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Economic Globalization and Human Rights

Economic globalization: implementation of neoliberal economic policy reforms (deregulation


and privatization policies) by governments and an increase in the worldwide flow of goods,
services, labour and capital

International organizations designed to promote and maintain the capitalist system: World Bank,
International Monetary Fund, World Trade Organization

The Optimistic View: Globalization and the Road to Development

Several ways economic globalization can enter into developing countries' economy:

Foreign Direct Investment (FDI): it consists of building plants in another country or acquiring
a controlling interest in existing overseas company. FDI is generally thought of as a long-term
investment.

Portfolio investment: consists of the purchase of stocks and bonds of less than 10 per cent of the
outstanding stock in foreign firm.

Countries that embrace globalization will raise their economic wealth, while countries that fail to
join the movement will find themselves languishing in underdevelopment: studies have found a
correlation between increased investment flows and a country's rate of economic growths and
overall socio-economic welfare. Many view MNC (multinational corporations) investment as the
engine behind economic globalization. Developing countries that open their markets to FDI
experience greater access to advanced technology, exposure to the most sophisticated
management and marketing skills, stronger economic growth and an expansion in the
employment market. Moreover, MNC-generated jobs in developing countries tend to pay more
than equivalent local employers. MNCs can also be seen as driving force of change, diminishing
the power of local elites, as well as altering traditional value systems and social attitudes in
developing countries. Governments may be encouraged to establish and respect property rights,
create a non- discriminatory hiring/employment environment, and invest in social services and
infrastructure.

Structural Adjustment Policies (SAPs) are lending policies of the IMF and the World Bank
designed to promote economic efficiency and growth in developing countries by minimizing the
role of the state in the economy. Essentiallly, the IMF and World Bank provide loans to cash-
strapped countries in exchange for the implementation of free market policies.

The Pessimistic View: Economic Globalization and the Race to the Bottom
The pessimistic, or anti-globalization model, sees economic globalization as a threat to the well-
being of developing countries. MNCs, in contrast to the neoliberal view, are not seen as agents of
beneficial change. Instead, they are seen as profit-seeking conglomerates that fail to consider the
social welfare implications of their actions. MNCs extract more money from developing
countries than they invest, displace local capital and add to unemployment by promoting capital-
intensive production rather than labour-intensive activities and they use the threat of exit to
extract other "business friendly" policies. Hence, developing governments are progressively held
captive to market principles if they wish to sustain high levels of MNC investment. The ensuing
competitive environment created by the mobility of MNCs and financial firms encourages a race
to the bottom to lower tax, wage, labour, unionization and social welfare standards. Sceptics of
globalization also argue that MNCs and foreign investment firms tend to invest in LDCs (less
developed countries) that exhibit political stability. Simply put, regime change increases the
financial risk of these investors.

Globalization and Human Rights

The results of quantitative studies examining the relationship between economic globalization
have been mixed, but lean toward implying that in many places and times economic
globalization is associated with better respect for human rights.

MNCs and Human Rights

Protection of property rights through rule of law appears to be one of the most important factors
attracting FDI. MNCs that invest in regimes that respect property rights find their investment
protected from nationalization by predatory dictators. MNCs seek to increase profits by locating
in countries where taxes, such as employer social security and unemployment contributions are
relatively low, as are wages. Furthermore, as competition among countries increases for FDI,
countries compete with each other to provide MNCs with a "business-friendly" environment
regarding the above policies. Companies may seek to improve their reputation by associating
their product with improving human rights; otherwise MNCs may run the risk of being exposed
ti an embarrassing media campaign highlighting their connections to regimes with human rights
abuses. MNCs often prefer business environments with negligible trade barriers and few
restrictions managing the flow of capital. All investors are concerned with political risk and may
consider withdrawing their assets to less risky countries in favour of countries that are perceived
to be stable, as regime instability increases the risk of changing business regulations, thus
increasing the uncertainty of production costs and profits. Some argue that foreign investors are
attracted to countries that compromise a reasonably well-educated workforce and modern
infractructure. An educated workforce and a growing modern infrastructure are expected to
increase productivity and profitability.

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