Globalisation in Developing Countries Essay

Submitted By georgiegillam
Words: 3020
Pages: 13

What have been the main effects of globalisation on Less Developed Countries (LDCs)?

In response to the ill conditions in most of the western world after the Second World War, many countries adopted Keynesian style economic strategies in an attempt to regain a certain level of stability between labour and capital. Welfare states and international capital controls were adopted and enforced through government intervention in the hope of achieving a state of full employment and thus demand. The regulation of capital flows and optimization of internal aggregate demand were core to Keynesian style economic recovery. These policies were enforced in 1944 at the Bretton woods conference in New Hampshire where the international monetary fund (IMF) and the World Bank were also created to facilitate orderly international trade and to act as a Lender of Last Resort. These institutions lent Western European countries the money needed to help them repair their broken economies after the devastation caused by the war.

Development of the ‘neoliberal consensus’
In contrast neoliberal ideology supports Adam Smith’s ‘Invisible hand’ metaphor in believing that a self-regulating marketplace will work naturally with competition to reach market equilibrium (the invisible hand will guide the market). Free trade, private enterprise and increased consumer choice is the backbone of neoliberal thinking today. The idea suggests that by opening trade barriers, removing import tariffs and cutting government expenditure the state can enjoy high levels of economic growth. Supporters of neoliberal ideas are usually transnational corporations (benefiting from deregulation), wealthy investors (who are able to take advantage of privatisation with foreign direct investment), right wing political parties and academics from fields where social factors are often ignored.

Neoliberal ideas were further developed by Milton Friedman and his academics at Chicago University. In 1973 under a military coup, a group of right wing Chilean economists from the University of Chicago developed a radical restructuring neoliberal model for their country in the hope that it would aid growth. This included the aggressive opening of the economy, extreme cuts in government public spending, devaluation of its currency and rigorous privatisation of government run institutions such as transport, health care and education. Within just a few years, Chile was the most open and ‘free’ economy in the world and enjoyed large inward flows of foreign direct investment (FDI) and benefited from the huge volumes of commodity exports which flowed from Chile’s position as the world’s largest holder of copper production potential. The system was a huge economic success for Chile, meeting all of the objectives it originally set out to do, such as; the lowering of inflation, the increase in the volumes that it exported and the creation of a highly competitive market. This quick transition however did not come without major costs, both socially and environmentally. The policy to export vast quantities as quickly as they could, posed a huge threat to the sustainability to Chile’s natural resources. Those most in need suffered grave consequences as a result of the rapid transition. This included small businesses, small farmers and the poor. Neoliberal policies increased unemployment and poverty, further widening the gap between the rich and poor and increasing the country’s level of inequality. It was said that this economic success would eventually filter down to the masses (‘trickle-down economics’), this however would be a distant future and the country would suffer in the short term.

The Bretton woods system was wound up in 1971 when President Nixon announced the abolition of the gold standard and the removal of restrictions on international capital flows. Although threatened, Keynesian influenced economic policy still largely dominated much of the world’s economy. Chile’s economic success was