Globalisation & Law Final Assignment (Distinction)

Suzanne Stone LAWS1011 100000922

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Strengths and Weaknesses of Globalisation that affect Failed States

Globalisation is not new. For over many centuries, if not millennia, globalisation has only become

more profound in terms of global awareness of its impact upon the world’s population and

countries since the increased coverage and technology of telecommunications.1 This phenomenon

is highly controversial with extreme proponents and extreme critics, and everywhere in between.

Whether for good or bad, it has arguably touched the farthest corners of the globe in one way or

another. In this essay, we will look at different views and theories of how globalisation has affected

those failed states2 in the sub-Sahara which have unable to effectively provide public goods and

security to its citizens, and invariably become vulnerable to extreme poverty, famine in some cases,

population displacement, civil armed conflict, genocide is some cases, and disease.3 Starting with

Professor Stiglitz, we will consider different globalisation theories that have positively and

negatively impacted the economics, politics, and finances upon these class of states, and upon the

region in general. What has been discovered, is that there is no general consensus on the causes

why some states in the sub-Sahara struggle to thrive, which I notice essentially depends upon the

fundamental ideology of which the author is a student as applied to globalisation.

A prolific publisher mostly about the same subject matter, Joseph Stiglitz is highly critical of how

the International Monetary Fund (IMF) and its current lending conditions are stipulated upon the

sub-Saharan states. Stiglitz believes that as part of neo-liberal globalisation, policies such as

1 Martin Wolf, 'Will the Nation-State Survive Globalization?' (Pt Council on Foreign Relations) (2001) 80(1) Foreign Affairs 178, 179. 2 Different authors use different terminology for these countries in terms of generalisation – failed, developing, southern, emerging markets, emerging economies, third world. Since the essay will focus on the sub-Sahara, this essay will use the term ‘failed’ states. 3 Arjun Chowdhury, 'Failed States: Inside or Outside the ‘Flat’ World of Globalization?' (2009) 40(6) Security Dialogue 637, 638.


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privatisation, deregulation, and fiscal austerity measures imposed on these countries, are mostly to

blame for their failure to thrive.456 He is especially disparaging towards neo-liberal proponent’s

views that these states’ invariable corruption, lack of transparency and resolve in their own

accountability play a significant part to their own predicament. 7 Stiglitz does not have an aversion

to globalisation, 8 but believes that Africa has, historically, been the most exploited by it;9 not by

foreign direct investment (FDI), but by neo-liberal unfettered and free markets, as well as short-

term capital flows moving in and out of countries that have failed to allow them a chance to

thrive.10 He believes that the IMF must stop pressuring these countries into liberalising their

markets, and design interventions to stabilise their capital flows, interest rates and exchange

rates.11

Susan Strange expands upon Stiglitz’s theory, by adding that notwithstanding the economic and

financial pressure given, sub-Saharan states still have an opportunity to become stable and reliable,

citing Asia and Latin America successes in overcoming the same obstacles from the 1960s to the

1990s as examples.12 She believes private capital and not public capital is what accelerates

modernisation of developing countries. Therefore, transport and communication advances, greater

capital mobility, and accelerating technology changes will attract capital investors to start up

4 Joseph E. Stiglitz, 'The Overselling of Globalization' in M. Weinstein (ed), Globalization : What's New? (Columbia University Press, 2005) 228-58, 229-30. 5 Joseph E. Stiglitz, 'Capital-market Liberalization, Globalization, and the IMF' (2004) 20(1) Oxford Review of Economic Policy 57, 65. 6 Joseph E Stiglitz, Making globalization work (W.W. Norton & Co., 1st ed, 2006) 40-42. 7 Stiglitz, 'The Overselling of Globalization', above n 4, 229-30. 8 Stiglitz, 'Capital-market Liberalization, Globalization, and the IMF', above n 4, 57. 9 Stiglitz, above n 6, 11. 10 Stiglitz, 'Capital-market Liberalization, Globalization, and the IMF', above n 4, 57. 11 Ibid 65. 12 Susan Strange, The Retreat of the state : the diffusion of power in the world economy (Cambridge University Press, 1996) 57-9.


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manufacturing.13 Stiglitz counters that. Even after leaving socialism, having “reasonably honest

governments”, balancing the books and keeping inflation down, sub-Saharan states still have not

been able to attract international private investors, which in turn, have not created sustainable

growth.14

In contrast, Calomiris asserts that impoverished countries remain so because they also lack the

required political and legal infrastructure to create wealth and growth.15 Notwithstanding low

existing wealth, poor corporate governance protections for foreigners restricts the accessible

supply of domestic equity finance, while legal institutions and inept creditor protections hinder

bank lending.16 Even so, foreign capital can provide them with opportunities for expansion.17

Unfortunately, foreign capital costs are higher than local bank financing, and they are usually

forced to burden the risk by accepting foreign currency, rather than accepting FDI in local

currency.18 So when the exchange rate of local currency depreciates, domestic banks cannot rescue

the debtors by paying the debt for them or indirectly by printing money, thus pushing inflation up,

which then reduces the value of the loans.19 The biggest risk that failing countries face is when a

financial collapse occurs simultaneously with a dramatic depreciation of the domestic currency

value.20 Calomiras believes this aggravates the ability of the states to service their debts because

earnings drop as well making it more expensive again, thus creating a vicious cycle. Often the

13 Ibid 58. 14 Joseph E Stiglitz, Globalization and its discontents (W.W. Norton & Co., 1st ed, 2002) 6. 15 Charles W. Calomiris, 'Ch 4 - Capital Flows, Financial Crises, and Public Policy' in M. Weinstein (ed), Globalization : What's New? (Columbia University Press, 2005) 36-76, 41. 16 Ibid. 17 Ibid 41-2. 18 Ibid 42-3. 19 Ibid 43. 20 Ibid 44.


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domestic financial system collapses along with the currency. This causes banks to fail, credit is no

longer available for local debtors, and governments are pressured to bail out the banks along with

other fiscal burdens, such as increasing welfare payments due to the increased unemployment.21

According to Robert Rotberg, international financial assistance has allowed weak and corrupt

governments to accept the aid regardless of whether they will carry out the policy reforms

stipulated or not.22 Some states may have welcomed the relief, made the necessary adjustments,

and stabilised the government; but most others disregard the reform conditions that could have

stabilised the economy, and increased public goods and services.23 Conceding that international

financial aid stipulations do stabilise countries, Rotberg believes they also have made them more

vulnerable to fail by increasing the chances of political incidences and disputes, thus causing a

downward spiral of failure and chaos.24

Interestingly, Rotberg points out that in the last one hundred years, there has been a “diminishing

relative value of land and what is underneath it.”25 Countries that have not been fortunate to have

significant land mass for agriculture or natural resources, have ironically, had economic success

through the use of tertiary industry and their labour force by way of manufacturing, finance, and

ICT development.26 He cites Korea, Japan, Hong Kong and Taiwan all being particularly

21 Ibid. 22 Robert I. Rotberg, When States Fail : Causes and Consequences (Princeton University Press, 2004) 111. 23 Ibid. 24 Ibid 112. 25 Ibid 304-5. 26 Ibid 304.


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successful examples since World War II. They focused on producing for the world market, rather

than for domestic markets.27

Matsumoto adopts a theory that some sub-Saharan countries struggle to thrive because of the

internal armed conflicts that involve the country’s government as one of the warring parties. These

countries have a low income per capita of less than US$745 per annum.28 Reasons for these

conflicts have been changing since the end of the Cold War when their funding dried up from the

superpower rivalries. Therefore, controlling natural resources has become important for warring

factions as an alternative source of income in order to continue their conflict. The rebels are usually

militarily weak, factionalised, and also rely on illegal arms-dealing to continue their efforts.29

Ultimately, these conflicts are not simply a war between the government and rebels, but have

become “economic wars” based on political ideologies and grievances.

Matsumoto’s research showed that if young males are not able to stay in secondary school, there

is an increased risk of violent conflict.30 Further, political maneuvering and policy choices by the

ruling elite also tend to increase the risk of civil war. In order to get re-elected in post-colonial

Africa, these governments will initially fund public services such as schools. But once this

becomes too expensive, the government turns to an authoritarian regime by prohibiting opposition

parties and withhold elections. The incumbents become more ‘predatory’ and start retaining funds

for their own use. By choosing a closed, centralised and regulated economy, the ruling elite create

27 Ibid. 28 Mitsuko Matsumoto, 'Three strands of explanations on root causes of civil war in low-income and weak states in sub-Saharan Africa: Implications for education' (2016) 49 International Journal of Educational Development 1, 1. 29 Ibid 2. 30 Ibid 6.


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a weak public service, institutions and services. Matsumoto concludes that the elite fear that if they

do not govern like this, their power to rule would be challenged. Thus toleration and prevalence of

corruption is dependent on systemic patronage, and using public office for personal benefit.31

Paul Collier theorises that countries relying on natural resources for export, only increases the

wealth of the land-owning elite of impoverished countries such as mining companies and

individual land-owners.32 The more the primary industry exports onto the world market, the more

likely prices are to go down. Therefore, by changing to manufacturing and services, it utilises more

labour and distributes the developments more widely. What was once dominated by wealthy

countries, several developing states have taken advantage of this market, and Collier believes that

the market is big enough for poorer states to utilise this advantage.33 Constance Anthony expands

upon this, believing that for African states to move towards economic global integration, they must

move past the Cold War paradigm, and realise the global economic and trade opportunities in their

own agrarian and textile industries. For example, Europe realised its own globally comparative

economic advantage in the 1950s and 1960s, eastern Asia in the 1970s and 1980s34, China and

parts of Latin America in the 1990s, and south-east Asia, Mexico, Brazil and Turkey in the late

2000s35.

31 Ibid 7. 32 Paul Collier, Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It (Oxford University Press, USA, 2007) 65. 33 Ibid. 34 Such as Hong Kong, South Korea, Singapore and Taiwan. 35 Constance Anthony, 'Africa's Displaced Peoples: State-Building Realpolitik and Stunted Globalization' (Pt Harvard International Review) (2009) 31(3) Harvard International Review 50, 54.


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Interestingly, Feeny and McGillivray’s study of Papua New Guinea (PNG) showed that although

helpful, financial aid donations were not as effective as it could have been.36 Even with financial

aid, countries similar to PNG could experience economic, political and social difficulties. A high

proportion of taxation revenue is likely used for consumption spending; with aid loans and

donations used to prop up recurrent budgets. Although there is evidence that foreign aid has

assisted in relieving poverty in PNG, its public sector has utilised this aid very poorly. They

concluded, that if financial aid is warranted, more consideration is needed when donating or

lending to ensure that it is used more wisely to get the best effect from the funding provided to

relieve the poverty. They noted that trade liberalisation was only partly to blame for PNG’s

predicament; and equally, government’s long-run reliance on foreign financial aid as a revenue

source is also a serious concern.37

Constance Anthony continues that sub-Saharan countries are historically weak and have never

before had the opportunity to grow economically strong.38 Before colonisation, they were mostly

agrarian and non-industrial. Increased nationalism occurring in India discouraged Britain from

capital investment in their African colonies. Two decades after de-colonisation, neoliberal policies

have placed a priority on markets over the state. Anthony says that they have been governed by a

small minority of elites, whether by force through internal conflict and/or by quasi/pseudo-

democratic elections, keeping them weak or failed as the population becomes highly mobile or

flee altogether. Therefore, they struggle to move beyond pre-industrial and fail to find their place

36 Simon Feeny and Mark McGillivray, 'Aid and public sector fiscal behaviour in failing states' (2010) 27(5) Economic Modelling 1006, 1014. 37 Ibid 1015. 38 Anthony, above n Error! Bookmark not defined.,51.


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in the global economy.39 Further, cultural and religious history, as well as severe crises such as

disease, drought and famine, have also played a significant part towards the conflicts and state

instability in many of these sub-Saharan states.40 Yet, Anthony also cites Charles Tilly whom says

that these states are not so much as failed but are nation-building - like France, Russia, and others

that have gone through revolutions before.41 Tilly believes that countries such as DRC, Sudan,

Somalia and Zimbabwe will go through the same fate before reaching stability, but not expected

to do so for another 20 years yet.

Like Strange, Collier explains that the problem for countries like those in the sub-Sahara, is that

they are short on capital.42 Not public capital, but private capital. In wealthy countries, private

capital exceeds public. But it is the reverse for the poor states. This, Collier explains, is problematic

because there is insufficient funding to set up these private industries. Although financial

institutions provide funding, it is only for public capital such as infrastructure and public services.43

Collier believes in principle, that globalisation can still work because in basic economic theory,

those societies short of capital, usually have higher capital returns, which in turn, should attract

private capital inflow, citing China and Malaysia as successful examples.44 But those in the sub-

Sahara have not been as successful, except for those that have foreign firms exploiting their natural

resources such as Angola.45 Collier states even with low wages, they have not attracted sufficient

39 Ibid. 40 Ibid 52. 41 Ibid. 42 Collier, above n 32, 69. 43 Ibid. 44 Ibid 69-70. 45 Ibid 70.


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foreign firms/investment to create an “economy of agglomeration”46 But theoretically, it is not

impossible. For example, what started out as a trickle, became an explosive flood of manufacturing

agglomerations from the United States and Europe into Asia, because these Asian countries had a

comparable economic advantage with low wages and a large labour market.47 Optimistically, if

the right conditions can be seeded, it is possible to do the same in the sub-Sahara. Madagascar

achieved this in the 1990s.48 It was only when President Ratsiraka decimated the economy in a bid

to get back into power, did the foreign firms and investors become wary of the political instability,

and then pulled out.49

Rotberg concedes, along with Gurnek Bains,50 that globalisation has created a dark side by

encouraging warlords, corrupt leaders and politicians, and others whom have utilised sophisticated

global systems to their advantage in the form of drug/human trafficking or smuggling/exploitation

of natural resources such as diamonds and timber.51 However, Rotberg argues that even though

there is a global international economy for which the leaders could utilise to develop their own

country in terms of trade and financial investment for the country’s national interest, it is used

instead to enrich their own personal interests.52

46 Ibid 66. “Economy of agglomeration” is defined as spatial economies of scale in industry such as manufacturing like it occurred in Asia. 47 Ibid. 48 Ibid 67. 49 Ibid. 50 Gurnek Bains, 'Sub-Saharan Africa: Under Nature's Shadow', Cultural DNA (John Wiley & Sons, Inc, 2015) 41-79, 41. 51 Rotberg, above n 22, 305-6. 52 Ibid 306.


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Finally, Martin Wolf argues that globalisation does not make sovereignty unnecessary or

impotent.53 It is up to individual states to determine their own policy and their own goals if and

how they wish to economically integrate internationally.54 Upon critiquing Milton Friedman’s

economic theory, Nico Vorster said that Friedman was correct that the welfare state has historically

failed because the reallocation of resources encourages laziness, discourages achievement,

increased taxes encourages tax evasion, and creates a sense of indebtedness and self-entitlement.55

Friedman claims that unproductive employment subsidised by state taxes increases production

costs, and consequently, a higher standard of living that can only be achieved by economic

growth.56 Particularly after the 2008 Global Financial Crisis, Wolf argues neoliberal capitalism

also needs to be balanced with less Darwinism and more sense of moral ethics.57

In conclusion, globalisation has had a significant impact around the world in differing ways.

Focusing particularly on sub-Saharan Africa, many of these countries have floundered for decades,

before and during colonisation, and after decolonisation. Interestingly, there have been differing

theories of why they have struggled from corruption, economic, financial and resource

exploitation, and civil wars. Some believe that through globalisation it is too late, whereas other

predict a more optimistic future. Fortunately, parts of sub-Sahara have been taking advantage of

globalisation in the last decade, with many catching up with the rest of the world by becoming

53 Wolf, above n 54 Ibid. 55 Nico Vorster, 'An Ethical Critique of Milton Friedman’s Doctrine on Economics and Freedom' (Pt S.A.C.R.I. The Academic Society for the Research of Religions & Ideologies) (2010) 9(26) Journal for the Study of Religions & Ideologies 163, 170. 56 Ibid 171. 57 Ibid.


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economically robust, and improving across all indicators.58 Rwanda and Ghana particularly, are

currently one of the fastest growing economies in the world, lifting many out of poverty.59 Even

not waiting for FDI, through globalisation, they are becoming successful in their own enterprises

such as telecommunications, brewing and food manufacturing, 60 indicating optimistically, that

globalisation still has a place in Africa.

Word count: 2385 (not including footnotes)

58 About Sub-Saharan African - At a turning point, (2012) United Nations <http://www.africa.undp.org/content/rba/en/home/regioninfo.html>. Regional Economic Outlook: Sub-Saharan Africa: Dealing with Gathering Clouds, Regional Economic Outlook: Sub-Saharan Africa: Dealing with Gathering Clouds, International Monetary Fund No (2015) ix-x. 59 Bains, above n 50, 41. 60 Ibid 42.


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Articles/Books/Reports

Anthony, Constance, 'Africa's Displaced Peoples: State-Building Realpolitik and Stunted Globalization' (Pt Harvard International Review) (2009) 31(3) Harvard International Review 50

Bains, Gurnek, 'Sub-Saharan Africa: Under Nature's Shadow', Cultural DNA (John Wiley & Sons, Inc, 2015) 41-79

Busumtwi-Sam, James, 'Ch 10 - International Financial Institutions, International Capital Flows, and Financial Liberalisation in Developing Countries' in Stephen MacBride and John Wiseman (eds), Globalisation and its Discontents (Palgrave Macmillan, 2000) 84-96

Calomiris, Charles W., 'Ch 4 - Capital Flows, Financial Crises, and Public Policy' in M. Weinstein (ed),

Globalization : What's New? (Columbia University Press, 2005) 36-76

Choi, Yong-Yil, 'Relative government size in globalization and its welfare implications' (Pt Routledge)

(2010) 42(11) Applied Economics 1447

Chowdhury, Arjun, 'Failed States: Inside or Outside the ‘Flat’ World of Globalization?' (2009) 40(6) Security Dialogue 637

Collier, Paul, Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It (Oxford University Press, USA, 2007)

Feeny, Simon and Mark McGillivray, 'Aid and public sector fiscal behaviour in failing states' (2010) 27(5) Economic Modelling 1006

Friedman, Milton, Milton Friedman on Economics : Selected Papers (University of Chicago Press, 2008)

Harvey, David, Brief History of Neoliberalism (OUP Oxford, 2005)

Jos, xe and Perales Antonio Sanahuja, 'Consensus, Dissensus, Confusion: The 'Stiglitz Debate' in Perspective: A Review Essay' (Pt [Taylor & Francis, Ltd., Oxfam GB]) (2004) 14(3) Development in Practice 412

Kourtidis, Dimitrios, Željko Šević and Prodromos Chatzoglou, 'Investors’ trading activity: A behavioural perspective and empirical results' (2011) 40(5) The Journal of Socio-Economics 548

MacBride, Stephen and John Wiseman, Globalisation and its Discontents (Palgrave Macmillan, 2000)


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MacDonald, Michael and Darel E Paul, 'Killing the Goose That Lays the Golden Egg' (2011) 39(4) Politics

& Society 565

Matsumoto, Mitsuko, 'Three strands of explanations on root causes of civil war in low-income and weak

states in sub-Saharan Africa: Implications for education' (2016) 49 International Journal of Educational Development 1

Melluish, Steve, 'Globalization, culture and psychology' (Pt Taylor & Francis) (2014) 26(5) International Review of Psychiatry 538

Rabin, Matthew, 'Psychology and Economics' (Pt American Economic Association) (1998) 36(1) Journal of Economic Literature 11

Regional Economic Outlook: Sub-Saharan Africa: Dealing with Gathering Clouds, Regional Economic Outlook: Sub-Saharan Africa: Dealing with Gathering Clouds, International Monetary Fund No (2015)

Rockoff, Hugh, 'Parallel Journeys: Adam Smith and Milton Friedman on the regulation of banking' (Pt

Routledge) (2011) 4(3) Journal of Cultural Economy 255

Rotberg, Robert I., When States Fail : Causes and Consequences (Princeton University Press, 2004)

Sheppard, Eric, 'Trade, globalization and uneven development' (2012) 36(1) Progress in Human Geography

44

Söllner, Albrecht, 'Globalization, greed, and exploitation. How to break the baleful path?' (2014) 84(9)

Journal of Business Economics 1211

Stiglitz, Joseph E, Globalization and its discontents (W.W. Norton & Co., 1st ed, 2002)

Stiglitz, Joseph E, Making globalization work (W.W. Norton & Co., 1st ed, 2006)

Stiglitz, Joseph E., 'Capital-market Liberalization, Globalization, and the IMF' (2004) 20(1) Oxford Review

of Economic Policy 57

Stiglitz, Joseph E., 'The Overselling of Globalization' in M. Weinstein (ed), Globalization : What's New? (Columbia University Press, 2005) 228-58

Stiglitz, Joseph E., The great divide : unequal societies and what we can do about them (W.W. Norton & Company, 0th ed, 2015)


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Strange, Susan, The Retreat of the state : the diffusion of power in the world economy (Cambridge

University Press, 1996)

Strine, Leo E., 'Human Freedom and Two Friedmen: Musings on the Implications of Globalization for the

Effective Regulation of Corporate Behaviour' (Pt University of Toronto Press) (2008) 58(3) The University of Toronto Law Journal 241

Vorster, Nico, 'An Ethical Critique of Milton Friedman’s Doctrine on Economics and Freedom' (Pt S.A.C.R.I. The Academic Society for the Research of Religions & Ideologies) (2010) 9(26) Journal for the Study of Religions & Ideologies 163

Wolf, Martin, 'Will the Nation-State Survive Globalization?' (Pt Council on Foreign Relations) (2001) 80(1)

Foreign Affairs 178

Wolf, Martin, Forum on Constructive Capitalism : Fixing Global Finance (Johns Hopkins University Press,

2010)

Other

About Sub-Saharan African - At a turning point, (2012) United Nations <http://www.africa.undp.org/content/rba/en/home/regioninfo.html>

http://www.africa.undp.org/content/rba/en/home/regioninfo.html

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Globalisation & Law Final Assignment (Distinction)

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