Research Paper on "Political Economy"

Research Paper 10 pages (3045 words) Sources: 12

[EXCERPT] . . . .

Globalization and States' Influence on Economic Growth

Each developing industrialized nation, if it wishes to become economically viable, has the responsibility to both understand and harness their own strengths while simultaneously realizing that their weaknesses are part of their economic identity. The globalization of the world's economy is creating more than a few problems worldwide, especially in economies that are poorly developed or that have not been able to meet the demands of the western "globalized" model. These economies, many of which have emerged in Asia and Africa, have become part of their own solution to the potentially negative influences of the IMF and World Bank on their nations and economies. Globalization and specialized national economies are not two mutually exclusive economic or political concepts. There is no real need for nations to be calling for IMF or World Bank assistance if they truly believe that their industrialized economy can stand on its own two feet in the global economic spectrum.

First it is necessary to understand why the many states fail economically under international or institutional control. Thailand is an excellent example of a state, that at one point in history, fell victim to outside economic influences and ideas that were not aligned with the nation's economic abilities and potential. Secondly, in order to understand the new definition of globalization and how states can benefit from it, one needs to examine the pretense and context within which it is developing. Nations that were one considered non-industrialized are fast becoming economic power centers, while others who were once world economic superpowers are falling by the wayside for many reasons including outdated economic growth and globalization models and interests. The traditionally accepted flows of capital and economic growth need to be reexamined in order to determine their relevance and applicability in the new global economic and political landscapes. Finally, it is important to understand that institutions like the World Bank and the International Monetary Fund (IMF) serve a purpose, but this purpose is fairly limited in scope and can be defined through case studies and examinations of these institutions' past interventions.

Understanding the New Model of Globalization

Author Linda Weiss (1997) argues that states need to become aware that they have the most economic power when they are controllers of their own destiny. IMF and World Bank loans and aid can certainly help during times of crisis, but these institutions serve to further limit both the economic capacity and the economic scope of the nation's ability to support itself fiscally. The old model of globalization, where each nation adapts to the changing dynamics of the global economy is beginning to fade as a new model emerges. This new model incorporates each state's unique identity and capacity to generate goods and services as well as a firm understanding of the state's limitations. Weiss goes on to state, "Thus, rather than counter-posing nation-state and global market as antinomies, in certain important respects we find that 'globalization' is often the by-product of states promoting the internationalization strategies

of their corporations, and sometimes in the process 'internationalizing' state capacity." (Weiss, 1997, pp. 4). This quote is interesting because it shows the new binary system of global economics rather than arguing for a model of globalization that is one size fits all. The western model of economic success, as it was defined in the 20th century works well for many economies, but it also functions horribly for others, leaving many to wonder just how outdated and archaic this model of economic functionality is in places like Southeast Asia or Africa.

Weiss's understanding of the problem of a state successfully inventing themselves economically on the global level as well as navigating the global political economy is quite insightful. Certainly Weiss and others are not advocating for complete state autonomy without the understanding that certain economic and growth guidelines should be adhered to. Given the example of Thailand in the late 1990's, where a combination of easy money policy as well as unrestricted and unregulated investing and speculation led to one of the worst currency crises of the 20th century, at least from the Asian perspective (Weiss, 1997, pp.5). However, there needs to be enough autonomy for a state to be able to set their own economic parameters surrounding their capacity to produce. When states are able to accurately estimate and account for their economic niche or position in the global economy, they are better able to make decisions to drive their economies without major crisis. But when other economies, institutions, or states become involved in each other's economic and political affairs, this autonomy dies off, and the state is left functioning within the predetermined shell of its potential economic prowess (Cook and Kirkpatrick, 1997, pp. 62). The point here is that each state knows itself better than others know it, so each state should be able to make their own informed decisions relative to their economic and political dynamics and directions. This, in a very new and somewhat fragile sense, is the idea behind the new style of globalization that puts each state on its own track to both individual and global economic success.

Ebb and Flow

According to author Weiss (1997), argues that the level of international economic openness and flow is very influential in hurting or helping both emerging economies as well as world superpowers. As recently as fifty years ago many African and Southeast Asian nations existed to serve a colonial economic master. The flow of capital and goods and services went outward, unrestricted, to help support other nations many of whose parasitic reign was to come to an end by the latter half of the 20th century. Countries like India and Thailand are excellent examples. For these countries, there was little room for individual growth, beyond their identity of banana republic. Even today, as these countries are working to define and again redefine their economic identities, their labor pool serves as a low cost alternative to many of the pools that exist around the world in more industrialized nations (Boyer and Drache, 1998, pp. 104). This will not last forever, but the transition from debtor to creditor, as has been witnessed with the United States during the 20th century, often takes many distinct shapes and paths.

Another interesting development relative to MNC's becoming more and more apt to base their operations in places that provide relatively cheap access to labor is the fact that statistically, the numbers do not support a cost-based model influencing this behavior by MNC's. In fact, according to Weiss, "As of 1991, a good 81 per cent of worldstock of FDI was located in the high-wage -- and relatively high-tax -- countries: principally the U.S., followed by the UK, Germany, and Canada. Moreover, this figure represents an increase of 12 points since 1967. Indeed the stock of FDI in the UK and the U.S. exceeds the stock in Asia and the entire South. Such figures underline the point that MNC's do not by and large invest where wages and taxes are lowest." (Weiss, 1997, pp. 10). This idea posits that MNC's are following the flow of capital into nations that are not always at the beginning end of the development spectrum. Physical and geographical proximity also play a role in the MNC's decision to base operations abroad, perhaps moreso than the influence of low labor cost and taxes. Technological advancements also play a major role, and countries that are more technologically advanced and aligned with the interests of the MNC's are more likely to receive outside capital and jobs flow.

When a nation is supported by capital flow from the outside, as Thailand was predominantly supported in the 1990's, the results can be very dramatic. Outside capital is usually a positive for many growing nations, as it represents the intention of outside economies to invest and do business within the developing nation's borders. But unrestricted flow can be disastrous, especially if the growth being precipitated by this inward flow is not parallel to the nation's best interests or economic potential. Institutions like the IMF, which intervened at the height of the Baht currency crisis of 1999 fueled the fire of economic instability, and were initially abused in the name of saving the resources outside investors, instead of the businesses and financial institutions that were quickly spiraling out of control (Athreye and Cantwell, 2007, pp. 210). The transition from developing state to industrialized, developed nation was taking place, but the proper stopgap measures and economic and financial regulations and restrictions were not in place in this instance. Thailand is an excellent example of the idea that too much state autonomy relative to banking regulations can present serious problems for developing nations. Thailand lost control of its own economy and currency to outside investors and speculators. The transition and change in developing nations is not about the change itself, but about the nature and significance of that change. The transition itself as well as the finished product must be… READ MORE

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