Relative importance of the state, TNCs and supranational bodies in economic development
Play a role in attracting TNCs and FDI
Establishment of FTZs, EPZs and SEZs
Chinese government’s plan to concentrate the development of SEZs along coastal locations e.g. Shenzhen and Shanghai (geographical considerations)
Establishment of business/technology parks
Malaysia government’s implementation of the MMSC, Putrajaya and Cyberjaya like outside the capital city of Kuala Lumpur
Singapore has 30 business parks in total
Soft locational policies aimed at attracting expats by catering to their family needs
e.g. American and Australian International Schools in Singapore
Green places --> enhance attractiveness of the city/business hub e.g. Singapore’s Marina Barrage and Gardens by the Bay
Preferential trade policies to attract foreign companies
Singapore and Hong Kong have the world’s lowest corporate income tax (~17%)
Tax Havens like . Such policies are aimed at attracting companies who intend to evade comparatively higher taxes in other countries
e.g. Switzerland (8.5%), Ireland (10%), Cayman Islands (0%)!!!
Has other considerations such as
Social wellbeing of its own citizens
A corrupted and incompetent government impedes rather than enhance a country’s economic development
Little trickle-down effect so most of the wealth and resources are in the hands of the government officials and the well-connected while the poor don’t benefit from investments in the country
e.g. Nigerian government is corrupted but has close ties with Shell Nigeria
Despite over 50 years of oil extraction activities in Nigeria, a sizeable number of Nigerians still live under the poverty line
Nigeria’s anti-corruption agency estimated that roughly 70% of oil revenues have been either stolen or wasted
Oil revenues have been channelled towards developing the already urbanised areas like Lagos and Kano instead of satisfying the basic needs of the people in Ogoni
Profit-oriented --> the inherent nature of TNCs can positively affect the country’s fortunes as TNCs make investment and locational decision rather wisely
E.g. Shell Nigeria contributed $44 billion to the Nigerian government
Provided 4,000 jobs in Nigeria, which spur the creation of tens of thousands of other jobs [employment]
However given that they are profit-oriented, they tend to find locations with resources that are exploitable. They are footloose companies who can easily shift production to another country with the next lowest cost of production to maximise profits. This is especially dangerous if the previous country has become over-dependent on the TNC for growth
Take advantage of and exploit the loopholes of and lax environmental laws especially in LDCs
e.g. Shell accountable for over 6,800 oil spills in Nigeria since that str of its operations
Footloose e.g. American-based TNC Union Carbide which produces pesticides was responsible for cyanide-poisoning of over 200,000 Indians in Bhopal, India. Indian government filed for compensation but with the closure of the company, the victims have yet to receive any compensation
Potentially dampen local/domestic enterprise as local startups and small firms do not have the size and scale of production of huge TNCs to reap economies of scale and compete with TNCs
e.g. Goon people had to compete with Shell and other TNCs for valuable land on which their livelihoods depend
Recently, the movement of corporate social responsibility saw TNCs taking on a more caring stance towards the well-being and social development of the local people
E.g. Shell Nigeria contributed $30 million in social investment funds from 2006-2010 to help community development, entrepreneurship and skills development, employment creation, education infrastructure, scholarship awards, health programmes and provision of potable water
Promotion of free trade and peaceful resolution/arbitration of trade disputes by the WTO
Promotes peace which is conducive regional/international environment for business
Constructive handling of disputes
Rules that make life easier for all
Free trade cuts cost of living --> Average tariffs are only 10% that when the GATT came into force
Provides more choices of products and qualities
Trade as an engine of growth
Governments shielded from lobbying
System encourages good governance
However, they are extremely inefficient
Took 2 years to reach a judgement on USA’s tariffs on steel imports
Took 8 years to confirm that both Boeing and Airbus have unfair subsidies
Economic losses would have been too high after such a long period of time
Critics contend that supranational bodies like the WTO are dominated by the interests of the rich nations, crowding out the needs of the poorer ones
LDCs’ share of world trade has actually halved since WTO’s institution
Income per capita has fallen in 59 of the LDCs and
The number of people living on less than USD1 per day has risen
Policies thought to drive free trade have actually damaged LDCs’ economies
The WTO tends to push countries, especially developing ones, to open up their borders immediately. With the opening up of borders, LDCs are exposed and vulnerable to export dumping by the more efficient producers but their domestic producers aren’t able to cope with it
e.g. India was forced by the WTO ruling to immediately open up her borders to accelerate opening up of its markets. Since then, food imports have QUADRUPLED with large volumes of cheap, subsidised imports flooding in from the US, Malaysia and Thailand. This has led to a drastic fall in food prices and hence rural income by about 70%. Domestic producers were also undercut and wiped out as they weren’t able to compete with more efficient and large scale producers who have their exports subsidised by their won governments
Promotion of FAIR TRADE (born out of the perceived unjustness of free trade)
World Fair Trade Organisations (WFTO) and several TNCs such as Starbucks are advocates of fair (and free) trade
Companies are paid prices significantly higher than the market price for the products traded even when the world price increases, farmers will still receive higher prices --> aim is to improve farmers’ standard of living, and save producers from bankruptcy and absolute poverty
E.g. The fair trade price floor for cocoa is $1,600 per tonne
E.g. Starbucks abides by a scheme called CAFE (which stands for Coffee And Farmer Equity) and engages in ethical sourcing of its coffee beans and prides itself on farmer support (through micro financing and technical support) and strict compliance with social and environmental laws of the countries it sources beans from. However, there are instances where profit-driven motives supersede the initial adherence to fair trade principles when Starbucks reportedly blocked the Ethiopian government from trademarking their own coffee beans [***note that this point can also be used for TNCs]
International aid and debt relief by supranational bodies
e.g. The Heavily Indebted Poor Countries scheme (HIPC) established by the IMF and World Bank
35 out of 40 countries previously indebted reached ‘decision point’ which refers to having a track record of macro-economic stability
Debt relief helps free up resources for social spending
Before the HIPC scheme was implemented, indebted countries spent more repaying debts than on social services like education. Now, on average social spending is on average 5 times that of debt-sevice payments!
However, debt relief schemes are often accompanied by conditions that arguably push countries further into debt/compromise on the country’s welfare
e.g. As part of the austerity measures imposed by the IMF, Greece sacked 30,000 civil servants
60% of Greek pensioners receive 800euros a month and 45% live on less than the monthly poverty limit of 665euros
Regional blocs (e.g. NAFTA and ASEAN)
