The effect of free trade on so-called developing states is an adverse one, and is only different from colonialism in the fact that under globalization it is now the private sector exploiting the natural resources of the so-called developing state in order to generate private sector capital instead of the state exploiting the natural resources of an occupied colony.
The North-South economic divide did not occur overnight and imperialism in the form of colonialism played a major part in creating states that are currently referred to under globalization as developing states. In order to provide a few examples of this phenomenon, Brazil “was a Portuguese colony” (Kesselman, Krieger, & Joseph, 2013, 388) that was allowed independence in 1822, “Spain ruled Mexico for three centuries” (Kesselman, Krieger, & Joseph, 2013, 437), and “Nigeria was a British colony from 1914 until 1960” (Kesselman, Krieger, & Joseph, 2013, 183). The phenomenon of colonization molded “one part of the globe into a chiefly agricultural field of production, for supplying the other part which remains a chiefly industrial field” (Marx, 1867), and this division evolved the under globalization to include exploited and consumer states.
It may be noted that the deregulation and the privatization of a so-called developing state’s natural resources occurs, after being trapped under excessive national debt, through conditional loans from the IMF and World Bank, now known as Structural Adjustment Programs (SAPs), which are forced on states on the brink of failure due to unbalanced debt to GDP ratios while regional trade blocs allow multi-national (or non-state) private sector corporations to exploit natural resources and cheap labor in developing states while moving natural resources and finished manufactured products to consumer states with no tariff barriers. In 1982, Mexico was among one of the first SAP packages “under the close guidance of the IMF and the World Bank” (Benería, 1999, p.1) and was basically a response to the “international financial community to the prevailing fear of the financial crisis that could have developed if many governments defaulted” (Benería, 1999, p.1). IMF and World Bank SAPs are aimed “to shift resources and economic activity from the public to the private sector” (Benería, 1999, p.2) and the “easing of rules regulating foreign investment, increasing the degree of globalization of the economy and emphasizing the production of tradables over non-tradables” (Benería, 1999, p.2) by those entities with the most private capital to invest, hence foreign capital infiltrating the so-called developing state.
What once was colonial exploitation by states has shifted to exploitation by multi-national private sector entities backed by a Bretton Woods structure of globalization established by agencies such as the IMF, World Bank, and the World Trade Organization. Brazil opened their doors to foreign private sector infiltration in 1990 under Fernando Collor de Mello, who “agreed to put Brazil on the path of free-market policies with reforms that included the privatization of state enterprises and the deregulation of the economy” (Kesselman, Krieger, & Joseph, 2013, 404). In the early 1990s, NAFTA and “the liberalization of the Mexican economy and opening of its markets to foreign competition increased Mexico’s vulnerability” (Kesselman, Krieger, & Joseph, 2013, 450) to foreign private sector exploitation as “deregulation gave the private sector more freedom” (Kesselman, Krieger, & Joseph, 2013, 450). Finally, during the second half of the 1980s Nigeria adopted a structural adjustment program “with active support from the World Bank and IMF” (Kesselman, Krieger, & Joseph, 2013, 539) which promoted a policy that “state-owned businesses would be sold to private (nonstate) investors, domestic or foreign” (Kesselman, Krieger, & Joseph, 2013, 539).
The recent trend of regional trade blocs have followed closely on the heels of successful SAPs which have resulted in deregulated state ownership of natural resources in so-called developing states, and that trend has allowed the private sector, or multi-national (non-state) corporate entities, to invest (exploit) natural resources and cheap labor from so-called developing states and move manufactured products across state borders to consumer states without being charged tariffs in order to regenerate capital off of the so-called developing state’s natural resources, which are now owned, in many cases, by the same private sector entities after the implementation of the International Financial Institutions conditional SAPs on the so-called developing state.
All three so-called developing states discussed belong to trade blocs. While Mexico is a member of the North America Free Trade Agreement (NAFTA), Brazil is a member of the trading bloc Mercosur with member states Argentina, Paraguay, Uruguay and Venezuela which allows private sector tariff-free movements of natural resources. This is illustrated by the fact that “Mercosur exports have grown to $61.89 billion in 1994 from an annual average of S34 billion for the 1984-86 period” (Hudgins, 2012) while “purchases from the U.S. grew to $17 billion in 1995 from $6.68 billion in 1990” (Hudgins, 2012) as a result that “Mercosur countries have been reducing trade barriers to nonmember countries as part of their World Trade Organization commitments” (Hudgins, 2012). Nigeria is a member of the Organization of the Islamic Conference (OIC) which is comprised of “54 independent Muslim states” (Naqvi, 1998, p.285), many of them post-colonial possessions, consisting of a “high degree of concentration of economic activity: more than half of its GDP, exports and imports come from just six countries” (Naqvi, 1998, p.285).
Free trade may provide short-term hope for the developing state choking on international debt, but is primarily aimed at generating capital by a parasitic private sector through the extraction of natural resources from so-called developing states. It allows the exploitation and exhaustion of a state’s natural resources, basically transferring those natural resources into capital that does not remain within the structure of the state for the future and therefore weakens the state for future stability. In closing, free trade is adverse to the long-term future of the so-called developing state.
Edward Hudgins. 2012. “Mercosur Hasn’t Caused Trade Diversion.” Cato Institute. Accessed December 27, 2013. http://www.cato.org/publications/commentary/mercosur-hasnt-caused-trade-diversion?print
Lourdes Benería. 1999. “Structural Adjustment Policies.” The Elgar Companion to Feminist Economists. Accessed December 26, 2013. http://www.arts.cornell.edu/poverty/Papers/Beneria_SAPs.pdf
Karl Marx. 1867. “Das Kapital.” Public Domain. Accessed on December 26, 2013. http://www.marxists.org/archive/marx/works/1867-c1/ch15.htm
Mark Kesselman, Joel Krieger, and William Joseph. 2013. Introduction to Comparative Politics, 6th edition. Boston, MA: Wadsworth
Syed Nawab Haider Naqvi. 1998. “Globalisation, Regionalism and the OIC.” Journal of Economic Cooperation Among Islamic Countries 19, 1-2 (1998):285-308, accessed on December 27, 2013. http://www.sesric.org/jecd/jecd_articles/ART97100112-2.pdf