for no other reason than webeat them in the War, and the fact thattheir economies rise is due to our original

infusion of time and capital to rebuilt their

infrastructure and industrial capabilities.

The fact of American capital runningthe fortunes of LDCs, as it turns out, is aninaccurate one. American companies are

now playing catch-up, because they tended

to invest in foreign opportunities at a lower

rate than Japan or Germany. This includes

investments in everything from R & D tohuman resources, and these investments

also suffer from a point made earlier in

this thesis- the willingness to be patient,.

American CEOs, it seems, get antsy when

reports have to be made to shareholders, and

this reects in holdings abroad as much astwo years less than comparable German or

Japanese rms.The American investment problem varies

by industry (it is not government driven, asin Japan). There are also complaints thatAmerican rms have over-invested in someareas, such as acquisitions, and underinvested

in others, such as intangible assets.

32 Krauss, p. 119.

33 Unsigned: Pacic Rim Nations Gearing Up for Free Trade

Zone Maclean Hunter Publishing online, 1997.

34Ohmae (ed.), p. 35.



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The question, then, can be rightly asked:The United States has the most efcientcapital markets of any nation and themost highly sophisticated investors. How

can such efcient markets be guilty of

producing apparently suboptimal investmentfactors?35

What does this do to the foreign capital

movement to the LDCs? It shows them thatthe competition is heating up, and that their

expected and traditional savior, the U.S.,may no longer be that optimal resource.

It may be a buyers, rather than a sellers;

market, after all.

Politics, Economics, Problems,Solutions.

The 21st Century will bring aboutuntold changes and challenges for which

most nations- the First as well as the third

World- may not be fully prepared. Weare in the midst of a cataclysmic change

that will result in a new map of power and

inuence, a map being drawn by emergingmarkets. It is a revolution as signicant in its

implication asgreat historical shifts (suchas) the growth of a global economy in the

nineteenth century, and the collapse of the

old order in the 1930s and 1940s36Political change, stability or lack thereof,

will continue to be a prime consideration in

how capital ows, how risks are taken, howglobal corporations will see their destinies

in the less developed countries of the world.

A quick overview can see that nearly everyAfrican nation, excepting South Africa, is at

political risk. (This includes Egypt, where thethreat of the Islamic Brotherhood to disrupt

Mubaraks regime has already resulted ina failed assassination attempt within the

last several months). Uganda is accused of

human slavery. Liberia is in political turmoil.

Rwanda and Burundi continue tribal warfare.

Zaire, Gabon, Ethiopia, the Sudan, Nigeria,

Libya, Tunisia- even instability in Algeriaand Morocco, puts the entire continent at

tremendous risk.Latin Americas politics are not stable,

either. Argentina now has a new President,

Brazil has found that politics and economicsseldom mix, Peru, Colombia, Venezuela,Paraguay- all under some sort of internalrebellions by left-wing or right-wing

guerillas. Only Chile and Uruguay seem

totally stable at this point in time. Central

America has its own system if political

upheavals in Guatemala, Nicaragua, and

especially Panama, where the Canal nowgoes into Panamanian hands (and there are

rumors of some sort of Canal Managementdeal with the Chinese), Mexico, despite the

encouraging economic results of NAFTA,has problems in Chiapas, and there are local

and regional threats to the dictatorial ruling

party, the PRI.The UN is concerned about what it terms

IDCs- the island Dependent Countries of theCaribbean. According to UN documents:IDCs are a very diverse group of countrieswith a wide range of geographical situations,

natural resource endowments, and economiccapacities. These disparities are reected inthe diversity of national income levels within

the group: half of the 37 island developingcountries and territories with a population

under one million belong to the two highest-

income countries group, according to the

World Bank, while nine IDCs within thesame size limit are in the category of Least

Developed Country. 37

There is no doubt that Haiti, with itsunstable government and starvation-based

economy, the Dominican Republic are twoof the saddest economic examples in the

Caribbean today. American investment and

35ibid, p. 37.

36Garten, p.xiii.

37UN Documents on IDCs, online at www.iwon.com.


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risk capital are owing into the bottomlesspit called Haiti, but no signicant growthhas been seen.

The two main categories of factors ofeconomic disadvantage of IDCs are the

handicaps of smallness and remoteness,which are usually analyzed as the intrinsic

factors of trade concentration, external

dependence and economic vulnerability. 38

So, it seems, even in the back yard ofthe U.S. there are underdeveloped nations

which require massive infusions of capital

for improvement and some sort of economic

progress. That capital infusion is currentlyconsidered a failure.

Politics are, of course, a relativeconsideration. If the Western Worldattempts to stabilize what it considers an

unstable situation, it can rightly be accused

of interference in another nations domestic

affairs. But, what would have happened in

the mid-Thirties, if Britain and France hasinterfered in the domestic policies ofGermany?

Politics aside then, one should re-examine and consider what Jeffrey Garten

considers the Big Ten- those big emergingmarkets from what could be consideredunderdeveloped or developing countries. A

very brief overview of these ten emerging

markets is worth noting:

Mexico:

A nation of 88 million people, it hasalready repaid the emergency loans provided

by the U.S. in 1995, and has regained the

ability to borrow funds in international

markets. It is, in fact, now moving from avery closed economy to one of the most

open trading nations. It will represent one of

the U.S.s most important markets.

Brazil:

Someone once said that Brazil is thecountry of the future, and always will be. Ithas been plagued by what can only be called

hyperination for the past several years,including one year when it went as high as

2,500%. Its current government has nowbrought ination under some sort of control:It is somewhere around 15% now. It is thelargest destination for American capitalinvestment in Latin America, and perhaps

the most important South American trading

partner. The coffee economy is now, atleast, being challenged with other industrial

efforts, including a growing commuter-typeaircraft business, and automobile production.

There are still considerable environmentalproblems in the Amazon and the rain forests,

and warfare literally has erupted between

those who want to preserve the area, versus

those who want to tap the natural resources

there.

Argentina:

It has overcome a serious recessionin 1995, and its agricultural economy is

rebounding. There will now be a waitand see attitude as a new government justwas elected. Argentina, like it or not, iseconomically tied to Brazil. Together, theyconstitute more than half the GDP of LatinAmerica.

South Africa:

The nation has moved beyond apartheid.With a population of some 41 million, South

Africa represents 45% of the GDP of theentire African continent. It has a modern

infrastructure, and highly sophisticated

industries in nance, communications,transport, and energy. With the political

climate normalized, the country is open to

38ibid, p. 3.



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multi-national investments, and the risksof problems in that nation are now very

slim. The potential of industrializationand natural resources make South Africa amajor player in that part of the world. One

consideration: there is an ethnic bond withAfrican-Americans which, as more and

more of them rise to important positions in

American companies, can well spell relief

for the needs of South Africas emerging

industries.

Turkey:

This country of some 61 million lies in a

most strategic area in the world, the bridgebetween Europe and Asia. It is a NATOmember, and is hoping for membership

in the EU. It has applied. There is still theproblem of traditional enmity with Greece,

but it would seem that Turkey is far morevaluable, economically, than Greece. If there

is a problem, at present, it is the proliferation

of state-owned businesses, which, when

privatized, will be far more acceptable for

foreign investment and trade.

Poland:

This is now the largest country in EasternEurope, with 39 million people- more than

Hungary and the Czech Republic combined.

After the break-up of the USSR, Polandwas the rst country to break out of thedepression and recession that had caused.

It is, in essence, a democracy, and has done

more to privatize its industries than any

other country in Eastern Europe. Polan isnow considered the most entrepreneurialcountry in that region with more than 2,000

new businesses established in the 1990s.

Germany and the U.S. are the two largest

investors in Poland today. Polands workforce is considered among the most well

educated, and it has the biggest and stable

middle class in Eastern Europe. Polandwants to join both NATO and the EU, andthere seems to be a good chance that it will

be admitted to both.

South Korea:

South Korea is the most heavilyindustrialized of all the so-called big Ten.Its economy represents about 7% of theentire East Asia GDP. But, it has enormouswalls to protect its industry, and to makeit difcult for foreign investment. There isgreat potential if the tariff barriers were ever

to come down, Even so, statistics show that

in 1994 and 1995, both exports and importsincreased by some 30%. There is a risk forinvestment, of course, with the continuing

problems between the two Koreas. Perhaps,in the future, there will be some sort of

reunication, but that does not seem likelyin the near future. When and it that happens,

there should be tremendous interest in

rebuilding North Korea, now decimated byits lackluster and oppressive Communistregime.

China:

Can a market of nearly 1 and a half billionpeople be overlooked? Right now, there isconsiderable to-do in Congress about the

Clinton Administrations desires to have

China given Most Favored Nation status.

There are Republicans who, suddenly, talkabout Human Rights, pressured, no doubt,

by lobbyists whose industries have been

lagging in China investments.

In the last several years alone, however,

Beijing has attracted more than $80 billiona year in commitments, over half of which

has already been invested. We have seen

how individual cities (see Siping) are onthe Internet, encouraging foreign capital

investment. There are now a good many


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18/25



successful only if the investors, producers,

distributors, and countries can realize a

nancial prot. A social prot for countriesmust be included in this. We have already

used the term borderless economy.

As frontiers disappear, and the advent ofnew communication technologies makeit unimportant where the real estate of the

headquarters is located, the emphasis of

benets to LDCs really comes down to fourbasic facts. Economic advantages, migration

of workers, the effects of economic incursionon LDCs and the survival mode of capitalinvestors.

The one area where no overview has

been utilized is that of the worker involvedin raising economic standards in LDCs.The geographical spread of productionfacilities has been accompanied by far-

reaching changes in the workplace all overthe world. The most important has beenthe increasing difculty of protecting theinterests of relatively immobile workersin a global economy in which capital is in

constant motion. Workers face hardships inpulling up stakes or in leaving the family for

a distant job, though more and more peopleare faced with the need to do it. Capital has

no home., and money in the trillions moves

routinely across the world with the punch of

a key.41

Increasingly, hundreds of millions of men

and women who will be entering the labor

market in less developed countries over thenext few years will be directly competing

with workers in the more developed nationsto produce the same basket of goods.There will, unfortunately, then, be hundredsof millions in these LDCs who will not ndpermanent jobs, or any jobs, or meaningless

jobs in terms of income. With all the hue and

cry about exporting jobs that U.S. NAFTAopponents continue to use, the jobs that are

exported are, for the most part, low income,

even minimum wage jobs. It is seldom the

middle or upper management person who is

downsized because of job exports as a result

of relocation of production or distribution

facilities.

LDCs, then, cannot expect to raise the

standard of living of its untrained work forcequickly. The meaningful tasks will either beperformed elsewhere, or taught merely to be

duplicated in the LDCs.Politics engender economic opportunities,

to be sure. Economic development in LDCsmay stabilize their governments. Workersmay nd employment, even if it may betemporary, and the capital investors will

nd prots by imposing Western-style

manufacturing techniques on nations thathad little or no techniques whatsoever.

A Review, Projections, andConclusions.

The purpose of this paper is not to re-dene the technological advances, or theadvantages of investment in less developed

countries. They are less developed, as waspointed out, because they were (or are) unable

to harness their natural resources, attracttechnicians and sophisticated work force tomanage building an economy; because there

was (and is) an unstable political climate,because Western nations sought I(and seek)to impose their morality, ethics, tradition,

and means of doing business on LDCs.Perhaps one of the problems of properly

infusing LDCs with a supportable and do-able means of building their economies

lies in some of the terminology. A native

in Botswana is less interested in what

globalization means, than in nding a jobto feed and house and clothe his family. A

Thai may seek employment with a multi-national, but the multi part is unimportantto him, unless it means an improved system

41Barnett, Richard J. and John Cavanagh: Global Dreams, New

York: Simon & Schuster, 1994, p. 310


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of education for his children. No global

corporation has yet found a way to solve the

problem in India among Hindus and Sikhs.No capital movement has been able to deter

the Tamils, or Peruvian Tigers, or found

a way to settle political and ideologicaldifferences between Pakistanis and Indians,or to nd a way to curb the monsoons thatcontinue to take thousands of lives along theBay of Bengal.

In the idea of globalization, one must

look to nations now closed to the majorityof First World nations- Iran, Iraq, Libya.

One must attempt to build rapport with the

various new republics that were part of the

USSR, from Ukraine to Uzbekhistan.The raising of LDCs economies alsomust include a careful look at the role genderplays in the work force. Will women bweable to nd work alongside men, at equalpay? Will children continue to be utilized

to create consumer goods, and, if not, what

will that do to the family economies that

may depend on their childrens incomes?

While there has been a rise in the number of

women in high political ofce in developing

nations, from Indira Gandhi in India to SuuKyi in Myanmar (Burma) to Benizar Bhuttoin Pakistan, there have been no women withreal economic decision-making power.

What will economic and international

efforts to LCDs mean when religion is anissue? Will there be a caution in dealing with

Islamic republics, for example? How will

capital investment be of use to Palestinians,for example. What, for that matter, will be

the fate of the Near Eastern nations of Jordan,

with a new King, of Syrian, with Assadailing? What of Iraq after Saddam, Hussein?

And Saudi Arabia, if, somehow, the house of

Saud and its spendthrift princes fall to some

insurrection. There are problems, of course,in Afghanistan. Ethnic troulb elooms with

Armenians, Kurds, and the Taliban. Whowill seek to raise the economic levels of this

unsettled part of the world? And, if sudden

changes occur, who will be the rst to takeadvantage of these changes which are sure

to invite economic assistance.

And what of the job market as we move

into the next millenium? How will poorlyeducated, untrained Third world and LDCnatives function usefully if multi-national

capital ows in to build a new viableeconomy in their country?

Government has played a crucial role inchanging what factories look like, what jobsthey offer, and where they are.Ironically,

one result of all that is that national

governments have less power to maintain

high levels of employment than they oncehad. A number of strategies formerly

used to put people to work are no longerpolitically or nancially feasible.42 Whatwill become of these potentially displaced

or discarded people? And who will they

blame? These are the kinds of conditionsthat, in some LDCs could be the spark that,over eighty years ago, provoked the RussianRevolution. There may not be a Lenin, butone never knows. There are underground

forces at work in nearly every LDC who arejust waiting for the government to make anenormous economic blunder.

It is a fact that, in the past generation, the

less developed countries have been unable

to deliver economic growth without, at

the same time, developing ination. It wasmentioned earlier in this paper, that the

LDCs may well need to establish a systemof taxation. But, add taxation to the ravages

of self-imposed ination, and there is thetinder for a major conagration.

Most of the reborn or newly-creatednation-states are too small or too poor

to operate successfully in the world

economyin many countries the national

capital has become the symbol for everything

42Barnet, p. 339



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that has gone wrong in peoples lives. Thereex action is to opt out of failing politicalcommunities. Ethnic or religious bonding

becomes the surrogate for a functional

political order.43

If the tone of this paper tends to benegative, that, unfortunately, is the outlookon any immediate impact on the economies

of the truly underdeveloped nations. As has

been pointed out, there are some among the

LDCs which are ready for moving up theeconomic scale. There are some which arepotentially able to do so, once their internal

political situations are settled. But, there are

also those nations where economic uplift is

still so far in the distant future as to considerthem apart from the others- a Fourth World.

The conclusion of this paper, then, is adespairing look at the have-nots.

The economic explosion of the 1990shas exposed a huge and disturbing income

gap between the industrialized and the

developing worlds. The divide was widebefore, but technology and globalization

have expanded it to nearly incomprehensible

breadth. Technology drives performance

today, and poorer nations just dont have it.Yes, the gulf between the haves and have-

nots in America is wide, but it is nothing

compared with this global crisis.44

Too few of the developed countries arereally paying close attention, as could be

seen at the recent WTO meeting in Seattle.During the several days of meetings, eventhough interrupted by demonstrations, the

subject of this widening gap never arose.

The popular idea in world economies isbased on the concept of laissez-faire, and so

anything that diverges from that is a subject

to be kept on someones back burner. It isan unpopular subject. Yet, half the worlds

population is increasingly threatened with

economic oblivion. That is dangerous forworld stability. There is no reason the restof the world should just accept that as an

economic fact of life, and move on. It is not

a sense of denying that we (the industrializedstrong) should be our brothers keeper (i.e.the weak and impoverished LDCs). It isthe adaptation of one of the oldest cliches

of strength- the fact that strength can bemeasured only to the extent of the weakestlink.

The world is not merely in danger ofsplitting into two- it is already doing so,

and there is no Richter scale measurement

that can acknowledge the tremors. There isa widening gulf between the very rich and

the very poor. And that is making the futureof the world as a whole a very unstable and

potentially inammatory situation. Perhapsthis is why Mr. Altman considers thesenations that are the least-developed and are

the lowest on the priority of the First World

as the Fourth World. It is almost as if weare placing that Dantean slogan above theborders of those nations: Abandon Hope, allye who enter.

What about this so-called Fourth World,

the truly deprived nations for whom little or

nothing is being done? They represent the

least-developed parts of Africa and Asia,and they will become even more susceptible

to brutality, state-sponsored terrorism and

mass tragedy. There will be more spots likeNorth Korea, Iraq, and Rwanda, and somewill be more dangerously armed. Iraq, for

example, may have some serious virus-lledarmaments, and other scientic weapons ofdestruction, unwittingly provided through aid

and training by Western nations (Germanynow is the most obvious suspect, with raids

and arrests begun in 1997).

The solutions, if there are any, do notinvolve the Western nations merely writing

out checks- and big checks, at that. And, theUnited States is as much at fault for ignoring

43ibid, p. 340.

44Altman, Roger C.: The Fourth World Los Angeles TIMES,

December 12, 1999, p. M 1.


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this Fourth World as any other country, since

it is the richest nation in the world. The U.S.is showing pitifully little interest in its own

poor, let alone those in Africa and India,

Bangladesh, etc.

Hope, if there is any, seems now to becentered on ever-cheaper technology that

enlightened businesses and even private

philanthropic organizations will bring to

the Fourth World. The basic premise in thisgiving seems to be that supply can inducedemand: the availability of extremely cheapcellular phones, Internet access, or medicines,

for example, can create consumers of them,

even in these terribly distressed markets.

Yet, there are few changes in the policies ofthe Have nations, other than money, thatcan truly help.

If there is one horrifying shock in theworld, it is the increasing gulf between

the haves and the have-nots. This cannotbe stressed often enough, or repeated until

someone not only pays attention but takespositive action. The income disparitybetween the richest and the poorest fths ofthe worlds population was 30 to 1 in 1960.

Today it is 75 to 1. A hundred years ago,Americas per capita income was nine times

larger than Chads and Ethiopias. Today, itis 45 times larger. Especially poignant, 98%of children who die before age 5 live in the

developing world. 45

More than any other single factor, it is

technology that separates the fortunate from

the less-fortunate. Today, technology drivesproductivity, which, in turn, determines

standards of living. But the gap in

technological capability between wealthier

and poorer nations is huge and growing.

Communications is a perfect example

of that gulf. Virtually all U.S. and Western

European homes have telephone service;

half of Americans have a computer at

home. But there are only 14 million phone

lines in ALL of Africa, fewer than in the

Los Angeles metropolitan area. There arealmost no homes with a computer, however

much out-of-date. One out of every three

Americans now uses the Internet, but only

one out of 10,000 residents in India uses it..

It may seem incredible, but statistics showthat there are more Internet users in the U.S.

than in the other nine most populous areas in

the world combined.

The questions the Have governmentsneed to ask- and ask in a hurry- is whetherwe are willing to accept a two-planet system

in the 21st century. Should these nations,

including, of course, the U.S. be rather

selsh and concentrate on ones self, or build

those nations who respect our interest indominating their markets? Or, on the otherhand, do these nations have a responsibility

to try harder to lift this Fourth World up?

And if so, how?

Yes, it is a moral issue. Over the

foreseeable future, none of the Fourth

World nations pose a threat to the U.S. or

any other industrialized country. At the

same time, the poverty of this Fourth World

has absolutely no impact on Y.S. or other

Western economies. In other words, it is notto the ECONOMIC benets of the Havenations that some action must be begun, and

begun now. It is, unfortunately (speaking ofmoral issues) more of a concern for many

Americans, to save the whales or baby seals

than it is to assist the starving in the horn

of Africa. But, it is unconscionable to do

nothing while nearly three billion people

are existing on less than $2 a day. And arereceding into oblivion.

We can use technology to improve their

lot. The question is, still how? One keyis the same technology that is widening

income inequalities. It may ultimately be the

economic salvation of the developing world.

This is true because the accelerating speed

45ibid, p. M 1.



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of technological advancement is lowering

the price of all technology. From laptops to

Internet service, prices are plummeting.

This will enable a far more global useof the Internet. Soon, any computer user in

Africa or India will be able to download allinformation free from the greatest libraries

in the world. any remote medical unit will be

able to have instant access to case histories

from the greatest teaching hospitals.

If there is one nearly immediate

opportunity to do something for the Fourth

World countries it is a) to teach people how

to access information and a general usage

of a computer, and b) for private industry to

provide computers and their technology atlittle or no cost, hoping to recoup eventually

in other economic areas within that nation.

With the WTRO seemingly paralyzed,it might be an occasion for the World Bankto step in and do something. But that means

that capitalization would have to increase,

which can happen only through increased

contributions by the Have nations. Thenancial resources, as pledged by theHave nations would not be outright cash

grants, but would be offered in the form ofteacher and education assistance, and other

recipients in those countries who are either

private or religious, thus circumventing

the often corrupt governments and their

ofcials.The industrial nations can also provide

some positive relief and assistance in

areas such as lowering tariff regulations

on goods imported from the Fourth World

countries. It is mind boggling to realize that

many countries, including the U.S. keepimport tariffs so high that it is economically

unfeasible for many of the Fourth World

nations to attempt some sort of trade. TheU.S. and other nations are overdue in

lowering tariffs aggressively, particularly

since trade with the Fourth World has no

negative impact on their economies.

Private philanthropy can also help. Overthe past decade, fortunes have been made,

and- it would seem truly magnanimous if

some of those funds would go to the Fourth

World economies rather to a Monet painting

that few, if any, will end up appreciating. There are some recommendations that

might be considered to provide impetus to

raising the economies in LDCs. None ofthem may be universally acceptable, but an

attempt must be made to close that wide gap

among the worlds economies.

All the industrialized nations who earn a1.

surplus from trade should join together to

pledge a percentage of that surplus intoa fund for improving conditions in the

LDCs. A special commission, other thanunder UN auspices, could be set up to

administer this fund, free from political

pressures. Members of this commission

would serve without compensation,

and be equally divided among the

First, Second, and Third World nations.Any attempt to inuence appropriationbecause of ethnic, religious, or racial

reasons would immediately dismiss thatmember from further consideration.

An international version of Americas2.

Peace Corps would be formed.Instead of military service in various

nations, for example, a tour of duty in

emerging nations would be substituted.

Organizations, such as Medicins sans

Frontieres, (who were awarded thisyears Nobel Peace Prize) would beencouraged to expand with grants

provided. The need for such a JobCorps, or Peace Corps, approach wouldhave certain priorities: agriculture, birthcontrol and/or family planning, medical

needs including mass vaccinations,

education, building of infrastructures,

ood control, sanitation, providing tools,


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24/25



What is important in the development of

strategies for relief of the Fourth World is

that there can be no conict. These varioussuggestions cannot turn into a Me rstdebacle, where one deprived nation becomes

angry because another nation has receivedmore than it has. Global development has to

have as one of its major points Peace.Economic development also requires

solutions to ethnic and religious conict.Economic uplift cannot stop at foundations

for new factories, the installation of new

technologies, and various international trade

agreements. The impact of international tradehas to be felt by every resident who may now

nd a longer, healthier, and more productivelife. Without a positive effect on the humanand humane factor in the LDCs simplyproviding greater opportunities for trade is

like giving away free tires for an automobilewhose engine is not functioning.

The gulf between the Haves and have-Nots will never entirely disappear. But, it can

be bridged, and narrowed. And, if that can

be accomplished within the next decade, the

world can sense a new Industrial Revolution

where no one will have to left on the outside,looking in.

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altavista.com

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vnng/policies.htm

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