2009 Roel van den Cate 113

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

van den Cate R.- The Impact of International Trade on Less Developed Countries
114
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.
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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 quasi-
military 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 in-
fighting, 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 teeter-
totter 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.
2009 Roel van den Cate
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 overly-
benign 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
van den Cate R.- The Impact of International Trade on Less Developed Countries
115
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: Over-
development, 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
Samuelson, Robert J.: “God is in the Details” NEWSWEEK
2
Magazine, April 20, 1998, p. 47
3
Dewey, Donald: Microeconomics: The Analysis of Prices and
Markets, New York: Oxford University Press, 1975,
116 Business Intelligence Journal
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 goods-
clothes, 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”
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January
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
5
Turner, Louis: Multinational Companies and the Third World,
New York: Hill & Wang, 1973, p. 5
2009 Roel van den Cate
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 so-
called “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
van den Cate R.- The Impact of International Trade on Less Developed Countries
117
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
7
Tibid, p. 130
8
Bender, David, (ed.) Trade: Opposing Viewpoints, San Diego
CA: Greenhaven Press, 1991, p. 13
9
Peterson, William H. “Free Trade is the Best Trading System”,
essay in Trade: Opposing Viewpoints, p. 23-4
10
Greaves, Bettina Bien: Free Trade: The Necessary Foundation
for World Peace, quoted in Trade: Opposing Viewpoints, p. 35
11
Robertson, James Future Wealth, quoted in Trade: Opposing
Viewpoints, p. 27
118
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 pre-
NAFTA figures. In 1995, U.S. exports to
Canada increased 29% overt the 1993 pre-
NAFTA 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
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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 hydro-
electric 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
13
Krauss: Melvyn: How Nations Grow Rich: The Case for Free
Trade, New York: Oxford University Press, 1997, p. xiii
14
Condit, Philip M. “Trade Myths and Realities” The Business
Roundtable, www.altavista.com 1998
15
Krauss (quoting Walter Heller) p. 85
16
Krauss (quoting Hirschman) p. 87
2009
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
van den Cate R.- The Impact of International Trade on Less Developed Countries
Roel van den Cate 119
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.
18
Krauss, p. 52.
19
Garten, Jeffrey E.: The Big Ten, New York: BasicBooks, 1997,
p. 32.
20
ibid, p. 32.
120
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
ibid, p. 3.
22
Thompson, Maurice K.: Common Sense Global Investing, Chi-
cago: Dearborn Financial Corp, 1998, p. vii.
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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,
2009 Roel van den Cate
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 petro-
dollars 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.
van den Cate R.- The Impact of International Trade on Less Developed Countries
121
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 offer-
Nigeria 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
ibid, p. viii.
24
“Siping Investment Opportunities” www.chinesebusinessworld.
com/business/vn…ng/policies.htm
122
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 investment-
fed 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 fast-
food 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 foreign-
owned companies in direct competition with
American-owned and operated firms. So,
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Business Intelligence Journal January
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
26
ibid, p. 3.
27
Glickman, Norman J. and Douglas P. Woodward: The New
Competitors, New York: BasicBooks, 1989, p. 7.
28
Vasquez, Ian: “What Congress Should Do” online: www.al-
tavista.com.
2009 Roel van den Cate
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 cross-
border 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
van den Cate R.- The Impact of International Trade on Less Developed Countries
123
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 get-
rich-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
Bryan and Farrel, p. 123.
30
Ohmae, Kenichi: The End of the Nation State, New York: The
Free Press, 1995, p. 27
31
ibid, p. 28.
124
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
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Business Intelligence Journal January
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
2009 Roel van den Cate
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
van den Cate R.- The Impact of International Trade on Less Developed Countries
125
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 forms-
the 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
Krauss, p. 119.
33
Unsigned: “Pacific Rim Nations Gearing Up for Free Trade
Zone” Maclean Hunter Publishing online, 1997.
34
Ohmae (ed.), p. 35.
126 Business Intelligence Journal
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,
Business Intelligence Journal - January, 2009 Vol.2 No.1
January
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 highest-
income 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
ibid, p. 37.
36
Garten, p.xiii.
37
UN Documents on IDCs, online at www.iwon.com.
2009
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 re-
examine 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
ibid, p. 3.
van den Cate R.- The Impact of International Trade on Less Developed Countries
Roel van den Cate 127
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
128
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
Business Intelligence Journal - January, 2009 Vol.2 No.1
Business Intelligence Journal January
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
2009 Roel van den Cate
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 Chinese-
language 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
van den Cate R.- The Impact of International Trade on Less Developed Countries
129
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
based on various information in Garten.
40
Levitt, Theodore: Innovations in Marketing, New York: McGraw
Hill Co., 1961, p. 1
130 Business Intelligence Journal
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 far-
reaching 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
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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, and
Conclusions.
The purpose of this paper is not to re-
define 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 do-
able 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 “multi-
national”, 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
2009 Roel van den Cate
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
van den Cate R.- The Impact of International Trade on Less Developed Countries
131
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
132 Business Intelligence Journal
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 have-
nots 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
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January
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
ibid, p. 340.
44
Altman, Roger C.: “The Fourth World” Los Angeles TIMES,
December 12, 1999, p. M 1.
2009 Roel van den Cate
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
van den Cate R.- The Impact of International Trade on Less Developed Countries
133
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.
134 Business Intelligence Journal
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.
Business Intelligence Journal - January, 2009 Vol.2 No.1
January
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,
2009 Roel van den Cate
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
van den Cate R.- The Impact of International Trade on Less Developed Countries
135
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.
136 Business Intelligence Journal
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 have-
Nots 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.
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