of a nations economy as generally understood, entails
the dovetailing the countries economy with the global
economy. The measures undertaken are aimed at enabling
the country to benefit economically and provide a better
standard of living and quality of life for its people.
do so governments encourage foreign direct investment
by foreign firms, encourage the flow of equity into the
capital markets of the country, encourage the flow of
technology and capita and make it easier for the countries
domestic firms, to invest and set up businesses overseas.
as understood entails the lowering or eliminating of customs
tariffs and encouraging a free flow of goods and services
in and out of the country.
entails the divestment of firms owned and controlled by
the government which are sold to either foreign firms,
domestic firms or joint ventures of domestic and foreign
firms. In case of loss making companies, the objective
is, to put and end to the drain of scarce government resources
that are swallowed by loss making public sector companies
and to encourage higher productivity and better access
to global markets. Profitable public sector firms may
also be privatized, to enable the government to focus
its resources on better governance and leave the business
of running businesses, to business organizations. It has
at times been argued, that the government needs the profits
generated by public sector companies, which can be used
for sectors such as education and health care for the
benefit of the under privileged. However, in reality,
governments generally do not specifically earmark these
surpluses specifically for such deployment and instead
use them for government spending and to bridge the fiscal
deficit. Hence, a commitment to divest and redeploy fully
the capital thus generated in such projects would result
in ensuring that such objectives are indeed fulfilled
and with quicker results since the entire capital so generate
could be deployed therein.
Privatization also entails, the privatization of infrastructural
facilities such as ports, roads, railways, airports and
other utilities such as power, water, municipal services
privatization of various services and infrastructure has
also been found to enhance productivity and reduce costs.
It has been documented that privatization of port services
in Vera Vercruz in Mexico improved productivity by 50%
and reduced costs by 30% similar benefits were seem by
the privatization of telecommunication services in Argentina
in the 90’s.
the late 70’ early 80’s, developing the countries
like China, Mexico, Argentina, Philippines, Malaysia,
Bangladesh, Brazil and India have attempted to globalize,
liberalize and privatize.
Total capital flow increased more than 10 fold to developing
countries from about 30 billion in the 70’s to about
300 billion during the turn of the century. Of this about
one third flowed in the form of portfolio investments
which means the rest was towards Foreign Direct Investment
and other forms of such investments, making a huge impact
to the manufacturing and technology capability of these
countries. Foreign capital which represented about 20%
of GDP of many developing countries, almost doubled in
countries which have implemented policies of globalization
and liberalization, more rapidly.
result of these measures has also been that there has
been an overall increase of developing countries exports
who before the 80’s exported 75% of raw material
and primary commodities and only 25% of manufactured products
to an increase of 80% of manufactured products of their
the export of services of developing countries which only
averaged 9% of their total exports before the 80’s
has almost doubled to 17% by the turn of the century.
GDP growth rate of these countries have also on an average
almost doubled in each of these countries ranging from
2.9 to 5% from the 70’s to the 90’s, in some
cases like China and India, it has been as high as 7-10%.
globalization and free flow of capital, technology, information
and management skills, the productivity of domestic firms
has increased, making them more competitive in international
markets. This is as foreign firms bring scarce capital,
more advanced technologies and better management practices.
The liberalization process of tariff and duties also has
a positive impact of increasing competitiveness and productivity
of domestic firms. How does this happens? For instance
when the duties on machinery, such as machinery used for
manufacturing other products is reduced then advanced
machines imported by domestic firms while using the lower
labor cost prevalent domestically are able to become more
productive, thereby competitive by offering lower prices
in the international markets. Previously, their labor
cost advantages would have been offset by low productivity,
due to use of obsolete machinery and equipment. This also
translates to lower prices domestically. Thus the local
consumers also benefit.
downside of this process is that low productivity companies
that are unable to enhance their productivity through
better capital, technology and management skills close
down resulting in a loss of jobs.
the shift towards creation of new business by MNCs or
in joint ventures with domestic companies increases capital
flow and technology and creates new jobs usually entailing
higher and better level of skills. Thus the net result
is the creation of more jobs, in the higher skill category
and reduction of jobs in the lower skill category as some
domestic firms are edged out. This call for measures of
retraining, redeployment, of those who lose jobs.
the demand for better skill training increases, there
is also a raising of the levels of education attainment
driven by both the forces of economic progress, the needs
of the market place and government initiatives.
globalization and liberalization without a corresponding
improvement in infrastructural development, a better focus
on reforms in capital markets, education, and rule of
law and property rights can be counter productive. This
is as monopolies and vested interests can take advantage
of the lack of transparencies and equality for all players.
globalizing and liberalizing over the last 2-3 decades
have seen that inflation rates have been contained at
single digit levels, in spite of the inflationary tendencies
of higher growth rates, due to better fiscal management