The discussion centers around the relationship between export processing zones (EPZs) and the growth of “the globalization project” as explained by McMichael. The focus is on understanding why EPZs align with neoliberal globalization principles, examining how key governing institutions in the globalization project have facilitated the expansion of these zones. Moreover, it considers the link between the debt crisis of the early 1980s, the rise of structural adjustment programs, and the proliferation of EPZs.
Moshe Lokshin 209476169 analyzes Political Science 1090 Course’s topics including globalization, export processing zones, and more. The aim is to investigate different aspects of globalization – a phenomenon described by Wallerstein as encompassing the entire globe. In this era characterized by global perspectives, notions of time, space, nationality, and culture appear blurred as globalization becomes a defining term for our present time. It encompasses a series of events that seek international economic growth, development, and market integration to enhance livelihoods worldwide.
It has also, however, driven many deeper into poverty. McMichael, in his book “Development and Social Change”, expands on critical events that led to the spark of the globalization project such as the rise of Export Processing Zones (EPZ), the debt crisis, the neo-liberal approach, and many others. This paper reviews the rise of Export Processing Zones in the developing world as a widespread aspect of the current trend of economic globalization. This economic globalisation is providing immense wealth to various multinational companies, also known as transnational corporations. However, what impact do these EPZs have on their host countries? Do they assist or hinder development in the developing countries? In this paper, it will be argued that the existence of the EPZ has been a key aspect in the rise of the globalization project, fostered by the IMF & The World Bank, and induced by the debt crisis of the 1980s. While the growth of the EPZs may appear as a contributing one in the short-run for economic growth, it has insidious bad effects in the long-run.
In the past, developing countries were able to establish their own policies and direct their economic and social development without interference from globalization or international forces. However, after experiencing a debt crisis, Third World Nations began to be influenced by the “conditionality” measures of the World Bank and IMF in order to prevent defaulting on their debts. Additionally, countries participating in the WTO have been burdened with various policy obligations and restrictions that go beyond trade issues, including agreements like TRIMs and TRIPs.
The legal framework known as Structural Adjustment Programs (SAPs) and the creation of Export Processing Zones have limited the potential of developing nations. Development has historically been important in various aspects of our lives, including technology, economy, intellect, and society. Globalization is seen as a continuation of human progress that emerged from the “Development Project” movement after colonialism.
According to McMichael (46), the political response during decolonization was affected by global conditions, which caused a shift in the policy of the dominant power. This change involved transitioning from supporting the “development project” of the late 1940s and early 1950s to endorsing the “globalization project” of the neoliberal Washington Consensus in the 1980s and 1990s. The development project sought to improve living standards through economic freedom but had negative social consequences like poverty, unemployment, and inequality.
Despite the unsuccessful development project, the elites persevered and rebranded it as globalization. Globalization involves taking a global approach to development, in contrast to the previous focus on national advancement. Essentially, globalization promotes the integration of markets, allowing for free movement of capital, labor, and goods between countries. This initiative emerged as a reaction to the failure of the development project, particularly evident in the subsequent debt crisis (which will be further discussed later in this essay).
Despite the belief of global elites in the Bretton Woods institutions and the First World, who argued that the international economic order was not responsible for the crisis, the fragmentation of the Third World allowed them to make this claim. They pointed to the experience of the Asian New Industrializing Countries (NICs) as evidence supporting their argument. In simpler terms, they asserted that the “debt stress and economic deterioration in poorer parts of the world” occurred due to a lack of adopting NICs’ strategy of diversifying exports in the global market (McMichael 128).
The idea of global integration aligns with neoliberalism, a political ideology that supports minimal government interference in the economy and the encouragement of free and self-regulated markets. This definition can be found in Lie and Einar (2) or the Oxford English Dictionary (1989a), which defines neoliberalism as an updated or revitalized version of classical liberalism that emphasizes individual rights and capitalism within a free market.
According to the text, promoting human well-being is best achieved by encouraging individual entrepreneurial spirit and skills, while also establishing a strong institutional framework that includes private property rights, free markets, and free trade. This perspective aligns with the concept of a self-regulating market and the fundamental principles of laissez-faire. Neo-liberalism shares this belief in a self-regulating market, making it highly compatible with globalization (Lie and Einar 8).
To replicate the prosperous growth of Asian countries, which was achieved through the strategy of Export Oriented Industrialization (EOI), Bretton Woods Institutions and transnational corporation elites steered the development of all global systems based on a standardized model. This model emphasized production specialization, comparative advantage, growth through exports, monoculture, and the uniformization of economic, cultural, and political aspects. Such principles are highlighted in the International Forum on Globalization (IFG) report summary titled “A better World is Possible” (P 13).
In his analysis, McMichael highlights how the reasoning behind the strategy of market opening is based on David Ricardo’s notion of comparative advantage. According to Ricardo, a nation’s prosperity is attained by maximizing advantage in international trade through specialized production that aligns with its specific resource endowments. By exchanging their most competitive products on the global market, both national and international economic efficiency is achieved (McMichael 159). The global competitiveness that emerged with the onset of the globalization process was a direct consequence of removing trade barriers and promoting specialization.
The course resulted in lower prices of goods and services as well as lower prices of labour. It became evident that the Third World had a comparative advantage in cheap and unorganized labor. However, there was no motivation for investors to choose China over Mexico, for instance. To stimulate economic development, almost every developing country created export processing zones (EPZs) as a way to attract foreign investment.
EPZs have had several positive impacts, including the creation of new employment opportunities, the generation of foreign exchange, the expansion of national revenues, and the increase in export flows (Rondinelli 90-91). These zones are characterized by the absence of environmental, social, and tax regulations. According to Hooshang and Weiping in their article “Export Processing Zones in Asia,” an EPZ is an “industrial enclave that engages in export manufacturing with the assistance of foreign investment and enjoys preferential treatment that is not generally available in the rest of the country” (P 828).
Later, EPZs have become a widely adopted method of implementing development strategies and have played a crucial role in the globalization project. Originating in East Asia, EPZs have expanded across the developing world, with the free economic zones of the Peoples Republic of China being particularly well-known. In his paper “Export Zones and Welfare: Another Look,” John Devereux emphasizes the significance of export zones for various economies, including Mexico.
In 1990, Mexico had over 400,000 employees and exports valued at $12 billion through its maquiladoras program (P 704). However, the growth of EPZs was not a spontaneous occurrence. The Bretton Woods Institutions (BWI) and the United Nations (UN) played a vital role in promoting this expansion with their policies. The post-World War II period was an exceptional time when the victorious allies acknowledged the importance of preventing past mistakes made between wars.
The delegates gathered in Bretton Woods, New Hampshire in 1944 to create a new global framework for promoting international trade and prosperity after the war. This event resulted in the establishment of two financial institutions: the International Monetary Fund (IMF), which aimed to facilitate global trade, and the International Bank for Reconstruction and Development (IBRD), later known as the World Bank, which offered long-term loans for government projects. Both organizations were dedicated to helping countries meet their financial needs.
The Bretton Woods arrangement, an international system that included fixed but adjustable exchange rates, capital control restrictions, and independent monetary policies, gave rise to the General Agreement on Tariffs and Trade (GATT), which was officially established in 1947. GATT’s main focus was to regulate trade between countries. In 1995, GATT transformed into the World Trade Organization (WTO) (Mishkin 4-5). These organizations were created with the purpose of promoting economic growth in Europe and Japan after World War II, and they achieved great success in this endeavor.
During the early 1950s, there was a shift of focus towards promoting the growth of Third World Countries. However, this change did not result in the same level of success. In order to enforce and comply with the General Agreement on Tariffs and Trade (GATT) and other related agreements, the World Trade Organization (WTO) was established. The first agreement under the WTO was GATS, which encompasses various service sectors such as water distribution, health, and education. Its goal is to allow private non-domestic companies to participate in social service sectors that were previously inaccessible to them (Zajda xxvi).
The World Trade Organization (WTO) uses various agreements, which include the General Agreement on Trade in Services (GATS), the Agreement on Agriculture (AoA), Trade-Related Investment Measures (TRIMs), and Trade-Related Aspects of Intellectual Property Rights (TRIPs). Additionally, there are Regional Free Trade Agreements (FTAs) between organized nations like North America, the European Union, Asian-Pacific Economic Cooperation, and the Greater Arab Free Trade Agreement. These agreements govern the movement of goods, production, services, and investment across borders. They also aim to promote adjustment programs in response to the debt crisis of the 1980s.
According to one advocate quoted in McMichael (172), multinational corporations would benefit from the ability to justify their regional and global sourcing strategies based on productivity, quality, and cost rather than political demands that currently disrupt their operations. From a profit maximization standpoint, specific sections of NAFTA that protect investors give business owners an advantage over sovereign nations and expand the understanding of property rights.
Chapter 11 of NAFTA includes a concerning provision that permits corporations to take legal action against governments if their actions impede the company’s ability to make a profit (William Greider). The activities of transnational corporation elites and key governing institutions have played a part in the growth of Export Processing Zones (EPZs). Ireland, for instance, has concentrated on high-value export endeavors and attracted over 1,000 TNCs, illustrating the success of this strategy (Rutledge Mitchell IV). The “Irish model” involved reducing government regulations and generating close to 100,000 jobs. Agreements such as TRIMs are designed to entice foreign investment and promote EPZs that rely on inexpensive labor as their competitive advantage. These institutions have experienced significant transformations since their establishment, particularly after the Debt Crisis in the early 1980s, which led to increased cross-border capital flows in developed countries.
The World Bank and the IMF acknowledge the significance of collaboration with Third World Nations in addressing debt issues faced by developing countries. This recognition has led to the emergence of “Global Governance.” One effective method to ensure compliance is through establishing enforceable rules on states. Global governance encompasses officials from multilateral institutions like the IMF and World Bank, alongside political elites from G-7 countries, executives of transnational corporations (TNCs), and global bankers. It not only acts as an external force but also influences national strategies for repositioning producers in the global market (McMichael 154). The Third World Countries share a shared history of being colonies or occupied territories, resulting in underdeveloped resources primarily serving their colonizers rather than their own population. Consequently, their economies were typically reliant on commodity production and raw materials for the colonizing power.
The concept of a developing country refers to a nation that is in the ongoing process of enhancing its capability to guarantee acceptable living standards and fundamental human necessities for its inhabitants (Developing countries, MiMi. hu). The International Financial Institutions (IFIs) were responsible for offering monetary support to these nations, yet donor countries demanded a uniform development model as the norm. This assumption implied that non-industrialized countries must be underdeveloped and that industrialization was crucial for progress.
International assistance has primarily been motivated by the self-interest of nations involved in the International Financial Institutions (IFI’s) and related global governing institutions. The main focus of aid was on countries that were considered vulnerable to communism, according to the United States’ concerns, or countries where multinational corporations (TNCs) perceived a strategic interest, particularly oil-producing nations. Regrettably, the most deprived countries lacking strategic or economic importance were at a disadvantage in receiving international aid (Biplab 1094).
International development assistance plans have given donor nations the power to determine the direction of development in recipient countries. This has resulted in developing countries having less control over their own sovereignty compared to wealthier nations. Aid is only provided for approved types of development, with the intention of initiating change and guiding Third World Countries towards the path of development.
Following this, countries were anticipated to continue their development using their own resources, which proved to be an unrealistic expectation due to their lack of financial means and knowledge. Consequently, in order to sustain their industrialization process, these nations needed to seek external assistance. Their only option was to buy products and services from wealthier countries, requiring them to have foreign exchange to make these transactions possible.
Three methods exist for obtaining foreign currency. The first involves selling domestic currency in exchange for the desired foreign currency. However, this approach was not feasible due to the instability of developing countries’ currencies. The second method entails earning foreign currency by producing goods that wealthier nations desire. Unfortunately, global competitiveness has caused a decline in commodity prices and an increase in machinery prices.
Borrowing became the only option for developing countries. In 1973, the price of oil increased, leading petroleum exporting countries to recognize their dependency on this commodity (Oil Shock). Consequently, they established the Organization of Petroleum Exporting Countries (OPEC). In 1974, the G-77 (Group of 77 Third World Countries) put forth a proposal to the United Nations (UN) General Assembly, known as the New International Economic Order (NIEO).
With no other competition, OPECs had the ability to increase the worldwide price of oil, which led to recessions in First World Countries and even deeper recessions in NOPECs of the Third World (Biplab 1093). As OPECs deposited their growing amounts of Petro-Dollars into western bank accounts, banks suffered as they had to pay interest on this money held in the OPECs’ savings accounts. To avoid bankruptcy, banks had no choice but to lend the money at a higher interest rate.
The developing countries, who needed the money to repay their previous debts, were the recipients. As a result, inflation became inevitable. However, this prosperity was short-lived, only lasting for a few years. The interest payments on the accumulated debt surpassed the total amount of financial aid received by the developing world, indicating a reversal in money flow – from poor countries to rich ones (Ritzer 204). Debt management took various forms as the preferred solution.
Initially, efforts to stabilize the situation prioritized financial management, including reducing imports to address imbalances in payments. Additionally, Structural Adjustment Programs (SAPs) became crucial. These programs required countries to meet specific conditions, known as “conditionalities,” in order to secure new loans from the World Bank or obtain lower interest rates on existing loans. As nations complied with these regulations and restructured their economies, they deviated from the developmental project and embraced globalization (McMichael 130-134).
The Bretton Woods organisations formulated Structural Adjustment Programs to address economic upheavals caused by the oil crises in 1973 and 1979-80, within the framework of globalization. These programs operated exclusively in less developed countries and aimed to bring a balance between imports and foreign exchange earnings from exports, as well as other forms of external assistance (Biplab 1094).
The measures known as Adjustment measures or Washington Consensus included: cutting social expenditures (austerity), focusing economic output on direct export and resource extraction, devaluing currencies, trade liberalization, balancing budgets, removing price controls and state subsidies, privatization of state-owned enterprises, and enhancing the rights of foreign investors. These measures aim to leave economic management to the market, allowing flexible prices determined by demand and supply forces to clear the market. According to McMichael (133-138), these measures disproportionately affected the poorest and least powerful social class.
Under the pressure of privatization and increased global competition, governments sold state assets. This allowed multinational corporations to negotiate advantageous conditions and prices, leading to the exploitation of cheap and disorganized labor, deeper poverty, and greater inequality. With an understanding of the limitations of Structural Adjustment Programs (SAPs), International Financial Institutions (IFIs) took action by initiating the Heavily Indebted Poor Countries (HIPC) Initiative. In addition, they were compelled to establish the World Bank’s Social Emergency Fund and the IMF’s Compensatory and Contingency Financing Facility.
These actions of the IFI are driven by a need to protect themselves. As First World countries have decreased their financial support, the IFI has become more reliant on loan repayment. To ensure their credibility, they have suggested offering not only financial assistance but also strategic assistance through initiatives like Poverty Reduction Strategy Papers (PRSPs). PRSPs aim to facilitate debt rescheduling and debt forgiveness.
The primary goal was to involve non-government organizations (NGOs) in policy-making to promote the “democratization” of Structural Adjustment Programs (SAPs), which gives influential individuals from multinational corporations (TNCs) a considerable amount of political sway in advancing their interests (McMichael 187). In contrast to the previous disregard for regulations in free trade zones, it is now evident that, with the inclusion of SAPs and NGOs, the government has limited power to enforce their laws on foreign investments made by TNCs, effectively transforming the entire country into an Export Processing Zone.
Overall, free trade zones have been successful in boosting exports in the host nation and have been seen as a model for development in the Third World. However, global governance actions such as structural adjustment programs have not had the same impact on the Global South. This paper aims to demonstrate the connection between the Bretton Woods Institutions’ formulation and implementation of structural adjustments, the growth of Export Processing Zones, and the early 1980s debt crisis.
The question has been asked regarding the connection between the growth of Export Processing Zones and the globalization project, as well as the impact of key governing institutions on this growth. Following the emergence of OPECs and subsequent significant increase in oil prices, First World countries and NOPECs faced a recession, leading to the global Debt Crisis in the 1980s. As a result, Third World Countries were forced to adhere to the conditions imposed by the IMF and the World Bank in order to meet their debt interest payments.
The global governance attempted to replicate the EPZ models in an effort to achieve similar levels of investment and growth across all less developed nations. This highlights the significance of EPZs in the economies of developing countries and their role as the foundation of the globalized economy. From a political perspective, lending by the IMF has not made a substantial impact on addressing balance of payment deficits in developing countries, both in terms of actual financial flow and other financial needs.
During a period characterized by countries experiencing severe payment difficulties, often associated with attempts to escape from external debt, global governance, under the influence of TNCs, withdrew more money from these countries than it made available in the form of new loans or investments. Regrettably, this is the reality I discovered. “The poor complain, they always do, But that’s just idle chatter. Our system brings rewards to all, At least to all that matter.” – Gerard Chaliand – Work Cited: – Biplab, Dasgupta. “SAP: Issues and Conditionalities: A Global Review.” Economic and Political Weekly 32(1997): 1094. “Developing countries” 17 Feb 2005. MiMi.hu.12 May 2009 .– Hooshang, Amirahmadi, and Weiping Wu.”Export Processing Zones in Asia.” Asian Survey 35(1995): 828.– Greider, William. “The Right and US Trade Law: Invalidating the 20th Century.” The Nation >Business 15 Oct 2001 Web.19 May 2009..– International Forum on Globalization (IFG). “A Better World is Possible!, Report Summary.” Alternatives To Economic Globalization (2002): 13.– John, Devereux, and Chen.”Export Zones and Welfare: Another Look.” Oxford University Press 47(1995): 704.– Lie, Amund and Dag Einar.What is Neoliberalism?.” Department of Political Science University of Oslo 15 Jan 2006 2-3.Web.15 May 2009..– McMichael, Philip.Development and Social Change.4.London: An Imprint of Sage Publications, Inc., 2008.Print.– Mishkin, Frederic S. The Next Great Globalization.New Jersey: Princeton University Press, 2006.The following sources provide information about globalization, export processing zones, and related topics:
1. Print.– Rutledge Mitchell IV, Thomas. “Planning for the Knowledge Economy The Nicaraguan Strategy to Engage in the Global Trade of Business Services.” Center for Global Initiatives – Carolina Papers on International Development 17(2007) 38.Web.10 May 2009.
2. – Ritzer, George. Rethinking Globalization: Glocalization/Grobalization and Something/Nothing.” Socioligical Theory 21(2003): 204.
3. Work Cited (Continued): – Rondinelli, Dennis A. “Export Processing Zones and Economic Development in Asia: A Review and Reassessment of a Means of Promoting Growth and Jobs.” American Journal of Economics and Sociology 46(1987): 90-91.
4. – “Structural Adjustment.” Wikipedia.2009.Wikipedia / Free Encyclopedia.Web.17 May 2009.
5. – Zajda, Joseph. International Handbook on Globalisation Education and Policy Research. New Jersey: Springer, 2005.Print.
These sources discuss various aspects of globalization, including the Nicaraguan strategy for engaging in the global trade of business services, glocalization/grobalization concepts, the role of export processing zones in promoting economic development in Asia, structural adjustment policies, and globalisation education and policy research.
