Hirst and Thompson: Globalization in Question

Hirst, PQ, and G Thompson. Globalization in question. Polity Press.

Ch. 5: The Developing Economies and Globalization:

In the early to mid 90s, around the first edition of this book, the authors claim that there was much hype surrounding the idea that developing countries would continue to grow rapidly, and that they would soon reach parity with more developed countries. It was argued that China would represent the world's largest economy by 2020. These proponents believed that this represented a wonderful trend that would also benefit rich countries, as previously poor countries would now have a demand for the more complicated service items that the developed world has specialized in for some time. However, others argued that this would mark a race to the bottom, where capital, being unrestricted in its movement, would search out the lowest cost for production. This would cause poor countries to have to fight to lower their wages to attract capital. This would also destroy low-skilled employment opportunities in developed countries.

Financial crises in Korea, Latin America and Thailand are explored. Each of these was caused by a different complex mixture of events and factors.

"It should now be obvious that the combination of thoroughgoing internal and external financial liberalization combined with a rigidly pegged exchange rate is a disaster for developing countries. Given the relative shallowness of their financial markets and the difficulty of constructing appropriate regimes of supervision by domestic authorities and practices of transparency by local firms, the tendencies toward exuberant over borrowing and the excessive growth of credit are difficult to prevent. When capital flight begins, attempts to contain it by defending the exchange rate by the use of foreign currency reserves are generally futile" (151).

"The excessive optimism of the early 1990s about the prospects for economic growth in the developing world has rapidly turned sour. It is quite clear that the economic liberal vision of a world transformed by the power of free markets has failed" (160).