The Ugly Side of Globalization
By Mohamed El-Khawas
Guyana Journal, July 2008
Globalization is facing a serious crisis today, resulting from weak economic growth in the highly industrialized nations. The Organization for Economic Cooperation and Development (OECD) recently cut its growth outlook for the United States, Japan, and the European Union. The low growth is caused by market turmoil, a sharp rise in oil and commodity prices, and a banking crisis. The weak U.S. economy and the sharp drop in the value of the dollar against other currencies are dragging down the overall world forecast. When the U.S. coughs, other countries catch cold.
Rising oil prices are causing serious financial problems across the world, with the price of a barrel of crude oil reaching a record high of $139 in June this year, compared to $70 a year ago. In the U.S., gas has reached a record high of over $4 a gallon, making it very expensive for working people to drive to work. It is worse in poor countries, which are the hardest hit by rising fuel prices. Most people in developing countries cannot afford to divert a larger chunk of their meager resources to pay for energy.
Developing nations that tied their national currencies to the U.S. dollar are experiencing a sharp drop in the value of their own currency, which has fueled inflation and pushed food prices higher at a time when wages are low. Families are struggling to stretch low wages. Prices of wheat, rice, and corn have skyrocketed across the world, making it difficult for poor and working class families to make ends meet. In Egypt, public anger over bread shortages has forced the government to order the army to bake and distribute bread. Furthermore, bakeries have limited the number of loaves that a family can buy a day, resulting in long queues and fights. Steps taken in one country create new problems for other countries. For example, the Thailand government has put restrictions on rice exports, pushing the prices up and causing rice shortages in neighboring countries (i.e. the Philippines). Some immigrant families in the U.S. are sending rice instead of money to their relatives living in Central American countries. Furthermore, foreign-born U.S. workers are not sending as much money home to Mexico and other countries as they have done in the past, causing not only hardship to families that have relied on money from overseas to supplement their low wages but also adversely affecting the economy of their home country. Mexico has lost billions of dollars in hard currency.
The food crisis is real. Poor people have become desperate as their governments have failed to make basic commodities affordable, triggering bitter criticism and angry street protests. Corn is a case in point. Its price more than tripled in one year, making it expensive for ranchers to buy corn to feed animals and forcing consumers to pay more for meat. Some people wonder whether turning corn into ethanol to reduce reliance on foreign oil is worthwhile because of the high price of corn. They point out that the higher prices are partly due to using corn for energy, resulting in shortages in the supply available for food consumption. In addition, as many farmers have switched to corn because it is more profitable, shortages have emerged in other farming products.
The World Food Organization (WFO) has warned that the food crisis is serious and urged member states to ensure that food is available in impoverished countries that are hit hard by food shortages. Failure to do so could result in widespread riots and could destabilize many governments, in turn threatening international peace and security.
The ripple effects of the oil crisis, currency shifts, and food shortages have dramatically illustrated that most developing countries have not benefited from globalization. A few get richer, but most are left behind. Poor people suffered the most during the recent transition to a free-market economy in a range of developing countries. Unemployment rose among unskilled and semi-skilled labor as they were replaced by machines to make production more efficient and to cut labor costs. Furthermore, small local companies often have gone out of business because they cannot compete with megastores such as Wal-Mart. Even the quality of life of middle class families has been adversely affected by globalization. According to a Brookings Institution's study, Peru's middle class families in 2000 felt that they were not better off even though they had made more income compared to 1985. They had not gained in relative terms.
It is disheartening that the Doha trade talks have not succeeded because the U.S. and the European Union have been reluctant to eliminate farm subsidies, which run into billions of dollars annually. Developing countries have complained that these subsidies make it difficult for their people to compete with Americans and Europeans in the global market. Recently, Brazil has won a ruling by the World Trade Organization (WTO) against the U.S. cotton subsidy and has been given the green light to impose sanctions against American products. As of today, Brazil has refrained from doing it, hoping to reach a solution through diplomacy. For Brazil and other developing countries, there is little prospect that the long-term costs of globalization will gain the recognition and response that is needed.
Dr. Mohamed El-Khawas is a professor in the Department of Urban Affairs, Social Sciences and Social Work at the University of the District of Columbia, Washington, D.C. Email