DEVELOPMENT STUDIES

DS 101
Globalization, Trade liberalization
and Development
 General overview

• There are two branches of interest in the area

of globalization, some are interested and
some not i.e. the pro-globalization argues that
globalization brings about much increased
opportunities for almost everyone, and
increased competition is a good thing
• But the other ones i.e. the anti-globalization
group argues that certain groups of people
are deprived in terms of resources and are not
capable of functioning within the increased
competitive pressure brought by globalization
while their economy is connected to the rest
of the world (investor word, 2005).Thus
become lossers.
 Scholarly description

• Mooney,(2007). globalization is something

that should be defeated.
• Globalization as internationalization: It is
cross-border relations between countries.” It
describes the growth in international
exchange and interdependence. (Milanovic,
2002)
• Globalization as liberalization: Removing
government imposed restrictions on
movements goods, services and people
between and among Nations. Noruzi &
Westover, 2010,p.112).
• UNESCO defined globalization as ability of
multinational corporations through the use
free trade zones and agreements invest and
conduct their business all over the World for
their benefits.
• According to George Bushi, centred his views
of globalization in three major pillars
☻Regime change
☻Making America as a global leader
☻Promotion of liberal democratization
• Giddens (1991) Globalization as
westernization or modernization: The social
structures of modernity (capitalism,
industrialism, etc.) are spread the world over,
destroying cultures and local self-
determination in the process.
 As westernization
• Means,
• One nation dominated others in the name of
globalization
• A one way process
• A masked globalization
• Generally globalization has both structural
and strategic moments. Structurally, it
involves the objective processes whereby
increasing global interdependence is created
among actions, organizations, and institutions
within (but not necessarily across) different
functional systems.
It is all about,
• Shrinking of time and space
• World become a small village
• Process of change in economic, social,
cultural, and political condition.
• Increasing interdependency and interaction
• Two way process
• Globalization as deterriolization: Process of
the “reconfiguration of geography, so that
social space is no longer wholly mapped in
terms of territorial places, territorial distances
and territorial borders.”
• In a broader sense, globalization can be
described as the deepening and widening of
cross-border flows of trade, capital, labor and
technology facilitated by rapid communication
in a single and fully integrated global market for
capitalist economic benefits.
 Brief history

• The historical origins of globalization is the

subject of ongoing debate. Others regard it as
a phenomenon with a long history since
1490;s. However many scholars situate the
origins of globalization in the modern
era,1990;s
 (a) Archaic globalization

• Perhaps the extreme proponent of a deep

historical origin for globalization was Andre
Gunder Frank, an economist associated with
dependency theory.
• Frank argued that a form of globalization has
been in existence since the rise of trade links
between Sumer and the Indus Valley
Civilization in the third 3rd millennium BC
• He further states that Globalization
(i) Involved the globalization of countries,
(space)
(ii) Globalization of companies and
(iii) Globalization of individuals
 (b) The Islamic Golden Age by 7th C.
• It was also an important early stage of
globalization, when Jewish and Muslim traders
and explorers established a sustained
economy across the Old World resulting in a
globalization of crops, trade, knowledge and
technology.
 (c) Proto-globalization
( age of discovering).

• The next phase is known as proto-

globalization It was characterized by the rise
of maritime technology and European
empires, in the 16th and 17th centuries, first
the Portuguese and Spanish Empires, and later
the Dutch and British Empires
• In the 17th century, globalization became also
a private business phenomenon when
chartered companies like
British East India Company (founded in 1600),
often described as the first multinational
corporation, as well as
the Dutch East India Company (founded in
1602) were established.
• The Age of Discovery brought a broad change
in globalization, being the first period in which
Eurasia and Africa engaged in substantial
cultural, material and biologic exchange with
the New World.
• Portuguese started establishing trading posts
(factories) from Africa to Asia and Brazil, to
deal with the trade of local products like
slaves, gold, spices and timber, introducing an
international business center under a royal
monopoly
 (d) Modern globalization of 19 C th

• The 19th century witnessed the advent of globalization

approaching its modern form. Industrialization allowed
cheap production of household items using economies
of scale.

• After the First and Second Opium Wars, which opened

up China to foreign trade, and the completion of the
British conquest of India, the vast populations of these
regions became ready consumers of European exports.
It was in this period that areas of sub-Saharan Africa
and the Pacific islands were incorporated into the
world system
 (e) Post-World War II: globalization
(Age of softicated technology, 20th c )
• Globalization, since World War II, is partly the
result of planning by politicians to break down
borders hampering trade.
• Their work led to the Bretton Woods conference,
an agreement by the world's leading politicians
to lay down the framework for international
commerce and finance, and the founding of
several international institutions intended to
oversee the processes of globalization.
• Globalization of this time was also driven by
the global expansion of multinational
corporations based in the United States and
Europe, and worldwide exchange of new
developments in science, technology and
products(American read globalization)
• This period witnessed the collapse of Berlin
wall
• Three phases of the collapse of soviet union
involves;
• (i) 1985-88 when soviet union experienced
greater economic crisis. Russia adopted
2policy options to restructure its economy
• These were (a) Perestoika—selling of public
interprises(privatization, and
• (b) Glasnost--Democratization
• (ii) From 1988-1990
• Witnessed the collapse of socialists states in
Northern Europe such as Hungary, Czechlovakia
etc.
• (iii) Post 1990
• Witnessed the total disintegration of soviet
union to many countries around the World
including African States.
• All these led to the end of cold war. This end
also led to the emergence USA as super power
with two strong view points,
• (a) There must be ane powerful state that will
be responsible to restore the following issues,
☻Combating wars across global
☻Combating poverty
☻Spread of democratization and
☻Maintenance of World peace
 Three fundamental interests of capitalist
powers under globalization
• (i) Accumulation of cheap raw materials
• (ii) Establishment of new foreign markets of
their manufactured goods.
(iii)Creation of new foreign rich investments
through multinational corporation.
Five major institutions imperialists used to
control World economy
(i) IMF
(ii) World Bank
(iii) World Trade Organization(W.T.O)
(iv)NATO-North Atrantic Treaty Organization and
(v) The United Nations(UN)
Driving forces of modern Globalization

(i) Advancement in Science and Technological

• Through advancement of ICT (e.g. internet, e-
mail, cellular phones) made the World as a
single village.
• (ii) Trade liberalization: this means reducing
the limitation on trade that countries around
the world had put over a number of years
through protectionism to ensure that domestic
industries were protected from competition
from competitive foreign producers
(iii) Advancement in Education: Contributed to
development of science and technology.
Integration of people from different nations in
Universities, colleges and international
conferences: Interactions and integration
makes people adopt different culture and
thus “Cultural Globalization”
(iv) Transport and communication:
Improvement in transport systems e.g. planes,
water transport, roads etc. Air travel makes
visiting another part of the world as common
as traveling to another part of the country was
a hundred years ago.
(v) Privatization and deregulation of state
controlled economic enterprises.
(vi) Political liberalization: this process was
derived from “liberal democratic principle”,
which believed on “Freedom of an individual”
as the main principle of life,
democratization process, multipartism and
formation of civil societies organizations etc
(vii) Growth of economic cooperation: trading
blocs (EU,AU, NAFTA,ASEAN etc.)
 Features/aspects /facets/ characteristics
of Globalization

(I) Free market economy/International trade

flow. Trade in goods and services throughout
the world has grown very rapidly in recent
years
(II) Technological advancement. Information
and communication technologies has
brought the world closer in time and space
making possible new ways of making
business and profoundly altering the social
interaction.
• With globalization electronic media such as
internet, satellites, Television, Radios e.t.c has
been increased in use.
(III) Increased interest in doing trade in a free
market way due to the influence of
deregulation and privatization
(iv) Movement of people across borders has
increased e.g. tourists, immigrants, refugees,
business travelers etc,
(v) Spread of ideas and ideology through the use of
ICT. Spread of technical know how goes hand in
hand with diffusion of political ideologies, e.g.
multiparty and democracy become world wide
used.
(vi) Increase of capital mobility (capital flight)this is
facilitated by international financial institutions
(IFI) like the world Bank and IMF assisted by
multilateral banks e.g. African development bank,
American bank hence making smooth transactions
over the world easier
• (vii) Diminishing role of the states
• Reduction of power to in many issues
including economic and socio-political
decision.
• (viii) Changing structure of International
relations. Eg before 1980s our Tanzania
domestic policy based on socialism and self
reliance, but now all parts of global changed
from Bi-polar to Uni-polar system of
multcentralism from centre periphery.
(vii) Privatization: Policy of transferring assets
and activities of public sectors to be run by the
private sectors or individual. Is one of SAPs
results which has been emphasis by the IMF,
WB and donors from abroad.
 Effects of globalization

Social-economic Effects
(i) Has made production and transportation of
goods easier and faster i.e. enables Tanzania
to get varieties of goods from any corner of
the globe.
(ii) Creates employment opportunities to many
people e.g. foreign companies like
Vodacom, Airtel, Zantel, Sasatel and Tigo.
(iii) Enables greater choice: Through
liberalization of social services there is wide
spread of private schools, hospitals,
dispensaries which contribute in providing
services to people hence improve their well
being.
(iv) Increased capital and labor mobility.
 Positive effects on Political ground

(i) Brought important changes in the content of

international law, i.e. TZ makes laws which
comply with international laws hence can no
longer mistreat her citizens the way it wishes
e.g. issues like human rights, Social justice are
part of TZ constitution, key laws and statute.
(ii) Globalization has speeded up the
democratization process in Tanzania, for
example, in order to promote democracy
Tanzania is adopting global democratic
(iii) Poor countries like Tanzania have formed
strong political organization as a way of
minimizing negative impacts of globalization
e.g. formation of African Union and the
continuing process of formation sub regional
intergration such as
EAC,COMESA,ECOWAS,etc.
 Positive effects on socio-Culture
(i) Globalization has made diffusion of beliefs and
values in international concern i.e. community
straggling to achieve world cultural standards in
respect of human rights and better living
standards etc.
(ii) Through development of Information and
Communication Technology (ICT), Globalization
managed to integrate all cultural practices in the
globe and have common cultural vision e.g. sports,
games, music, etc
(iii) Globalization exposed out some bad cultural
practices performed by some communities
e.g. Female genital mutilation is globally
condemned
(iv) Expansion of World religious institutions has
transformed social-cultural values into
modern and acceptable ones e.g. spread of
churches & mosques play role in eradicating
unacceptable cultural practices such as forced
marriages and harassment of women.
 Negative impacts
(a) social-economic impacts
(i) For Less Developed Countries like Tanzania,
Free trade causes decline and
underdevelopment of industrial sector and
local technology. This decline is caused by
continuous flow of goods and services from
outside whose prices are low yet with high
quality than local goods
 (ii) Unemployment: this may be due to
increased use of capital intensive technology
that replaces labour intensive. Globalization
favour skill-intensive, modern and usually
large and capital intensive sector activities
hence increasing the gap between the rich
and poor.
(iii) Through privatization and capital mobility
rich nations undermine poor nations like
Tanzania through unequal exchange
(iv) Advancement in technology causes
environmental degradation
• This is due to increase in the use of advanced
machines and modern equipments
Eg, Technological advancement in mining
sector, agriculture, fishing, transport systems
and industrial sector threatens environment
quality of most developing countries.
• Poor nation like Tanzania turned to be a
dumping place for capitalists waste products
(b) political impacts
(i) Centralization of political power of LDCs in
rich capitalist powers i.e. reduce political
sovereignty of poor nation like TZ hence they
are accountable to rich countries like
USA, UK than to their citizen
(ii) Increased global political disorders and
terrorism bombing of USA embassy in DSM i.e.
product of global political conflict which
involved USA and Al-Queda terrorists who
are against USA imperialism
(iii) Erosion of national control over governance:
(iv) Irresponsible politicians have used corrupt
methods to buy votes, leading to adverse out
come
(v) Increased insecurity as criminals have engaged
in illicit/illigal trading in drugs and weapons as
well as kidnapping.
(vi) Wide spread fundamentalism across religions
has not only increased social tension and
insecurity but also has adverse economic effects
as economic problems are sought through
player rather than hard work
© On culture
(i) Globalization has swept away cultural
boundaries which existed by the use of
advanced ICT e.g. TVs, radio, internets,
magazines, etc. Decline of our cultural
identity.eg, language, dressing, family
responsibilities, food styles.etc.
(ii) Led to increased global Cultural of violence ,
prostitution & related behavior which are
against humanity.
(iii) With globalization our national identity and
morals ethics are eroded (put aside) and
foreign one are upraised. People are
worshiping what money buys and not dignity
(d) Impact on environments
(i) Globalization has led to an increasing
pollution due to emission of toxic wastes from
heavy industries
(ii) Also, it has piloted into a rapid depletion of
natural resources and environment due to an
increase in investments that are non-
environmental friendly.
(iii) Moreover, there had been an increase in
global warming due to gradual increase on
temperature caused by emission of gases from
industries and automobiles
 Challenges of globalisation
(i) Globalization perpetuates the low level in the use of
communication systems: i.e. in TZ the use of global ICT
e.g. internet, communication satellites etc is still low
confined in urban areas hence big population are still
unconnected with ICT.
(ii) Low production: i.e. in Tanzania, economic sectors
such as agriculture industry, mining, fishing are not
producing enough goods for export. Also, the
produced outputs are of low quantity compared to
those produced in developed countries due to low
technology used in the production process. This has
made Tanzania to become a market for outside
products and not the exporter.
(iii) Low level of Education is posing a big challenge
to TZ under globalized world i.e. education
level among TZs is low compared to other
countries hence making it had for TZ to meet
intellectual demands to compete in International
job.
(iv) Low savings and low investment i.e. low
savings, lack of individual capacity prolong
vicious cycle of poverty among TZs
(v) TZ primary exports are facing severe downward
pressure on prices in the world market i.e. trend
continuously discouraging production of primary
products as they do not benefit the producers
 Food for thought

• Can globalization be controlled?

 Possible solutions for challenges of
Globalization
(i) Create policies that will focus on its own
problems and lay strategies to reduce
poverty focusing on provision social services.
(ii) Tanzania need to have a well prepared
environment & conditions to investors so as to
stabilize macro-economy i.e. attractions to
investors must go together with conditions
which make the country benefit from foreign
investments
(iii) Quality education should be given a priority
and should be compulsory to all people to
enable them cope with the dynamic labour
market demands.
(iv) There should be proper utilization of natural
and human resources to boost economic
growth. For example, despite the shortage
professional doctors, yet, Tanzania is widening
the exit door for her doctors to work abroad
due to poor working environment. This is
improper utilization of human resources.
• ===================END===============
Trade liberalization and
privatization

DS 101
Overview
• The term 'privatization' represents both
narrow and broad meanings:
• In the narrow sense, privatization means a
shift of productive activities from the public
sector to private sector ownership and
control. While,
• on its broader meaning it refers to a process
by which the role of a government in an
economy is restricted, while that of the
private sector is deliberately expanded.
• Therefore, privatization is the transfer of
activities, assets and responsibility from
government/public institutions to private
individuals and agencies. It is the art of
reducing the role of government or increasing
the role of the private sector in an activity or
in the ownership of assets under liberalized
economy.
 Background of Privatization

• Just as the 1960s and 1970s were

characterized by the rapid expansion of the
public sector in the developing world,
however the 1980s have seen wide- spread
attempts by global policy makers to limit the
state’s economic role.
• Its origin
• The Privatization theory has its origin from the
neo-classical economists, who desire less
government intervention in the economy and
believe in superior performance of the private
sector. The theory advocates liberalization of
the economy and the restriction of the state
role in the economy.
• Neo-classical economists believe that, a free-
market economy without state intervention
will lead to economic prosperity that will filter'
to the poorest members of society; and that,
Government intervention in the economy is
considered unnecessary and harmful to the
economy because it acts as a braking
mechanism on economic progress
• The introduction of privatization on a mass
scale first was in Britain under Prime Minister
Margaret Thatcher in the early 1980s.

• From there it spread into the developing

countries and Tanzania in particular under the
umbrella of the IMF and World Bank
conditionalities for a country to secure loans.
• The privatization strategy was implemented in
Tanzania in the year 1992 as a means of
reversing and improving the declining
performance of the state owned enterprises
Motives for Privatization and liberalization

(i)The creation of market economy versus State owned

economy
(ii) Improving the efficiency of enterprises by increasing
management autonomy and improving corporate
governance;
(iii) Allowing investment decisions to be subject to
commercial factors and be financed by the private sector;
(iv) Reducing the budgetary cost of public enterprises in
order to create fiscal space for social sector investments.
 Objectives of privatization

(i) Reducing fiscal shortfall due to poor economic

performance of many developing nations by
late 1970’s.
(ii) Raising more revenue through market asset
sale
(iii) Enhance access to foreign markets, capital
and technology by attracting managerial and
technological resources from private sector
(iv) Increasing efficiency and fostering
competition
(v) Improving the quality of goods and services
and reducing the state role in the economy
(vi) Improving foreign direct investment
 Push factors for Public enterprises
reforms in Africa and Tanzania in
particular
(a) Poor Performance of the Public Sector:
• The Tanzanian government tried the 'father does -it - all'
providing all the needed goods and service for her citizens.
• This went on for decades after independence, but things
started to fall apart when production reached the level of
diminishing returns, the government had to transfer
liabilities to the private sector.
• After the 1967 Arusha Declaration the giant, medium and
small parastatal organizations were nationalized from
private hands.
(b) Pressure on Government Funds stability
• Instead of contributing to the nation's treasury,
the parastatal companies were doing the reverse-
asking from the state for more and more
subsidies and capital needed to sustain their
operations.
• In 1996, the Minister for Industries and
Commerce stated that parastatals remaining the
Treasury a total amount of Tshs. 600,146,188,939
(excluding loans from other sources). The total
debt by parastatals amounted to Tshs. 1.4 trillion.
This was a disasters to our economy.
(c) Lack of Incentives on the Part of
Management
• Few countries have used performance
bonuses or profit sharing to motivate top
management, but in other countries not
existed.
(d) Shortage of Competent Managers
• The growing number of public enterprises in
many Sub-Saharan African and other
countries, has contributed to a chronic
shortage of management. This shortage has
been sometimes, exacerbated by programme,
for rapid indigenization.
• Many senior posts were left vacant or filled by
unqualified staff.
(e) Lack of Competition
• Many state-owned firms are monopolies
producing goods and services that are not
traded internationally or that the government
prefers to produce domestically for reasons of
national security or public interest. In other
cases the economy may be too small to
support another domestic producer
(f) Little Emphasis on Profitability and Efficiency
• The public enterprises were not instructed to
maximize profits or even to minimize costs
since adjusting administered prices typically
involves practical and political problems.
(g) Conflicting Goals
• The state-owned enterprises were often
required to perform noncommercial roles
such as hiring extra staff to increase
employment or setting up a plant in a
particular area to promote regional
development or entering into a completely
different line of activity to achieve
diversification. These conflicting goals often
reduce profits.
(h) Lack of Effective Accountability
• Only a few countries apply organized public
pressure as a way of increasing the efficiency
of public enterprises. Also, governments rarely
take action to remove in-efficient managers of
these enterprises. Moreover, governments
were rarely prepared to use the sanction of
bankruptcy.
(vii) Government Intervention
• Too much interference can be combined with
too little control. In addition, policy that
swings between autonomy and central control
prevented coherent direction of public
enterprises. Many attempts to reduce
arbitrary intervention by government have
become counterproductive, substituting one
form of ex-ante bureaucratic intervention for
another.
(i) Absence of Reliable Information on
Performance
• In many developing countries the internal
management information Systems of public
enterprises were deficient or non-existent.
The companies were not audited according to
uniform standards. This is due to lack of a
trained body practitioners and qualified
accountants as well as lack of active plans
designed to focus efforts on improving
efficiency and monitoring results.
 Privatization techniques
• Contracting: The method involves the State making
contracts with a private organization, for-profit or
nonprofit, to provide a service or part of a certain service.
• Franchise: In this method, a private firm is given the
exclusive right by the State to provide a service within a
certain geographical area.
• Vouchers: It is when the government pays for the service.
However, individuals are given redeemable certificates to
purchase the service on the open market. These subsidize
the consumer of the service, but services are provided by
the private sector. e.g in agriculture.
• Subsidy: The producer of the service is
subsidized by the government contributing
financially or in-kind to a private organization
to reduce the cost of private provision to
consumers.
• Service or "load" shedding: Government
stops providing a service and lets the private
sector assume the function.
• Asset sale or lease: Government sells assets
such as airports, gas utilities, or real estate to
private firms
• Volunteers: in this case, volunteers are used
to provide all or part of a government service.
• Self-help: It is when some community groups
and neighborhood organizations take over a
service or government asset such as a local
park. The new providers of the service are also
directly benefiting from the service.
 Effects of Privatization
(a) Welfare Effects
Improved performance in firms does not
sufficiently measure privatization’s effectiveness
and efficiency on economy.
A privatized firm may be doing better while the
economy is doing worse.
This may occur due to the firm’s exploitation of a
monopoly position, or to government policies,
protections, special arrangements or even
illegal actions that give the firm an advantage
(b) Microeconomic
Many studies report that, post-privatization
era increases in profitability, efficiency and
returns to shareholders. In their extensive
survey, Megginson and Netter (2001) estimate
that these positive effects occur in from 2/3to
3/4 of privatizations assessed, a remarkably
high rate of success.
 How can privatization be enhanced?

Improvements that Provide Economic Gains

Need to ensure that the privatization process
leads to gains. How?
(i) The privatized firm must have unitary control
rights, which means the government must be
willing to surrender its control from within the
firm.
(ii) Generation of suitable competition and build
transparency into the system to ensure
privatization is carried out fairly and
efficiently.
(iii) Full disclosure is an important part of this
process, but monitoring and access of
information by the press is equally important
(iv) The inclusion of service obligations into
provision of contracts is a valuable tool to
ensure the poor continue to receive service.
(v) Creative strategies should be implemented in
some cases to take advantage of inexpensive
labor in poor areas
(vi) Making special provisions to compensate
laid-off workers.
(vii) Incentives for workers that leave voluntarily
or the establishment of a fund to provide
technical support, business training, and small
loans with which civil servants can start their
own private sector businesses.
(viii) Use of publicity campaigns to explain the
advantages of privatization in the face of such
widespread negative publicity.
(ix)Consumers’ welfare
Both in terms of prices and of quality of
service and security of supply, not only for
current consumers but also future consumers.
(x) Fair competition
This has also been one of the key features of
the regulation model, in order to maximize
utility consumers’ welfare. In particular,
regulation has been conceived as a facilitator
of competition, intervening to address
unavoidable monopoly power.
(xi) Need for strong legal processes and well
defined appeal rights
 Concluding remarks
• Privatization should not be looked at in
isolation and negativity. Its success depends
on appropriate deregulation and reregulation
of privatized firms, as well as the creation of
stable institutions that foster the development
of financial resources needed by privatized
firms to grow independently from the state.”
Lopez -de -Silanes (2005)
Success and challenges of privatization

Assignment TWO
Trace the origin of privatization policy and
discuss its success and Challenges focusing to
Least Developed Countries (LDCs) and
Tanzanian in particular.

===================END=================