Mexico and the World
Vol. 5, No 2 (Spring 2000)
http://www.profmex.org/mexicoandtheworld/volume5/2spring00/globalization_laeconomies.html
Jiang Shixue, Ph.D.
Associate Director
Institute of Latin American Studies
Chinese Academy of Social Sciences Beijing
People’s Republic of China
Globalization and Latin American Economies
Translated by the author,
excerpted from Latin American Studies, No. 4, 1997.
Globalization has attracted increasing attention of the scholars around the world. But we are still not clear about many aspects of the globalization issue. This paper tries to look at the notion of globalization and its real impact on the developing countries. Finally, it will discuss how Latin America reacts to globalization and then point out several important questions.
I. The Notion of Globalization
It is believed that the term "globalization" was first put forward by Therdre Levitt in the early 1980s. He used the term to describe the significant changes in the world economy in the past two decades, namely the rapid movement of commodities, services, capital and technology.
The notion of globalizaiton is still being debated. Indeed, economists, political scientists, sociologists and historians, among others, all look at the dramatic changes in the world by using the term "globalization". In many instances, however, globalization
means economic phenomenon.
According to some Chinese scholars, even if we add the word "economic" before "globalizaiton", the notion is still not accurate. For instance, some would say that globalization is a tendency of economic integration represented by the birth of European Union, NAFTA and APEC. Others would argue that globalization means the deepening interdependence between the North and South countries and among the developed countries. Still others would consider globalization as the fact of an increased role played by the transnational corporations (TNCs) in the world economy.
I would argue that globalization signifies a tendency in which vertical division in the whole framework of the international division of labor is being replaced by horizontal division; the movement of commodities, capital, technology and information is increasingly rapid; allocation of recourses has gone beyond the national boundaries; interdependence among nations is being strengthened; and the pace of regional integration has become all more speedy.
II. Impact of Globalization on the Developing Countries
What is the impact of globalization on the developing countries?
This is a question we need to answer. Some Malaysian scholars argue that globalization is closely linked to development, politics and social areas. The nature of this linkage is inequality, which is reflected in many aspects like the international trade regime, terms of trade, finance, investment relations and technology transfer. In addition, the benefits and costs from globalization is not distributed evenly among nations. The developed countries tend to gain more benefits and the developing nations would gain less.
The Malaysian scholars further contend that in an era of post-colonialism globalization is developing more rapidly. As this era is characterized by inequality in the international economic system, the North reaps hundreds of billion US dollars from the South through trading, lending loans and making investment. As a matter of fact, this is one of the major causes leading to capital shortage!
The Malaysian scholars point out further that the other side of globalization is equal to globalizing the developing countries' economies. First, the South is increasingly affected by the world market economy. Second, the decision-making process originally controlled by the developing nations is constrained by the foreign governments and the international financial organizations. In an era of "free trade', the loss of economic sovereignty will be made even worse. Therefore, developing countries should unite to struggle for a better international economic order. Undoubtedly, the above arguments point forcefully to the negative impact of globalization and fight back the North which attempts to use economic globalization to force the South to open its market. However, the Malaysian scholars' arguments fail to see the positive impact of globalization.
It is important to note that, as the product of international division of labor, globalization can improve the allocation of recourses in different countries in a better way, and enable the developing countries to gain access to more capital, market shares and technology. Therefore, in order to quicken the pace of industrialization and economic modernization, the South needs to take advantage of the opportunities created by globalization.
As a matter of fact, East Asia's economic success, at least until the current financial crisis, proved that active participation in globalization is beneficial to economic development. And, some World Bank studies showed clearly that global economic integration was closely linked to economic development in the South.
In theory, globalization provides the participants with the same opportunities. In practice, however, because of the different development levels and ways of reaction to globalization, the benefits they gain are varied. As far as Latin America is concerned, such newly industrializing countries like Argentina, Brazil and Mexico would reap more benefits than the Central American states or the Caribbean islands.
How should the positive effects of globalization be increased and the negative repercussions be lessened? Paul Streeten suggests the following options:
Create transnational institutions to develop and enforce global anti-monopoly, anti-cartel and anti-restrictive practices and legislation.
In developing countries, change policies that overprice labor, under price capital and overvalue exchange rates as a means of reducing unemployment.
Improve the share of developing countries in the global distribution of wealth, using their collective bargaining power with multinational corporations to retain a greater proportion of profits.
In sum, developing countries should take their national reality into account and make great use of the opportunities offered by globalization so as to find a suitable place in the globalization wave.
III. How Latin America Reacts to Globalization
Developing countries react to globalization in several ways ranging from autarky to active participation. Latin America did not chose the option of autarky. But compared with East Asia, Latin America participated in the wave of globalization in a limited way at least before the 1980s. Especially in the 1960s and 1970s, when East Asia had started to enter the world market aggressively, Latin America, greatly influenced by the so-called "export pessimism", was still clinging to the inward-looking model of import substitution industrialization. As a result, in the 1970s, while the annual growth rate of export was 9 percent for East Asia, it was less than one percent for Latin America.
Since the late 1980s, however, Latin American decision-makers have realized that the region's fate would be determined by the degree of international competitiveness, which in turn would be closely linked to participation in globalization. Towards this end, Latin American countries have taken up the following steps.
Through industrial restructuring and other policy measures, Latin America has been increasing its export capabilities.
Though import grows faster than export in many countries of the continent, we have to admit that its export value has increased remarkably, from $87 billion in 1986 to $227 billion in 1995.
Since participation in globalization is not limited to promoting export, Latin America has also made great efforts to open its domestic market to foreign competition. As a result, the region's tariff rates fell drastically.
Latin America has amended laws, or even constitution in some cases, to open more sectors to foreign investment. In many countries, the so-called "strategic areas", where no foreign capital would be allowed, have been eliminated.
Regional economic cooperation has been reactivated. Since the late 1980s integration organizations like MERCUSUR, the Andean Community and the Central American Common Market have played an important role in the region's economic affairs. There are several reasons accounting for the rebirth of these organizations, one of which is Latin America's stronger desire to take part in the globalization process, as regional integration is an important part of this process.
It is necessary to note that Latin America is faced with several constraints in reacting to globalization. For instance, the region's exports are composed of more labor-intensive products and less technology intensive products. This situation is certainly closely linked to such factors as relatively low level of R&D and weak international competitiveness. Furthermore, with more opening of the market, Latin America's domestic firms are having a hard time. The region's decision-makers are faced with a tough question of how to protect national industries in the process of going along with the globalization wave.
IV. Conclusions
In discussing the issue of globalization, we need to answer the following questions:
Is the dependency theory obsolete?
It is time to reconsider the dependency theory. The dependency theory, which was quite popular in Latin America in the 1960s and 1970s, believed that the cause of poverty in developing countries was their dependence upon the industrialized countries for market access, capital and technology. Therefore, the South should de-link itself with the North.
Indeed, the dependency theory pointed out the nature of the North-South relations, and therefore provided theoretical foundations for the developing countries to call for the establishment of an new international economic order. However, this
theory over-emphasized the external causes of underdevelopment and paid less attention to the internal factors in this regard. As a matter of fact, de-linking should be an impossible option in an era of rapid development of globalization process.
It is interesting to note that even A. G. Frank, the father of dependency theory, acknowledged in late 1993 that "de-linking" would no longer be possible for developing countries.
What is the real impact of foreign capital upon the developing host countries?
Rapid movement of capital is one of the most important features of globalization. It provides developing countries with a rare opportunity to make up for the lack of domestic capital formation, particularly for Latin America where the savings rate is not high. At the same time, however, we need to note that foreign capital has a dual influence on the host country's economy.
First of all, the transnational corporations are playing an all the more important role in the host countries' economic performance. Second, these giant companies have made a lot of profits from their activities in the developing countries. Third, the rapid movement of speculative capital, or "hot money", has increased risks for the South in their efforts to introduce foreign resources. The Peso crisis of Mexico in 1994 would serve a good example in this regard. The crisis proved that not all money is good money; and the recipient government should be cautious towards this kind of foreign capital.
How should the developing countries deal with the relationship between opening to the outside world and protecting the domestic industries?
Opening the market is one way of going along the tide of economic globalization. In many Latin American countries, however, domestic industries are faced with great hardships resulted from the inflow of foreign competition. Therefore, the decision-makers were caught in a dilemma of policy options. The following three points seem to be important. First, there are no generalized answers to the question of how to liberalize the market and how to protect it. Second, in the process of participating in globalization, those domestic enterprises with less international competitiveness would sink into hardships. Therefore, decision-makers should not keep out foreign competition simply for the sake of protecting them. Rather, great efforts should be made to strengthen their competitiveness. Third, domestic industries with strategic importance should be protected. In this regard, protection of these industries does not necessarily mean the protection of backwardness.
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