Globalization of Capitalism 1

Globalization of Capitalism and its

Impacts

Ahmad Hasan

In today’s world, we have global terrorism, global alliances, global technologies

and global multinational giants whose commercial interests lie in producing more of the

same for as many people as possible. But this globalization has its good as well as dire

impacts on the world’s political system. The world we see today is anarchic in nature to

say the least. We have conflicts and disharmony all around the globe. The disparities

between developed and developing countries are ever-increasing. The question that arises

then is; are we moving in a positive direction?

The first world countries that are developed, have a democratic political system,

and are technologically advanced and wealthy are now called Global North. Global south

consists of countries once described as the second world and the third world. The second

world countries believed in the common economic reforms and were influenced by the

communism. The third world countries are underdeveloped and mostly have a colonial

background. They don’t have proper democratic governments, lack technological

progress and are dependant on the wealthy global north.

Globalization of Capitalism 2

The end of the Cold War brought a new era of economic globalization, the era in

which free trade and force of freedom was to be promoted. It was hoped that capitalism

will help the third world countries to improve their economic conditions. The proponents

of capitalism argued that capitalism was based upon the human beings’ natural instinct of

choice and freedom. According to them, the system that they were bringing into the

world would not only benefit the rich countries but will also be a vital factor in improving

the deteriorating economies of third world countries, because, according to capitalists, the

system was based on justice. [Rand, Ayn] In many ways capitalism was beneficial in

eliminating slavery, feudalism and racism among many other things.

However, the free trade system was imposed on the developing countries before

they were ready to accept it. Organizations such as the W.T.O were formed under the

rules formulated by rich countries. These developed countries wanted the South to fall in

line. World Bank and IMF, which were also controlled by the First World, gave loans to

the developing countries. These loans helped the First World to impose neo-imperialism

on the Global South. Over the years, the level of debt service of many developing

countries, particularly from Africa and Latin America, has become incompatible with

sustainable development, which shows the shackles that neo-imperialism has imposed on

these countries.

With the advent of globalization, it was hoped that it would bring peace,

prosperity and improvement of the whole world due to the free movement of capital,

Globalization of Capitalism 3

goods and services. However, it has not been able to realize these high hopes and the

growth has been uneven. Disparity in income and wealth between nations continues to be

a major concern. Commenting on the globalization and its impacts on marginalization of

Global South, the secretary general of United Nations Mr. Kofi Annan said:

“Despite its advantage of increasing wide choices and new opportunities

for both individuals and nations worldwide due to rapid spread of

technology and more advanced modern skills, globalization has its dark

side which led to the marginalization of poor countries in particular.”

[Annan Blames South Marginalization on Globalization, 2000]

It is a fact that globalization has so far not worked for the developing countries. It

has rather made them susceptible to peripheral shocks and accentuated their economic

problems. In fact, liberalization of economies and open markets has in many ways

negatively affected the fragile economies of the world's poorest nations. The obvious

outcome is persistent poverty and ever-widening income, social and technological gaps

between the "haves" and the "have-nots".

The core reason for the underdevelopment of Global South is explained by

dependency theorists. According to them, the cause of low levels of development among

Globalization of Capitalism 4

the Global South countries is their dependency on more developed countries. Theotonio

Dos Santos defines dependency as:

“an historical condition which shapes a certain structure of the world

economy such that it favors some countries to the detriment of others and

limits the development possibilities of the subordinate economics” [Dos

Santos, 1971]

The dependency of the Global South on the Global North can be attributed to the

fact that these countries don’t have specialization of goods that developed countries

possess due to their technologically sophisticated industries. It leads to the need for trade

between developed and developing countries. The trade between the technologically

superior countries and less developed countries gives the developing countries the hope

that they can eventually catch up with the first world. The cause of such high hopes lies

with the inflow of foreign direct investment coming from the developed world. The real

picture is anything but like this in most cases. Multinational Companies (MNCs) set up

their plants in developing countries in order to allure the host country’s people to believe

that their country is getting much needed economic growth.

The irony of this whole scenario is that the developed countries, having the upper

hand, can impose their policies in return for these goods as well as the foreign direct

investment that they provide. The investment coming from these developed countries is

Globalization of Capitalism 5

not primarily trying to sustain the growth of the economy of the host state; instead it is

there because of low labor wages, cheap raw materials and convenient tax laws. The host

country, being on the receiving end, can’t resist the policies implemented by the large

multinational companies fearing that it would lead to drawing of investment. Thus, the

profits of such organizations increase which they take back to their home country instead

of investing it in the host country’s economy. Right from the beginning, third world

countries were coercively incorporated into the European economic structure only as

producers of raw materials or to serve as repositories of low-priced labor, and were

deprived of the opportunity to market their resources in any way that competed with the

core states. Muhammad Bennouna, the chairman of G-77 expressed his concerns over the

issue saying:

"We do believe that most developing countries continue to face problems of access

to markets, capital and technology and many grappled with the structural

transformation necessary for their integration into the world economy". [G-77

Chairman Warns of Widening Gap Between Rich and Poor Nations, 2003]

This marginalization of economies of Global South by the Global North can be

traced to globalization of capitalism. Capitalism's ideal is a borderless global economy in

which money and goods can be moved freely in search of short-term maximum profits

without regard to its consequence for people, communities and nature. The critics of

capitalism continuously argue that the mass of people in Africa and Asia are literally

Globalization of Capitalism 6

starving to death on a daily basis, as a result of the globalization of capitalism and its

exploitation of the working classes of these regions. When we speak of capitalism and its

rise to prominence at the time of globalizations we are talking about big western

corporations and their control of the world's markets and production as discussed above.

Unprecedented wealth exists in this world alongside abject poverty, with massive

disparities in levels of economic and social development. Statistics in this regard are

staggering.

Global North has 23% of the world’s population, and 85% of the world’s income,

while Global South has 77% of the world’s population, and 15% of the world’s

income.

The world's poorest 50 countries are home to 20 per cent of the world's

population, yet they account for less than 2 per cent of the world's income.

The 20 per cent of the world's population at the top of the income ladder receives

83 per cent of global income.

The 20 per cent of the world's population at the bottom of the income ladder

receives only 1.5 per cent of global income.

In 1994, transnational corporations racked up sales of over $4.8 trillion, a volume

larger than all of world trade put together.

The United States remains the world's "powerhouse of wealth", according to

Forbes Magazine, which reported that, in 1994, 129 of the world's 388

Globalization of Capitalism 7

billionaires lived there, the richest individual having a net worth of $13.4 billion.

(UN, 1996)

Factors other than globalization, which contributed to the slow economic growth

or in some cases no growth at all in the developing countries, are numerous. Although not

a single one of them stands out to be as imperative and gloomy as globalization. The

colonial past of many developing states left them with a conflict regarding their identity.

Many colonizers intentionally created differences among their colonies, which lead to a

continuous arms race. This arms race crippled the economies of developing countries like

India and Pakistan. The present state of poor economic conditions in the Global South,

the low quality of life and the lack of development in developing countries lead to greater

frustration among their people. Due to this frustration, some countries suffered military

rule, while others suffered from ethnic and sectarian conflicts. Lack of employment,

sectarian and ethnic conflicts, high rates of illiteracy and disregard for law and order were

some of the factors that hindered the economic progress.

Although there are exceptional cases in which countries like Asian Tigers have

used the globalization of capitalism to their advantage to catch up with the developed

world. But generally capitalism has lead to the exploitation of the poorest countries of the

world. The statistics mentioned above portray the real picture that capitalists try to hide.

Though in some cases capitalism has succeeded to fulfill the expectations of some

developing countries, but more often than not it has allowed for the marginalization of

Global South by Global North, making the developed countries more rich and developing

Globalization of Capitalism 8

countries poorer. Criticism of globalization of capitalism doesn’t necessarily imply that

communism is its only alternative. Communism has its dark sides as well, which, in my

view, are even darker than capitalism. We have tried Communism and globalization of

capitalism, and both of them have failed miserably in lessening the income, social and

technological disparities between countries. May be its about time we try to find a new

economic model for the betterment of the whole world that will decrease if not eliminate

this division between Global South and Global North.

Bibliography:

1. Rand, Ayn. Capitalism. 2003. Accessed 2 Nov. 2004

2. Theotonio Dos Santos, "The Structure of Dependence," in K.T. Fann and Donald

C. Hodges, eds., Readings in U.S. Imperialism. Boston: Porter Sargent, 1971,

p.226.

3. "Annan Blames South Marginalization on Globalization" People, 13 April 2000.

Accessed 06 November 2004

4. "G-77 Chairman Warns of Widening Gap Between Rich and Poor Nations"

Journal of Group 77 16/2 (2003). Accessed 02 Nov. 2004

5. UN . 1996. United Nations Development Program. Accessed 03 Nov. 2004.

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