Economic Globalization, Free Markets and the Growing Divide

 “Amount of money the United Nations estimates is needed annually to curb the AIDS epidemic in Africa through education, prevention, and care: US$20-23 billion. Amount of money African nations pay to service their debts each year: US$21 billion" (page 45 of Globalization: A Very Short Introduction by Manfred B. Steger). 


     One way economic globalization has taken place is through the internationalization of trade and finance. This includes the establishment of open economies and free trade. There is evidence that shows some national economies have thrived because of free trade. However, it appears that these benefits are spread very unevenly throughout the world. According to Steger, “Most studies show that the gap between rich and poor countries is widening at a fast pace.” The line graph to the left is a great visual representation of this (taken from page 108 of Globalization: A Very Short Introduction). Economic globalization is actually leaving part of the world behind: the Global South. Essentially, rich countries are able to exploit poor countries, making them more in debt to them and more dependent on them for survival. According to a couple websites I found, between 133-157 countries are in the Global South out of the total number of 195. See the graph below for the percentage of populations living on less than $1.25 a day (taken from Wikipedia).

     It is true that many international organizations give a lot of help to countries. In addition, as was talked about in the Google+ chat with President Obama, the United States gives financial aid to several countries. However, consider this: in 2005, developing countries paid US$355,025.5 million in debt servicing, and received only US$80,534.1 million in aid (page 55 in Globalization: A Very Short Introduction).

     If you still don't believe that there are ill effects from economic globalization, have you ever heard of the South-East Asia crisis in the 1990s? I hadn't heard of it until I read this book, but it demonstrates that global speculators often take advantage of the emerging financial markets of developing countries. This link has some in-depth background to some of the cultural and economic reasons for the crisis. Basically in the 1990s, Thailand, Indonesia, Malaysia, South Korea, and the Philippines slowly opened their markets to attract foreign direct investment, and linked their national currencies to the US dollar. Investment in stock and real-estate by foreign investors skyrocketed, but by 1997, prices had inflated so much that investors panicked and withdrew $105 billion from these countries, forcing them to remove their currency from the US dollar standard, resulting in a huge economic fallout that threatened to put the global economy into recession. The combination of international bail-out packages and the rock-bottom-price sale of South-East Asian commercial assets to foreign investors saved the global economy, but at a great cost. The citizens of this region are still suffering today from the consequences of this economic crisis.

Another large aspect of economic globalization is the rising power of transnational corporations (TNCs). The incredible thing about these corporations is that they have subsidiaries in several countries. This means that each company does not represent a single country, again indicating that current national boundaries are becoming less important due to globalization (see blogpost Elephants and Globalization). Out of the top 100 largest economies in the world in 2005, 42 were corporations; 58 were countries. Look at the graph above, which I put together from the data listed in Globalization: A Very Short Introduction. I mean, when the revenue of a single corporation is larger than the GDP of an entire country comprised of millions of people, that wows me. These companies pack a lot of economic power. However, the beauty of these transnational corporations is cut short when one realizes that of the 200 largest TNCs (which account for over half of the world's industrial output), none have headquarters outside North America, Europe, Japan, and South Korea. Again, the dream that economic globalization=growing economic equality appears to be false. Compare the amount of money the world's poorest countries spend on debt servicing each year (US$37.5 billion) to Exxon Mobil's profits in 2007 (US$39.5 billion), and it gives cause to wonder if the Global South will ever catch up to the Global North. 
     As a final note, it is interesting that the U.S. is not exempt from the growing divide between the rich and the poor. See the graph below that compares the incomes for different classes of Americans from 1967 to 2003 (taken from page 110 of Globalization: A Very Short Introduction.