Topic: EducationSchool
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Last updated: April 3, 2019

The all-encompassing effects of globalization on monetary coordination, international trade, telecommunications, scientific cooperation, cultural exchanges, migration, and international relations have made it a persistent phenomenon that is worthy of being the subject of much argumentation by economists and laymen alike. Globalization has been criticized as being a tool for exploitation of people especially those in the underdeveloped nations, resulting to an ever increasing gap between the rich and the poor, environmental destruction and heavy debts (Helmle 2001).The supranational institutions, IMF and WTO were established in 1945 after the world war at a conference in Bretton Woods. These institutions, functioning as economic policy-makers had become the major influencers of the economies of underdeveloped nations (Alternative Information and Development Center 2008).

As Stiglitz (2003) points out, these institutions being the agents and directors of the forces of globalization, account for the current pervasive debt that characterizes almost all underdeveloped countries.In principle, circulation of any surplus of capital must be induced by financial institutions lest capital turnover and transformational growth become hampered (Salvatore 1994). Underdeveloped nations were encouraged by these institutions to take out loans for the stimulation of development during the period of increased global capital surplus in the 1970s.  This was based on the theory that planning and investment were necessities for the correction of market imperfections, creation of enterprises and industries as well as the need to finance development in “Third World” (Thadani 2006).As a result, the previous nationally-directed path of development in countries was transformed to a path that was directed by global economic policies, paving the way for global economic integration (Thadani 2006). Underdeveloped countries were forced to adapt to this globally-directed policies by transforming economic management to one that fits the neo-liberal agenda (Thadani 2006). In doing this, economic management must be characterized by reduced economic regulation, privatization, and liberal market systems—principles derived from the individual goals of industrial countries (Dunn and Mutti 2004).

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The underdeveloped countries’ roles in policy-making became subjugated to these global principles. This resulted to problems in governance and representation as well as questions on the legitimacy of these supranational institutions in dictating the course of action for Third World development (Stiglitz 2003; Thadani 2006). One school of thought saw globalization as a phenomenon that eroded state sovereignty and traditional states (Jameson and Miyoshi 1999), as supranational institutions such as IMF and WTO emerged as global economic controllers that reduced such sovereignty to merely an element of the usual bargaining leverages done by states (Prakash, Vijapur and Shah 2006; Alternative Information and Development Center 2008).For global integration to become effective, strategies and policies must be formulated and discussed by these policy-making institutions to enable the nations to benefit by increasing the job opportunities, increasing incomes, improving technologies and skills, restoring the environment, and by being provided and avenue for the exportation of local products (Prakash, Vijapur and Shah, 2006). In underdeveloped countries, these did not happen.Due to the failure of the development projects, mismanagement, corruption of leaders and trade deficits, these countries became incapable of repaying the loans. The debts were further increased as the institutions offered more loans to assist in the repayment of the loans. In the end such assistance created a debt trap that only aggravated the crisis experienced by the countries.

The global debt crisis in the 1980s only exacerbated the already disparate incomes of the rich and poor (Alternative Information and Development Center 2008).In addition, the rules imposed by the supranational institutions only allowed underdeveloped states to reduce their trade barriers, or open up their markets to first world products without being given corresponding reciprocal  access to first world markets, as well  as on issues of trade and investments, migration, and media (Alternative Information and Development Center 2008, Dunn and Mutti 2004). Subsidies were being ended without being ensured of any reciprocal action especially if such subsidies did not fit the interests of those in power in the controlling supranational institutions (Alternative Information and Development Center 2008).Unfortunately, these supranational institutions do not operate democratically. Power is usually concentrated in industrial states which naturally, are moved by personal state interests, to the disadvantage of underdeveloped nations (Stiglitz 2003; Thadani 2006).

As an upshot, underdeveloped countries do not have full control over their economic resources. Aside from giving up part of control over their economic policies, international doctrines (on odious debts) that are supposed to protect the nations from the debts are undermined by the mere existence of the supranational institutions.  (Prakash, Vijapur and Shah, 2006).Before being granted loans, governments are required to subscribe to Structural Adjustment Programs (SAPs). The SAPs are imposed on underdeveloped countries to ensure no default on the part of the said countries. These programs are done by imposing tough conditions on loans made by underdeveloped countries. The programs make powerful instruments for economic transformation (Imam 2007) as it gives the institutions power to dictate the economic policies of underdeveloped countries.

Unsurprisingly, the application of such programs is directed to favor global economic integration under the control of the supranational institutions which in turn are controlled by more powerful economic interests. Policies for debt management shape the economies of underdeveloped nations, allowing indirect control of these economies by industrialized nations. The neo-liberal policies such as free-trade and privatization are imposed on governments in exchange for loans and other deemed benefits of economic integration (Imam 2007).While these measures are set to improve the economic conditions of underdeveloped countries, the conditions have actually worsened. Given that the countries are still unripe for competition against the industrialized nations, only negative consequences on the economies of the underdeveloped nations resulted. Unfair competition coupled with the high interest rates imposed by SAPs keeps the underdeveloped nations in its decrepit state (Imam 2007).An estimate of at least half a million children is said to have died as a result of such measures.

The restructuring of world economies by SAPs results in the repression of basic needs because of the increase in percentage of national budgets being channeled to the payment of debts (Masud 2000). In sub-Saharan Africa for example, about 30%-50% of earnings are channeled to pay debts. Almost always, what has been paid for just interests of loans made to financial institutions already covers more than the value of the actual loan. Already $167 billion has already been paid by sub-Saharan Africa before 2000. This almost doubles what was owed in the 1980s (Making Contact 1999)Consequently, reduction in labor, production costs, and poverty ensue. In this context, the normal reaction for governments would be to increase exportation.

Production is then aimed towards the external market. In addition, destructive effects on the environment, increased malnutrition and infant mortality, increased unemployment and illiteracy rate have been attributed to the debt crisis, pushing underdeveloped countries to further decrepitude (Alternative Information and Development Center 2008).Governments are not free to choose whether to accept the conditions of SAPs because those who refuse to conform are automatically black-listed. In other words, the underdeveloped countries are made to face a dilemma on whether to subscribe to the programs and allow further erosion of economic sovereignty or allow freezing and blockage of opportunities for development such as investment, technology transfers, export and import credits. In any case, underdevelopment is promoted (Alternative Information and Development Center 2008). Perkins (2004) confirmed this by describing how financial institutions hire agents to convince governments of underdeveloped countries to take development loans. Foreseeing the countries’ inability to pay, the debts are used by powerful countries as political tools that would neutralize these nations on variety of issues.

The measures imposed by supranational institutions may be beneficial only to countries that have reached a certain point of advancement. The effects of these measures on some countries may do the opposite to other countries that operate at an exactly different context. This has not been recognized by the institutions. According to Korten (in Masud 2000), “little note was taken of the evident contradiction that if maintaining the U.S.-style economy required access to most of the world’s resources and markets, it would be impossible for other countries to replicate that experience.

Nor is it evident that much thought was given to the contradiction of financing industrial exports to low-income countries with international development loans that could be repaid by these countries only if they developed export surpluses with the countries that had initially extended the loans” (Masud, 2000). He adds that “The argument that globalization increases competition is simply false. To the contrary, it strengthens tendencies toward global-scale monopolization” (Masud, 2000).


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