The Toxic Effects of Globalization & Neo-Liberalism on Developing Economies

The Global order as we see it can be characterized as an ocean that ebbs and flows in different

directions. It can be affected by the violent storms of chaos and the swift undercurrent of tension

always pulling and going in different directions. It was Wallerstein who characterized this as

world system movements. Samuel Huntington cast as a Clash of civilizations, and Zygmunt

Bauman’s Liquid Modernity theory. Since the fall of the Soviet Empire and the disintegration of

Yugoslavia the world as we know as fragmented among political, economical, cultural, and

social spheres. The United States during this period came out as the only sole superpower. No

longer were there two competing economic and political ideologies; capitalism and communism

as evident in the tension between the two entities during the Cold War era. Therefore the reigning

economic and political models were liberal democracy and neo-liberalization. Francis

Fukuyama has characterized this as the “End of History.” “What we may be witnessing in not

just the end of the Cold War, or the passing of a particular period of post-war history, but the end

of history as such: that is, the end point of mankind's ideological evolution and the

universalization of Western liberal democracy as the final form of human government. “ (Francis

Fukuyama, Summer 1989). Yet Dr. Fukuyama’s biggest mistake is trying to envelope liberal

democracy and neo-liberalization, in to apply a one size fits all approach to emerging nation-

states.

To Dr. Fukuyama, the world had finally settled and started to mimic western culture and thought

from Red China to the Middle East. His use of Hagel throughout the essay to paint a period of a

World Order based on Materialism was flawed because even though the struggle between the

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By Richard L. Dixon. Email address: rdixon57@gmail.com

ideologies of Capitalism and Communism there were other factors out there that threaten the

Global Order on a regional basis. The inequality gap between the North and the South was ever

increasing even though the world was going through a path towards political, economic, and

cultural integration. The source of instability and civil unrest in a developing society can be

attributed to the gap between rich and poor nations and regions.

“The mechanics of growth, inequality, and poverty as defined above are straightforward. Holding

inequality constant, when growth happens, poverty falls. Holding the mean of the distribution

constant, when inequality increases, poverty increases. In this sense, therefore, growth is good

for poverty reduction and increasing inequality is bad for poverty reduction. If one could get

growth without the inequality increase, or inequality reduction without a reduction in growth, or

both growth and inequality reduction, then poverty would go down.” (Ravi Kanbur, June 2007).

Hence, pure trade theorist has pushed the model of unregulated free market capitalism as the path

to development for developing nations. Yet the implementation of free market economics unto a

developing nation before its economy, infrastructure, and political institutions can develop is a

recipe for disaster in the form of unrest, poverty, hunger, and disease. The free trade model of

capitalism as an entity unto itself has been a failure.

“Laissez faire has not maximized wealth. It is worse: Even in principle laissez faire cannot

maximize wealth. It is still worse: As if these problems were not enough, there is another one. Is

the maximization of wealth what we really want? This question may seem silly. Of course, we

would rather be richer than poorer. But, that society has a greater total wealth doesn’t mean it is

we who are richer. All the wealth might belong to a single individual with the rest of us living in

abject poverty. Saudi Arabia is a rich country, but half its population is illiterate and the average

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documents as long as credit is given to the author as the original source.

By Richard L. Dixon. Email address: rdixon57@gmail.com

life expectancy there is shorter than that in Albania, China, or Turkey.” (Kenneth S. Friedman,

2003).

Even though unregulated capitalism has been proven over and over again that it is not an

economically sound and feasible policy without some sort of state intervention or social safety

net, countries such as the United States and the EU keeps pushing it in the form of unfair trade

agreements called RTA’s (Regional Trade Agreements) which mandates conditionalities such as

the opening up of protected industries to the flow of cheap heavily subsided products. The

implementation of RTA’s has been especially devastating in African countries such as Niger

which is presently going through a humanitarian crisis as we speak.

“EPAs threaten regional integration, a central plank of African development strategy since

political independence. This strategy has sought to ameliorate the economic problems created by

the colonial fragmentation of Africa into many nation states with little economic coherence. The

EPAs configuration process has created new regional groupings that are inconsistent with, and

undermine, existing African economic and political blocs. Reducing regional integration to trade

liberalisation undermines the broader socio-economic and political objectives of existing

bodies.” (Action Aid, 2004).

The continuous pressure that the United States has applied to developing countries in opening up

their markets to heavily subsided American agriculture products while at the same time putting

up barriers to block their export, has produced a level of hatred and disdain towards the United

States. “Anti-Americanism around the world is, among other things, an expression at the global

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documents as long as credit is given to the author as the original source.

By Richard L. Dixon. Email address: rdixon57@gmail.com

level of popular demagogue-fueled mass resentment against a market-dominant minority.” (Amy

Chua, 2004).

In addition to RTAS, emerging nations also face the unfair mandates, conditionalities, and fee

that are forced upon them by both the IMF and World Bank. These stipulations hamper

development, suppress wages, and open their economies to TNC’s that both exploits and

displaces their citizens. “Despite this growing consensus, aid and debt relief is still tied to

economic policy reforms. The main culprits are the World Bank and the IMF, who continue to

use their aid to push inappropriate economic policies on developing countries. Their conditions

have a significant impact, given the large volume of aid that the World Bank gives. Moreover,

nearly all other rich-country donors (for example the French or British governments) use the

presence of an IMF programme - and compliance to its conditions - as a signal to give their own

bilateral aid to support poor-country budgets.” (Oxfarm International, November 2006).

In essence, the problem with both the IMF and the World Bank is that they are molded and

steeped in the economics of neo-liberalism and free market principles. They are not geared for

the economic development and reconditioning of the economies of emerging nations. Hence their

one type fits all solution in terms of dealing with the inequality that now exist in the Global

financial structure is severely inadequate to eradicate the scrooge of poverty, disease, and

illiteracy as mandated by the United Nations Millennium Development Goals.

“The World Bank, together with the IMF, has historically interfered in poor countries’ internal

affairs through the highly neoliberal bias. Neoliberalism refers to the view that the market is

efficient enough to effectively supply the majority of the private and public goods and services.

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documents as long as credit is given to the author as the original source.

By Richard L. Dixon. Email address: rdixon57@gmail.com

According to the neoliberal view, governments should withdraw from the provision of public

services or from capital and market regulation, and should concentrate on assessing and

correcting a few emerging market failures instead. The liberalisation and privatisation policies,

promoted by the World Bank since the late 80s stem from the idea that quick market deregulation

and private ownership provide the most efficient set-up for the production and provision of

goods. After the poor results of the neoclassical policy prescriptions in Africa and Latin America

in the 80s and 90s however, many economists have cast doubts on the plausibility of the

neoliberal model’s assumptions, and specifically on the existence of a ‘perfect market’. There is

also an increasing talk among economists about the trade-off between efficiency and equity,

which must be given equal weight by decision-makers, especially in the provision of basic

services. State intervention and regulation, for example, are necessary for achieving equity. Yet

hardly any of the recent revisions of the neoliberal framework have made

their way in the policy advice, pushed by the Bank.” (Daniel Cabello et al., 2008).

There must be a new Global structure in the world economical and political polity. Institutions

and actors on a regional level and impact the events and circumstances of the world on an

international scale. The mindset that should be pursued is the equalization of opportunities,

access to food, healthcare, jobs, and education. People should not have to face the dire prospects

of death and poverty for most of their lives. That is the grim reality for 2/3 of the world’s

population. Capitalism must be fashioned as an entity with a human face on it. “The uneven

effects of globalization are well documented and socially embodied in hierarchies of gender,

ethnicity/race, class, and nation. As the foregoing survey suggests, these systems of oppression

intersect but in complex and sometimes contradictory ways. The historical legacies of

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documents as long as credit is given to the author as the original source.

By Richard L. Dixon. Email address: rdixon57@gmail.com

masculinism, racism, classism, and colonialism continue to be materialized in stark inequalities,

structured especially by differential access to valued resources, skills, and working conditions.

Reductions in public spending — driven by neoliberal policies — disproportionately hurt women

and the poor, especially those of stigmatized race/ethnicity and/or living in developing countries.

Global regimes continue to favor the interests of rich countries and elites who are advantaged by

gender, race, and nationality. Movements for social justice and equality are increasingly

marginalized or silenced by neoliberal policies and ideology that undercut commitments to

public/collective welfare and deny the viability of alternative strategies. In effect, globalization

under neoliberal principles exacerbates the gap between over- and under-valorized individuals

and nations, even as the rhetoric of neoliberalism obscures that polarization.” (V. Spike Peterson,

2003).

The toxic effects of pursuing an agenda of greed by in the financial sector caused economic

destabilization around the world. Since the world is so interconnected via technology, internet,

and advances in transportation, manipulation of the Global political, social, and economical

Architecture was bound to happen. That was quite evident when the Ministerial Series of talks at

Cancun that fell through because the Developed nations tried to force their agenda upon the

emerging countries by not honoring the commitments and holding on their practices of subsidies,

coercion, and other unfair trade practices. “Developed country WTO members were not prepared

for these new developing country alliances, and their first reaction was overwhelmingly negative.

The world’s richest countries have enjoyed such supremacy in international trade talks over the

years that they were, unwilling to face a new era which required them to respect the negotiating

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By Richard L. Dixon. Email address: rdixon57@gmail.com

positions of other parties. Instead, they launched a series of public and private attacks on the

developing country groupings – and in particular the G20.” (Action Aid, 2004).

The subsequent rounds in Hong Kong, Geneva, Paris, and Potsdam, Germany proved to be even

less successful because of the developed world’s strict adherence to current trade practices. The

Globalized world cannot continue upon the past of a North-South divide. At present, the world is

experiencing 21 regional conflicts at levels of intensity that boggles the mind. Raw resources

such as Oil and natural gas are reaching the level of scarcity within the next two decades.

Climate change is having a negative impact on the availability of land and water. The United

States is accounts for 3% of the world’s population yet we use over 25% of its nature resources.

The era and age of America as Empire as reached its heyday and now we must come to the

conclusion that we are a greater part of the Global community and as such must nurture the

development of emerging nations.

“The narrative of Empire, which emphasizes the demonstrated human capacity for hatred,

exclusion, competition, domination, and violence in the pursuit of domination, assumes humans

are incapable of responsible self-direction and that social order must be imposed by coercive

means. The narrative of Earth Community, which emphasizes the demonstrated human capacity

for caring, compassion, cooperation, partnership, and community in the service of life, assumes a

capacity for responsible self-direction and self-organization and thereby the possibility of

creating radically democratic organizations and societies. These narratives represent two sides of

a psychic tension that resides within each of us. One focuses on that which divides us and leads

to fear and often violent competition. The other focuses on that which unites us

and leads to trust and cooperation.” (David C. Korten, 2006).

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By Richard L. Dixon. Email address: rdixon57@gmail.com

There must come a reckoning that Man was created in the image of his creator with certain

cognitive skills such as creativity, reason, and curiosity. Hence, the goal to the development of

the emerging nations and their people by the world community should be as an approach that

races, cultures, and creeds are equal regardless of what country they reside in. No one should

suffer for a lack of education, food, water, housing, healthcare, and economic opportunity for

employment or even possibly owning a small business.

“Beyond our real human empathy for a world where too many suffer, we also recognize that

global poverty is a practical threat to peace, as the welfare of each citizen is affected by the

condition of people the world over, including those who live far away. The despair and anger of

those who contrast the suffering within their own families and communities with images of

plenty beyond their reach translate into instability. Poverty and social injustice thus demand a

vigorous response. Of course, if these problems were simple, we could long since have relegated

them to history. But the challenges are vast, the actors many, and the landscape includes complex

bureaucracies, limited infrastructure, and constraints on human and organizational capacity.

Where development efforts have succeeded, they have relied on careful planning and analysis,

and a concerted effort to focus on results and institutional collaboration.” (Katherine Marshall

and Marisa Van Saanen, 2007).

In taking a new approach to development, its methods must be diverse. The world community

must rid itself of the one size fits all mentality that is prevalent institutions as the World Bank. Its

success should be measured in Physical aspects instead of monetary terms. Development must be

culturally sensitive and ethnically specific to the particular region of the world.

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By Richard L. Dixon. Email address: rdixon57@gmail.com

Therefore what is needed is a new Global Financial Architecture which would start by the

replacement of both the IMF and World Bank with an Infrastructure bank based on a similar

mold of the RFC (Reconstruction Finance Corporation) under the Roosevelt Administration

which served as an integral part of his New Deal framework.

“At the top of the entire effort must be a Federal credit mechanism, shown on the schematic here

as the National Infrastructure Bank. This facility can be established under the powers of

Congress, authorizing it to create debt for the sole purpose of funding approved infrastructure

projects--the direct costs, the inputs, and all functions related to accomplishing the job. Thus it

operates as a capital source, outside the demands and constraints of the Federal operating budget.

Loans can be made at the rate of 1-2% interest, and the appropriate long-term conditions will

apply.

There are many precedents for this kind of long-term, low-interest credit function, on the part of

the Federal government. In the early decades of the United States, there were the canal projects

and other infrastructure development. During the FDR years, a massive amount of hard

infrastructure--bridges, schools, water systems, and the like--was built this way, many of which

facilities we still use today.” (LaRouche Pac, August 7, 2007).

There should be two credits, one fixed and one floating. One for infrastructure development in

emerging countries such as the construction of roads, bridges, dams, canals, reservoirs, railroads,

and sanitation. The floating capital would be to spur FDI into the economies of developing with

strict adhesion in their applications. Emerging nations should set their own conditionalities on

how to grow and build their economy, infrastructure, and political institutions.

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documents as long as credit is given to the author as the original source.

By Richard L. Dixon. Email address: rdixon57@gmail.com

 ENDNOTES

1. Francis Fukuyama, “The End of History,” The National Interest, Summer 1989.

2. Ravi Kanbur, “Poverty and Conflict: The Inequality Link,” Coping with CrisisWorking

Paper Series, International Peace Academy, (June 2007), 2.

3. Kenneth S. Freedman, Myths of the Free Market, (New York: Algora Publishing, 2003),

29.

4. Action Aid, “Trade Traps: Why EU-ACP economic Partnership Pose a Threat to Africa’s

Development,” (2004), 3.

5. Amy Chua, World on Fire, How Exporting Free Market Democracy Breeds Ethnic

Hatred and Global Instability, (New York: Anchor Books, 2004), 231.

This article is for the intended use of educational purposes only. Permission is granted for citation in academic
documents as long as credit is given to the author as the original source.

By Richard L. Dixon. Email address: rdixon57@gmail.com

 6. Oxfarm International, “Kicking the Habit, How the World Bank and the IMF are Still

Addicted to Attaching Economic Policy Conditions to Aid, Oxford Briefing Paper #96,

(November 2006), 8.

7. Daniel Cabello, “World Bank & Conditionalities, Poor Deals for Poor Countries,” A Seed

Europe, (2008), 11.

8. V. Spike Peterson, A Critical Rewriting of Global Political Economy: Integrating

Reproductive, and Virtue Economics, (London: Routledge, Taylor, and Francis Group,

2003), 12-13.

9. Action Aid, “Divide and Rule: The EU and US Response to Developing Country

Alliances at the WTO,” (July 2004).

10. David C. Korten, “The Great Turning: From Empire to Earth Community, (Bloomfield,

CT: Kumarian Press, Inc., 2006), 33.

11. Katherine Marshall and Marisa Van Saanen, Development and Faith, Where Mind, Heart,

and Soul Together, The International Bank for Reconstruction and Development

(Washington, DC: The World Bank, 2007), xi.

12. LaRouche Pac, “A Table of Organization for U.S. Economic Recovery,” August 7, 2007,

http://larouchepac.com/node/3284 (accessed August 24, 2009).

This article is for the intended use of educational purposes only. Permission is granted for citation in academic
documents as long as credit is given to the author as the original source.

By Richard L. Dixon. Email address: rdixon57@gmail.com