Introduction:

The term ‘Economic openness’ could be interpreted into different ways in the economic

literature, in this essay the term will be discussed in light of the Washington Consensus policies1:

minimizing the role of the government by privatization, liberalization, and focusing on financial

stability by lowering inflation. It is said to be the ‘needed golden-straitjacket’ for development

for the developing countries. Together with free trade will advance the economies in the world

(Friedman, 2000).

There are different ways and indicators to measure development, such as GNI2 per capita (WB,

2015) which is used by the World Bank, and HDI3 (UN, 2015) which is used by the United

Nations. However, there are many limitations to these indicators, not only regarding the

reliability of the resources mainly in the poor countries, but also in terms of representation. This

essay will address the concept of development in a broader way. It will address development

beyond the conventional way which depends on economic growth. It will highlight numerous of

aspects, such as, equality, stability, democracy, environment, and corruption. The economic

factor is crucial to address development; however, using GNI or HDI only could be unreliable

because indicators alone cannot offer a comprehensive representation in relation to development.

And the historical data mainly for poor countries if existed, it is probably not reliable.(See

figures in Appendix 1, the data from the WB are not available for Latin America before 1985)

Thus this essay depends on qualitative approach, providing case studies from different countries,

and presenting the analysis of the main experts in the field, thus it could be more reflective and

useful.

The conventional development depends on economic growth, hence the way that the economic

openness including transferring power to global markets is being managed. The economic

openness has a positive impact on developing countries such as China and India; in the

meanwhile it has a negative impact on most of the rest of developing countries, such as Egypt,

Mexico, and Bolivia. Furthermore, in many developed countries such as, the USA and Australia

1 A list of policies, mainly Neoliberalism related, that claimed to participate in the development of the developing countries, were widely held in Washington to be desirable in Latin America, in 1989.2 GNI per capita (formerly GNP per capita) is the gross national income, converted to U.S. dollars using the World Bank Atlas method, divided by the midyear population. (source: the World Bank, see the links in the bibliography)3 The HDI was created to emphasize that people and their capabilities should be the ultimate criteria for assessing the development of a country, not economic growth alone. (source: the United Nations links in the bibliography)

it has widened the gap between the rich and poor. In the poorest countries, such as sub-Saharan

Africa it has severely hindered the development.

The openness and development in developing countries:

Economic openness and transferring controlled-power to the global markets can have a positive

impact on development if/ when it is being managed according to long term national strategies.

For example, China and India could benefit from the economic openness, trade, and foreign

direct investments4 FDI. (WB, 2015) They could achieve enormous economic growth in the past

three decades benefiting from the move of capital and attracting more investments. They could

make substantial alleviation of poverty. Around three hundred millions of their populations could

move out of poverty (Stiglitz, 2006). However, in Latin America the opposite is the case;

economic openness could not alleviate poverty. In fact it has a negative impact on the growth.

Chang pointed out that the growths as well as the income per capita in Latin America have

decreased by half in after 1980, when these countries have embraced neoliberal policies and

laissez-faire. (Chang, 2008, p. 28)

The developing countries which benefited from the economic openness such as India and China

were able to manage market forces rather than being dominated by those forces. They opened

their markets for long-term investments, but not for the short-term financial dealers, as Stiglitz

argued. They have controlled the market forces in ways that enabled growth according to their

strategies, and not according to conditionality of the international institutions such as IMF, WB,

and WTO5. The economic growth in China and India could be attributed to the way in which

these countries have managed the market forces together with the benefits of these forces for

their economy. (Stiglitz, 2006)

Other reasons behind the economic growth could be attributed to economic reforms that generate

advantages of other factors such as the reduction of transportation and telecommunication costs,

technology changes. Although, it is hard to relate these factors to liberalism, nonetheless, there is

relation between them and the economic openness as a study found (Greenaway, Morgan, &

Wright, 2001). Thus, the case of China and India demonstrate that both countries among other 4 See Appendix 1, Sourced from the World Bank data5 IMF: The International Monitory Fund. WB: The World Bank. WTO: The World Trade Organization.

countries in East Asia have applied their own strategies in relation to openness. This kind maybe

cannot be described as Neoliberalism at all, when we examine the government economic,

financial, and protection policies. Furthermore, because China and India have immense markets,

compromises with international market forces such as MNCs6 can be made relatively in their

favor, but this is not the case with the underdeveloped countries with small population.

Other developing countries -mostly the poorest- cannot control the market forces as China did to

certain limits. They are compelled to accept the whole deal through the conditions imposed by

either the developed countries, or the international institutions such as the IMF. In Egypt

Neoliberalism was introduced since 1975. Former president El-Sadat had adopted ‘Infitah’7

policies. In an agrarian country, the government had left farmers and other marginalized groups

competing with global market forces. (Roy, 1992). Neoliberalism had resulted in more poverty,

and brought waves of peasant immigrants to Cairo which has affected education, production and

traditional industries negatively. However, privatization and free trade policies enabled small

group of the elites, who are mostly linked to the army to dominate the county. The farmers of

cotton for example could not survive in the global market because, some countries like the USA

heavily subsidizes its cottons farmers, thus cotton sector had severely deteriorated since then.

The Egyptian market was subordinated to the international capitalist market, which shifted

money and power to new small elites group, and lift the farmers in extreme poverty. (Ibrahim,

2004). Transferring power to the markets has massively increased the gap between rich and poor,

and created a new social structure that makes any development in the future more difficult in

Egypt. In fact, the current political instability in Egypt could be linked to the ‘Infitah’ policies of

the 1970s. (Mohammad, 2013)

The economic openness for the underdeveloped countries such as the sub-Saharan countries has

a direct negative impact, not only on the economic growth, but also the wellbeing of the people.

These countries are completely dependent on agriculture and natural resources. The agricultural

subsidies that depressed the prices from developed countries work against them, for example

25000 US cottons farmers get up to four billion US$ per year as subsidies, this damage the

6 MNCs: 'Multinational Corporation - MNC' A corporation that has its facilities and other assets in at least one country other than its home country. Such companies have offices and/or factories in different countries and usually have a centralized head office where they co-ordinate global management.7 Infitah: Arabic world means ‘Openness’.

livelihood of ten million poor farmers in sub-Saharan Africa. The subsidies in the EU as the

CAP8, Japan are almost larger subsidies than the US which affect very badly the poorer

countries. The market forces are not working for the poor, as Ferguson argues, because the poor

are unable to participate in the markets. Stiglitz points out to that many countries have less

developed when they opened up there markets. The governments in underdevelopment countries

are mostly inefficient small scale production, so it is unlikely that they can manage higher scale

participation. (Ferguson, 2010) In other worlds, as Polanyi pointed out, the society of market

which was created is examined, but not all societies are market societies (Polanyi, 1944). The car

industry receives huge subsides in the EU, an average car receives 2 US$ per day, while 40% of

people around the world live in less than 2$ a day. “It is better to be a car in Europe than being

an average person in the developing world” (Stiglitz J. , Stiglitz on globalization, 2015).

Trade liberalization had not led to more trade for many of the developing countries because there

are so many other barriers that make the reduction of the tariffs insignificant. If a country does

not have something to sell, hence eliminating tariffs does not help. The developed countries are

very clever, as they reduce the tariff barriers they increase the nontariff barriers, like, standards,

anti-dumping measures, phytosanitary conditions, these are used as a protectionist device. For

example, Brazil is not allowed to sell beef to the US because they have a ‘hoof and mouth

disease’ in one part in the country. Even Brazil is a huge country but the US has banned beef

from all provinces using the disease as an excuse to set restriction for the whole country. Thus

economic openness is used more to open the markets of the underdeveloped countries for the

corporations of the rich countries.

The intellectual properties are part of the economic openness deals. The last two rounds of

negotiations in the WTO, Uruguay and Doha, TRIPS9 were the dominant subject. TRIPS benefits

only corporations, and hinder the development in the developing countries. The consequences’ of

the stronger intellectual property made it more difficult for developing countries to access to

generic medicines for example which make the price of medicine rose enormously. That means

most of the people in developing countries will not be able to afford it, such as life-saving

medicine for AIDS. This kind of medicine can be provided with 300 UD$ per year, but the

pharmaceutical companies -under TRIPS- which signed under WTO make them available with 8 CAP: Common Agricultural Policy in the EU, it has the biggest part of the EU budget according to EU website.9 TRIPS: trade-related aspects of intellectual property rights. See more at the WTO website.

around 10,000 US$ per year, which means hundreds of thousands of people who live in poor

countries will not be able to survive. In this way the market forces made the interests of these

companies above the value of life, which leaves no place to discuss development outside life

itself.

Transferring power to the markets forces maintains the dictatorship regimes, and work against

democratization of the third world. The Oil and Weapon Companies are very influential not only

in shaping the markets but also in shaping the global politics. There are many examples about

their role in politics, as Stieglitz said in one of his speeches “It is not accident that the major Oil

countries are not democratic and corrupt”. The case of Angola, the Norwegian Oil Company and

BP10 wanted to disclose all the payments, but the Angolan government said if you are doing so,

you are out of the country. Another example is the Bolivian complains after President Evo

Morales was elected he found that the foreign oil companies were paying only 18% of the value

of the Bolivian gas to the Bolivian government. In spite of that the contract was signed from the

government but it was not ratified from the Bolivian congress. This is a case of corruption and

against the development of the Bolivian people enabled by market forces. (Stiglitz J. , Stiglitz on

globalization, 2015)

Transferring powers to the markets in developed countries:

Transferring powers to the markets in the developed countries could hinder the development by

increasing the gap between rich and poor in the developed counties. A recent study in the USA

noted that the concentration of wealth is increasing since 1978. “The top 0.1% wealth share has

risen from 7% in 1979 to 22% in 2012” the study attributes this concentration of wealth to the

income inequality. It also noted that these figures are similar to the situation in 1929 during the

great depression (Saez & Zucman, 2014). In the first seven years of this century, the top one

single percent wealthiest in the USA had received 70% from the total income. This is generating

a democratic deficit. By lobbying; the democracy in the USA is undermined which could lead to

political instability. Stiglitz describes the problem as political, he indicates that the “the

government in the USA is from the 1% and for the 1% and by the 1%” the one percent of the

rich, and this is the case in many countries in the world. The countries that followed the USA

model are all have severe inequality. As he said in one of his speeches, only eight persons in the 10 BP: The British Petroleum Company.

USA from two families have wealth more than the bottom 44% of the total USA population.

This gap is still exacerbating and possibly will result in political instability. Thus, if the political

system in China is similar to the one in the USA, it is hard to imagine that China would have

been able to move hundreds of millions out of poverty.

Transferring power to the markets is leading to more destruction to the environment, which will

have direct negative impact on development for developing and developed countries. The private

sector is constrained by profit in a short term. They spend in lobbing governments to keep their

damage on. The Oil, gas, coal, and electricity companies for example, spent $ 2.3 billion

lobbying the US government in 14 years (see in (Hale, Held, & Young, 2013, p. 265)). This

money is investments for them for more future damage. The damage of the environment is

difficult to be handled and it has relation to growth in both ways. As Serge Latouche suggests

“Growth economics, like HIV, destroys societies’ immune systems against social ills. And

growth needs a constant supply of new markets to survive, so, like a drug dealer, it deliberately

creates new needs and dependencies that did not exist before”. Thus, transferring more power to

the markets could result in more environmental damage because the private sector is inherently

structured for short-term profit, which negatively affects sustainable development for both

developing and developed countries.

There are other issues could be more dangerous if more powers transferred to the global markets,

such as weapons and the intellectual rights. Profits from weapons could lead markets to create

chronic conflicts. Perhaps the profitable cases in the Middle East will be applied in other parts of

the world; some states are constantly selling the threats of terrorism nowadays, which could be

the start. Perhaps that would not only hinder the development, but it could reverse it in very short

time.

The stronger intellectual rights have a bad effect on innovation and so the development, because

any innovation is based on the accessibility on the other innovations. The monopoly of market

forces over intellectual properties could slow the process of the development and maybe distort

it. This will affect the education in both rich and poor countries.

Conclusion:

Economic openness including transferring powers to the global markets has different aspects.

These aspects have strong connections to politics. The type of economic openness and how much

powers should be transferred to the market are essential elements for growth. The ways these

forces are being managed are different from one country to another. Also, that overlaps with

other aspects, such as regional and international interdependences. Developing countries such as

India and China could benefit from economic openness as they could manage the market forces

in terms of their strategies. The USA, Australia, and most of the rest of developed countries

benefits from the economic growth which is created by the accelerated process of globalization.

However, transferring more powers to the markets exacerbated the gap between rich and poor in

these countries, which could negatively affect the development and stability in the long term. In

addition, the development policies in the developed countries contradict sustainability, in

relations to the environmental policies, intellectual rights and the democratic values as well.

The underdeveloped countries suffer the most from the market forces. Although they need the

most for economic growth, it is unlikely that openness will achieve that; nonetheless, it would

result in widening the gap between them and the developed countries. Their potential to manage

these forces is very limited, thus they will be negatively affected. Hence, without having a

balanced protectionist policies and comprehensive development planning, these countries would

be exploited by both market forces and more developed countries.

Global development cannot be separated from global politics. Market forces work in political

frames locally and internationally. These forces could dominate the political regimes in many

democratic developed countries such as the USA. Lobbying can make democracy works locally

in a system based on, one dollar on vote, which is almost the case in IMF. In my opinion, this is

the biggest issue in transferring power to the market forces in the developed countries. Thus the

concept of development will be implemented in relation to profit, and that will have serious

consequences, severe inequality, and damage to the environment, more conflicts, and maybe

political instability. Thus, development should be conceptualized outside the calculations of the

market forces because in spite of the gains for one part in the short run, possibly everyone will

pay the costs on the long run.

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Appendix:

All these charts were created by the author by using the database of the World Bank’s Website. It shows that the data before 1985 are missing for the countries that have been used as case studies in this essay.