International Development Model

updated May 2016

Many economists believe that globalisation can unlock an international development model to narrow the divide between rich and poor countries. They perceive our world as a global village, in which we can understand and support each other in irreversibly integrated economies and lifestyles.

The reality has seen too many underdeveloped countries excluded from the rewards of globalisation. Their challenge is to build capacity for industrial and agricultural production in parallel with protection of basic social rights. Strategic priority sectors require state support through subsidies and protective tariffs, together with protection from volatile foreign capital. This has been the historical international development model for most of the world’s major industrialised countries.

The grievance of today’s developing nations is that global regulations for trade, investment and intellectual property rights deny them this critical policy space. They argue that richer countries have pulled up the drawbridge behind their economic success by imposing a model that emerged through the 1980s known as the Washington Consensus.

This “neoliberal” or “open market” model favoured a diminished role for government through privatisation of state-owned enterprises, downward pressure on social spending alongside deregulation of barriers to foreign trade, investment and capitalist enterprise.

Enforced as a condition for World Bank and IMF financial support, this corrective economic medicine, often described as “structural adjustment”, proved to be a disaster. The numbers of people living in poverty and hunger continued to rise through the 1990s. Countries that bucked this trend, such as China and Vietnam, were those that  defied the western economic ideology.

The Washington Consensus model remains alive and kicking, having gained fresh notoriety in the guise of austerity programmes imposed on richer countries whose economies were damaged by the 2008 banking crisis.

The development model for poorer countries now advocated by the international financial institutions is more nuanced, not least due to the significant participation of China in Africa’s development programmes. A typical approach seeks foreign investment through the creation of special economic zones, regions ring-fenced with business incentives such as streamlined bureaucracy, low rates of tax and a ban on trade unions.

The price of inclusion in globalisation by this means can be high; foreign investment has limited value to a developing country if no tax is paid, if no skills are transferred to local workers, if domestic businesses are forced to close and if no technologies or intellectual property rights are gained. Loss of national sovereignty is the undertone of globalisation.

New jobs created by this model are often compromised by pressure to drive down wage levels, labour conditions and environmental standards. Corporate social responsibility departments of large western companies are greatly exercised in vetting their production chains for sweatshop labour or environmental abuse.

By 2015 economic growth in Africa appeared to be improving but this may have been driven by the scramble for natural resources rather than sympathetic policies of international financial institutions. Many African countries display a profile of urban elites, whilst rural livelihoods remain primitive. India too has had very considerable success as a participant in the globalised economy, yet 26% of the world’s extreme poverty remains located in that country.

In 2015 the share of world trade for 48 Least Developed Countries was only 1.5%, according to UNCTAD figures. Such statistics, combined with increasing evidence of the environmental footprint of the rich on the poor, remain a poor advertisement for economic globalisation.

Embarrassed by the global divide, world leaders signed up to a wide-ranging set of Sustainable Development Goals in 2015. Unlike the preceding Millennium Development Goals which were confined to social indicators, the SDGs include a Goal to “reduce inequality within and among countries.” This is supported by a further Goal to “promote sustained, inclusive and sustainable economic growth…..and decent work for all.”

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