To What Extent Does Globalization Narrow the Development Gap?

To what extent does globalization narrow the development gap? The development gap was first identified in 1981 by the West German Chancellor Willy Brandt. He explained that there was a clear North-South divide where the North holds 80% of the earth’s wealth and the south 20%. The development gap was explained in this case as the difference between the wealth of the countries.

This can be measured via GDP per capita. However the general development gap is explained as not only the differences in wealth but the differences in the quality of life that the populations experience in different countries. This can be determined by the freedoms experienced, environmental quality, availability of clean water, and commonly access to the global internet.

The Rostow Model shows a different way of dividing the countries into categories; Traditional society, preconditions for takeoff, drive to maturity and a high mass consumption society. This theory argues that countries go though the different stages in growth and development until they reach a high mass consumption society as the UK and US have done in the past years.

However countries can be depressed and find it hard to complete the preconditions for take-off leaving the county in the lower reaches of the curve. In some ways Globalization does narrow the development gap. The ability of TNC’s to contribute to GDP in a country is massive. This can be directly via the creation of jobs or indirectly as TNC’s often outsource to other domestic companies. TNC’s such as LG and Hyundai have helped to provide jobs and finance thought South Korea helping to bring them from having a GDP per capita of under $ 5000 in 1981 to over $15000in the 2001.

The top 4 firms in South Korea; Daewoo, Samsung, LG and Hyundai now contribute around 60% of South Koreas GDP showing the impact that these major TNC’s have has in the once poor country. Korea is not the 15th largest economy and is in the “drive to maturity” stage of the Rostow development process founded by Walt Rostow in 1960. This example shows how TNC’s in the globalized world have contributed to the growth of some previously “under-developed countries”. Globalization can also take the credit for many aid projects.

The biggest of which being the Millennium Development Goals programme. In 2011 the UK gave 0.7% of GDP in aid along with many other countries such as France, Norway and Sweden. This helps to fund such projects as the micro finance and infrastructure initiative. An example of this is in South Korea where a 5 year infrastructure programme has helped provide jobs and had increased the attractiveness of the country to foreign tourists who are starting to visit the country. This tourist economy also has clear benefits. Malaysia another location that is benefiting from the wealthy tourists visiting the country growing in the past 10 years massively. The WTO has also played a role in making globalization benefit the less developed countries.

The Special safeguard mechanism helps to protect framers in these countries such as Bangladesh from fluctuations in price by creating a minimum price for the goods on the market. This helps price stability. As a moderator of investment the WTO has overseen the rice of a once under developed country of china now becoming the biggest emerging economy since America.

The EU now invests almost $ 5bn dollars in China per year and import over $ 290bn worth of goods. This shows the “West’s” dependence on foreign made goods and also shows the power China now have over the western economies. The development of these LEDC’s closes the development gap; however there are also arguments’ that the sizes of these developments in LEDC’s are smaller that the development in MEDC’s widening the gap in real terms.

An example of globalisation harming a country that is trying to develop is Mali. 80% of the population is employed in subsistence farming in Mali with regular famines occurring due to the failing of crops. Mali has tried in recent years to increase the development of its cotton industry with the World Bank subsidising this growth, however a policy of “Land grabbing” has been taking place whereby companies buy land at cheap prices off of the subsistence farmers and exploit the cheap labour massively in order to create massive profit margins.

These companies often take away massive shares of the profits in the form of leakages out of the country leading to the area of production not being enriched by the TNC’s presence in the area. Domestic companies in Mali that try to export to the world market are at a massive disadvantage competing with heavily subsidised US cotton producers who get over 100million a year through US farming subsidies.

Also there are much tighter restrictions on trade quotas which have been implemented by the WTO who have arguably been influenced massively by the MEDC’s such as the US. Globalisation in the way of aid has also helped to widen the development gap as aid is often a short term solution. The aid given to the countries is often in the form of second hand clothing or financial aid given to governments.

The clothing aid often destroys the domestic clothing produces such as in Uganda where the textile market is suffering greatly from the selling of cheap 2nd hand clothing. Also the aid given to the governments is often fungible. This means that it is not spent in the right way and does little to promote economic growth. The most common case of this is spending aid on defence. In many African nations the biggest government expenditure is on the army as they try and protect from constant civil wars and fights between militia groups. A key example of this is in Somalia where aid to the unstable government does nothing but fuel the fighting within the country.

MEDC’s have often taken advantage of natural resources in LEDC’s which could have been used to massively increase the development of the country in the future. In the Dominican Republic of Congo the setting of the commodity giant Glencore has reduced the benefit that the country has gained from the massive natural resource of copper.

This has reduced the wealth of resources that the country has making the net wealth lower due to the leakages that take place due to the TNC. In conclusion I believe that over time globalisation will aid the closing of the development gap as it has done in the tiger economics it will move to where labour is cheapest and with the right monitoring from such organisations as the WTO will bring the countries out of poverty via the multiplier effect and successful investment projects. This implies conclusion implies that the “dependency theory” is in some way wrong and that poor impoverished states enrich the MEDC’s by the way that they are integrated into the world system.

The role of the WTO and an impartial monitoring facility must be looked at to ensure this does not happen and impose harsh measures to reduce this, however as can be seen in the examples of the BRIC’s, (Brazil, Russia, India and China) (a term developed by Goldman Sachs) often globalisation and the use of cheap labour can help to provide export lead growth to wealthy regions of the world which feeds back into the LEDC’s domestic economies.

As these developing economies unionise and become less competitive on labour costs production will move to the African continent where it can help to create jobs and stability in the most poverty stricken area in the world. So although it is a contestable conclusion to me it seems as though the development gap, over time, will close.