The ways in which goods and information are moved between countries are becoming easier. Information technology is driving these improvements by enabling companies to move money and ideas instantly at the click of a mouse. Consequently, people are becoming more interconnected and interdependent, a trend known as 'globalisation'.
The World Trade Organisation: breaking down trade barriers
International trade has been going on for centuries, but the removal of trade barriers that countries use to protect their businesses, such as tariffs and quotas on imports, is likely to quicken the pace of globalisation. Countries will be encouraged to produce the goods and services that they can make more cheaply than their competitors; in other words, 'do what you do best and trade for the rest'. To ensure fair play in this more open trade system, the World Trade Organisation (WTO) was set up in 1995. The WTO can impose penalties on countries that break the rules. However, critics argue that many poor countries do not have enough representatives at the WTO. Consequently, WTO representatives of richer countries are able to influence the rules so that trade barriers in the developed world, such as the EU's Common Agricultural Policy, continue to protect their businesses and give them an advantage. Nevertheless, there are moves to reform the WTO so that every country can benefit from the process of globalisation.
Transnational Companies - Friend or Foe?
Although trade rules are agreed between countries, it is companies that do the trading. Many believe that the real winners of a more open trade system will be the large companies that already dominate world trade. By setting up factories in different countries to manufacture or assemble components, companies can produce goods more cheaply and efficiently. Today, these 'transnational' companies (TNCs) control two thirds of world trade. With more open trade, TNCs have greater freedom to shift location to developing countries where wages are lower and they are less restricted by environmental controls.
Competition between poorer countries to attract foreign investment is fierce. To offer the best deal to TNCs, wages are sometimes forced down so low that human rights groups have found working conditions in some factories that they describe as modern day slavery. Also, jobs may involve merely fixing together imported parts and materials, which do little to build local skills and expertise.
However, TNCs can help developing countries by creating jobs and generating investment that can be used to educate local people to develop homegrown skills and expertise. Local businesses benefit too as factory workers spend their earnings. South Korea is a country that has gained from these knock-on effects. By manufacturing goods cheaply, many Koreans now enjoy a standard of living similar to Europeans thanks to the profits from exports. China is now following suit. Fuelled by foreign investment, China is now the world's biggest exporter of clothes, toys, shoes and electronic goods, and average incomes in urban areas are ten times greater than they were 20 years ago.
Different Trading Opportunities
Selling goods and services in a more open world market should bring more money into a country, but it depends what you are selling, and whether you have the resources, infrastructure and technology to take advantage of the new market conditions. Today, the poorest 10% of the world's population take part in less than 0.5% of the world's trade. Many lack the technology, infrastructure and manufacturing base to compete with companies in the developed world.
Instead, people rely on the sale of primary commodities even though their world price compared to manufactured goods, or 'terms of trade,' is now at its lowest for 150 years. To afford the same amount of manufactured imports, poorer countries may have to produce more primary commodities, which could use up scarce land and resources in some countries. On the other hand, many African and South American countries do have abundant natural resources that could be traded. This could help people escape poverty in the future.
Making Globalisation work for the poor
The processes of globalisation are certainly complicated. Whilst they bring new opportunities, they also present some tough challenges ahead. With a more open market place, poor communities in many countries could escape poverty as they gain access to new markets to sell their goods and services.
Poorer countries will need to invest in roads, ports and airports so people in remote areas can benefit as well. Many poorer countries that do not have enough money of their own will need investment from abroad. To attract foreign investment, governments need peaceful conditions and to prevent corruption. Poorer countries need to be fully involved in any changes in world trade rules and to avoid the possible drawbacks of globalisation. By managing globalisation in this way, it could help to bring lasting benefits to the fifth of the world's population that currently live in extreme poverty.
Adapted from GlobalEye