Asia Digest: The Politics of Economic Globalisation

[JohnyCanuck]

By Thilani Samarasinghe

In theory, free trade is seen as establishing a level playing field on which rich countries and poor countries, huge transnational corporations and small local companies compete as equals. In practice of course they are far from equal. With the United States and other Western European nations at the helm at the time, post-war, post-colonialist world economy, was obviously shaped so that it would best satisfy the interests of Western Corporations. The ‘development ‘ of the Third World on the laudable initiative of fighting poverty and improving the economic conditions in the Third World in reality served the primary function of opening up Third World markets to American and other Western corporations to gain access to cheap labour and cheap raw materials. In this the promoters of liberal capitalism seem to be echoing the words of that arch imperialist Cecil Rhodes from over a century ago;

“We must find new lands from which we can easily obtain raw materials and at the same time exploit the cheap slave labour that is available from the natives of the colonies. The colonies would also provide a dumping ground for the surplus goods produced in our factories”

In all fairness there have been positive achievements through capitalism and free trade they included the creation for the first time of the possibility of a comfortable “middle class” existence for a majority of working class employees and many disadvantaged countries were beneficiaries of foreign investment leading to improvements in technology and expansion of export opportunities.

However, the concept of the global free market, rooted as it is in the economic strength and expansion of capital has resulted not in equalising the global economic playing field but instead created even wider disparities in the financial power structure through the emergence of huge Transnational or Multi National Corporations (MNC’s ).

While MNCs can provide valuable investment, encourage increased efficiencies and provide new technologies they may also reduce competition and threaten existing domestic industries. Large MNC’s are able to outperform local industries by virtue of economies of scale (i.e. increased capital costs and their more productive nature); product differentiation; and what J. S. Bain in Barriers in New Competition called “absolute cost advantage”. What Bain meant by “absolute cost advantage” is that larger companies are able to outbid smaller companies for resources, ideas, etc. and put more money into Research and Development and buying patents. Therefore they can have a technological and material advantage over a small company. They engage in predatory pricing and/or mount lavish promotional campaigns to gain larger market share or drive competitors out of the market. In addition, it is easier for large companies to raise external capital at lesser risk.

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