Unit 1
Unit 2
Globalisation
The people of Taiwan prove that it is possible to benefit from the process of globalisation. If this is true, then why don’t more people in developing countries benefit in the same way? The distribution of the benefits does not seem to be equitable. This is an issue that we must resolve before we can say that we are in favour of globalisation.
Kenya is often named by the anti-globalisation protestors as a country that has suffered as a result of globalisation. For example, there are five million people in Kenya who rely on sugar production for their income, but due to economic protection by the European Union they are unable to produce this product in a manner that will allow them to export it. This has resulted in the closure of many of Kenya’s sugar refineries, and therefore the hard working sugar farmers of Kenya are in danger of starving.
At least, that is the slightly over simplified version of events.
As is often the case in economics, there is a bit more to the story than this. Prior to 1973, the government of Kenya was actually quite pro-active in supporting the globalisation process. Foreign investment was encouraged, and the economy grew at over 5% each year. However, after 1973 things changed dramatically. Instead of supporting export orientated industries, the government of Kenya forced their people to make products that would help them to avoid imports. There were two significant problems with this approach. First, weather conditions in Kenya are not conducive to the production of many crops. And more importantly, the government took away the right of Kenyan people to own their own land; decisions were made centrally.
Given the inefficiency of the Kenyan farming sector, the government was forced to borrow a great deal of money from the International Monetary Fund (IMF). This resulted in a huge increase in net foreign debt. The repayment of this debt caused the Kenyan shilling to depreciate, and the lack of available exports meant that the terms of trade were completed eroded.
As times became more desperate, the Kenyan government defaulted on the agreements that were made in the contracts with the IMF. By 1993 the Kenyan economy was actually shrinking each year, and inflation was so high that prices were doubling every twelve months. In response, the Kenyan government agreed to sweeping reforms. In particular, they promised to return property rights to the people in their country.
By 1997 it became apparent that the Kenyan government was not intending to honour its agreements with the international community. The money which had been lent to the country had resulted in very few changes. In particular, promised infrastructure projects had not eventuated. This money could have been used to develop the sugar refining plants that were needed by the farmers in that country. It wasn’t. Accusations of corruption were very common. The IMF and the World Bank suspended lending for three years. When lending resumed in 2001, the same problems re-emerged very quickly.
Today, the people of Kenya are ranked 163rd (out of 179 countries that have available data) in terms of GDP per capita. Despite this, the country is no longer registered as a highly indebted poor country because of the governance issues that have just been explained. This means that they will not benefit from the debt relief program that is helping other countries in a similar position.
The people of Kenya are poorer today than they were in 1960. However, the reason for their poverty is not because of the process of globalisation. In fact, poverty in Kenya stems from the fact that the leaders of that country chose not to embrace globalisation. In 1960 their situation was very similar to that of Taiwan. Kenya had higher levels of agricultural production, more available land, and a larger population. Despite these advantages, failing to see the opportunities provided by globalisation has ensured that the people of Kenya are significantly poorer than the people of Taiwan today.
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