Global Macroeconomics and the Caribbean Business Environment Can small developing countries survive in a globalized environment? Can Small Developing Countries survive in a Globalized Environment? ABSTRACT This paper examined the arguments for globalization with respect to the survival of small island developing states primarily in the Caribbean region. Arguments for globalization focused on the development of new markets, free trade agreements, income generation and the building of human capacity through technology and technological advancements and new business opportunities.
The merits offered by globalization include a better standard of life to the citizens along with other positive impacts and in particular, the enrichment of lives through the mixing of cultures, ideologies, food, music and fashions. Paramount to this is the development of technology, communication and travel among member states in order to achieve any measure of success.
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The benefits of globalization from the exploitation of a country’s natural resources and a sign of its economic prosperity is the level of the observed infrastructure. Arguments on the negative side are the risk of the damage to the environment, air and water pollution, security issues, health issues and the economic dominance of transnational corporations. Can small developing islands really survive in a globalized environment?
The answer is not a simple “yes” or “no” because the depending factors are not restricted to improving trade relations or elimination of tariffs and the removal of trade barriers or increased competitiveness through greater productivity but rather the cost of leading a quality life by the citizenry and the ability to manage and sustain a fragile ecosystem which is inherent in almost all small island developing states. Table of Contents Abstract1 Chapter 11 Introduction 1 1. 1. 1. Definition of Globalization1 1. 1. 2. Definition of Globalization1 1. 1. 3.
What is a small island developing state1 1. 1. 4. Concept of Globalization1 1. 1. 5. Research questions1 1. 1. 6. Thesis Statement3 1. 1. 7. Methodology3 Chapter 2 7 Literature Review8 Chapter 310 Discussion12 Chapter 5 14 Conclusion15 Bibliography 16 Chapter 1 Introduction The advantages and disadvantages of globalization has been heavily debated and intensely scrutinized over the past decade. Proponents of globalization say that it helps developing nations to “catch up” to industrialized nations quicker through increased employment and technological advantages.
Some critics say that it weakens sovereign states and allows wealthy nations to shift domestic jobs overseas where labor is cheaper so that multinationals can make greater profits. The list of developing nations outnumbers that of the developed (industrialized) nations. As the debates continue whether small developing states can survive globalization the measurement criteria used is “free trade” and open markets, financial independence, technological advancement, food security, natural disasters, exploitation of natural resources and capacity building for developing countries as indicators of survival mechanisms.
What is Globalization? Globalization is the system of interaction of the countries of the world in order to develop the global economy through economic, political, cultural and technological exchanges which are facilitated by developments in transportation, communication and information technology, deregulation of financial markets, privatization and trade liberalization. The Globalization Concept The concept of globalization is primarily the impact of free trade and increased competitiveness.
The pronouncement is that smaller firms are most vulnerable and are under enormous pressure to adapt in order to survive and become competitive. Definition of small developing island states? For the purpose of this paper small island developing states (SIDS) is considered to be low lying coastal land states that have a fragile environment a small and growing population and limited resources, is susceptible to natural disasters and vulnerable to external shocks and is heavily dependent on international trade.
In terms of development growth and development they are hampered by transportation and communication, the cost of energy is high and they have limited opportunity to be competitive in world trade. The United nations have identified 52 countries to be SIDS and the Caribbean region has twenty five islands of which fifteen belong to CARICOM they are Antigua and Barbuda, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, St. Kitts ; Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname and Trinidad and Tobago (see Appendix 1). The research question posed:
RQ1: Is it imperative that small developing states survive globalization? Thesis Statement Small island states in the pursuit of internationalization could land the risk similar to Taiwan and Korea who started in the 1980 and have now encountered bigger problems with the environment and health issues than they had before. With the lessons learnt how far, how much emphasis and to what extent would be placed on regulation and protection of the environment and health of the citizens should this be disregarded then the battle with globalization would be lost.
Chapter 2 Methodology To conduct this assignment research was carried in the Libraries of the Arthur Lok Jack Graduate School of Business and the University of the West Indies. Research was also conducted on line at the Library of Congress database, reading material was sourced from an array of textbooks, articles, journals, class lecture notes, periodicals and the internet. Chapter 3 Literature Review The many changes brought about by globalization have resulted in regional economic integration where groups of countries form alliances to promote free trade.
An investigation done on the Caribbean economy and the options that they face as the traditional preferential trade arrangements begin to disappear conducted by Ward (2008) described the model for small developing countries like the Caribbean economy as a travel economy based on two enduring features of Caribbean life i. e. tourism and migration. The transformation of economic activity through integration and free trade would benefit small island states by transforming primary exports into higher value services.
In this regard it is imminent that globalization is imperative for SIDS because the days of “free trade” is on the doorstep and it is do or die. Preferential treatment is over and revised agreements would necessitate that the playing field is level. CARICOM has to adopt fee trade with developed countries or perish. Unification of members of an economic bloc initiate regional integration by eliminating tariffs and other barriers through free trade agreement the process is followed by forming a customs union where trade barriers are imposed on nonmember countries.
Third is the common market where factors of production move freely among the members. Finally there is the economic union or a common market where economic policies are harmonized among the member states. According to Rugman (2001), regional economic integration blocs allow member countries to agree to eliminate tariffs and other restrictions on the cross national flow of products, services, capital and labor. If the arguments by Rugman have merit then SIDS should aim for the ultimate finale of regional integration which is true political union of all member states.
Is CARICOM. prepared to pursue and attain political union? If not, and the survival of SIDS depend on this step then they cannot survive globalization. Recent statistics of trading , (Table 1) below done with CARICOM and selected countries reveals a declining trend with respect to exports to developed countries and an increase in export activity among member states. Trade between CARICOM member states has shown an increasing trend over the last twenty years this is balanced by decreased imports from developed countries.
Developing countries may wish for equal treatment and remove the protectionist and preferential treatment that is afforded to SIDS are they prepared to compete and can they afford the competition? If they cannot then manufacturers cannot compete with the open market and SIDS cannot survive. Table 1: CARICOM trade with selected countries and regions CARICOM TRADE| Exports to:| 1980| 1990| 1996| United States| 48. 7%| 40. 0%| 38. 5%| European Union| 16. 5%| 20. 6%| 18. 0%| Caribbean SIDS| 17. 4%| 20. 0%| 26. 6%| Imports from: | 1980| 1990| 1996| United States| 27. %| 41. 2%| 44. 4%| European Union | 15. 8%| 15. 5%| 14. 1%| Asia| 6. 0%| 7. 7%| 14. 1%| Caribbean SIDS| 13. 1%| 12. 5%| 11. 6%| Source: ECLAC, 1997. More than half of the world’s sovereign states are small economies with the majority of developing countries in the sub Saharan Africa and the Caribbean. Globalization poses special challenges for small economies because of their vulnerability and lack of diversification. Strategies towards better integration other than regional integration include membership in the World Trade Organization (WTO).
Over reliance on reciprocal obligations and special trade arrangements with industrialized countries can only benefit the rich and widen the gap between rich and poor (Williamson, 2002). The signing of trade agreements afford some degree of protectionism to members. There are approximately two hundred economic integration agreements the largest is the European Union (EU) with twenty seven countries. The EU through the formation of the European Free Trade Association have increased market access improved trade rules, and armonized standards among their members. Of equal status is the North American Free Trade Agreement or NAFTA which includes Mexico, Canada and the USA. Of importance in South America the trading bloc is MERCOSUR comprising of Argentina, Brazil, Paraguay and Uruguay, in the Caribbean there is CARICOM comprising of twenty five members and associate members, and Asia/Pacific region ASEAN, APEC. In Australia and New Zealand there is the Closer Economic Relations Agreement (CER).
The other major trade area is the Middle East and Africa having experienced some degree of success. The factors contributing to trade success are those countries that have relations of similar culture, language, economic and political structures and close geographical location (Cavusgil, Knight and Riesenberger, 2008). The CARICOM countries share similar lifestyles i. e. food, music, festivals, fashions and intermarriages which make them make culturally strong. In this aspect CARICOM is poised for globalization of free movement of people, goods and services.
No development can take place without industrialization and the exploitation of natural resources. Goldsmith (1997), argues that “creating a global economy means seeking to generalize the destructive process which means transforming the vast mass of still largely self sufficient people in the rural areas of the third world into consumers of capital goods and services mainly those provided by the transnational corporations (TNC’s). ” Guyana, Suriname and Belize have untapped virgin forests what would happen should they permit the harvest of lumber?
In Malaysia half of the trees that are felled are for export. The $1. 5B US dollars in annual exports comes with a hefty environmental cost. Also government’s granting of special concessionaires encourage foreign direct investments may weaken their ability to impose regulations on companies’ behavior where there is substantial environmental cost. The ill effects of globalization are borne by citizens who have never benefited yet they pay the price of soil erosion, contamination of waterways and flooding.
Integration is both positive and negative, positive integration is the standardization of international economic laws and policies of countries who conduct trade with each other. Negative integration is the breaking down of trade barriers such as tariffs and quotas in the case of importing raw materials for processing the cost of production becomes cheaper making it easier to compete in foreign markets. The World Trade Organization has proposed elimination of tariffs on all imports of 50 of the world’s poorest countries to reduce income inequality within poor countries.
In a 2001 World Bank Report 24 countries that increased their integration into the world economy over two decades ending in the late 1990’s achieved higher growth in incomes, longer life expectancy and better schooling. The population of 3 billion of these countries enjoyed an average growth rate of 5% per capita compared to a 2% in rich countries. The argument continues that China, India, Hungary and Mexico have adopted domestic policies and institutions that have enabled people to take advantage of global markets thereby increasing their gross domestic product.
The report also calls upon developed countries to open their markets to exports from developing countries and reduce their agricultural subsidies which make developing countries uncompetitive. Increase trade is justified and the growing impact of economic activities on the environment and its sustainability is cause for concern. Bello and Rosenfeld (1992) revealed in their book Dragons in Distress that there was massive clearing of virgin forests and destruction of farmlands to accommodate the huge industrial and residential developments in Taiwan.
Taiwan’s maximization of agriculture production for export have led to the increased use of fertilizer which has led to soil acidification, and decline in soil fertility, water pollution and fertilizer contamination of run off water. The increased use and lack of control of pesticides is also a source of concern along with air pollution for many Taiwanese. Can we afford to have SIDS undergo the scenario of Taiwan in the Caribbean? Should a similar situation occur then the cost of rehabilitation of soil for agriculture far outweighs any benefit that is arrived from globalization.
Should SIDS pursue international and promote industrialization the laws and regulations for environmental safety is la because environmental clean up is costly The lesson to be learnt from globalization in Taiwan is now being realized, factory owners have disregarded waste disposal regulations and industrial waste from 90,000 factories in Taiwan which have contaminated waterways with mercury, arsenic and cadmium where 30% of the rice grown. Contamination of farmland is now 20% according to the government.
Taiwan has the world’s highest incidence of hepatitis this is mainly due to improper sewage treatment which has severely polluted all the major rivers and is described as flowing “cesspools” that is devoid of fish. Can Guyana, Suriname or Belize handle such a situation? The incidence of asthma attacks involving children in Taiwan has increased 400% and cancer has become the leading cause of death and has doubled over the last 30 years. Air pollution has also increased with intolerable levels of sulphur dioxide and nitrous oxide pollution doubling that of the USA.
Most SIDS have poor health care infrastructure and the long term debilitating effects is difficult to prove or make a connection but a lot is learnt from countries to heed the warning signals. In view of the effects in Taiwan for the survival of SIDS protective measures in health services must be considered and regulated. Small developing island states are also prone to natural disasters and their vulnerability to hurricanes, earthquakes, volcanic eruptions and flooding makes it difficult to be competitive.
Most of the CARICOM countries are on the hurricane belt and the rehabilitative cost is expensive almost totaling the cost of GDP for an entire year in some countries. Table 2 shows some of the countries affected by two major hurricanes in 1995. Table 2: Cost of damage to the five countries most seriously affected by Hurricanes Luis and Marilyn in 1995, in relation to GDP (millions of EC dollars) Country| 1995| Storm Damages| GDP for preceding year| Damage/GDP| Anguilla| 1995| 245| 166. 4| 147. 0%|
Antigua/Barbuda| 1995| 810| 1 143. 9| 71. 0%| Montserrat| 1995| 8. 0| 147. 3| 5. 4%| Dominica| 1995| 262| 494. 1| 53. 0%| St. Kitts/Nevis| 1995| 532| 505. 6| 105. 2%| St. Martin| 1995| 1,764| | NA| Sources: CDERA: Report on the Economic Impact of the Recent Disasters in the Eastern Caribbean, 1998. Unfortunately, in the world of Caribbean business there will be triage for economic survival. The process of specialization and resource reallocation for small Caribbean firms is not as smooth and frictionless as advanced in economic theory.
There must be adjustment costs which must be managed in a phased basis, fast phase-outs for companies that will never be competitive and slower phase-outs for promising firms that simply need time to adjust. There are advantages to globalization from the example of ten years ago China’s induction to world trade has brought its growth in income from $1460 a head in 1980 to $4120 by 1999. During the same period American’s were paid 12. 5 times as much per capita but now they are earning 7. 4 times as much. This has been largely due to the relocation of production to countries where production factors are lower.
Knowing that the factors of production are cheap labor how can we survive globalization in the Caribbean with large countries like China and India with over 1. 5 billion people? At the same time the power of corporations and global finance markets adversely affect the sovereignty of countries by limiting governments’ ability to impose regulations. Because of lucrative concessionaires by granted by small developing countries to attract multinational corporations workers are exploited and little tax is paid while the profits are taken back to their home country. What is in it for us?
Can we really do battle with firms like BP considering the damage that was done like a major oil spill that occurred off the Mexico coast this year? Chapter 4 CONCLUSION SIDS must transition to competitive and rule base systems to survive trade liberalization In order to cope with the risks that globalization poses there must be market reform integration in the global economy through MNC’s. As small developing economies transition to more competitive and transparent rule based systems part of their sovereign status is diminished as large multinational companies dominate the trade arena.
Sir James Goldsmith, a member of the European Parliament in 1995 predicted that “those who feel that they are losing out in the globalization nightmare would decide the course of the world economy, nations always have three choices: getting things more or less right, rotting, or exploding. Jeffery Sachs a world renowned economist and writer, lecturer and consultant espouses that clinical economies could be used to address and remedy the economic stumbling blocks of individual countries. Sachs recommends a ‘differential diagnosis’ of a country’s economic problem.
According to Sachs, “there are many factors that can affect a country’s ability to enter a world market, These factors include government’s corruption, disputes, gender, ethnicity, caste systems, diseases, lack of infrastructure, transportation, communication, health and an unstable political climate. The battle of the powerful windmills of free trade and global enterprise for small developing island states cannot be won unless all of the above factors are considered and addressed. ” Having considered both viewpoints small island developing states must perform a “differential diagnosis” of their ability to survive in a globalized world.
The actions that they take would determine whether they get it right, rot or explode. Bibliography Rugman, A. (2001). The End of Globalization: Why Global Strategy is a Myth and How to Profit from the Realities of Regional Markets. New York American Management Association. Kennes, W. (2000). Small Developing Countries and the Global Markets. Competing in the Big League. Palgrave Macmillan pp. 25-43 Ward, P. (2008). Caribbean Economy in the age of Globalization. Palgrave Macmillan. Cavusgil ,S. , Knight, G. and. Riesenberger, J. (2008).
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Final document of United Nations General Assembly Special Session for the review and appraisal of the implementation of the POA for the sustainable development of SIDS. New York, September 1999. Trinidad Guardian. 25 November 1999, Article p. 4. United Nations General Assembly Resolutions Nos. 1514 (XV), 1803 (XVII) of 1962, 3281 (XXIX) of 1974, 3201 (S-VI) of 1974 Barbados Programme of Action for the Sustainable Development of Small Island Developing States (Extract from A/CONF. 167/9, part I, Annex II (1994) ) List of Small Island Developing States (UN Members)| | Antigua and Barbuda| 20| Federated States of Micronesia| 2| Bahamas| 21| Mauritius| 3| Bahrain| 22| Nauru| 4| Barbados| 23| Palau| 5| Belize| 24| Papua New Guinea| 6| Cape Verde *| 25| Samoa * | 7| Comoros * | 26| Sao Tome and Principe *| 8| Cuba| 27| Singapore| 9| Dominica| 28| St. Kitts and Nevis| 10| Dominican Republic | 29| St. Lucia| 11| Fiji | 30| St. Vincent and the Grenadines| 12| Grenada| 31| Seychelles| 13| Guinea-Bissau * | 32| Solomon Islands *| 14| Guyana| 33| Suriname| 15| Haiti * | 34| Timor-Leste * | 16| Jamaica| 35| Tonga| 17| Kiribati *| 36| Trinidad and Tobago| 8| Maldives * | 37| Tuvalu * | 19| Marshall Islands| 38| Vanuatu * | List of Small Island Developing States (Non-UN Members/Associate Members of the Regional Commissions)| 1| American Samoa| 8| Guam| 2| Anguilla| 9| Montserrat| 3| Aruba| 10| Netherlands Antilles| 4| British Virgin Islands| 11| New Calendonia| 5| Commonwealth of Northern Marianas| 12| Niue| 6| Cook Islands| 13| Puerto Rico| 7| French Polynesia| 14| U. S. Virgin Islands| ——————————————– [ 1 ]. Commonwealth Secretariat/World Bank Joint Task Force on Small States, 2000. Small States: Meeting Challenges in the Global Economy”. [ 2 ]. http://www. enwikipedia. org/wiki/Small_Island_Developing_States [ 3 ]. Barbados Programme of Action for the Sustainable Development of Small Island Developing States (Extract from A/CONF. 167/9, part I, Annex II (1994) ) [ 4 ]. http//: palgrave connect . com/pc/doinfinder/10. 1057/9780230620902 Nov. 4/10 [ 5 ]. Economist “Transformed EU membership has Worked Magic in Central Europe” June 25, 2005, 6-8 [ 6 ]. NAFTA have only reached the free trade area stage of regional integration [ 7 ]. 001 World Bank Report Globalization, Growth, and poverty: building an inclusive world economy. http//web. worldbank. org/external/default/main? 2010/10/11 [ 8 ]. Dragons in Distress : Asia’s Miracle Economy in Crisis was almost pulled off the shelf soon after publication. [ 9 ]. Sanders, Ron, An Assessment of UNCTAD’s effectiveness as an Instrument to promote the Interests of the third world. In “Piece by Pieces- United Agencies and Their Roles: a reader and selected bibliography”, Robert N. Jn. Wells, ed. Metuchen, NJ, & London The Scarecrow Press Inc, 1991. (chpt. XIII, p. 294)