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A New World
Order |
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Globalization has not only connected
consumer markets by reducing tariffs and removing restrictions on imports,
it is also creating global production networks. |
The rich get
richer and the poor get poorer. That’s how the popular idiom goes. But, does
it really reflect the reality? Haven’t the forces of globalization and
increased international trade provided the people and governments in
developing countries with more opportunities for achieving a higher standard
of living than ever before? In other words, are today’s developing governments
faced with greater difficulties in compared to the situation decades ago? The
answer to the above questions can be very important since if we concluded that
the time is against developing countries and future outlooks are bleak, we
would have to take the highest advantage of the present time. On the opposite,
if it is believed that greater opportunities for development will only come in
the future, then we should simply hold off till that golden time arrives.
Another answer can be that the challenges and opportunities countries face are
impacted by the approach taken by policymakers. Meaning, global developments
offer some countries with opportunities while posing threats to other
countries, and it is up to political leaders and decision makers to ensure
that a country falls into the beneficiary category. Thus, it is important to
assess opportunities and threats resulting from industrialization in the
course of time in view of the existing international conditions. Such an
examination will allow us to understand developing countries’ interaction with
the global economy and the impact of that interaction.
Defining
Developing:
Developing countries have certain recognizable features. Most developing
counties have low per capita incomes. Given the low levels of per capita
income, a large portion is spent on consumption with only a small share
remaining for saving. Low saving will bar adequate investment in development,
positing developing countries in the so-called poverty trap. Also, when per
capita income and saving is low, there is low demand for financial activities
and financial institutions as banks, insurance firms, and investment companies
are not established on the basis of correct economic motives. A major function
of such financial institutions is to supervise investment projects and
positively affect the quality of investment. Weak performance of financial
institutions will expose limited investment to non-economical decisions, which
will channel them toward low output projects.
Moreover, a historical factor for the
sustainability of poverty in developing countries is the absence of sufficient
demand due to the mentioned curse of having a low per capita income rate. When
per capita income is low, demand for consumer goods will be limited to
foodstuff, garments, and housing. Therefore, there will be less demand for
many industrial commodities including durable consumer goods, which are major
components of a country’s industrial development. Thus, both the quantity and
quality of such goods will fall since there is limited demand for high quality
goods.
Technological backwardness, low quality
of manpower, as well as an unfavorable economic, political, and legal
environment worsen the situation. Among the above factors, the role of low
capital accumulation (both in terms of quantity and quality), absence of
sufficient demand (qualitative and quantitative) and unfavorable economic,
political, and legal environment are more important.
These are not new problems; rather they
have affected developing countries for centuries. However, they have become
more pronounced after industrialization took on greater speed during the past
decade. The policy-making systems in developing countries have adopted certain
policies according to the area and population of the country, availability of
natural resources, global political and economic conditions, and most
importantly, quality of policymaking.
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The integration of consumer markets
is threatening isolated countries refusing to interact with the global
market. |
Developmental
Strategies: At a
time when the global system of exchanges was based on exporting mineral and
raw materials by developing countries and export of the end industrial product
by advanced counties, those countries that enjoyed natural resources and were
populous (like Iran, Latin American, and India) based their industrial
development on import substitution. The domestic market provided them with an
opportunity to set high tariffs for imports and provided them with the luxury
of striving to achieve economic development by negating interaction with the
outside world. Very high economic and industrial growth rates in countries
such as Iran and Brazil in the 1960s raised many hopes about the realization
of industrial development by relying solely on the domestic market.
After the end of World War II that
triggered the high economic growth of industrial countries, those countries
that had small, poor domestic markets and little mineral and natural
resources, found out that exporting domestic products was the sole way out of
poverty. They realized that the low industrial demand based on per capita
incomes of less than 500 dollars was not sufficient to end poverty. The only
way for them, was to produce goods that would meet the demands of foreign
consumers. Therefore, a new track for industrial development was paved which
was based on exporting consumer goods that were made through simple
technologies.
The import substitution strategy was
stopped since the late 1980s for a host of reasons and lost its importance as
a modality for industrial development. Foreign debts crisis, high inflation,
imbalanced distribution of income, saturation of domestic markets, and having
a major surplus in terms of industrial products which could not be exported
because they lacked competitive advantage brought the said strategy to a halt.
However, perhaps the most important reason was incompatibility of the said
strategy with the new conditions of the global economy. Global conditions that
had given rise to the import substitution strategy were quite different from
economic and political conditions in the 1990s.
Although there were basic differences
between the two rival strategies of import substitution and export
development, their commonalty was that production was limited to a single
country; in one approach the end product was marketed inside the country, in
the other it was exported to other counties.
A New World
Order: The end of
the Cold Warm, the maturity of export development strategy, the emergence of
China as a major industrial hub, and the appearance of second-generation
emerging economies like Malaysia, Turkey, and Thailand paved the way for the
establishment of a new industrial development paradigm. Globalization has not
only connected consumer markets by reducing tariffs and removing restrictions
on imports, it is also creating global production networks. Thus, the global
division of labor was switched from "product" to "production process" and
countries joined hands in producing industrial goods.
Today, interacting with the global
economy has become more serious than two decades ago. Investment and trade are
intertwined at the international level and have created a better framework
than export development strategies. Production corporations in developing
countries are offered with more opportunities compared to two decades ago due
to suitable foreign policy as well as better economic and legal environment
created by their governments. Participation in the globalization process has
greatly reduced the costs of marketing and quality control, on the one hand,
and has assured countries about access to needed investment, on the other.
Brands are more dominant in the modern trade industry than anytime before. As
production technology becomes more complicated and multi-purpose industrial
products are manufactured, ensuring the quality of products is only possible
through trademarks and brands.
In view of the above facts, it becomes
clear that economic corporations are facing bigger opportunities and
challenges than before. Isolated companies of the past had more opportunities
for growth. However, integration of consumer markets is threatening such
companies while those interacting with the world are offered with far more
opportunities as a result of the emergence of global production networks. As a
result, the cost of not conforming to new industrial and trade paradigms and
sticking to past methods will be very high in today’s increasingly shrinking
world order. |
