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Globalization: Cyanide for Developing Countries and Their Local Industries

Updated on November 9, 2017

Globalization is an inevitable phenomenon in the modern world, and there are many different ways it helps and hurts people. Many of the effects include environmental damage, human rights violations, the cost of manufacturing goods being lowered, and a potential for the growing of peace due to increase global trade. One of the best arguments that supporters of globalization will throw out is how globalization can actually increase the economic state of the country where the investment is made. However, evidence proves the contrary. Evidence proves that not only does globalization cause little to no increases (sometimes decreases) in wages but it also creates a system of dependency that leads to corporate abuse.

Globalization has had one of the biggest myths echoed by free market enthusiasts for what seems like the last 30 years. The continue to hammer in this idea that globalization will lead to a dramatic increase in the wages of the poorer countries in which foreign direct investment (FDI) is made. However, a few sources debunk this claim and actually show it may be more of a hinderance than a help. An article by Dwight Haase of the “Perspectives on Global Development and Technology” describes that wages in the trade sector of Mexico and real wages in Brazil had fallen after trade liberalization began. He does mention that wages began to rise after time had passed yet they were never reached the same level before trade liberalization began. He does say that free trade policies due lead to some jobs having an increase in wages by 3-5 percent however they come with one major caveat. These jobs are only those for the multinational companies, not the domestic companies of the region.

When wages increase for foreign companies, competition causes wages for domestic markets to decrease. This can lead to wage inequality and the forcing of people to take jobs at large multinational corporations. This point is echoed by Akinori Tomohara of the Journal for Policy Modeling when he writes, “Multinational companies tend to pay higher wages than domestic companies, even after controlling for factors such as industry and worker characteristics. Globalization apparently does not benefit workers employed by domestic companies according to our observations of wage inequality in a host country.” This inequality means that companies have leverage over the host country. In fact, there are many examples of this taking place in the very recent past. Jane Li of CNBC writes that China is experiencing a difficulty in keeping multinational companies invested in pouring money into China. Some big names like Seagate are actually pulling out. This lead to Shen Danyang (speaker for China’s Ministry of Commerce) outing the “preferential treatment” many companies get. This preferential treatment can be devastating on certain countries who have to give these companies these benefits.

The tax benefits that many of these companies receive, can be seen as a substantial hindrance on the governments that give them out. A report by The Guardian helps confirm this. Sam Jones describes a report from the IMF, saying that it robs up to $213 Billion a year in tax breaks in developing nations. He also mentions another report that claims that Africa alone is losing $6 Billion a year in tax breaks. Many African nations have been struggling with war, AIDS, malaria, and lack of clean drinking water. They need all the funding from taxes that they can receive in order to deal with these issues. Jones writes, “According to the NGO, the sum is more than three times the amount needed to improve the healthcare systems in the Ebola-affected countries of Sierra Leone, Liberia, Guinea and at-risk Guinea Bissau.” The fact that corporations are abusing these nations is truly sickening.

Globalization itself is not a problem. The issue is not that the companies are doing this, the issue is how they are going about the globalization process. In fact, these companies can actually bring both jobs and tax revenue to these nations. With a little moral reformation and pressure from the outside world, globalization can stop being such a dirty word and we can see everyone benefit from these corporate entities.

References:

Haase, Dwight Keywords: FDI; Wage spillovers; Equity; Globalization; Multinational companies The Wealth (and Want) of Nations: The Impact of Economic Globalization on the Developing World, Perspectives on Global Development and Technology, 11, 38-49 (2012), DOI:https://doi.org/10.1163/156914912X620725

Jones, Sam. “Tax Dodging by Big Firms 'Robs Poor Countries of Billions of Dollars a Year'.”The Guardian, Guardian News and Media, 2 June 2015, www.theguardian.com/global- development/2015/jun/02/tax-dodging-big-companies-costs-poor-countries-billions-dollars.

Li, Jane. “Why Foreign Companies Are Shutting Shop in China.” CNBC, CNBC, 3 Feb. 2017, www.cnbc.com/2017/02/02/why-foreign-companies-are-shutting-shop-in-china.html.

Tomohara, Akinori. Takii, Sadayuki. Does globalization benefit developing countries? Effects of FDI on local wages, In Journal of Policy Modeling, Volume 33, Issue 3, 2011, Pages 511-521, ISSN 0161-8938, https://doi.org/10.1016/j.jpolmod.2010.12.010.


© 2017 Christopher McCarthy

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