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What is Economic Globalisation?

Economic Globalisation involves the global expansion of international capitalism, free markets and the increase in international trade, a process which has accelerated since the 1950s. Nearly every country on earth now imports and exports more from and to other countries than it did immediately after World War Two, and even ex-communist countries are now part of the global capitalist economy. Britain for example imports around 60% of its food, with only 40% of the food supply being grown in Britain, and if you take a look around any class room, or any living room, and you will probably find that the majority of products were imported from somewhere else.

Some of the key features of economic globalisation include:

The emergence of global Commodity chains – manufacturing is increasingly globalised as there are more worldwide networks extending from the raw material to the final consumer. The least profitable aspects of production – actually making physical products, tend to be done in poorer, peripheral countries, whereas the more profitable aspects, related to branding and marketing, tend to be done in the richer, developed, core countries.

The role of Transnational Corporations (TNCs) is particularly important – these are companies that produce goods in more than one country, and they are oriented to global markets and global products, many are household names such as McDonald’s, Coca Cola and Nike. The biggest TNCs have annual revenues which are greater than the economic output of middle-income countries. Apple, for example, generates more income than Finland does every year, and many oil companies such as Shell and Exxon-Mobile generate revenue several times that of the poorer countries they extract from.

TNC logos

The global economy is Post Industrial – as a result it is increasingly ‘weightless’ (Quah 1999) – products are much more likely to be information based/ electronic, such as computer software, films and music or information services rather than actual tangible, physical goods such as food, clothing or cars.

The electronic economy underpins globalisation – Banks, corporations, fund managers and individuals are able to shift huge funds across boarders instantaneously at the click of a mouse. Transfers of vast amounts of capital can trigger economic crises.

global electronic economy

 

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Sustainable Development

This post defines sustainable development, summarises the environmental challenges we face and contrasts technocentric and ecocentric views on the relationship between economic growth and sustainability.

There are many definitions of sustainable development, including this landmark one which first appeared in 1987:

“Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

The above definition comes from a landmark report called ‘Our Common Future’ (Oxford University Press, 1987) which was authored by the World Commission on Environment and Development and represents the first serious attempt to assess the impact human development has had on the natural world at a global level.

The Concept of Sustainable Development has two elements –

Firstly, the ‘development’ part recognises that people have basic needs and that there is a need for further economic development because there are still hundreds of millions of people who lack access to sufficient food, water, sanitation and social services for example.

Secondly, the ‘Sustainable’ aspect recognises that there are ‘limits to growth’ – the earth has finite resources and a limited capacity to soak up the waste and pollution associated with economic growth.

These ‘limits to growth’ are manifest in a number of environmental problems – namely

1. The burning of fossil of fuels which leads to global warming and sea level rise

2. Deforestation

3. Desertification

4. Toxic Pollution and waste

5. Resource Depletion

6. Species Extinction

One outcome of the above report was the first Earth Summit, held in 1992 in Rio de Janeiro (known as the Rio Summit). At the time this was the largest meeting of world leaders in history, attended by 172 governments under the auspices of the United Nations. Various earth summits have led to various global agreements to tackle environmental problems –

  • Agenda 21 – in which signatories agreed in principal to the concept of sustainable development – finding ways to combat poverty and develop without depleting resources or harming the environment
  • The 1993 Convention on Biological Diversity which commits nations to finding ways to develop which avoid destroying natural ecosystems
  • The 1997 Kyoto Protocol, in which 192 nations eventually committed to reducing greenhouse gas emissions on the basis that global warming was man made and the burning of fossil fuels was the main cause.
  • In 2015 – The Sustainable Development Goals – A set of 17 goals which look forward to 2030, approximately half of which are explicitly to do with sustainability, a much stronger commitment than the previous Millennium Development Goals.

However, whether or not these commitments are met remains to be seen.

Criticisms of International Agreements on Climate Change

Many environmentalists suggest that the above global agreements on Climate Change are too little too late because…

1. Many of the treaties above are voluntary – Agenda 21 for example. There are very few legally binding agreements about climate change which come attached with sanctions.

2. Two of the world’s biggest polluters – China and India were not required to sign up to reducing CO2 emissions (globally we emit more now than we did in 1992).

3. Greenpeace suggests that big oil companies have played a role in PREVENTING a global move towards more sustainable energy sources such as solar and wind power.

 

Competing Ideas about what to do about environmental decline 

Although 97% of the world’s climate scientists agree that human activity is changing the planet (the other 3% work for the oil industry) there is little agreement over what we should actually do about this, and so many different ideas about what ‘sustainable development’ looks like. There are numerous reasons for this: firstly we are in uncharted territory: we’ve never faced climate change before, we have little prior knowledge about what effects human activity has on the planet, secondly, climate science is complex – think how difficult it is to predict the weather tomorrow, let alone global warming trends over 10 years or more, and finally, new technologies are evolving all the time which may enable us to offset some of the problems of climate change and environmental decline.

It is these uncertainties that allow for different ideas about how we should relate to the earth. Timothy O’Riordan suggests that there are different theories as to how humans should relate to the earth, some of which he says place ecological laws at the centre of their approach and identify that humans are subject to these laws (he classifies these approaches as ‘eco-centric’) and others which place humans and their capacity to adapt the world to their needs at the centre of the approach (he classifies these as ‘technocentric’).

NB What’s below only summarises aspects of these two approaches to sustainable development.

A Technocentric Approach to Development and Environmental Decline 

The Technocentric ‘solution’ to climate change is associated with neoliberalism, and is a view that many leaders of big business subscribe to. It is popular amongst 10-30% of the population. Technocentrics basically believe that economic growth is the primary goal and that efforts to combat climate change should not compromise economic development.

Technocentric thinkers believe that humans have the right to exploit the earth’s resources and that the earth is generally robust enough to be able to handle resource extraction and a degree of pollution. They believe that when resources (such as oil for example) become scarce, the laws of supply and demand will kick in, prices will go up, and so demand will be reduced.

The resulting scarcity of resources will create a market-niche, and new business will be set up in order to meet demand. For example, as oil runs out, it will become more profitable for businesses to innovate and invest in renewable technologies such as solar, wind and nuclear power.

Technocentrics believe that there is no need to change the current neoliberal economic system – solutions to the current environmental crisis can be found within the system.

Some Technocentric Solutions to Climate Change

Technocentric thinkers tend to emphasise market-solutions, and rely on a fusion of science, engineering and big business to manage environmental problems. Below we consider just two of these – Carbon Trading Schemes and Geo-Engineering Projects

Carbon Trading

Carbon Trading works around an exchange of credits between nations designed to reduce emissions of carbon dioxide. The carbon trade allows countries that have higher carbon emissions to purchase the right to release more carbon dioxide into the atmosphere from countries that have lower carbon emissions. The carbon trade originated with the 1997 Kyoto Protocol and is intended to reduce overall carbon dioxide emissions to 5% below 1990 levels between 2008 and 2012.

Geo-engineering

Geo-engineering refers to artificial efforts to mitigate global warming by manipulating weather patterns, oceans, currents, soils and atmosphere to reduce the amount of greenhouses gases –

According to a recent Guardian article – ‘The range of techno-fix ideas is growing by the month. They include absorbing plankton, growing artificial trees, firing silver iodide into clouds to produce rain, genetically engineering crops to be paler in colour to reflect sunlight back to space, fertilising the ocean with iron nanoparticles to increase phytoplankton, blasting sulphate-based aerosols into the stratosphere to deflect sunlight, covering the desert with white plastic to reflect sunlight and painting cities and roads white.

There are serious proposals to launch a fleet of unmanned ships to spray seawater into the atmosphere to thicken clouds and thus reflect more radiation from Earth. Most controversial of all is an idea to fire trillions of tiny mirrors into space to form a 100,000-mile “sunshade” for Earth.

Most are unlikely to be seriously considered but some are being pushed hard by entrepreneurs and businessmen attracted by the potential to make billions of dollars in an emerging system of UN global carbon credits. Research by ETC, the Canadian-based watchdog, shows at least 27 patents have been granted to inventors and assignees including Bill Gates, Dupont, the US government and various corporations.’

From the UK, everyone’s favourite bearded billionaire Richard Branson is a big fan of geo-engineering, so much so that he set up a £25 million prize fund for the best scalable technological solution which could remove CO2 from the atmosphere. Check out the The Virgin Earth Challenge for more details.

An Ecocentric Approach to Climate Change 

To my mind Naomi Klein’s latest book can be characterised as an Eco-Communalist approach to climate change, which comes under the broad umbrella of ecocentrism 

In her recent (2014) book ‘This Changes Everything’ Naomi Klein argues that Neoliberalism is responsible for Climate Change, and that Nation States the world over need to gain control over Big Oil and Energy companies and the World Trade Organisation in order to achieve sustainable development. (NB she is effectively arguing that Neoliberal Development has caused climate change.) She also argues that we need to develop localised control over our energy supply and resource use in order to deal with climate change. All in all – this is a good example of an eco-communalist approach to sustainable development.

Klein argues that the three policy pillars of the neoliberal age (1989 – present day) which are:

* privatisation of the public sphere

* deregulation of the corporate sector, and

* lowering of income and corporate taxes, paid for with cuts to public spending

are each incompatible with many of the actions we must take to bring our emissions to safe levels and bring climate change under control.

These neoliberal ideas lie at the heart of the World Trade Organisation, and many of its policies are incompatible with a sustainable future. Specifically Klein says there are three contradictions between the (neoliberal) goals of the WTO and what’s needed to control climate change. Klein offers the following reasons for this:

* Firstly, the WTO encourages more international trade which has meant a huge increase in fossil fuel burning container ships and lorries. Reduced carbon emissions would require less trade or more local trade.

* Secondly, the WTO gave TNCs the rights to sue national governments for preventing them to make a profit out of mining/ burning fossil fuels (I KNOW – It sounds crazy, but it’s true!). Whereas to protect the environment, governments would need to be able pass laws to protect the environment (kind of an obvious point I know!).

* Thirdly, the WTO has given western companies stronger patent rights over their technologies – whereas if renewable technologies are to be transferred to the developing world, they would need to make their own cheap copies of those technologies (because they would not be able to afford to buy them).

To illustrate the lunacy of the current Capitalist System Klein outlines how TNCs use the WTO to sue governments who try to subsidise renewable energy.

(Firstly some context) Fossil fuel companies lie firmly at the heart of the global capitalist system, and presently receive $775 billion to $1 trillion in annual global subsidies, but they pay nothing for the privilege of treating our shared atmosphere as free waste dump.

In order to cope with these distortions (which the WTO has made no attempt to correct), governments need to take a range of aggressive steps – such as price guarantees to straight subsidies so that green energy has a shot at competing.

However, green energy programmes which have been instigated under nation states are increasingly being challenged under World Trade Organisation rules. For example:

In 2010 the United States challenged China’s wind powered subsidy programs on the grounds that it contained supports for local industry considered protectionist. China in turn filed a complaint in 2012 targeting various renewable energy programmes in mainly Italy and Greece.

In short, the WTO encourages nation states to tear down each others windmills while encouraging them to subsidise coal burning power stations.

The sad thing is, when governments subsidise green energy – it works – Denmark has the most successful renewable energy programs in the world, with 40% of its energy coming from renewables, mostly wind, but its programme was rolled out in the 1980s, with most installations being subsidised at 30%, before the WTO was established. Now such subsidies are illegal under WTO rules because it’s ‘unfair’ to fossil fuel companies.

Solutions to Climate Change : Ground-Up Social Democracy Is The Most Effective Way to Combat Climate Change

Klein notes that much has been written about Germany’s renewable energy transition – It is currently undergoing a ‘transition to green’ – with 25% of its energy coming from renewables. This is up from only 6% in 2000.

Though rarely talked about there is a clear and compelling relationship between public ownership and the ability of communities to get off dirty energy.

In Germany, this has taken the form of local citizens groups taking control of their own energy supplies from multinational corporations. There are about 200 of these in Germany, and they take the form of locally controlled energy companies which are concerned with public interests, not profit, which was democratically

controlled by citizens, with money earned being returned to the city, rather than lost to shareholders of some multinational.

This movement is actually more widespread than Germany (there are even some cities in America have done this, such as Boulder in Colorado which have gone down this route), and is most prevalent in the Netherlands, Austria, and Norway, and these are the countries with the highest commitment to coming off fossil fuels and pursuing green energy alternatives.

Two further case studies of countries which practice small-scale environmentalism are Cuba, which was forced to adopt organic gardening with the collapse of communism in the 1990s, and protection of the environment also forms a cornerstone of the Gross National Happiness strategy of Bhutan.

Extreme ‘Eco-Communalism’ in the UK – The case of Tinkers Bubble.

There are a handful of people (less than 1% of the population) who believe that nothing less than radical lifestyle change is required to tackle climate change. One example of this in the UK is Tinkers Bubble.

Tinkers Bubble is a small woodland community which uses environmentally sound methods of working the land without fossil fuels. They make their monetary incomes mainly through forestry, apple work and gardening. As a result they are money poor but otherwise rich.

They manage about 28 acres of woodland using horses, two person saws, and a wood-fired steam-powered sawmill. Their pastures, orchards, and gardens are organically certified, and no-dig, and they press apple juice for sale, grow most of their own vegetables, keep chickens and bees, and sell their produce at farmers markets.

They rely on off-grid solar powered 12v electricity, have their own natural spring water, use compost toilets. and burn wood for cooking, heating, and for hot water. Most people wash their clothes by hand and life is lived mostly outdoors, so it’s cold in the winter.

 

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The Neoliberal Theory of Economic Development

According to neoliberalism big government and too much official development aid prevent economic and social development, while deregulation, privatisation and lowering taxation are required to achieve economic growth. This post outlines the neoliberal approach development and then briefly assesses the effectiveness of neoliberal policies.

What is Neoliberalsm?

Neoliberalism - The Dominant Ideology since Reagan and Thatcher
Neoliberalism – The Dominant Ideology since Reagan and Thatcher

While the usage of the term neoliberalism varies considerably, for the purpose of this post i use the term to refer to that set of economic policies which have become popular in economic development over the last 30 years (since the late 1980s) – namely increased privatisation, economic deregulation and lowering taxation.

Neoliberalism replaced modernisation theory as the official approach to development in the 1980s. It focuses on economic policies and institutions which are seen as holding back development because they limit the free market. The agreement by the World Bank and IMF that neoliberal policies were the best path to development is referred to as the Washington Consensus following a meeting in Washington by world leaders in 1989.

What prevents development?

Neoliberals argue that governments prevent development – When governments get too large they restrict the freedom of dynamic individuals who drive development forwards. Neoliberals argue that there is some pretty powerful evidence for this – Think of communist regimes in Eastern Europe, although these governments forced through industrialisation, they would not allow people enough freedom to bring about the kind of consumer culture (based on individual freedom of choice and expression) that emerged in Western Europe in the 1960s, so development stagnated in those countries because of governments having too much power. Similarly neoliberals argue that even in Capitalist countries where there is too much ‘red tape’ – or too many rules, regulations, taxes and so on, it’s harder to do business and so harder for economies to develop.

Neoliberals are also critical of the role of Western aid money – They point to the many corrupt African dictatorships which emerged in Africa in the 1960s -1980s – These were often propped up by aid money from Western governments and during this period billions of dollars were siphoned off into the pockets of government officials in those countries and not used for development at all.

How can countries develop?

Chile - The First Neoliberal Experiment
Chile – The First Neoliberal Experiment

Neoliberalism insists that developing countries remove obstacles to free market capitalism and allow capitalism to generate development. The argument is that, if allowed to work freely, capitalism will generate wealth which will trickle down to everyone. 

Another way of putting this is that neoliberals believe that private enterprise, or companies should take the lead in development. They believe that if governments promote a business friendly environment that encourages companies to invest and produce, then this will lead to exports which will encourage free trade. So encouraging ‘free’ trade is a central neoliberal strategy for development

The policies proposed are those that were first tried in Chile in the 1970s, then in Britain in the 1980s under Thatcher. They include:

  1. Deregulation – Removing restrictions on businesses and employers involved in world trade – In practice this means reducing tax on Corporate Profits, or reducing the amount of ‘red tape’ or formal rules by which companies have to abide – for example reducing health and safety regulations.

  1. Fewer protections for workers and the environment – For the former this means doing things like scrapping minimum wages, permanent contracts. This also means allowing companies the freedom to increasingly hire ‘flexible workers’ on short-term contracts.

  1. Privatisation – selling to private companies industries that had been owned and run by the state

  1. Cutting taxes – so the state plays less of a role in the economy

Neoliberalism and Structural Adjustment Programmes

Some countries willingly adopted these policies, believing they would work; others had them imposed on them as part of Structural Adjustment Programmes (SAPs). SAPs basically involves the World Bank or IMF agreeing a loan for a developing country (this might be to build roads/ hospitals/ industrialise/ mechanise agriculture/ build sewage systems/ schools etc.) as long as the country fulfills certain conditions. Since the 1980s these conditions have meant such things as deregulation and privatisation. 

Overall Criticisms of Neoliberalism12

  1. A report from the CEPR compared the period from 1960 to 1980, when most countries had more restrictive, inward looking economies to the period 1980 to 200 the period of neo liberalism and found that progress was greater before the 1980s on both economic and social grounds.

  1. Those countries that have adopted free market polices have developed more slowly on those countries that protected their economies

  1. Dependency theorists argue that neo-liberalism is merely a way to open up countries so they are more easily exploitable by Transnational Corporations. We will see this in the next handout!

  1. Transnational Corporations do not tend to invest in the poorest countries, only in LDCs and NICs

Global Development Revision Notes

If you like this sort of thing, then you might like my Global Development Revision Notes

 Global Development Notes Cover53 Pages of revision notes covering the following topics within global development:

  1. Globalisation
  2. Defining and measuring development
  3. Theories of development (Modernisation Theory etc)
  4. Aid, trade and development
  5. The role of organisations in development (TNCs etc)
  6. Industrialisation, urbanisation and development
  7. Employment, education and health as aspects of development
  8. Gender and development
  9. War, conflict and development
  10. Population growth and consumption
  11. The environment and sustainable development

1 http://www.stwr.org/globalization/the-failure-of-neo-liberalism.html – article on the failure of neo-liberalism

2 http://www.ncsu.edu/project/acontracorriente/spring_05/Postero.pdf – review of a book on the problems neo-liberal policies caused in Bolivia in the late 1990s.

Related Posts

World Systems Theory

Further Reading

The Guardian -Neoliberalism’s Trade not Aid approach to development ignored past lessons

The death of neoliberalism and the crisis in western politics – Guardian commentary (August 2016)