This was a paper I did for my Composition Lab. It’s short, I admit; hey, I had a pretty hefty workload, no time to mess around extending things just to extend them. But I thought there were some pretty good ideas in it, so I submit it to you, my readers, for consideration.

“Globalization” generally refers to a movement to help emerging nations develop their economies and infrastructures so they can enter the global market as valid competitors. This goal is exceptionally important to future generations. Improved markets and infrastructures usually lead to improved quality of life. If nations are engaged in open and profitable trade, the tendency for those nations to wage war on one another is reduced. Overall, globalization is a noble goal that can improve the situation of everyone on the planet. However, the current methodologies employed to bring developing nations into the global market are often lacking and lead to worse financial problems for the nations involved. There are three primary means for emerging nations to receive funds for trade and infrastructure improvement: International Financial Institutions (IFIs), corporate investment and development, and commercial loans. All three, either separately or in conjunction with one another, have led to a repeating pattern of economic crises in recent decades. Clearly, a new paradigm must be introduced with an eye towards removing the inherent flaws of the current system.

Many people like to leave globalization efforts and development of emerging nations to private corporations. Private corporate development offers many apparent advantages: a corporation does not impose economic reform as a condition of bringing funds into the country; they do not ask for human rights or environmental reforms, which some developing countries’ governments may interpret as a threat to that government’s sovereignty; there are no political considerations to a corporation’s investment that may be ideologically opposed to an emerging nation’s governing ideology. To many nations, this sounds like free money and jobs. Micah Akuzue states in his article “The US in Global Context” that corporations benefit in turn from such foreign investment by increasing their workforce, either in their home countries, or by outsourcing many jobs to developing nations (21).

This, however, ignores the reality that corporations are, by definition, self-serving entities. Their overwhelming responsibility is to their shareholders. Micah Akuezue contends that a company that has invested in a developing country would be forced by market forces and a desire to stay competitive against other corporations to re-invest in a developing country in which they have a stake (22). This position seems to ignore characteristics of corporations and their philosophy. A corporation has primary responsibility to its shareholders and no one else. Employees, customers, governments and local populace are all secondary in a corporation’s considerations. Shareholders are notoriously short-sighted. If a corporation’s investment in a developing country does not profit quickly and measurably, its shareholders will demand an explanation; if they are not satisfied with that explanation, they will command the corporation to shift its policy and cut its losses. This often has devastating and debilitating effects on the economy of a developing nation as that nation suddenly loses a promised stream of income upon which it was basing improvement projects. It also has to cope with half-finished improvements that have left the infrastructure in disarray.

Corporations are not interested in human rights; in fact, the lack of human rights enforcement may make a developing nation more attractive to a corporation seeking to expand or move its operations. A major incentive for a corporation to invest overseas is the ability to maximize profits by paying local workers lower wages. Lack of workplace standards lead to “sweatshop” environments, which, while morally reprehensible, can be extremely profitable for a company. A company can pay sweatshop workers less money and force them to work longer hours than they would for a first-world workforce. As Alexander Reynolds states in “Between Theory and Fact: Free-Trade Theory and Free-Trade Agreements,” “Sometimes it is exactly a countries’ poor records of protecting such things that allow them to offer a competitive advantage in terms of productive efficiency” (par. 5).

In contrast there are organizations like the International Monetary Fund and The World Bank. Created near the end of World War II, these institutions’ aims were, respectively, to adjust and regulate current-account imbalances and manage currency exchange rates and to provide funding for the post-war reconstruction of Europe. These IFIs offer conditional low-interest loans to developing nations, along with advice on how best to change macroeconomic, structural, and human rights policies to better place the developing country in a competitive market position. Their goals are to enhance emerging nations’ infrastructures, economic policies, and market viability with an aim of promoting free and fair trade throughout the world and raising the standard of living for all citizens of all nations. However, the methods these IFIs employ are toothless and ineffective. There is no formal oversight to guarantee that economic policies are revised in line with the conditions of the loans, and there is no way to enforce any of those conditions is met, aside from withholding of funds. This is seen as undesirable by the IMF and World Bank as sustainable projects are considered “successes” even if they mean continued funding of the failing nation, whereas cancellation of funding is often viewed as “failure.” Allan Meltzer brings to light the example of Mexico in the mid-1990s in his article “What’s Wrong with the IMF? What would be Better?” The IMF continued to lend Mexico money, even though those funds were not being used for any of the usual improvement projects; instead, the money was being used to pay high-interest commercial loans that Mexico had taken from private lending institutions. The sole reason the IMF sent more money to Mexico was to guarantee that foreign lenders were protected from the risk of Mexico defaulting on its expensive loans (par. 27).

The lack of ability to enforce conditions, in conjunction with a reluctance to appear to “fail” renders these institutions largely ineffective in meeting their stated aims. Often this leads to “moral-hazard lending”. “Moral hazard arises when the private risk to the lender is less than the risk borne by society,” states Meltzer (par. 39). It may seem ironic, but these institutions, founded on “moral” principles for “moral” reasons, are largely subject to “moral hazard”. It seems clear that these IFIs, on their own, are not the answer to effective globalization. Another way is needed.

Leaving out corporations and IFIs, what alternatives are left? Commercial loans are the same as corporate investment without the added bonus of development and with the added downside of punishingly large interest rates. Direct national lending from one country to another poorer country is undesirable as any funding coming directly from a richer nation is almost guaranteed to be burdened with conditions. These conditions may regard economic reform, governance, and possibly even extend into areas such as defense. The receiving nation would undoubtedly view these conditions as colonial in nature and a threat to the debtor nation’s sovereignty. Additionally, Joseph Montgomery points out in “Globalization as Modern-Day Colonialism” that “[t]hose with the power to make the rules will, except in rare cases, make rules which favor their own continued control and prosperity, as well as break rules without consequence, at the expense of those without power” (par. 2). What nation or government would willingly and knowingly put themselves in such a position of disparate power?

The answer may lie in the formation of a “third party” agency, the goal and aim of which would be the management of funds and projects for developing nations. Funds for improvement projects would not be left in the hands of a possibly corrupt or incompetent government; rather, the funds would be directly controlled by the third-party managing agency to guarantee that they would be spent wisely and correctly. Projects would be implemented by carefully screened contractor companies who would be paid from the agency’s funds. Those funds would be provided by the IFIs, as before, but those institutions and their member nations would be assured that the funds were being used as they were intended, and could more easily rely that those funds would be repaid by a country that had improved its’ viability and competitiveness in the global market. Rigid enforcement would still be an issue, naturally, as any agency would lack any real “stick” to back up a financial “carrot”, but this agency would not be so married to a faulty concept of “success” that it would continue to fund projects if the conditions were not being met. It would be more willing to withdraw the funds and return them to the IFIs in the event the developing country failed or refused to comply with necessary modifications to economic policy, human rights laws, and infrastructure improvement.

Globalization is important for our future. The more countries available to freely and readily trade on a global market, the more resources are available throughout the world. The more countries are involved in mutually beneficial trade, the less likely those countries will engage in deadly warfare with one another. But globalization cannot reliably be implemented through corporations with their short-sightedness and lack of interest in enhancing the most valuable resource on the planet– people. And it should not be left to fangless and craven lending institutions who meekly continue to hand money to emerging nations even when it is glaringly apparent that those nations are losing that money without meeting even the most basic conditions necessary to meet the obligation implicit in acceptance of those funds: to improve themselves and their citizens’ lives so that they can, in turn, contribute to the world’s markets and resource availability. No, another way must be found. The world is too important to leave things as they are.

Works Cited
Akuezue, Micah. “The US in Global Context.” Contemporary Political Issues. Apr. 2008: 21-23.

Meltzer, Allan. “What’s Wrong with the IMF? What would be Better?” Hoover Institution Public Policy Inquiry International Monetary Fund. Fall 1999. 24 June 2009 .

Montgomery, Joseph. “Globalization as Modern-Day Colonialism.” Free Green World. 7 June 2008. 24 June 2009 .

Reynolds, Alexander. “Between Theory and Fact: Free-Trade Theory and Free-Trade Agreements.” Theories versus Realities. May 2008. 24 June 2009