There is a very wide range of non-governmental organisations (NGOs). NGOs are groups of concerned citizens who are independent of the government and business, and are thus nominally non-political and non-profit organisations. NGOs typically have charity status and raise funds through a combination of voluntary donations from the public, but also grants from governments and other international development institutions.
Many NGOs are tiny, focusing on development in one region and specializing in one area, others, however, are global institutions, have huge budgets and work in several countries on numerous types of development project. This section focuses on these larger ‘aid organisations’ with an international focus – such as Oxfam and Action Aid. Although such organisations have an international focus, they still have a tendency to divide their attention so they focus on hundreds of different micro-level projects at one time.
Commentators generally point to four functions of NGOs in development
The development function – Probably the most obvious – This typically involves focusing on small scale aid projects such as local irrigation schemes, or developing rural health and education schemes in conjunction with local communities.
The Empowerment Function – More so than with private companies and Governments – NGOs aim to ‘empower’ local communities – This involves striving to give local communities a role in how aid projects are developed, but also lobbying International institutions like the European Union to establish trade rules which do not unfairly advantage Western companies and farmers. (We’ll come back to this point later).
The Education Function – Oxfam is a good example of an NGO that puts a lot of money into developing education for schools and advertising to keep developing world issues in the public consciousness.
The ‘emergency aid function’ – when natural or social disasters occur – Earthquakes, Hurricanes, Famines for example – NGOs are often the front line in the delivery of emergency aid.
We’ve probably all heard of companies such as Walmart, Amazon, Apple, and Shell, and these are all examples of Transnational Corporations – in fact these four all feature in the top 10 global companies by revenue in 2020. Some of the others you may never have heard of because they don’t have such a public face.
But what are Transnational Corporations?
Introduction – Definition and Scale of TNCs
Transnational Corporations are businesses that operate across international borders, though most of them have their headquarters in the USA, Europe and Japan.
According to the United Nations Conference on Trade and Development there were an estimated 77 000 Transnational Corporations in the world in 2007, that’s the most recent data I could find! That had almost doubled since the late 1990s when there were 37 000.
The key characteristics of TNCs are:
They seek competitive advantaged and maximization of profits by constantly searching for the cheapest and most efficient production locations across the world
They have geographical flexibility – they can shift resources and operations to any location in the world
A substantial part of their workforce is located in the developing world, but often employed indirectly through subsidiaries.
TNC assets are distributed worldwide rather than focused in one or two countries – for example, 17 of the top 100 TNCs have 90% of their assets in a different country from their head office.
The Huge Economic Power of TNCs
TNCs are economically very wealthy and thus potentially more powerful than many of the world’s nation states.
According to Oxfam, of the top 100 ‘revenue collectors’ in the world, 70 are corporations and only 30 are countries, or nation states. For example, BP is bigger than Finland, while Chevron is bigger than Ireland, and the combined annual revenue of the 200 largest TNCs exceeded those of the GDP of the 182 nation states containing 80% of the world’s population.
Critics remind us that GDP and annual revenue measure different things, so these figures may not show actual differences in economic power, but this aside, the relative economic power of TNCs has grown in relation to nation states over the last few decades, and today TNCs wield much more economic power than they did in the past.
Fobel et al (1980) note that from the 1970s TNCs set about investing significantly in the developing world because of high labour costs and high levels of industrial conflict in the West, which reduced profits. The investment was greatly helped by developing countries, which actively sought TNC investment by setting up special areas called Export Processing Zones, or Free-Trade Zones, in which TNCs were encouraged to build factories for export to the West.
Free Trade Zones offered incentives such as infrastructure provided by the government (transport links), few planning controls on building, and low taxation. There are now over 5000 free or export processing zones in the world today which employ over 43 million workers, the majority of which are based in China’s territories.
SignPosting
Transnational Corporations are one of the global organisations students study if they choose the most excellent globalisastion and global development option in their second year of A-level sociology.
Immediately after reading this introductory post, you should read the following two posts which explore the impacts of TNCs in developing countries….
Dependency theorists criticise TNCs for extracting resources, exploiting workers and preventing development
Dependency Theoristsare generally critical of the role of TNCs in developing countries. They basically argue that they are part of the neo-colonial project and their main focus is to maximize profit by extracting resources from poor countries as cheaply as possible, paying workers in poor countries as little as possible and externalising as much of the costs of production of possible (basically not cleaning up after themselves.
The Corporation’ documentary provides an excellent analysis of why corporations commit so much damage against people and plant in the pursuit of profit – they are basically legally obliged to maximise the profits of their share-holders – profit comes first, everything else second, and simply put, it is cheaper to extract, pollute and exploit than to use resources wisely, pay people decent wages or clear up your pollution.
Criticisms of Transnational Corporations
Bakan (2004) argues that TNCs exercise power without responsibility. Bakan makes several criticisms of Corporations including:
They pay workers low wages – as with sweat shop labour
They pollute the environment – as with the case of Shell in Nigeria.
They take risks with health and safety, which can result in worker injury and death – as with the case of Union Carbide in Bhopal
They profit from human rights abuses – as with Coca Cola in Columbia.
Transnational Corporations pay workers low wages
This is probably the best known criticism to be leveled at well-known Corporations such as Nike, Adidas and Primark is that they profit from ‘sweatshop labour’ – with the workers who manufacture their products working extremely long hours in poor conditions and for extremely low wages.
In chapter 5 of The Corporation, one researcher calculates that workers at one of Nike’s factories in Indonesia were earning 0.3% of the final selling price of the products they were making. Now, I know there are middle men, but in classic Marxist terms, this is surely the extraction of surplus value taken to the extreme! The anti- sweat shop campaigns are several years old now, but still ongoing.
Of course sweat shop labour is not limited to the clothing industry – the BBC3 series ‘Blood Sweat and T shirts/ Takeaways/ Luxuries’, (3) in which young Brits travel to developing countries to work alongside people in a wide range of jobs, clearly demonstrates how workers in many stages of the productive process, including rice sowing, prawn farming, gold mining, and coffee packing, suffer poor pay and conditions. Many of the goods focused on in this series end up being bought and the sold in the West by Transnational Corporations for a huge mark up, and it is extremely interesting to see the Brits abroad struggling with the injustice of this.
The Daily Mail recently conducted some undercover journalism in a Chinese factory that makes the i-pad – where the report they ‘encountered a strange, disturbing world where new recruits are drilled along military lines, ordered to stand for the company song and kept in barracks like battery hens – all for little more than £20 a week.’ Apparently workers have to endure shifts up to 34 hour s long, and the factory has been dubbed the ‘i nightmare factory’.
Corporations are responsible for causing ecological decline and damage
The evil Coca-Cola corporation is a good example of a company causing environmental decline in India:
It takes 2.72 litres of water to produce 1 litre of coca cola. Now this may sound like a reasonable ratio for such a deliciously sweet beverage, but not if you happen to be a farmer living close by to Coca Cola’s Kaladera plant in Rajasthan, North East India. According to recent independent report, commissioned by coca cola, “[the factory’s] presence in this area would continue to be one of the contributors to a worsening water situation and a source of stress to the communities around,” concluding that the company should find alternative water supplies, relocate or shut down the plant.
The result of coke’s presence in the water depleted region is that local farmers who have lived in the area for decades now have inadequate water supplies to keep their crops watered and there appears to be a clear link between the coca cola Corporation moving into the region and the destruction of the livelihood of the farmers living nearby. Coca Cola, which had an advertising budget of $2.6 billion in 2006, is clearly in a position to compensate these farmers, or relocate to a more water rich area, but chooses not to. Coca Cola’s priority clearly lies in maintaining its sickly sweet image while generating famine and poverty for those living in proximity to its factory.
Another example of a company causing environmental damage is Shell in Nigeria. Watch the brief clip from the Video ‘Poison Fire’ and note down the scale of environmental damage caused by Britain’s biggest company.
Corporations cause illness and death in the pursuit of profit
Union Carbide in Bhopal India is easily the most horrendous example of this…..
In December 1984, an explosion at a pesticide plant in Bhopal India, then owned by the American multi-national Union Carbide, lead to deadly gas fumes leaking into the surrounding atmosphere and toxic chemicals into the ground. That was more than 25 years, but, according to the Bhopal Medical Appeal (1), a toxic legacy still remains. In addition to the 3000 people that died almost immediately, over the last two and a half decades, there have been a further 20,000 deaths and 120 000 cases of people suffering from health problems, including severe deformities and blindness, as a result of the toxic seepage into the surrounding area from the plant.
Since the disaster, survivors have been plagued with an epidemic of cancers, menstrual disorders and what one doctor described as “monstrous births” and victims of the gas attack eke out a perilous existence – 50,000 Bhopalis can’t work due to their injuries and some can’t even muster the strength to move. The lucky survivors have relatives to look after them; many survivors have no family left.
apparent root cause of the accident was that the plant had not been properly maintained following the ceasing of production, although tons of toxic chemicals still remained on the site.
It wasn’t until 1989 that Union Carbide, in a partial settlement with the Indian government, agreed to pay out some $470 million in compensation. The victims weren’t consulted in the settlement discussions, and many felt cheated by their compensation -$300-$500 – or about five years’ worth of medical expenses. Today, those who were awarded compensation are hardly better off than those who weren’t.
TNCs profit from human rights abuses
In 2003 the Trades Union movement pushed for a boycott of Coke because of the company’s alleged use of illegal paramilitaries to intimidate, threaten and kill those workers who wished to set up a Trades Union at a bottling plant in Colombia.
Campaigners for the Killer Coke campaign have documented a ‘gruesome cycle of murders, kidnappings and torture of union leaders involved in a daily life and death struggle’ at these plants. The bosses at some of Coke’s factories in Columbia have contacts with right wing paramilitary forces, and use violence and intimidation to force unionised labour out of work, and then hire non-unionised labour on worse contracts for half the pay. There have been more than 100 recorded disappearances of unionised labour at Coke’s factories.
Now the Coca Cola Corporation is obviously not directly to blame for this, as Columbia is one of the more violent countries on the planet, and this culture of violence and intimidation is widespread. The company is, however, responsible for making the conscious decision to choose to invest in a region well known for such practices, and failing to either pull out or protect its workers.
The Role of TNCs in Development – Conclusions
It is clear that TNCs are not particularly interested in helping poor countries to develop. However, it is not the moral responsibility of these corporations to do so; their primary commitment is to maximize profit for their shareholders.
However, we must be careful not to tarnish all TNCs with the same brush – not all of them are as bad as each-other, and some do have ethical codes of conduct which they apply globally. TNCs are also sensitive to their public reputations, and boycotts supported by well-known charities such as Oxfam have the potential to damage corporate profitability.
It would also be a mistake to dismiss all TNC investment in the developing world as exploitative. TNCs can bring innovation and efficiency into developing countries, and the wages they pay are often more than the wages in local industries.
Finally, there is the fact that TNCs probably aren’t going to diminish in power any time soon, so instead of criticizing them, it might be better to focus on what steps we might take to make the immoral ones behave better.
The following barriers exist to making TNCs work more effectively for development
There is a lack of global control by national governments and agencies such as the United Nations. Quite simply, there is no international body or law in place to regulate the activities of these corporations on a global scale, there is no international minimum wage, for example.
Corporations are globally mobile. Local populations are not. Governments are often reluctant to hold Corporations to account because they will simply move their operations to other countries.
Leaders of governments across the world are part of the same global-political elite circle as the CEOs who run TNCs, so it is not in their interests to regulate them.
Modernisation theory saw TNCs as playing a positive role in helping societies to develop. Rostow (1971) saw the injection of capital as essential in the pre-conditions for take-off phase of development, and he thought TNC’s were one of the institutions which could help kick start the process of development by investing money, technology, and expertise that the host country did not possess.
It is neoliberals, however, who have historically been the real champions of TNCs as the most efficient institutions to kick-start and carry through development in poor countries. In neoliberal theory, economic success is proof of competence – the fact that TNCs have been making goods efficiently at a profit on a global scale for decades, if not centuries, mean that these are the institutions best placed to kick start economic growth in poor countries.
Neoliberals argue that the governments of developing countries need to pull down all barriers in order to create a ‘business-friendly’ environment in order to encourage inward investment from Transnational Corporations.
In Neoliberal theory, corporations will help a country develop in the long term by providing jobs and training. The money earned will be spent on goods and services at home and abroad creating more money to invest and (limited) tax revenue for further development.
A summary of the supposed benefits TNCs can bring to developing countries
TNCs bring in investment in terms of money, resources, technology and expertise, creating jobs often where local companies are unable to do so.
TNCs need trained workers and this should raise the aspirations of local people and encourage improvements in education
Jobs provide opportunities for women promoting gender equality.
Encourage international trade which could increase economic growth, access to overseas markets
All of the above means that wealth generated from TNC investment and production should eventually trickle down to the rest of the population.
Early modernisation theoristsbelieved that it was essential to inject aid into countries to establish infrastructure and change attitudes. From the 1950s to 70s aid programs seemed to have a positive effect on many developing countries as both economic and social development increased, however this progress seamed to stall from the late 1970s.
Contemporary supporters of aid believe that aid is not necessarily a bad thing, but aid needs to be targeted, its effects monitored and accountability measures need to be in place, so that aid money doesn’t go astray, like the $10 billion lent to Indonesia during General Suharto’s rule between 1965-1995.
NB Official Development Aid is only one type of aid, for an overview of all types of development aid, please see this post: different types of development aid.
The advantages of Official Development Aid
In the ‘End of Poverty’ (2005) Sachs notes that large scale aid can work when it is practical, targeted, science based and measurable. He believes in aid as ‘one big push’ to sort out specific problems. He points to the following evidence to support his view that aid works:
Firstly, aid aimed at improving health has been particularly successful. Aid money has led to mass immunisation of children against diseases such as smallpox and measles, polio, diphtheria. Smallpox was practically wiped out with $100 million of very targeted aid aimed at vaccinating those most at risk. Today, Barder (2011) points out that every year foreign aid pays for 80% of immunisations and saves 3 million lives a year.
Malaria Statistics
The recent sharp decline in Malaria deaths is largely due to targeted immunisation, paid for by international aid, a cause championed by the Bill and Melinda Gates foundation
Secondly – The Green Revolution – In the 1960s, Western Aid assisted in the green revolution in China, India and South East Asia which saw rice yields increase by 2-3 times, leading to surplus rice being produced for export. Such countries were then able to use the income generated by these cash crops to diversify and grow their economies, transforming into Newly Industrialised Countries (The Asian Tiger Economies). The video below outlines the case for the Green Revolution.
(NB – as a counter criticism you should check out ‘The Mythology of the Green Revolution, featuring Vandana Shiva – basically a ‘post-development perspective on the green revolution.)
Thirdly, Numerous countries, known as the International Development Association (IDA) graduates have gone on to ‘drive to maturity’ following large injections of aid money. Riddel (2014) argues that there is a substantial body of evidence that South Korea, Botswana and Indonesia have all benefited economically from Official Development Assistance.
Indonesia – seems to have benefited economically from a large amount of Official Development Aid over the years
Aid can support the Interests of Developed Countries (*)
According to Marren (2015), there is plenty of evidence that aid is shaped by the self-interest of the donor countries:
Aid may be used as a ‘sweetener’ to gain access to resources and markets and foster better trade links. The USA has used aid to guarantee access to scarce resources such as oil, while the increased donor activity of China in recent years may be linked to its need for raw materials. This goes some way to explaining why more aid money goes to lower-middle income countries rather than low-income countries – put simply, donor countries stand to gain more from giving aid the slightly better off rather than the very poorest.
Aid may be a way stimulating the donor economy. Some countries attach conditions to aid stipulating that a proportion of the funds must be spent on goods manufactured in the donor country. This is known as ‘tied aid’. The UK banned this kind of aid in 2001, although research conducted by The Guardian newspaper found that only 9 out of a total of 117 major DFID contracts (worth nearly £750 million) had gone to non-British companies.
Aid may be a way of strengthening political links and securing strategic interests. Countries which are viewed by the Americans as allies in the ‘War against Terror’ are generously rewarded with aid. A recent study of U.S. Aid since the 2000s showed that the main destinations were Afghanistan, Iraq and Egypt. Similarly, UK aid is increasingly being spent on military objectives.
Statistics on the Benefits of UK Aid (*)
The majority of UK aid spent between 2015-2019 was spent in Africa, and you can get a detailed breakdown of expenditure by sector and region in the most recent DFID report linked below (NB DFID has now merged with the FCO, so whether future reporting will be the same remains to be seen!)
Combatting malnutrition – From 2015-2020 DFID reached 55.1 million children under 5, women of childbearing age and adolescent girls through our nutrition-relevant programmes.
Water, sanitation and hygiene – Between 2015 and 2020 DFID has supported 62.6 million people to gain access to clean water and/or better sanitation.
Education – Between 2015 and 2020 DFID supported at least 15.6 million children to gain a decent education.
Jobs and Income – From 2015/16 to 2019/20 DFID supported 5million people to raise their incomes or maintain/gain a better job or livelihood.
Family Planning – Between April 2015 and March 2020, DFID reached an average of 25.3 million total women and girls with modern methods of family planning per year
Health – Immunisations – From the start of 2015 until the end of 2018, DFID support immunised an estimated 74.3 million children, saving 1.4 million lives.
Access to Finance – Between 2015 and 2019 DFID supported 69.2 million people to gain access to finance, including 35.4 million women, representing 51% of the total
Energy – From 2015/16 to 2019/20 DFID installed 771 KW hours of clean energy capacity.
Related posts
Of course there is a question mark over how effective the aid spent in the above statistics has been, which is one of the many criticisms made of Official Development Aid, which you can read about in this post here.
Aid refers to any flow of resources from developed countries to the developing world. Aid can come in the form of money, technology, gifts or training, and can either be provided in the form of a grant which does not have to pay back or a loan with interest which does have to be paid back.
There are different strengths and limitations of aid depending on where it comes from – and you need to be able to distinguish between Official Development Aid from large scale institutions such as the World Bank and Governments, aid organised through Non-Governmental Organisations – or Charities such as Oxfam and Private Aid – from organisations set up by wealthy individuals – such as the Bill and Melinda Gates Foundation.
There are three main types of aid you need to know about:
Official Development Aid
Official Development Aid (ODA) is aid from public or official sources such as national governments or international agencies of development. Official Development Aid accounts for 80% aid.
There are two main types of ODA (which are not distinguished in the table above)
Bilateral Aid involves countries in the developed world giving money directly to governments, local communities or businesses in the developing world. In the UK this is knowns as ‘Official Development Assistance’ and in is delivered through the Department for International Development (DFID). 70% of ODA is bilateral.
Multilateral Aid involves the UK (and other countries) donating money to international agencies such as the World Bank and the European Commission. There are over 200 international agencies which provide aid to developing countries. 30% of ODA flows through such international agencies.
Non-Governmental Organisation (NGO) Aid – NGOs are independent charities such as OXFAM which raise donations from the general public. There are thousands of NGOs ranging from the very large and well-known such as OXFAM, which focus on a range of development projects, to the very localised and specific, which may consist of just a few individuals focussing on one development issue in one area of one country. NGO aid makes up the other 20% of aid.
This is aid from international foundations which are set up by wealthy individuals or Corporations such as the Bill and Melinda Gates Foundation. This accounts for a relatively small proportion of aid flows.
Sources
Chapman et al (2016) – A Level Sociology Student Book Two [Fourth Edition] Collins.
The World Trade Organisation (WTO) is the body through which governments and businesses (mainly TNCs) negotiate the rules of trade, and settle trade disputes once these rules have been established.
The concept of the WTO first began with the 1947 the General Agreement on Tariffs and Trade (GATT) was signed by the Western powers to govern global trade and to reduce trade barriers between nations. In 1994, the WTO was set up to replace GATT, originally consisting of 126 members; it has since expanded to 164 member states currently.
The WTO now has trade rules in place covering not only goods but also services such as telecommunications, banking and investment, transport, education, health and the environment.
The WTO is committed to the concept of free trade, believing that unlimited competition in the free market results in efficient production, innovation, cheap prices and the fastest possible rates of economic growth. They see government interference in markets as stifling businesses and being harmful to economic growth. WTO trade agreements and trade rules have thus tended to focus on reducing government intervention, such as the reduction of tariffs, subsidies and restrictions on imports.
However, critics argue that the WTO has hidden goals, and that it is really interested in helping rich countries and TNCs maintain their economic dominance. Chang (2010) for example has criticized the World Trade Organisation, arguing that its trade rules are unfair, and biased against developing countries. The WTO pressurizes poor countries to open up their economies immediately to western corporations and banks by abandoning tariffs (taxes) on western imports. However, the developed countries are still allowed to impose quotas on the imports of manufactured goods from poor countries, in order to protect their manufacturing industries.
Along the same lines as Chang above, McKay argues that WTO trade rules have rigged the terms of global trade in favour of the West and consequently the WTO is a rich man’s club dominated by the neo-liberal philosophy of the developed, industrialised nations.
A second major criticism of the WTO is that it is notoriously undemocratic – decision making at the WTO is dominated by a small group of Western members, with representatives of developing countries being outnumbered by the representativeness of wealthier countries and TNCS, even though the majority of the world’s population lives in those poorer countries. A consequence of this is that the WTO tends to see free-trade as more important than protecting workers rights or the environment.
This brief article from Forbes suggests various reasons why poor countries fail to get decent trade deals out of the WTO:
–They are seriously understaffed–at the extreme, some states have no permanent delegation in Geneva, or just one or two people who must also cover other international agencies in the city.
–Their experience of trade policy issues and multilateral negotiations is limited.
–Individually, and even collectively, few account for a significant share of any element in world trade.
Philippe Legrain (2002), former special advisor to the Director-General of the WTO has acknowledged four main criticisms of the WTO:
It does the bidding of TNCs
It undermines workers’ rights and environmental protection by encouraging a ‘race to the bottom’ between governments of developing countries competing for jobs and foreign investment.
It harms the poor
It destroys democracy by imposing its approach on the world secretly and without accountability. He argues that the WTO’s free trade rules have prioritised the interests of TNCs over democratic and human rights.
Further sources of criticisms
Profit over Planet – WTO ruling against India subsidizing solar farms (suggests this is being done in the interests of US oil companies??)
This Guardian article (2011) outlines 10 ways in which WTO is failing developing countries.
Dependency theorists argue poor countries are often dependent on low value primary products for export, which the West then adds value to!
Andre Gunder Frank (1971) argues that the reason trade doesn’t work for poor countries is a legacy of colonialism – before independence, the colonising power simply took these commodities. After independence, developing societies are often still over-dependent on exporting these primary commodities, which typically have a very low market-value, and rich countries are happy to keep things this way because this enables them to stay rich.
Four reasons why free trade doesn’t always promote development
Dependency Theorists point to at least the following reasons why trade doesn’t help poor countries develop:
Poor countries are often dependent on low value, primary products for their export-earnings.
Value is added to primary commodities by rich countries.
The terms of trade are often biased against poor countries
Poor countries have been pressurized into exporting to clear their debts.
Poor countries export low value, primary products
According to Elwood (2004) three commodities accounted for 75% of total exports in the poorest 50 countries, but because of the declining value of such commodities, the developing nations need to export more and more every year just to stay in the same place. One developing nation leader described it as ‘running up the downward escalator’. For example, in 1960, the earnings from 25 tons of natural rubber would buy four tractors, today it would only buy one.
One example of a country which appears to be still dependent on the export of low value primary products is Malawi:
Malawi – dependent for most of its income on one primary agricultural product – Tobacco. (Source.)
However this may not apply to that many African countries today. According to data from Statista, while there is still a colonial legacy which affects African exports, more African countries have moved towards exporting oil and gas which are more profitable than the more traditional agricultural commodities.
Value is added to primary commodities by rich countries
Primary products such as cocoa, tea and coffee, sell for relatively low prices, so the farmers growing and selling such products make relatively little. However, once these products have been processed, branded and turned into the goods you see on the supermarket shelves, they can sell several times the original price. The problem (for developing countries) is that most of this processing and branding is done in the West. Thus, poor countries stay poor, and rich countries get rich.
With some commodities, there are several links in the chain of trade – take coffee for example – it goes from grower (in Ethiopia for example), to the local buyer, to the exporter, to the roaster (in Germany for example), to the supermarket and then to the consumer – 6 links in the chain. A bag of coffee might cost the consumer £2.50 in the supermarket, but the grower is lucky (very lucky) if they receive even 10% of this.
This infographic on the economics of coffee from Visualcapitalist shows shows how little poor farmers make from coffee compared to the end retailers. The breakdown is as follows:
growing – $0.07
exporting coffee – $0.16
Roasting – $0.35
distribution – $0.04
retail $2.17
total = $2.80
So the farmers growing the coffee get around 2% of the end price!
The terms of trade are often biased against poor countries
Western nations impose tariffs (import taxes) or quotas (simply limits on how much a country can import) on goods from the developing world, which seriously impairs the ability of poor countries to make money from exports.
At the same time as restricting imports from poorer countries, Western governments subsidize some of their own industries. This results in over-production in some sectors, which can result in cheap, subsidized Western goods being dumped on poor countries, which undermines local industries in poorer countries. This happened in Haiti in the early 1990s, when cheap, subsidized American rice was dumped on the Haitian market, forcing local rice farmers out of business (because the American rice was cheaper.
This 2015 video from Al Jazeera focuses on this issue in Kenya – Kenyan cotton farmers are finding it very difficult to compete with subsidized American cotton farmers. You get to see the large scale U.S. operation which is subsidized by the American government, who exports their cotton: the US is the largest cotton exporter in the world. And you also get to see how American cotton production contrasts with the much smaller scale nature of Kenyan cotton production, cotton which they cannot export because they cannot compete with the subsidized US cotton.
More recently, OXFAM has been concerned with the recent increase in bilateral ‘free trade’ agreements (FTAs). For example, in 2007, the EU singed FTAs with India which opened up Indian markets to the import of poultry and dairy products, despite the fact that 85% of demand is met locally by Indian farmers, and the introduction of big supermarket chains into the Indian marketplace.
In 2020 War on Want argued that aggressive new post-Brexit trade deals between the UK and Ghana hit Banana exporters in Ghana with £20 000 worth of tariffs a week, putting the livelihoods at risk.
Exporting to clear debts
The World Bank sees loans and debt as a ‘normal’ part of development, and poor countries are required to maintain repayments on (often low-interest) development loans to be eligible for more loans, thus keeping up repayments on loans is a crucial part of development for many countries.
Ellwood (2004) argued that this has resulted in the ‘social violence of the market’ – the constantly escalating pressure on farmers and workers in the developing world to produce more for less, which results in a problem called ‘immiserating trade’ – the more a developing country trades, the poorer it gets.
Conclusions
Marxists conclude that the terms of world trade are far from equal. Developing countries are very much junior partners in global trading relationships and are consequently exploited by more powerful countries, TNCs and their agents.
Signposting and Sources
This material is relevant to the Global Development module. This is an option in the second year of A-level sociology,
References
Chapman et al (2016) – A Level Sociology Student Book Two [Fourth Edition] Collins. ISBN-10: 0007597495
‘Free’ trade* refers to the relative absence of government interference in the affairs of private businesses and the consumers who buy their products. Free trade depends on free trade agreements.
Free Trade agreements are policies established between countries and private businesses which make it relatively easy for companies to produce and sell goods in more than one country, so the ‘free’ in free trade means the freedom of businesses from the restrictive power of government.
Free Trade – It’s about keeping goods circulating, and services of course!
Governments can restrict free trade across international boarders by doing the following:
Imposing tariffs – which are taxes that nations impose on imports. Tariffs increase the cost of goods, and make it harder for companies to sell their goods abroad. (Quotas are similar but blunter instrument than tariffs, they are simply a limit which governments put on the number or value of imports they will accept from certain countries in any given time period)
Subsidizing domestic industries – which are government hand-outs or tax breaks on domestic companies – if a government does this, then it makes domestic goods cheaper and foreign goods relatively more expensive – it’s effectively the opposite of tariffs.
Imposing high taxes on profits – which reduces incentives for private companies to invest and produce goods.
Having too many regulations – which require that companies pay workers minimum wages, do health and safety assessments, and take care of the environment.
It follows that Free trade agreements tend to focus on:
Eliminating tariffs and quotas
Eliminating government subsidies
lowering taxes on profits
Reducing regulation and protection.
Free trade opens up foreign markets and lowers barriers for foreign companies that otherwise might not be able to compete against local businesses. Without free trade agreements, there would probably be less trading between countries.
The idea of free trade goes back a long way
One of the most well- known historic proponents of free trade was Adam Smith. In his 1776 book The Wealth of Nations Smith argued that the ‘invisible hand’ of the free-market would ensure that producers produced what consumers wanted as efficiently as possible.
David Ricardo expanded on Smith’s ideas arguing that countries tended to have a comparative advantage in providing different goods and services and should do what they do better and cheaper than other countries, and in this way everyone benefits. For example, the U.K. climate is well-suited to growing apples, but not sugar-cane, and vie-versa for Jamaica, so it makes sense that two countries specialize in each crop and trade, rather than trying to grow everything themselves.
Modernisation Theory and Neoliberalism both argue that developing countries need to increase their share of world trade (export and import more) in order to develop, and both recognize that most developing countries have enormous potential to increase exports, given that they have a two important ‘competitive advantages’ over the West –an abundance of natural resources, which the West no longer has, and abundance of cheap labour.
However, the two theories have very different ideas about how poor countries should increase trade – modernization theory prefers aid to encourage trade, whereas neoliberalism is suspicious of aid, believing that poor countries should move straight to opening up the markets to attract TNC investment.
Modernisation Theory
Modernisation theory argues that increasing trade with other countries is a crucial part of ‘climbing the ladder of development’.
Initially, in phase two, or ‘the pre-conditions for take-off’, developing countries themselves have very low levels of capital and expertise, and so they require aid from the West, in the form of capital investment and western advice, which could help countries establish an industrial base, for example.
In the ‘take off’ phase (phase three) of Rostow’s model, countries will start to manufacture goods for export to other countries, and the ‘drive to maturity’ phase (phase four) sees earnings from exports reinvested in public infrastructure such as education, which results in a higher skilled workforce and further integration into the global economy.
After 60 years, the ‘age of high mass consumption’ should have been attained which means that countries are equal trading partners in the global market place.
Neoliberalism
Reid-Henry (2012) argues that neoliberalists see global free-trade markets as both the means and desired end for development.
Neoliberal development policy argues that developing countries need to create a ‘business-friendly’ environment in order to encourage inward investment from wealthy individuals and Transnational Corporations.
Reid-Henry suggests there are four key organizing principles of neoliberal policy:
The governments of developing countries are expected to pull down all barriers to Western investment
Workers in the developing world are expected to work hard and cheaply for Transnational Corporations
Public services need to be privatized
Social life should be organized around the profit motive.
Many developing countries have actually set up huge Export Processing Zones, or Free Trade Zones In order to attract TNCs developing countries have set up. These are special areas in that country, typically close to ports, which offer incentives for Transnational Corporations to invest, including tax breaks, low wages, and lax health and safety legislation.
In Neoliberal theory, corporations will help a country develop by providing jobs and training. The money earned will be spent on goods and services at home and abroad creating more money to invest and (limited) tax revenue for further development.
Evaluations
It is true that there is an obvious relationship between trade and economic growth. The world’s top five countries, ranked by GDP, export (and thus profit from) 40% of the world’s goods. Meanwhile, the bottom 50 GDP countries export less than 1% of the world’s goods.
However, dependency theorists argue that ‘free-trade’ has historically brought more benefits to wealthy countries and corporations compared to developing countries.
The impact of free trade agreements on the economies of developing countries – DFID 2015 – based on a ‘rapid assessment’ of 144 studies of FTAs between developed and developing countries, this recent report concludes that (a) in most cases the evidence isn’t strong enough to say what the effects of free trade are and (b) where the evidence is strong enough, it’s mixed.
*The reason I typically parenthesize the ‘free’ in ‘free trade’ is that for free trade to happen effectively it actually requires a substantial legal framework, which requires government and a legal system to which all parties agree – the most obvious aspect of which is the protection of private property – which basically says that if you make a profit, you can keep it, rather than having someone come and simply take it off you.
The world bank may harm development by forcing countries to pursue neoliberal polices such as privatisation in return for loans.
The World Bank claims that its major goal is to promote global development through poverty reduction, but there are many critics who argue this is a smoke-screen, and the real aim of the World Bank is to use conditional loans in exchange for countries establishing neoliberal economic policies which ultimately benefit western companies and financial institutions.
Ha-Joon Chang (2007) for example argues that the World Bank (and the IMF) present themselves as a ‘good Samaritans’ whose only motives are to assist the developing world, but they are actually ‘bad Samaritans’ because their motives are essentially selfish.
Chang argues that the real point of the World Bank (along with IMF and the WTO) is to create a policy environment in the developing world that is friendly to Transnational Corporations, an environment which benefits TNCs and small groups of elites in developing countries, but results in deteriorating social development for the majority of the people.
Pliger argues that the World Bank (along with the International Monetary Fund) is the agent of the richest countries on earth, especially America, and its function is to offer loans to poor countries, but only if they privatise their economies and allow western companies free access to their raw materials and markets.
The World Bank says its aim is to help poor people, calling this global development, but in reality, the effects of its policies are that the rich get richer on running up debt, cheap labour and paying as little tax as possible, while the poor get poorer as their jobs and public services are cut to pay just the interest on the debt owed to the World Bank.
The documentary also claims that the bank operated during the entire cold war as an institution which distributed money to mainly authoritarian regimes in the third world that supported the West in the Cold War.
The World Bank in Indonesia (1960s – 1990s)
Probably the best historical case study which criticizes the role of the World Bank in development is the case of Indonesia.
In the 1960s General Suharto seized power in Indonesia secretly backed the United States and Britain. He removed from power the founder of modern Indonesia, Sukarno: a nationalist who believed in economic independence for the country. He had kept the Transnational Corporations and their agents, the World Bank, and the IMF, out of the country, but with Suharto coming to power they were called back in to ‘save’ Indonesia.
This regime change was one of the bloodiest mass murders in post WW2 history, with more than a million people estimated to have died in the process. Suharto took brutal steps to consolidate his power by rounding up thousands and thousands of civil servants, school teachers and basically anyone with communist leanings and murdering them.
Within a year of Suharto’s coming to power the economy of Indonesia was effectively redesigned, giving the west access to vast natural resources, markets and cheap labour, what Nixon called ‘the greatest prize in Asia.
Over the next 30 years the World Bank handed out $30 billion in loans for development to the Suharto regime, turning a blind eye to the estimated million people who Suharto massacred during his rule. The Indonesian elite instigated many development projects with World Bank loans during this time, and many of them were seen as opportunities to skim money for themselves.
The Asian financial crisis of 1998 collapsed the Indonesian economy which resulted in Suharto stepping down from power, ending a 30 year rule during which time he stole an estimated $15 to $30 billion from the Indonesian people, giving him the dubious honour of being the most corrupt dictator in modern world history.
According to the World Bank’s own documents, by the end of regime, $10 billion out of $30 billion in loans remained unaccounted for (so around half of the estimate above is straight from the World Bank). Of course the debt remained, and still had to be paid back to the World Bank by the Indonesian citizens who had never seen a cent of that money.
According to the auditor general of the World Bank, if the citizens of Indonesia made a legal challenge against the World Bank over the remaining debt (given that they never received the money), the World Bank would be bankrupt, because this has gone on the world over.
The World Bank in Bolivia (1994)
Another specific case study which demonstrates the harmful effects World Bank policies can have on poor countries is the case of the World Bank’s Structural Adjustment Programme in Bolivia in the mid 1990s, which is covered in ‘The Corporation’ documentary:
In 1994 the World Bank refused a $25 million dollar loan to a local water co-operative in Cochabamba, Bolivia. Instead, they insisted that the Bolivian government hand over the running of the local water supply to a French mulitnational named Bechtel. The agreement that the World Bank forced onto the Bolivian government gave the French company total control over the local water supply in Cochabamba, even over the rain water, and locals were forbidden from collecting rain water to drink – they either had to pay the company for water or die of thirst.
The problem was that the fees Bechtel was charging for water cost the average local resident more than they spent on food, or about half of their income (the other half they didn’t spend on food).
In response, a resistance movement sprang up (no pun intended), to which the government responded with military force – and over a hundred people were wounded in the following skirmishes.
In this case, the government eventually backed down, and the water supply was returned to the control of the local community, meaning that water was again effectively available for free, but this goes to show the lengths the world bank will go to in support of Transnational Corporations.
A good documentary which puts the Bolivian water privatisation in historical and global context is ‘Blue Gold: World Water Wars’…
Some negative consequences of Structural Adjustment Programmes in Africa
Structural Adjustment programmes are the primary vehicle through which the World Bank provides conditional loans for development – through them, a country only receives loans if it adopts neoliberal (pro-business) policies – there are four main strands to this – prviatising public services, cutting taxes, deregulation, and developing an ‘export driven’ economy.
This useful blog post summarises some of the harms that World Bank structural adjustment programmes have done in Africa. To summarise just a few of them…
Privatisation has meant that Transnational Corporations have been able to buy state enterprises at very low costs.
Tax reforms under structural adjustment programmes typically have meant tax cuts for the wealthy (lowering taxes on profits for example) and shifted the tax burden onto middle and low-income groups.
Deregulation has made it easier for TNCs to shift their profits abroad – to offshore banking accounts for example.
Cuts to public services such as health have increased the number of people without access to health care.
Cuts in public sector employment, have led to large increases in unemployment. (for example 300 000 civil servants were retrenched in Zaire – now DRC – in 1995).
Liberalisation of labour markets have led to the phasing out of minimum wage legislation.
Export orientation in agriculture has led to the elimination of subsistence agriculture and pushed people towards cities, leading to rapid urbanisation and an increase in slum-living conditions.
Various NGOs funded by international aid agencies have gradually taken over government functions in the social sector.
Evaluations of these Criticisms
Many of these criticisms are historical, and they may not apply to World Bank policy today.
It’s actually quite difficult to evaluate how successful World Bank policies have been in promoting development, because you can never be sure what would have happened if World Bank policies and conditional loans had not been put in place, and it’s difficult to isolate the specific effects of policies given the open-systems nature of global development.
Signposting
This material is of general interest to anyone interested in global social justice, but also to A-level sociology students taking the Global Development option in their second year.
