Global Free Trade Is Raising the Standard of Living in Developing Countries

However, it has been mired in controversy and seen to be hijacked by rich country interests, thus worsening the lot of the poor and inviting protest and intense criticism. ” http://www. globalissues. org/article/42/the-wto-and-free-trade There are some 64,000 TNCs controlling 870,000 foreign affiliates. Globalization, particularly the dismantling of trade barriers (free trade), has allowed companies to spread widely in search of cost efficiency and to implement integrated production strategies across regions and even continents.

Unquestionably, they bring resources of great potential benefit to develop and developing countries. Such us: advance technology to combine with raw material and cheap labour to a great effect, business management expertise, tried and tested methods of conducting certain task and much more. However, despite this positive potential, the TNCs phenomenon also carries some negative potential such as ethical, crimes and abuses, as human and worker rights violations, private or public corruption. Instances, in 2000, DE BEERS in Angola were buying “blood diamonds”, allowing a group of rebels to finance civil war.

Obviously they were not keeping the impositions made by the local government. On the other hand, Nike had located its manufacturing operations overseas, mainly in Southeast Asia, in search of low wages, but the hundreds of thousands of workers were young and mostly Asian women. Moreover, the working conditions and living standards were really unacceptable, “as chemicals used in the production process were known to cause eye, skin and throat irritations; damage to liver and kidneys; nausea, anorexia, and reproductive health hazards through inhalation or in some cases through absorption through the skin”. In 1990 when Nike shifted production to Indonesia, daily wages there hovered around $1 a day, compared to wages in the US shoes industry at that time of around $8 an hour” (Rebecca J. Morris and Anne T. Lawrence). Specific instances of serious problems with TNC practices – frequently related to environmental despoilment – have created civil unrest and a backlash against the presence of multinational companies, especially large and politically well-connected ones.

Shell Oil Company in Nigeria, Sinopec(China Petroleum and Chemical Corporation) in Angola, Bechtel in Bolivia, Union Carbide in India, Chevron Texaco in Ecuador are cases of major TNCs presence that has generated major problems. Transnational Corporations (TNCs) sometimes referred to as multinational companies, are enterprises that control economic assets in other countries – generally this means controlling at least 10% share of such an asset, these companies command enormous financial resources, possess vast technical resources and have extensive global reach.

In 2002, the most recent year for which full data are available, FDI (foreign direct investment) made throughout the world totalled about $651billion. While most FDI goes to developed countries; for developing countries it is by far the largest source of external finance. Despite their impact in developing economies, however, TNCs are not development agencies. They are profit-seeking organizations. These dual roles of funding source and profit seeker – unrelated roles that are neither conflicting nor complementary – have made TNCs object of great controversy.

So consequently some questions rise, such as Do they help or hinder? Do they give or take? Are their benign or malign? Are they stakeholders or exploiters? Can they be persuaded to be good world citizens or are they indifferent to their impact? Free trade is often opposed by domestic industries that would have their profits and market share reduced by lower prices for imported goods. For instance, if United States tariffs on imported sugar were reduced, US sugar producers would receive lower prices and profits, while US sugar consumers would spend less for the same amount of sugar because of those same lower prices.

Economics says that consumers would necessarily gain more than producers would lose. However, domestic sugar producers have large financial incentives to politically oppose the lifting of tariffs. More generally, producers often favor domestic subsidies and tariffs on imports in their home countries, while objecting to subsidies and tariffs in their export markets. Free trade is also opposed by many anti-globalization groups, based on the observation that so-called Free Trade agreements generally do not increase the economic freedom of the poor, and frequently makes them poorer.

See Perfect Competition for the basis for this view of how Free Trade should work. For example, it is argued that letting subsidized corn from the US into Mexico freely under NAFTA at prices well below production cost is ruinous to Mexican farmers. This claim is of course disputed by the U. S. corn lobby. So one might say host country governments make barriers to TNCs to nurture infant industries and promote industrialization, to protect domestic employment, especially in low-skill jobs, from low cost imports, to protect consumers from unsafe products and to safeguard national interests.

So how exactly is Global free trade raising the standard of living in developing countries? Most economists, such as Paul Krugman, argue that free trade helps third world workers, even though they are not subject to the stringent health and labour standards of developed countries. This is because “the growth of manufacturing – and of the penumbra of other jobs that the new export sector creates – has a ripple effect throughout the economy” that creates competition among producers, lifting wages and living conditions. It has even been suggested that those who support protectionism ostensibly to urther the interests of third world workers are being disingenuous, seeking only to protect jobs in developed countries. According to the Free Trade Organisation one of the many benefits of Global Free Trade is the countries that those countries that lower trade barriers and open their markets enjoy higher economic standards of living. “Consumers have access to a wider range of higher quality products at prices lower than they would otherwise pay. The average person also benefits in terms of wages and job opportunities.

When labor and capital flow freely to the most productive areas of the economy, workers are employed in better, higher quality jobs with higher wages. While there are inevitable short-term transition costs in some sectors of the economy, the long-term benefits of free trade for all far outweigh such costs. ” http://www. freetrade. org/faqs/faqs. html Since the collapse of the erstwhile Soviet Union, the already huge sphere of influence of Liberal Free market ideology has expanded further to include several countries, mostly those from the third world or developing countries.

Since Deng Xiaopeng’s market reforms were brought in the late 1970s in Communist China, several developing states like India, Brazil, and various African nations have slowly but surely moved away from a regulated economy towards a more market oriented approach. Effects of this spread of free trade have varied significantly from country to country. Free marketeers can point to the astounding growth rates achieved by China since the early 80s and India since the 90s to explain the benefits developing states can reap by embracing free trade.

However, this march to free trade has not been without hiccups as depicted vividly in the Latin American crisis, 1997-8 East Asian depression and the reluctance of the west to stick to the principles of global free trade when it comes to securing domestic interests. Overall, in determining whether reduction of trading barriers is actually beneficial for these countries, the two most important contemporary issues to be considered are that of rising disparity in wealth in these countries and that of opportunity cost rising as a result of the developed countries actually violating the norms of free trade.

The Chinese economic miracle has been the classic example used to hail the success of free trade. As a result of liberalisation, foreign direct investment has flown to China and from around $590 million in 1979, today China attracts nearly $50 billion of FDI which fund around 23,000 projects in the country. China faces a threefold problem of disparity of wealth- rural-urban, regional as well as between urban dwellers. For example, China’s rural population earns only 40% of its urban counterpart where in most countries, developing or developed, the figure is around 66%.

China’s mid-west has a GDP per capita which equals to 47% of that of the East Coast. One of the biggest problems China has faced since resorting to free trade is that of unemployment and currently more than 10% of urban Chinese and much more amongst the rural population remain unemployed. This problem was something which China rarely faced during its socialist tenure, although living conditions in general, especially in urban areas, have improved greatly since the embracing of free trade.

Inequality is a problem common for most developing countries as free trade ensures only selective inflow of money in certain areas, sectors and industries and less and less government intervention has meant that there is no regulatory force to control the distribution of resources. African countries, in their slow transition to a market economy, have experienced this vividly. Critics of free trade have often argued that it results in overrunning of the domestic industry of the developing nation by the multi national corporations.

We can even see an expanding trend in the domestic companies in India who are venturing into other Asian and African countries. Adhering to free trade principles, it naturally follows from this that these companies would not hesitate to relocate to another country if it provides cheaper or better means of production. So far, India has been the leading nation in terms of attracting off-shoring financial services jobs. One could argue, though, that increased free trade leads to enhancing competition and greater efficiency for the companies and a good deal for the consumers of the country.

For instance, the recent US ban on Business Process Outsourcing can hurt employment conditions in countries like India very much. The arguments between the developing and developed nations at Cancun also underline the lost opportunities the current system is bringing about. Forced liberalisation of the capital markets of East Asia led to the 1997-8 crisis. Pressurising countries to formulate policies to liberalise their economy almost forcibly and resort to free trade has often yielded disastrous results. IMF insistence on cutting government subsidies has led to a 2% fall in income levels in the world’s poorest region, Sub-Saharan Africa.

Thus, we see that the success stories of free trade namely South East Asia, India and China have mostly followed a regulated derivative. Most of the failures in the world of free trade have been countries which have embraced it, or been forced to toe the line, and opened their markets when conditions were not favourable. The principles on which free trade stands for are definitely, at least in theory, beneficial for the developing states. However, given the contradictions the developed world often makes to its own principles, it is perhaps safe to say that complete free trade is harmful to the interests of a developing country.