12.5: 2 Models in Global Context

The 2 Models in Global Context

After reading the brief summaries of the 2 models above, you might ask yourself why any country would choose a protectionist model, given the obvious advantages and drawbacks of each. Most economists say the same thing. We need to exercise caution with overly simplistic conclusions, however. Here is where geography and history are worth careful consideration. Let’s begin with Caribbean islands (most of them anyway). The majority of Caribbean countries were colonies until just very recently (1960’s onward). During the colonial period, European powers established a monoculture (agricultural system heavily focused on a single item) plantation economic system in which particular islands or territories focused exclusively on one item such as sugar, bananas, or pineapple. Upon independence, many of these former colonies found that they had very little diversity in their own domestic economy, meaning that even after earning their freedom they were still almost entirely dependent upon the former colonizer economically because the plantation economy created a relationship of dependency. The concept of dependency theory explains the economic problems experienced by former colonies as a function of the disadvantageous terms and patterns of trade established over hundreds of years. Look at it this way. If all of the grocery stores around you closed permanently, would you be able to head into the wilderness tomorrow to find your own food? Would you know which berries are safe and which are poisonous? Probably not. This was the situation in which many former colonies found themselves, so it made sense for them to attempt to protect themselves from outside competition while domestic companies could emerge and develop. Moreover, world systems theory suggests that the global system of trade only works as long as there are a persistent set of winners (more developed countries), who mostly benefit from low-cost production in poor countries, and losers (less developed countries) that provide a readily available supply of laborers willing to work long hours for low wages.

While many countries have clearly benefited from the international trade model, others have actually been damaged by their participation in global competition. Ethiopia’s largest export, for example, is coffee and although retail prices for a cup of coffee have increased dramatically, incomes of coffee farmers in that country have not reaped any of those benefits. Instead, prices paid for coffee beans have routinely been set by foreign commodities markets that tend to undervalue the product and harm small producers, leaving only large producers with a meaningful profit. Although just 3 cents more per kilo could bring these farmers out of poverty, global markets don’t account for such disparities. One remedy for such a complicated problem is fair trade, a system that guarantees a basic living wage for those at the very bottom of the global production cycle.

Another meaningful problem with global trade is that it can be very disruptive and unpredictable. Following years of state controlled markets, Russia began to open itself to foreign competition and free-market reforms after 1989. While Western countries applauded the decision, many people in Russia suffered as they experienced a lower quality of life, loss of jobs, and massive economic and political instability. Social problems, most notably high unemployment and alcohol abuse, began to dominate society as life expectancy actually dropped significantly for Russian men, many of whom could not adapt to the new demands of a fully market based economy.

In summary, the decisions made by any country about the best path to increase development are not so clear. Leaders and policy-makers face very difficult, often contradictory decisions that vary from place to place, about how to make things better for citizens and residents. Moreover, what might be good in the short term, can be problematic in the long-term. For example, Jamaica’s decision to protect its farmers from outside competition benefited local farmers in the short term, but the island government’s subsidies to farmers proved too costly for the government in the long term. When the money ran out, the country found itself in crisis. Collectivist societies are particularly threatened by international trade models in that many traditional forms of society do not encourage competition, but rather they value cooperation for the good of the group over the desires of any individual. Finally, any development strategy that values short-term benefits over long-term costs is clearly problematic. As India and China have embraced international trade, for example, unprecedented levels of air and water pollution have become the norm in Shanghai, Bombay, Delhi, and Beijing (among others).

Sustainable Development is a strategy that balances both current and future benefits and costs and attempts to balance them with any possible environmental damage (e.g. oil spills, loss of habitat, erosion, increased pollution, dangerous waste) that might occur.