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2009

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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 longer "consists 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

1

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

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Introduction and Overview.

Calvin Coolidge once said that the business of America was business. This is now true of every nation in the world. Of course, business is a far more structured and sophisticated 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 a place to train them and a splitting of profits and royalties with the governments (and, not incidentally with those who have the power to grant licenses and overcome bureaucratic snafus). On the next pages, we will examine whether the concept of "free trade" remains an oxymoron, and whether agreements such as NAFTA and the successors to GATT have any positive impact on less developed nations. The recent WTO meeting, disruptive and unsuccessful as it was, gives signs that emerging nations hold the power to pass, block, or delay any meaningful trade agreements. This WTO meeting, in other words, accomplished nothing, since the representatives of these "lesser" nations decided not to make any definitive actions. What the WTO meeting did signify was 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 significant profits. In addition to free trade, we need to take a look at how foreign capital provides more opportunities. The globalization of the world's corporations and its market places have created an influx of capital into areas which were dormant, or under-served, at best.

There is a need to look at the utilization of the work-force in the less developed nations to see if merely being "employed" is equal to being 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 quasimilitary force. Finally, we will need to look at whether the competition among less developed nations for the largesse of the Capitalist countries will create animus, political infighting, 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 the various new soviet republics is warranted to see if stability through economic growth can be forecast. There are three economic developments in the past decade that make "International Business" and its management a vital means of economic domination. First, there is the communications explosion. Second, the development of the "euro" currency which makes the whole of Europe (the EU) a predominant economic and financial force to be reckoned with. And, the third development is the rise and fall and rise of various Asian nations. Currency fluctuations, and speculation, have caused severe financial strains in recent years, but Thailand, South Korea, Singapore, and Japan are making strong comebacks. How will this teetertotter effect influence the less developed nations 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 tend to disappear with the internationalization, mergers, and acquisitions of firms throughout the 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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This means that many global companies can 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 greater flexibility in the strategic location of plants and distribution centers, regional offices, and the 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 of giving mainland China Most Favored Nation status, and adapt some of their strategies to implementing opportunities in the less developed nations. Why are we calling these countries "less developed"? Two major reasons: First, there is no foundation of self-sufficiency within 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 that the opportunity to negotiate fairly has been absent, partially due to the xenophobia of the LDCs, and partially toward an overlybenign and condescending attitude on the part of the Western corporations and their officials. 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 finding the resources available in the once-overlooked nations that have been under-developed. There is a downsize risk of course: Overdevelopment, in the sense of too much too soon. The key to successful development is a mutually beneficial, even-handed approach which can satisfy the giver (i.e. the nation) and the taker, (i.e., the global company). The time is past for colonial thinking. Just because the nation is under-developed does not necessarily mean that the goals and the understanding of local officials and managers is under-developed, as well.

Free Trade and Its Effect and Meaning on Less Developed Nations.

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, and companies behave in specific situations." 2 What is the impact of microeconomics on free trade? More than likely the fact that it is 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 the consumer base, and certainly the desire, but without free trade that has goods flowing into these countries for sale at affordable prices, the consumer's ability to pay is minimal, What do we know about this consumer? First of all, "every consumer has a set of tastes for the commodities that he can buy in a market, and these tastes are a `given' in the sense that they are not affected by a change in his income or a change in the price of any commodity." 3

2

Samuelson, Robert J.: "God is in the Details" NEWSWEEK Magazine, April 20, 1998, p. 47

3

Dewey, 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 country's 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 goodsclothes, 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 before eggs, 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 answer is that free trade can only be successfully managed when the needs of the consumer and his ability to satisfy those needs with purchases are taken into consideration. It is the old "marketing" cliché of selling refrigerators to Eskimos. If Free Trade is to 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 to export. 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 Nigerians in 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 the less developed countries to realize that the whole notion of "less developed"4 stands for a lack of a trained and effective labor force. We have none other than Adam Smith to look to, for the assumption that "labor" is the most 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 with which...labour is applied, and secondly, by the number of those who are employed in useful labour, and that of those who are not employed." In other words, the wealth of nations lies in the useful employment of its workers, and not in the monetary results of 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 book written a hundred or more years ago, the fact remains that Free Trade cannot work under those concepts because the employees are far from equal. An American worker, it is safe to say, is far more productive and effective during his hours of work per day than, say a Thai or a Ugandan. This is not racism. It is a fact of tradition, training, and different approaches to the fulfillment 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, and Africa into a fair competition with, and economic parity with, the Western countries. Eugene R. Black, as president of the World Bank, told these under-developed countries: "Give us the right atmosphere an d we will sow towns and cities in place of theories... Without sacrificing 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 Turner, Louis: Multinational Companies and the Third World, New York: Hill & Wang, 1973, p. 5

5

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and the need to find, open, and dominate markets other than those already saturated. "Information and capital now migrate around the globe in the blink of an eye."6 Free trade can flourish, many economists, believe because we have now created a "borderless economy". "Most visibly, the nation-state itself- 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 flow of 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."7 Free trade, therefore, is at the mercy of socalled "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, is that the desires for global products- whether blue jeans of Coke are just as strong in the underdeveloped nations as in the major Capitalist ones. Free trade is the prop that now holds the world's economies together. That is the opinion of the powers who attempted to make the WTO meeting provide open markets and access throughout the world. The reason why this was (and still is) desirable can be seen in the sheer numbers. "As recently as 1957, the total volume of services and goods traded across national borders was $57 billion. In 1989, that amount had risen to $12.7 trillion."8 One of the key factors that many pro-free trade economists now proclaim is needed is education. "Economic educators have the considerable job of making clear that tariffs don't protect jobs (actually they destroy

jobs!)...that the rich hardly become richer by exploiting the poor (actually they get richer in a market economy by enriching the poor, and by raising living standards through capital formation)...The market system is a moral system, a system of voluntary social cooperation."9 Another positive view of free trade states: To minimize conflicts 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 invest and produce where conditions seem the most propitious....Would-be traders should encounter no restrictions or barriers to trade within and across national borders..."10 There are opposing viewpoints to Free Trade. Needless to say, we are all familiar with the anti-NAFTA diatribes of Ross Perot. But there are many who feel that free trade, as it is now constituted, is harmful. "The world has never had a genuinely free and fair trading system. Ever since people argued whether trade follows the flag or the flag follows trade , trade has been based on domination and dependency, and has been an instrument of them."11 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 longer "consists of a series of closed

6

Ohmae, Kenichi: The Emerging Global Economy, Cambridge MA: Harvard Business Review books, 1995, p. xiii Tibid, p. 130 Bender, David, (ed.) Trade: Opposing Viewpoints, San Diego CA: Greenhaven Press, 1991, p. 13 Peterson, William H. "Free Trade is the Best Trading System", essay in Trade: Opposing Viewpoints, p. 23-4 Greaves, Bettina Bien: Free Trade: The Necessary Foundation for World Peace, quoted in Trade: Opposing Viewpoints, p. 35 Robertson, James Future Wealth, quoted in Trade: Opposing Viewpoints, p. 27

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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...(we now) confront...the inevitable integration of national capital markets into a single, powerful global market."12 "There can be no doubt that the prosperity of the industrialized nations sine World War II has been largely to global specialization and interdependence. No single country does all tasks today- products are designed in one country, produced in another, and assembled in a third....The `fair trade' argument for protection is but one of several false arguments...(There is) 1) the cheap labor fallacy- that the advanced industrial nations 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 fight against NAFTA. But, in the testimony of Philip M. Condit before the Subcommittee on Trade of the House Committee on Ways and Means, he provided some positive figures on NAFTA. " In the first year under NAFTA, U.S. exports to Mexico rose over 22 percent. Even with Mexico's economic problems, 1995 exports to Mexico were 11 percent more than preNAFTA figures. In 1995, U.S. exports to Canada increased 29% overt the 1993 preNAFTA level."14 There is no doubt that the emerging nations of the world have been led astray by the socialist theories "The LDCs are caught in the vicious circle of poverty...To break out 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 consensus seemed 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 Gabon who will have to take some power into their own hands. The problem is that the political climate 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, highway systems and so on, still has a problem about putting the cart before the horse. Albert O. Hirschman, in The Strategy of Economic Development explains that "if we endow an underdeveloped country with a first-class highway network, with extensive hydroelectric and perhaps irrigation facilities...can we be certain that industrial and agricultural activity will expand in the wake of these improvements? Would it not be less risky and more economical first to make sure of such activity...and 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 who intend to block any additional free trade with the less developed countries, one can read a column, which Krauss cites, that appeared in the New York TIMES: "Would you 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 Krauss: Melvyn: How Nations Grow Rich: The Case for Free Trade, New York: Oxford University Press, 1997, p. xiii Condit, Philip M. "Trade Myths and Realities" The Business Roundtable, www.altavista.com 1998 Krauss (quoting Walter Heller) p. 85 Krauss (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 a factory in Bangladesh until that day's 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 accepting U.S. fair employment standards for their own countries. There have been columns written about toys made by slave laborers and child labor in China and elswhere in Southeast Asia, we have seen Kathy Lee Gifford vilified for allegedly having her brand-line of clothes made by sweat shops in Guatemala and Nicaragua. Decent, as the efforts of the many writers and 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 should have a right to handle the way their laborers perform in their way, and not according to the rules and regulations of a far more advanced 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 the admonition on the wall that said "If you don't come in on Sunday, don't bother to come in on Monday." There are still illegal sweat shops, often in Chinatowns, or Koreatowns scattered throughout various metropolitan areas in the U.S. The WTO meeting in Seattle proved one thing: getting some 130 countries as varied as Malaysia and Sweden to agree on common labor or environmental standards is next to impossible. The majority of countries represented were LDCs, and they were not about to let the U.S. and other powerful industrialized nations interfere

with their internal policies. "The Asian nations have made it clear that they will not be bullied into adopting Western human rights standards....These self-confident nations will not capitulate to foreign human rights ideas regardless of the commercial pressures placed on them..."18 The Asian nations, for example, have an option. "In East Asia, intra-Asian trade is now on the same level as trade across the Pacific and is likely to grow much faster as Asian nations reduce their trade barriers and take advantage of one another's prosperity."19 The Asian nations are also now willing and able to spend more on research and development. "There is significant untapped technological promise...Measured as a percentage of GDP, for example, Taiwan and South Korea spend as much on research and development as do most European countries. For other ASEAN nations like Thailand and Singapore, the rate of growth of investment in R & D surpasses that of virtually all industrial countries."20 The eventual realignment of national economies in the increasingly borderless economy will turn some of the LDCs into BEMs- Big Emerging Markets. There are ten, according to Mr. Garten- Mexico, Argentina, Brazil, South Africa, Poland, Turkey, India, Indonesia, China, and South Korea. While each of these so-called big emerging markets is 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 specific markets so important is that they are a key swing factor (as Garten calls it) in "the future growth of

17

Krauss, quoting Anna Quindlen's November 23, 1994 column, p. 49. Krauss, p. 52. Garten, Jeffrey E.: The Big Ten, New York: BasicBooks, 1997, p. 32. ibid, p. 32.

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world trade, global financial stability, and the transition to free market economies in Asia, 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. Brazil is just emerging from a treacherous inflation, and is still overly dependent on coffee as its main export. What will happen in Mexico if the ruling PRI party, which has had a political lock on the national government for generations, suddenly becomes less of a majority party? Will South Korea overcome the problems some of its major industries are facing, with downsizing and even bankruptcy a social disaster? What will happen 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 Taipei won't go quietly. And, perhaps most important of all to the U.S., what will happen during the Election Year, 2000- and the possibility of a change of administrations. Does George W. Bush understand 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.

21 22

The Flow of Capital and its Effect on LDC's

Capital is on the move. Its flow is no longer restricted to the well-off nations. It no longer comes in the form of risk investments in the Third World. Billions of dollars now move from a financial institution in Country A to a provider of jobs, factories, manufacturing know-how and distribution and infrastructure developments in what may still be considered an Emerging Market, under-developed but ripe for implementation. We now see investments by companies as diverse as IBM and General Motors and Philip Morris in mainland China. The financial debacle in southeast Asia which may well have been fueled by greedy speculators like Nick Leeson in Singapore, and caused tidal waves ion Bangkok, Manila, Seoul and even Tokyo seems now to have straightened itself out and moved back upward, increasing the confidence of overseas investors. Financial institutions and their investor branches are looking at the LDCs as if they were oases in an otherwise drying up market, over-developed through the years. The role of foreign capital is still not properly defined or proven. "The collapse of the Asian financial markets in 1997 painfully demonstrated the interdependence of economies throughout the world."22 This, and some tottering economies in Uganda and Nigeria currently, for example, make foreign capital investments in so-called "emerging nations" still risk for some. The entire idea of 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 instabilities in the LDCs, still feel that corporations might go ahead with capitalization, provided they are willing to diversify capital investment portfolios or share the risks, even with competitors after the same markets. As Mr,

ibid, p. 3. Thompson, Maurice K.: Common Sense Global Investing, Chicago: Dearborn Financial Corp, 1998, p. vii.

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Thompas has it "Diversification is the refuge of the timid." 23He speaks, in his book, for a number of financial institutions poised to send capital overseas. He feels that too much diversification 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, flooded with petrodollars until recently, and able to make positive legislation which enabled a high percentage from international firms like Royal Dutch Shell, now finds itself in serious economic straits due to the precipitous drop in oil prices. In some areas, obviously, it hardly pays to drill and transship, until oil prices firm and rise, which OPEC is attempting to do, even as this is written. It is interesting to go on the Internet to find trade commissions and government web sites 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 expedient handling of real estate and tax matters, and even certain fee abatements for up to three years. The web site begins with "Article 1: In order to improve the investment environment 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 advantage for Siping over competing Chinese cities, and for its citizens as well as the territorial and local government officials, 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 in China. And, outward-looking Chinese are well aware of what colonial policies did elsewhere, the literal "raping" of the natural resources of the Congo by the Belgians, for example. The Chinese, as well as other emerging nations who want a place at the economic table are not seeking foreign capital- regardless of incentives offered or their need- without having some say in how that capital is spent, and where, and what the eventual 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 obvious that even the poorest nations, those who continue their ethnic cleansing (Rwanda and 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" into transforming their culture and tradition to conform to Western standards. The fact that concessions, such as Siping is offering on the internet, or that other nations offerNigeria promised dredging ports for the big tankers, and, with money to build cement plants, developed a highway system to bring the oil from drill site to ports (A pipeline 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 flow is still a chancy proposition.

23 24

ibid, p. viii. "Siping Investment Opportunities" www.chinesebusinessworld. com/business/vn...ng/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 flow of foreign capital into less developed countries: environmental issues. "As investors search the globe for the highest return, they are often drawn to places endowed with bountiful natural resources but handicapped by weak or ineffective environmental laws. Many people and communities are harmed as the environment that sustains them is damaged or destroyed...villages are displaced by huge construction projects...Foreign investmentfed growth also promotes Western-style consumerism. (Note the previous mention of "global consumerism,")"25 Here, the environmentalists are concerned with everything from the growth of fastfood restaurants, car ownership, and a "conversion" to a Western life style not native to the indigenous population. In other words, for all the economic "good" that 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 environmental "conditions" to bilateral and multilateral trade agreements. In one aspect, this environmental concern is already having an effect. "The U.S. Export-Import Bank which provides subsidized loans to other governments for the purchase of U.S. goods and services has taken steps to strengthen its 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 was turned 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 foreignowned companies in direct competition with American-owned and operated firms. So,

capital flows to capital, not merely to where it is most needed. There is still a major concern among many governments and economists about how foreign capital is affecting the world, and if it is somehow skewing the balance of trade, and the incursion by overseas interests within the domestic policies of LDCs. Conservative legislators think that 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 on the part of the borrower countries...(and )no longer either advance U.S. interests abroad or promote economic development."27 What is happening, therefore, is the joining of foreign capital and its role with political functions. Of course, "there are times when foreign capital flow into emerging nations is not merely for profit, but for political advantage. But once that advantage is achieved (or denied) the next step must be to maximize that capital investment."28 Economic forecasts continue to see more and more capital flowing into the LDCs, even at the possible expense of domestic savings. This can be determined by the fact that more and more American investors, to name just one nation, are investing in multi-national corporations whose capital is now being committed to LDCs. "Estimates suggest that in the next ten years, the gap between domestic savings and investment needs in the developing nations will likely exceed $2 trillion in real terms. This gap is 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 ibid, p. 3. Glickman, Norman J. and Douglas P. Woodward: The New Competitors, New York: BasicBooks, 1989, p. 7. Vasquez, Ian: "What Congress Should Do" online: www.altavista.com.

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capital. And, as these nations join the global capital market, some of their existing capital will leave the country as `flight capital' as domestic savers seek to diversify their risks."29 The red flag of "capital flight" might well be hoisted when and if there is the sort of Rwanda-Burundi conflagration where capital is so severely at risk that leaving it there for the possibility that matters will be settled is ludicrous and certainly indefensible fiscally. Figures during the decade of the late 1970s to the early 1980s when there were so many problems in African developing countries, show that well over $100 billion fled 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 be considered 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 capital flows no longer need to be tied to physical movement of goods, and that, by extension, the traditional forms of trade represent only a minute and decreasing fraction of crossborder trade activity. "30 This gives managers a distinct advantage since they can know far more quickly in real time what their customers 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 flow of capital is in sync with the new global demands of consumers. "This means that economic nationalism exerts an even smaller influence on purchase decisions."31 Foreign capital and its usefulness to the development of the LDCs is reflected

not merely in the utilization of natural resources, a labor force, and the location for effective and efficient 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 a global 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 the next 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, while there seems to be plenty of venture capital available, there is still competition for that flow of capital. We have seen how, even on the Internet various cities and areas throughout the developing world, there is competition and the offering of substantial amenities to receive capital in-flow. From an objective observer, studying the ebbg and flow of capital, of risk investment, of the downside of greed and even fraud, there should be five caveats for capital flow to LDCs: 1. Capital invested in an LDC requires patience. This means that any investment, grant, or cession should not be consider a quick turn-around opportunity, a getrich-quick scheme which would rob the LDC of any incentive to continue on uneven terms. 2. The Investment cannot be done on a 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

29 30

Bryan and Farrel, p. 123. Ohmae, Kenichi: The End of the Nation State, New York: The Free Press, 1995, p. 27 ibid, p. 28.

31

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of a stable and growing economy in that LDC. This may be an extremely difficult item to control, since the purpose of the investment is to gain an economic advantage. Capital flow is not philanthropy any more. Governments will no longer shield corporations from a conflict with the rules and regulations covering foreign aid, for example. 3. Fraud, bribery, kick-backs, private enrichment of government officials must be avoided. There has to be an ethical and moral standard for capital investment. If the WTO or the UN cannot provide such safeguards, then the entire international system of building LDCs is lost. We cannot continue - in the 21st Century to see LDCs as "banana republics", those feeble moral and ethical characters reminiscent of Graham Greene. We cannot continue to cause South East Asian nations to see U.S. involvement as the intrusive "Ugly American". 4. While there are still the "old boys club" investors and risk takers who see the LDCs as a playground for dollars or pounds sterling or francs, these nations must be treated in a way that the investment and capital flow goal is to permit the investment to be returned, and the LDC able to stand on its own two economic feet. Capital investment is not an "allowance" for doing "good things" for the investor. It is like moving from walker to crutch, from crutch to cane, from cane to an orthopedic shoe, and then complete freedom to walk or run. 5. The motivation for investment must be 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 "different" from the Western world because of the religion, habits, customs, history, ethnic and moral standards which may well differ from Western outlook on things. In short, we cannot bind LDCs with our own 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, of course, is perhaps the prime new example of that. ASEAN and even NAFTA are regional "bundling" of a sort. However, there is still a traditional animosity among some of the countries that stands in the way of foreign capital flow. Korea and Japan have problems, and have had for thousands of years. Turkey and Greece, the various small Russian Republics, Chile and Argentina, India and Pakistan- these are some of the cultural and traditional inimical situations which capital infusion may not solve. "The rise of regionalism in Europe and 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 Pacific Basin for want of willing partners. China is the most logical partner, but is years, maybe decades, away from

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such an arrangement, South Korea wants no part of a partnership with Japan."32 There is a new development for a trade free zone now under discussion among the so-called Pacific Rim nations. It will be 2020 at the earliest before this becomes a 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, the Philippines, Singapore, Thailand and the U.S. were the original members. China, Taiwan, Hong Kong, Mexico and Papua New Guinea were accepted later. "APEC agreed in principle two years ago to dismantle tariffs and other barriers to commerce 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 the "major" areas which are both positive and negative in the development of international trade that could provide a boost for the LDCs. The Third World and under-developed nations continue to look to the U.S. for salvation. 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 first choice, as well. Yet, when the EU, Japan, or some other capitalist country gains a foothold (the Three Gorges project was mentioned earlier), then the outcry begins. The fact is that the U.S., more than any other country, possesses an enormous pool of investment sources. "The problem lies in 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 investment...and a third is whether private investments also create benefits for society through spillovers or externalities."34 With all that money "lying around" the form of the competition for its use and investment has drastically changed. There is now a premium on investment in increasingly complex and intangible formsthe kinds of investments most penalized by U.S. regulators. The American economy has become far more exposed to global competition than it, perhaps, bargained for. There are many in this country who continue to oppose Japan and Germany for no other reason than "we beat them in the War", and the fact that their economies' rise is due to our original infusion of time and capital to rebuilt their infrastructure and industrial capabilities. The fact of American capital running the fortunes of LDCs, as it turns out, is an inaccurate 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 to human resources, and these investments also suffer from a point made earlier in this thesis- the willingness to be patient,. American CEO's, it seems, get antsy when reports have to be made to shareholders, and this reflects in holdings abroad as much as two years less than comparable German or Japanese firms. The American investment problem varies by industry (it is not government driven, as in Japan). There are also complaints that American firms have over-invested in some areas, such as acquisitions, and underinvested in others, such as intangible assets.

32 33

Krauss, p. 119. Unsigned: "Pacific Rim Nations Gearing Up for Free Trade Zone" Maclean Hunter Publishing online, 1997. Ohmae (ed.), p. 35.

34

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The question, then, can be rightly asked: "The United States has the most efficient capital markets of any nation and the most highly sophisticated investors. How can such efficient markets be guilty of producing apparently suboptimal investment factors?"35 What does this do to the foreign capital movement to the LDCs? It shows them that the 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 about untold changes and challenges for which most nations- the First as well as the third World- may not be fully prepared. "We are in the midst of a cataclysmic change that will result in a new map of power and influence, a map being drawn by emerging markets. It is a revolution as significant in its implication as...great historical shifts (such as) the growth of a global economy in the nineteenth century, and the collapse of the old order in the 1930s and 1940s..."36 Political change, stability or lack thereof, will continue to be a prime consideration in how capital flows, how risks are taken, how global corporations will see their destinies in the less developed countries of the world. A quick overview can see that nearly every African nation, excepting South Africa, is at political risk. (This includes Egypt, where the threat of the Islamic Brotherhood to disrupt Mubarak's regime has already resulted in a 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 Algeria and Morocco, puts the entire continent at tremendous risk. Latin America's politics are not stable, either. Argentina now has a new President, Brazil has found that politics and economics seldom mix, Peru, Colombia, Venezuela, Paraguay- all under some sort of internal rebellions 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 now goes into Panamanian hands (and there are rumors of some sort of Canal Management deal 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 the Caribbean. According to UN documents: "IDCs are a very diverse group of countries with a wide range of geographical situations, natural resource endowments, and economic capacities. These disparities are reflected in the diversity of national income levels within the group: half of the 37 island developing countries and territories with a population under one million belong to the two highestincome countries group, according to the World Bank, while nine IDCs within the same size limit are in the category of Least Developed Country." 37 There is no doubt that Haiti, with its unstable government and starvation-based economy, the Dominican Republic are two of the saddest economic examples in the Caribbean today. American investment and

35 36 37

ibid, p. 37. Garten, p.xiii. UN Documents on IDCs, online at www.iwon.com.

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risk capital are flowing into the bottomless pit called Haiti, but no significant growth has been seen. "The two main categories of factors of economic 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 of the U.S. there are underdeveloped nations which require massive infusions of capital for improvement and some sort of economic progress. That capital infusion is currently considered a failure. Politics are, of course, a relative consideration. If the Western World attempts to stabilize what it considers an unstable situation, it can rightly be accused of interference in another nation's domestic affairs. But, what would have happened in the mid-Thirties, if Britain and France has "interfered" in the domestic policies of Germany? Politics aside then, one should reexamine and consider what Jeffrey Garten considers the "Big Ten"- those big emerging markets from what could be considered underdeveloped or developing countries. A very brief overview of these ten emerging markets is worth noting: Mexico: A nation of 88 million people, it has already 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 a very closed economy to one of the most open trading nations. It will represent one of the U.S.'s most important markets.

38

Brazil: Someone once said that "Brazil is the country of the future, and always will be". It has been plagued by what can only be called hyperinflation for the past several years, including one year when it went as high as 2,500%. Its current government has now brought inflation under some sort of control: It is somewhere around 15% now. It is the largest "destination" for American capital investment in Latin America, and perhaps the most important South American trading partner. The coffee economy is now, at least, being challenged with other industrial efforts, including a growing commuter-type aircraft business, and automobile production. There are still considerable environmental problems 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 recession in 1995, and its agricultural economy is rebounding. There will now be a "wait and see" attitude as a new government just was elected. Argentina, like it or not, is economically tied to Brazil. Together, they constitute more than half the GDP of Latin America. South Africa: The nation has moved beyond apartheid. With a population of some 41 million, South Africa represents 45% of the GDP of the entire African continent. It has a modern infrastructure, and highly sophisticated industries in finance, communications, transport, and energy. With the political climate normalized, the country is open to

ibid, p. 3.

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multi-national investments, and the risks of problems in that nation are now very slim. The potential of industrialization and natural resources make South Africa a major player in that part of the world. One consideration: there is an ethnic bond with African-Americans which, as more and more of them rise to important positions in American companies, can well spell relief for the needs of South Africa's emerging industries. Turkey: This country of some 61 million lies in a most strategic area in the world, the bridge between Europe and Asia. It is a NATO member, and is hoping for membership in the EU. It has applied. There is still the problem of traditional enmity with Greece, but it would seem that Turkey is far more valuable, 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 Eastern Europe, with 39 million people- more than Hungary and the Czech Republic combined. After the break-up of the USSR, Poland was the first country to break out of the depression 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 is now considered the most "entrepreneurial" country 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. Poland's work force is considered among the most well educated, and it has the biggest and stable

middle class in Eastern Europe. Poland wants to join both NATO and the EU, and there seems to be a good chance that it will be admitted to both. South Korea: South Korea is the most heavily industrialized of all the so-called big Ten. Its economy represents about 7% of the entire East Asia GDP. But, it has enormous walls to protect its industry, and to make it difficult for foreign investment. There is great potential if the tariff barriers were ever to come down, Even so, statistics show that in 1994 and 1995, both exports and imports increased by some 30%. There is a risk for investment, of course, with the continuing problems between the two Koreas. Perhaps, in the future, there will be some sort of reunification, but that does not seem likely in the near future. When and it that happens, there should be tremendous interest in rebuilding North Korea, now decimated by its lackluster and oppressive Communist regime. China: Can a market of nearly 1 and a half billion people be overlooked? Right now, there is considerable to-do in Congress about the Clinton Administration's desires to have China given Most Favored Nation status. There are Republicans who, suddenly, talk about 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 billion a year in commitments, over half of which has already been invested. We have seen how individual cities (see Siping) are on the Internet, encouraging foreign capital investment. There are now a good many

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Chinese entrepreneurs, willing and able to cut through government red tape to provide opportunities for building factories, establishing distribution points, mining natural resources, and using the tremendous work force available at cheap rates. These entrepreneurs, of course, are enriching themselves, Capitalism-style. There is no single market in the entire world that holds more potential opportunity than China. The future of China, economists say, is also the future of Asia. China must be able to link its enormous resources to the world economy. There is, of course, already a "Chinese Economic Area", which includes Hong Kong, China, and Taiwan. Despite political infighting, the economic relations between Taiwan and mainland China are on the increase. Taiwan, for example, is improving its past emphasis on low-tech products, and it is moving into far more sophisticated software, such as Chineselanguage software, for example, as well as moving ahead in the biotech area. Indonesia: Right now, the political and environmental climate in Indonesia is seriously flawed. The current rebellion in East Timor, which had opted for freedom, the 1998 "haze" which blanketed most of Indonesia due to forest fires and industrial pollution did little to encourage Western investment. But, any nation with 194 million inhabitants, cannot be ignored. There certainly is a strong influence on the part of Indonesia in the entire region, including The Philippines and Micronesia, extending even to Australia. Indonesia is important to America, not only for its role in the ASEAN bloc of nations, but also because, other than China, it is the one nation in the region without a democratic political foundation. Suharto ruled for a generation. His successors have failed to improve the

situation, politically or economically, and certainly not ethnically. Of all the Big Ten nations, Indonesia seems the most turbulent and ripe for a serious rebellion within its territory. These ten big emerging markets offer international trade opportunities unmatched, currently, by other nations: they have large populations, they have large resource bases,, large markets, and are powerhouses in their respective regions.39 The problem with most texcts and economists' tomes available are that they tend to be skewed toward American policies. The thinking is that the Developing countries must insist on American trade if they are to grow. As has been established earlier, this is simply not the case any more. Japan is shedding its xenophobia and making strong efforts to be a leading force in its invasion of developing nations- economic invasion and penetration, of course. The EU is stronger in intra-European trade that trans-Atlantic trade, and this makes it possible for capital to be utilized in LDCs. The trend toward multi-nationals, of course, obviates American dominance, even though some of the multi-nationals are headquartered in the U.S. and others in Europe. Will the economics of LDCs profit from multi-nationals, rather than national companies? The jury is still out on a complete answer to that question. What is certain is that the term "global village" will be used more and more (as it already has in this paper). The solutions to raise the economies of LDCs are linked closely to the profit incentive, of course. As the guru of American Marketing practices said: "The primary business of business is to remain in business."40 Globalization, then, will be

39 40

based on various information in Garten. Levitt, Theodore: Innovations in Marketing, New York: McGraw Hill Co., 1961, p. 1

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successful only if the investors, producers, distributors, and countries can realize a financial profit. A social profit for countries must be included in this. We have already used the term "borderless economy". As frontiers disappear, and the advent of new communication technologies make it unimportant where the real estate of the headquarters is located, the emphasis of benefits to LDCs really comes down to four basic facts. Economic advantages, migration of workers, the effects of economic incursion on LDCs and the survival mode of capital investors. The one area where no overview has been utilized is that of the worker involved in raising economic standards in LDCs. The geographical spread of production facilities has been accompanied by farreaching changes in the workplace all over the world. "The most important has been the increasing difficulty of protecting the interests of relatively immobile workers in a global economy in which capital is in constant motion. Workers face hardships in pulling up stakes or in leaving the family for a distant job, though more and more people are 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 the next few years will be directly competing with workers in the more developed nations to produce the same "basket" of goods. There will, unfortunately, then, be hundreds of millions in these LDCs who will not find permanent jobs, or any jobs, or meaningless jobs in terms of income. With all the hue and cry about "exporting" jobs that U.S. NAFTA opponents 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 force quickly. The meaningful tasks will either be performed elsewhere, or taught merely to be duplicated in the LDCs. Politics engender economic opportunities, to be sure. Economic development in LDCs may stabilize their governments. Workers may find employment, even if it may be temporary, and the capital investors will find profits by imposing Western-style manufacturing techniques on nations that had little or no techniques whatsoever.

A Review, Projections, Conclusions.

and

The purpose of this paper is not to redefine the technological advances, or the advantages of investment in less developed countries. They are less developed, as was pointed out, because they were (or are) unable to harness their natural resources, attract technicians and sophisticated work force to manage 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 doable means of building their economies lies in some of the terminology. A native in Botswana is less interested in what "globalization" means, than in finding a job to feed and house and clothe his family. A Thai may seek employment with a "multinational", but the "multi" part is unimportant to him, unless it means an improved system

41

Barnett, 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 ideological differences between Pakistanis and Indians, or to find a way to curb the monsoons that continue to take thousands of lives along the Bay of Bengal. In the idea of globalization, one must look to nations now closed to the majority of 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 also must include a careful look at the role gender plays in the work force. Will women bwe able to find work alongside men, at equal pay? 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 children's incomes? While there has been a rise in the number of women in high political office in developing nations, from Indira Gandhi in India to Suu Kyi in Myanmar (Burma) to Benizar Bhutto in Pakistan, there have been no women with real economic decision-making power. What will economic and international efforts to LCDs mean when religion is an issue? 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 Assad ailing? 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. Who will seek to raise the economic levels of this

unsettled part of the world? And, if sudden changes occur, who will be the first to take advantage 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 poorly educated, untrained Third world and LDC natives function usefully if multi-national capital flows in to build a new viable economy in their country? "Government has played a crucial role in changing what factories look like, what jobs they 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 once had. A number of strategies formerly used to put people to work are no longer politically or financially feasible."42 What will become of these potentially displaced or discarded people? And who will they blame? These are the kinds of conditions that, in some LDCs could be the spark that, over eighty years ago, provoked the Russian Revolution. There may not be a Lenin, but one never knows. There are underground forces at work in nearly every LDC who are just waiting for the government to make an enormous 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 inflation. It was mentioned earlier in this paper, that the LDCs may well need to establish a system of taxation. But, add taxation to the ravages of self-imposed inflation, and there is the tinder for a major conflagration. "Most of the reborn or newly-created nation-states are too small or too poor to operate successfully in the world economy......in many countries the national capital has become the symbol for everything

42

Barnet, p. 339

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that has gone wrong in people's lives. The reflex action is to opt out of failing political communities. Ethnic or religious bonding becomes the surrogate for a functional political order."43 If the tone of this paper tends to be negative, that, unfortunately, is the outlook on 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 the economic scale. There are some which are potentially 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 consider them apart from the others- a Fourth World. The conclusion of this paper, then, is a despairing look at the have-not's. The economic explosion of the 1990s has exposed a huge and disturbing income gap between the industrialized and the developing worlds. "The divide was wide before, but technology and globalization have expanded it to nearly incomprehensible breadth. Technology drives performance today, and poorer nations just don't have it. Yes, the gulf between the haves and havenots in America is wide, but it is nothing compared with this global crisis."44 Too few of the developed countries are really paying close attention, as could be seen at the recent WTO meeting in Seattle. During the several days of meetings, even though interrupted by demonstrations, the subject of this widening gap never arose. The popular idea in world economies is based on the concept of laissez-faire, and so anything that diverges from that is a subject to be kept on someone's back burner. It is an unpopular subject. Yet, half the world's population is increasingly threatened with economic oblivion. That is dangerous for world stability. There is no reason the rest of 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 industrialized strong) should be our brother's keeper (i.e. the weak and impoverished LDCs). It is the adaptation of one of the oldest cliches of strength- the fact that strength can be measured only to the extent of the weakest link. The world is not merely in danger of splitting into two- it is already doing so, and there is no Richter scale measurement that can acknowledge the tremors. There is a widening gulf between the very rich and the very poor. And that is making the future of the world as a whole a very unstable and potentially inflammatory situation. Perhaps this is why Mr. Altman considers these nations 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 we are placing that Dantean slogan above the borders of those nations: Abandon Hope, all ye 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 like North Korea, Iraq, and Rwanda, and some will be more dangerously armed. Iraq, for example, may have some serious virus-filled armaments, and other scientific weapons of destruction, unwittingly provided through aid and training by Western nations (Germany now is the most obvious suspect, with raids and arrests begun in 1997). The solutions, if there are any, do not involve the Western nations merely writing out checks- and big checks, at that. And, the United States is as much at fault for ignoring

43 44

ibid, p. 340. Altman, 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 be centered on ever-cheaper technology that enlightened businesses and even private philanthropic organizations will bring to the Fourth World. The basic premise in this "giving" seems to be that supply can induce demand: the availability of extremely cheap cellular 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 of the "Have" nations, other than money, that can truly help. If there is one horrifying shock in the world, it is the increasing gulf between the have's and the have-nots. This cannot be stressed often enough, or repeated until someone not only pays attention but takes positive action. "The income disparity between the richest and the poorest fifths of the world's population was 30 to 1 in 1960. Today it is 75 to 1. A hundred years ago, America's per capita income was nine times larger than Chad's and Ethiopia's. Today, it is 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 drives productivity, 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 are almost 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 show that 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" governments need to ask- and ask in a hurry- is whether we are willing to accept a two-planet system in the 21st century. Should these nations, including, of course, the U.S. be rather selfish and concentrate on one's self, or build those nations who "respect" our interest in dominating their markets? Or, on the other hand, 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 not to the ECONOMIC benefits of the "Have" nations that some action must be begun, and begun now. It is, unfortunately (speaking of moral 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 are receding into oblivion. We can use technology to improve their lot. The question is, still how? One key is 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

45

ibid, 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 use of the Internet. Soon, any computer user in Africa or India will be able to download all information 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 at little 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 Bank to 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. The financial resources, as pledged by the "Have" nations would not be outright cash grants, but would be offered in the form of teacher and education assistance, and other recipients in those countries who are either private or religious, thus circumventing the often corrupt governments and their officials. 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. keep import tariffs so high that it is economically unfeasible for many of the Fourth World nations to attempt some sort of trade. The U.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. Over the 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 of them may be universally acceptable, but an attempt must be made to close that wide gap among the world's economies. 1. All the industrialized nations who earn a surplus from trade should join together to pledge a percentage of that surplus into a fund for improving conditions in the LDCs. A special commission, other than under 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 influence appropriation because of ethnic, religious, or racial reasons would immediately dismiss that member from further consideration. 2. An international version of America's 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 this year's Nobel Peace Prize) would be encouraged to expand with grants provided. The need for such a Job Corps, or Peace Corps, approach would have certain priorities: agriculture, birth control and/or family planning, medical needs including mass vaccinations, education, building of infrastructures, flood control, sanitation, providing tools,

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transportation, literacy, among others. The volunteers for these projects would encompass all nationalities, religions, ethnic backgrounds, and ages. Until a self-sustaining world-wide organization can be set up and managed efficiently, it is suggested that UNICEF handle the initial phases. 3. Under the aegis of the current United Nations, a regulatory commission must be set up to oversee the domestic political policies of the LCDs, when such governments interfere with the growth opportunities of these nations. Yes, this is a form of "bullying", but the end result will be a positive one. The time has come to make some choices: a Fourth World or other LDC which cannot survive under its present domestic governing structure must be, at least temporarily, put into a sort of "political receivership". When a government is bankrupt, then it should be handled the same as a bankrupt corporation: a receiver appointed to turn it around and make it productive once again. 4. The human rights activities of the UN, as now constituted, is a waste of time and money. We have seen, in the past decade, how fruitless the UN activities were in Africa, as well as in Bosnia and Kosovo. What is needed is a joint effort by the wealthy nations of the world to create a super-structure that would preserve the integrity of the environment, protect wild-life, but not at the cost of jobs or the economy. Despite efforts byu a toothless UN, Japanese fishermen are again hunting whales, Russians are slaughtering seals, and dolphins are caught and killed in South and Central-American tuna nets. The tiger is almost hunted out of existence

in Bengal. And, worst of all, child-labor, sweat shops, communes and collectives still proliferate the poorer nations. 5. Special tariff- and tax-free zones should be established in the wealthy nations for goods from the LDCs. A moratorium needs to be established that eliminates any import duties from African and Asian poverty-stricken countries. 6. Labor leaders from wealthy nations should develop task forces that can build craft guilds and cooperatives in LDCs, helping to organize labor in order to obtain fair wages, establish contracts for work, and raise working and safety standards. 7. Governments and private philanthropic organizations must create scholarships for study at leading educational facilities in the West, ON THE CONDITION that the recipients return to their native countries to implement what they learned. There can be no echo of the flight of intellectuals from LDCs, such as happened in Liberia and Nigeria within the last decade. 8. The media is not doing enough to alert the world about economic deprivation in LDCs. A concerted effort for a fair appraisal (not scare tactics on exploitative programming) of the world situation is needed. It is interesting to note that an effort was made with U.S. school children to raise money to "buy" the freedom of some of Uganda's slaves. Perhaps, the next UNICEF Halloween project, and projects by organizations such as the Boy Scouts, Girl Scouts and Girl Guides, could develop some financial support for education LDC children.

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What is important in the development of strategies for relief of the Fourth World is that there can be no conflict. These various suggestions cannot turn into a "Me first" debacle, where one deprived nation becomes angry because another nation has received more than it has. Global development has to have as one of its major points Peace. Economic development also requires solutions to ethnic and religious conflict. Economic uplift cannot stop at foundations for new factories, the installation of new technologies, and various international trade agreements. The impact of international trade has to be felt by every resident who may now find a longer, healthier, and more productive life. Without a positive effect on the human and humane factor in the LDCs simply providing greater opportunities for trade is like giving away free tires for an automobile whose engine is not functioning. The gulf between the Have's and haveNots 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.

Trade System"Robertson, James: "Future Wealth" Bryan, Lowell and Diana Farrell: Market Unbound: Unleashing Global Capitalism, New York: John Wiley & Sons, 1996 Dewey, Donald: Microeconomics: The Analysis of Prices and Markets, New York: Oxford University Press, 1975 French, Hilary: In Focus: Capital Flows and Environment WorldWatch Institute, Aug, 1998 Garten, Jeffrey E.: The Big Ten, New York: BasicBooks, 1997 Glickman, Norman J. and Douglas P. Woodward: The New Competitors, New York: BasicBooks, 1989 Krauss, Melvyn: How Nations Grow Rich: The Case for Free Trade, New York: Oxford University Press, 1997 Levitt, Theodore: Innovations in Marketing, New York: McGraw Hill Publishers, 1962 Ohmae, Kenichi: The End of the Nation State: The Rise of Regional Economies, New York: The Free Press, 1995 Ohmae, Kenichi (ed.) The Evolving Global Economy, Cambridge MA: Harvard Business Review Books, 1995 Samuelson, Robert J.: "God is in the Details" NEWSWEEK Magazine, April 20, 1998 Savitt, William and Paula Bottorf: Global Development, ABC-Clio, 1995

References

Altman, Roger C.: "The Fourth World", Los Angeles TIMES, December 12, 1999 Barnet, Richard J. and John Cavanagh: Global Dreams: Imperial Corporations and the New World Order, New York: Simon & Schuster, 1994. Bender, David (ed.) Trade: Opposing Opinions, San Diego: Greenhaven Press, 1991:Essays included by:Greaves, Bettina Bien: "Fair Trade: the Necessary Foundation forWorld Peace" Peterson, William H.: "Free Trade is the Best

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Smith, Adam: The Wealth of Nations, Great Books Series, Vol, 39, 1956 Thompson, Maurice K. : Common Sense Marketing, Chicago: Dearborn Press, 1998 Turner, Louis: Multinational Companies and the Third World, New York: Hill & Wang, 1973 Accessed on the Internet: Condit, Philip M. "Trade Myths and Realities" Business Roundtable, www. altavista.com

Siping Investment Opportunities: www. chinesebusinessworld.com/business/ vn...ng/policies.htm United Nations; Documents about IDCs, www.un.org Vasquez, E.: "What Congress Should Do" www.altavista.com WTO Statistics on International Trade: www. caso.cz/engl/figures.select/select.htm

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