China of has gained from globalisation, China has gained from its comparative advantage (CA) in the secondary sector through careful expansion of its industry. CA is where one country is able to provide a product or service and a lower cost per unit than another country. This was then followed by export led growth, by selling their cheap land and labour abroad. China’s addition to the world economy after being a closed economy for many years brought competition and hence allocative and productive efficiency.
With a low exchange rate and macro stability and a good government concentrating on good human investment and infrastructure, China gained an export boom which then created local multipliers. A second wave of industry grew, which generated profits to be ploughed back in, people saved from their wages and China gained the capital growth so essential to lift its people out of poverty through fast growth. China achieved this by allowing MNCs (multi-national corporations) to exploit them, however this was only a little as China was big enough to set tough bargains and its leaders were well organised and efficient for the nation’s good.
China could have looked at the UK and USA’s policies and how their government worked. They experienced EOI (export orientated industrialisation) which was done through a free market approach and small positive government intervention to provide the social infrastructure for growth and human development. This was helped by globalisation as China was able to sell it’s output abroad and also purchase various machinery and technology as they earned foreign currency. China could have looked at the UK and USA’s policies and how their government worked and thought that they needed to have that as well, this is on of the effects of globalisation.
China entering the world market has mostly done us all good. Globalisation is good provided it produces the gains from free trade, whether we gain lower import prices from labour and land intensive goods. Whether we can shift our resources upmarket into higher value products like aerospace and so gain from CA the same as China. China’s ToT stayed good because it broke into manufacturing, where prices hold firm, whereas Africa still suffers from bad deal on which they trade. China could not be bullied at the WTO into bad trade deals, it has no 3rd world debt to repay at high interest rates, but instead the USA owes China $bn.
The key to this is that China brought in the right institutions, the preconditions for growth and gave incentives for the growth of investment and free markets. Thus private enterprise produced the products consumers wanted around the world and so could compete very well with its low cost, educated labour force. Africa lacks this crucial requirement for sustainable growth for far too long. Africa’s poorest countries have debt and geography against them, dry and isolated inland countries. Social breakdown, weak and corrupt governments and also completely reliant on one or two commodities to earn foreign currency and provide employment. Mostly until now much of Africa has remained at stage one or zero for development as subsidence primary producers have the lowest level of value and productivity.
For 40 years they remained closed and planned economies with little value to exports. These then suffered from weakness and allowed themselves to be exploited too much by MNCs. Globalisation has taken their mineral resources and so does not benefit them in the long run. Their development is unsustainable as when they do develop a good economy their resources such as gold, diamond and minerals will be take by western MNCs while they are still cheap. Glob will benefit these poorest countries only if we help them and if they have good governance in order to help create a strong and supported free market sector.
Some African countries such as Ghana and Uganda are creating growth preconditions and starting to pick up. These might follow the path of China just like other countries such as Brazil and Turkey have. It takes more than Globalisation to do this, as it requires MDCs like Britain and America to provide good aid and guidance to the LDCs. These African economy could also try for EOI, however this can only be achieved if the government approaches it in a good way. The economy could also try ISI (import switching industrialisation), this aims at producing imported goods in the domestic economy. However this produces many infant industries and will not be good for a small country as it will be too difficult to maintain these infant industries and enable them to compete against foreign industries.
Overall globalisation can be beneficial if all the gains of free trade are allowed for. However it can be damaging if MDCs try to exploit LDCs and take their natural resources, leaving them with very little once they have developed. It also depends whether the government are organised and their aim is for good economic growth and setting the preconditions for this. Thus there are many requirements for globalisation to be beneficial to everyone. Africa will need to allow for some exploitation in the short run if it wants to gain exports and foreign currency in the long run.