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The main challenges facing contemporary world economy Essay

What are the main challenges facing the contemporary world economy? The contemporary world economy is complex, but the main challenge we face today is uneven development. Development in today’s society represents the basic characteristics of capitalism as a mode of production and consumption. This essay will explore development discourse in terms of analysing how trade impedes the growth of an equal global economy, due to it being laden with uneven power relations and how it is subjected to political corruption. This essay will also explore how the spatial organisation of production creates a problem for the world economy due to unbalanced flows of finance, and how resource abundance can actually become crippling for developing economies. Trade is a phenomenon which underpins economic growth and globalisation. Trade serves as an activity which increases production and consumption of a country under normal capitalist conditions; it encourages the exchange of global resources, it also increases communications which assist global awareness and the sharing of knowledge.

However when analysing how global trade operates between countries, it is tangible that it is clearly not a fair means, and those more wealthy nations benefit to a far greater extent from trade than others. This capitalist behaviour is the basis which makes trade discourse an example of how global economic growth is stunted (Dicken, 2003). Quotas, prohibitions and tariff taxation, which are all government induced, curb the ability of totally ‘free’ global trade, as they discriminate between certain nations on a political and financial level. This generally results in poorer countries’s capability to export goods and generate their own capital. However the Uruguay Round (1986-1994) led to a reduction of developed countries trade tariffs by nearly 40%, although MEDCs then introduced NTBs which are arguably even more detrimental to an advancing global economy (Bacchetta, 2001). Rather than having taxation on goods, NTBs (non-tariff barriers) were implemented under the theory of protectionism; where a nation would impose a barrier against certain trading due to government policies on health, safety and other similar conditions. The idea of NTBs is that it protects citizens against disadvantageous trade, however the WTO argues that although it is important for a government to protect its own economy, NTBs are complex to measure and could be used as alternative to trade tariffs.

NTBs are often used to evade free trade rules, and often created barriers for developing states to export primary goods in where they had a comparative advantage. This uneven power relation reiterates how trade acts as a medium which channels the capitalist behaviour of MEDCs, through selfish government policies which impeding global economic growth. This was particularly the case in 1997, where Uganda restricted trade in cattle products to avoid ‘mad cow disease’ spreading in their country, however even after Ugandan scientists said the disease was no longer an issue, the government would still not lift the trading barrier and to this day the Ugandan meat market is very hard to enter for some countries. This example clearly shows that the NTB was used for a political agenda, where the former US commerce secretary, Mickey Kantor believed “corruption is a virus threatening the health of the international trade system (Elliot 1997). This uneven power relation between nations based on their economic status, is reiterated in the sense that economic growth is also implicitly linked with imperialism.

Lenin postulated that “imperialism was the highest stage of capitalism” (Smith, 1984). Imperialism is an ideology in culture where values of dominance and subordination are constructed, represented here by the act of colonisation; which allowed for the exploitation of new resources by the dominant, colonising counties. However this exploitation driven by imperialistic attitude was not conducive to global economic growth, as it kept the power in the hands of only the wealthy. Although in a modern day society that we do not see ourselves (Britain) in such an imperious state, the attitude towards many countries with a less developed economic position has not changed. Over time the imperialistic belief between countries, now loosely transcends to a physical spatial differentiation of rich and poor by the commonly known ‘north and south divide’, where poorer nations economies remain subservient to ours. When looking at the spatial organisation of production and consumption, there is a clear issue of the geography of profits and capital of TNCs and FDI, and the local and global effect of this.

Korten (1996) notes that TNCs operate wherever they “can easily obtain raw materials and … exploit cheap labour”. TNCs are known to provide employment, revenue, and infrastructure to LEDC nations however they lead to a loss of cultural identity, extreme tax avoidance and exploitation of resources. The UN noted that “80 percent of the poor countries are either left out, marginalized, or hurt by TNCs activities” (Anderson, 2014). FDI normally denotes the flow of finance from a wealthy to a poorer nation however this is not the case with TNCs, as when looking at the geographies associated with them, production is based in underdeveloped nations where costs are minimal, whilst exportation is concentrated in developed nations. Meaning the capital and taxes from TNC trade trade is generally kept within developed governments. Again a perfect example of a capitalist behaviour. Also, as a TNC is normally run by a parent company residing in a developed country, the host country has little influence over policies and laws regarding the actions of the tans national company; and the unequal power relation is reiterated again between the developed and developing world.

This proves a major challenge in todays society for a globally balanced and developed economy, as in order for this to happen the flow of finance needs to be ‘free’ and this is something TNCs do not promote. Following on from resource exploitation and development discourse, is the ‘Resource Curse Thesis’ where natural resource abundance in less developed nations tend to result in generating detrimental developmental outcomes, such as poor economic performance, increased levels or political corruption and ineffective governance, shown in the work of Sachs and Warner (1997). This economic stagnation amongst resource abundant countries was most notable from 1970 onwards according to Sachs and Warner (1997). Poor economic perform is a result of specialization; whereby if an underdeveloped country is rich in natural resource, they focus their attention to processing and trading these resources as a quick way of making capital, and treat their natural resources very much like a ‘cash cow’.

However this act of specialization has detrimental implications to their overall economy as other industries such as agriculture which is arguably more important on a local scale to citizens of underdeveloped nations. The ‘Resource Curse Thesis’ also results in wealth being concentrated in the hands of a few individuals, which leads to further social problems. Political corruptness and ineffective governance is also a result of the ‘Resource Curse Thesis’, as governments in underdeveloped nations tend to aim to get capital as quick as possible, meaning they are susceptible to MEDC domineering and bulldozing attitudes towards unscrupulous trading conditions and cheap labour. This recurring relationship of dominance between developed economies and underdeveloped economies is the pinnacle basis of economic challenges in todays society.

Either MEDCs can not see how their global actions have a local effect on underdeveloped nations, or that they are too immersed in their own economies that they aren’t concerned enough to change their behaviour. In summary this essay focuses on the capitalist behaviour of more developed countries and how they use platforms such as trade and transnational companies as a medium for uneven development. This essay shows that through the use of NTBs and the political corruption associated with trade.

Trade itself is vehicle which encourages uneven power relations between nations, which is the main challenge the modern global economy faces. This essay also draws attention to how the spatial organisation of production and consumption poses a challenge for even global economic growth, through unbalanced financial flows (TNCs) and resource exploitation. Uneven power relations between developed and underdeveloped nations are the the direct cause of todays unequal global economy, which are mainly caused by corrupt and selfish governments.

References:

Anderson, S. (2000). The Rise of Global Corperate Power. Available: http://www.globalpolicy.org/component/content/article/221/47211.html. Last accessed 2/2/2014. Baccheta, M. (2001). Post-Uruguay round market access barriers for industrial products. UN conference on trade and development. 12 (1), p2-3. Dicken, P (2003). Global Shift: Reshaping the Global Economic Map in the 21st Century. London: Sage. p128-134. Elliot, K (2003). Corruption as an international policy problem: overview and reccomendations. London: Plexus. p198. Smith, N (1984). Uneven Development. Oxford: Basil Blackwell. p49.


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