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Globalization and Developing Countries

Why should developing nations remain in control about their fate?

October 10, 2002

Why should developing nations remain in control about their fate?

The concept of "globalization" is deceptively simple. The free market must be allowed to function without interference. Governments must remove all barriers that prevent the full and free operation and movement of goods and services, capital, firms and financial institutions across borders.

But globalization is not a God-given, iron-clad law of nature or humanity. It is a set of concepts and policies made by human beings. And therefore it can also be reconceptualized, reshaped and changed.

In theory, globalization is supposed to be for the good of all. In reality, this concept was designed by the developed countries on behalf of their companies and financial institutions.

The purpose: to overcome the regulations set up by developing countries to promote their domestic economy and local firms which had been marginalized during colonialism.

In practice, following these policies can bring a country new opportunities for wealth creation. But it also brings new risks that can destroy prosperity in the twinkle of an eye — as we have seen recently in East Asia and later in Argentina.

The lesson of recent experience is that a country must carefully choose a combination of policies that best enables it to take the opportunity — while avoiding the pitfalls.

That is a task easier said than done. A country that is still poor or developing may find that it is not wise to jump blindly into complete integration with the world economy, for this may open it up to many risks that can damage its local economy.

It is wiser to engage in a selective and strategic integration with the world market. In this approach, the country itself chooses:

— the way and degree it wants to open up,
— the timing and sequence of opening up,
— the form of cooperation and competition between its local firms and foreign firms,
— the particular sectors it wants to liberalize
— and those sectors that still need some protection, for the good of the country.

The breaking down of economic barriers as such may not be new (for example, it also took place in the laissez-faire era of the 19th century). What is new in the present age is the globalization also of the policy-making sphere itself.

Increasingly, policies that used to be made by national governments are now formulated for developing countries through global processes and institutions, including the IMF, the World Bank and the WTO.

In my view, their policies tend to favor the agenda of the richer countries that dominate them. Since the policies are usually set in a one-size-fits-all manner, they hinder the ability of the individual country to choose the particular set of policies that suits its own development needs.

As a result, developing countries have found it extremely difficult to steer through the turbulent waters of globalization.

National policies should largely be made by national governments — and not on their behalf by global institutions or other governments.

What is important is that countries be given the right and space to review the impact of globalization. And they should be able to decide which aspects to make use of in future — and which aspects to discard.

This is a rule of thumb that certainly has served my own country, Malaysia, very well in navigating the troubled waters of recent years.

As many of those recent events show, it is too dangerous to allow the so-called free market or global institutions, to usurp the role of governments.

Allowing them to do so, I am convinced, may well lead countries to prolonged periods of economic slowdown, economic anarchy and social chaos.

This is an excerpt of a chapter written by Prime Minister Mahathir bin Mohamad of Malaysia, in the book Recreating Asia: Visions for a New Century, edited by Frank-Jürgen Richter and Pamela Mar and published in September 2002. The book offers insight on Asia’s current business, governance, and economic challenges and visions of a way forward. Among the other contributors are President Gloria Macapagal Arroyo of the Philippines; Heinrich von Pierer, CEO of Siemens Ltd; Supachai Panitchpakdi, Director General of the WTO; Tunku Abdul Aziz of Transparency International; and Shi Guangsheng, Minister of Foreign Trade and Economic Cooperation of China; and Tadashi Okamura, CEO of Toshiba.