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Could developing countries take

the benefit of globalisation?


Atma Jaya University, Makassar, Indonesia

Rusdy Hartungi
Purpose To provide philosophical discussions of various works, thinking of globalisations and
new thoughts on how the developing countries might take benefit of globalisation.
Design/methodology/approach A wide range of published works, which contain the recent
thoughts and debates of the globalisation to developing nations are reviewed, analysed and then
critiqued. The authors take some case study examples and evidence from developing worlds, most
notably in Indonesia.
Findings At present, the impact of globalisation will benefit mostly to industrialised countries or
MNCs operating in developing countries. Globalisation will bring prosperity to developing world only
if industrialised countries and MNCs are willing to adopt a code of conduct, which permits their profit
motives to be harmonised with the self-reliant interest of developing nations. The global rule must be
changed in favour of developing countries.
Research limitations/implications Globalisation is a very wide issue. This paper only
highlights issues related to trade, labour, intellectual property and environment. Not many developing
and industrialised countries are taken as case example. Thus, there are still a lot of further research
needed to prove its usefulness.
Practical implications Provide a useful source to the global players like industrialised countries,
MNCs. It highlights how industrialised countries might contribute to assist developing countries to
catch up in line with globalisation. Also useful to MNCs CEO wants to increase their corporate social
Originality/value Provide new taught and suggestion to developing countries, MNCs and
industrialised countries. Some evidence, arguments and recommendations have not been discussed in
the globalisation debate.
Keywords Indonesia, Globalization, Developing countries
Paper type Conceptual paper

International Journal of Social

Vol. 33 No. 11, 2006
pp. 728-743
q Emerald Group Publishing Limited
DOI 10.1108/03068290610705652

The impacts of globalisation for developing countries are many. Globalisation has
intensified interdependence and competition between economies of the nations in the
world market. This is reflected in regard to trading in goods and services and in
movement of capital, labour and employment, environment. As a result domestic
economic developments of developing countries are not determined entirely by
domestic policies and market conditions. Rather, they are influenced by both domestic
and global policies set up by the global community. Globalisation might bring new
opportunities to developing countries such as greater access to global markets,
accelerate technology transfer from more developed countries, holds out promise
improved productivity and increased efficiency. However, globalisation has also
thrown up new challenges to developing countries like volatility in financial market,
abuse of labour, environmental degradations, etc. The debates on the benefits of
globalisation are fierce. The dispute is focused on the question of whether developing

countries can take the benefit from globalisation. The purpose of this paper is to
analyse and to provide a deep insight into the nature of this question.
The term of globalisation
Globalisation is a very wide term and used in many different contexts in the
To give opinion whether developing could take benefit of globalisation requires the
full understanding of what the term means to its critics and advocates used in
the context of this paper.
Financial scholars such as Walker en Fox (1999, p. 2) define globalisation in
international finance point of view. They argue that the global integration of the
financial markets can be seen as an example globalisation and the process of financial
globalisation is the most important part of the process of globalisation. It is possible to
gain insight into the general process of globalisation by studying the process of
financial globalisation.
Economists see globalisation as the integration and interconnectedness of world
economy (Neuland en Hough, 1999, p. 1). Gill (2000) defines globalisation as the
reduction of transaction cost of transborder movements of capital and goods thus of
factors of production and goods.
A demographics expert such as O Brien (1992, p. 5) links the definition of
globalisation to geographical borders. OBrien distinguishes between national,
international, offshore and global. National transactions take place between
businesses in the same country. International activities are activities that take place
between different countries. International also means trade that does not take place in a
national country. Multinational describes activities that take place in more than one
country. Global combines elements of international and multinational as a more
advanced stage of integration between countries. A truly global activity does not know
any internal borders. It also gives limited recognition because of the fact that the
country is irrelevant when it comes to global activities.
From general point of view, Redding (1999, p. 19) defines globalisation as the
increasing integration between the markets for goods, services and capital and at the
same time the breakdown of borders. Braibant (2002) says that the process of
globalisation not only includes opening up of world trade, development of advanced
means of communication, internationalisation of financial markets, growing
importance of MNCs, population migrations and more generally increased
mobility of persons, goods, capital, data and ideas but also infections, diseases and
Thus, from many point of views, it is clearly that in most of the definition, the
process of globalisation is seen as to breakdown of the following elements: borders
between countries, governments, the economy and communities. It might also means
the increasing liberalization and openness of markets, particularly through the
elimination of barriers to trade in goods and services and the development of an
integrated international financial market. For the purpose of this paper, the term of
globalisation that will be used here shall contain the above elements but should be
simplified. Thus, simplified term of globalisation is a process of increasing
connectivity, where ideas, capital, goods, services and people are transferred across
country borders. PRUS (2001).

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The impacts of globalisation on developing nations

Trade and industry
The liberals view trade globalisation as the positive-sum game. In this global game, the
positive-sum game will bring mutual benefit or win-win effect to both players without
the consequence of any losers. In my view, trade globalisation should be seen as
zero-sum game and since there is only a winner if there is a loser. In any game, any
interaction among players brings the consequence in which one player gain directly
correlates to the loss of others. In other words, the winners will win at the expense of
the losers. Many developing countries have weak economic, legal, and political
institutions, making them vulnerable to high levels of corruption, insecurity, and
conflict. This situation is worsened due to lack of competitiveness in term of labour,
technology and skills. In the opposite, the developed countries have already had better
infrastructure, highly skilled labours, advanced technology and good managerial
skills. That in turns makes developing countries unattractive for foreign direct
investment. Therefore, free trade as a game is an unfair competition and will only
benefit the highly industrialised countries.
Advocates of trade liberalisation argue that it can induce technological innovation,
undermine elite privilege, and thus contribute to general economic growth. This can
happen, but so can the opposite. The imported technology can crowd out local
technology and investment, while corruption can be induced by new links with MNCs
operating in developing countries. In short, whether trade liberalisation benefits the
general population often depends on factors other than trade liberalisation itself, such
as governance, income distribution and policies of equity promoted by the government.
Stiglizt the former chief economist of the World Bank and the noble laurite in
economics has shared the similar opinion. He argues that the impact of trade
liberalisation caused inefficient industries, which are mostly found in infant industry in
developing countries, to close down as a result of pressure from international
competition (Stiglitz, 2000), The infant industry in developing countries is hard to
compete with more mature industries in highly industrialised countries without
protection. Protection will enable the infant industries in developing countries to
become sufficient strong and competitive when protection is eventually lifted. Many
highly industrialised countries such as Japan, USA, and Germany are widely known as
protectionist regime before reaching maturity.
Before the 1970s, most of Indonesian exports comprised low value added exports
such as coffee, rubber, rattan or mining products (such as timber, raw oil, and nickel).
Since then, Indonesian government tried to develop national industry that would
support more added value exports. For instance, exporting rattan was made difficult
and later was banned while exporting rattan furniture was encouraged. (Kompas[1];
Tempo, 2002). In the early 1990s, Indonesian government started the project of
national car industry using local contents as many as possible. National car project
was selected among other industries due to the fact that at that time (early 1995)
automotive industry exports only amounted to $250 million while imports were over
$1.5 billion. Business Times, 1996, p. 12). Pointing into this figure, Indonesian
government started the campaign for national car industries. This situation cannot
continue and it is imperative that we develop our own industry said Indonesian
minister for Coordination and Production Harto May (Business Times, 1996, p. 12).
On February 1996, Indonesian Minister of Trade and Industry, Tungky Ariwibowo

launched a new national car project. The main purpose of this project was to foster
development of an indigenous automotive industry, the transfer of technology and the
flourishing of supporting automotive spare part industries. Indonesian government
protected them by giving facilities and incentives such as tax holidays, lower import
duties for spare parts or very low interest loan (Kompas, 14 November 2003 ed.).
This newly born industry certainly had an adverse effect on the market share of
Japanese cars, which had dominated Indonesian automotive market. Soon after the
announcement of the national car project the Japanese government reacted
outrageously. The Japanese Minister of International Trade and Industry (MITI)
said that Japan was examining various aspects of the issue, including taking Indonesia
to the World Trade Organization (WTO, in which Indonesia is also a
member.[2] He hoped that Indonesia would consider withdrawing or revising the policy
before the problem became more serious Jakarta (Kompas, December 3 1996). Japanese
government officials pointed out that they believed that the national car project
violated the WTO trade-related investments measure (TRIMs) agreement and
provisions of the GATT (Kompas, 3 December 1996). Seeking international support,
Japanese officials were arguing that other developing countries would also adopt
national car programs if Indonesias plans were successful. Japanese government
officials also did not rule out the possibility to use development aid assistance as an
issue (The Nikkei Weekly, 17 June 1996). In 1995, another developing country, Brazil
had already adopted a program that hurt Japanese manufacturers (The Nikkei Weekly,
15 April 1996, pp. 6, 26-7 US exhibits). Japanese government raised the case to WTO
and Indonesian government was defeated and forced to lift the protection or will face a
severe sanction (Kompas, 19 July 1999 ed.).
Infant Indonesian car industry in my view is certainly less efficient, and therefore,
could not compete with more mature Japanese car industry and thus still need some
certain of protection before becoming strong enough to compete in the global market.
In this sense, globalisation through trade liberations is more beneficial to industrialised
countries for opening fast-growing, huge foreign markets for goods.
In global trade the strong states could exercise their power using trading
institutions such as WTO to justify punishment or sanction to other countries that
oppose their interests or foreign policies. Such cases have been found in Libya, Iraq and
Cuba. Small weak states suffer from a lack of choice in their global trade relations.
They have little or no influence in the creation and enforcement of rules in the system
and have little control over their own integration into the world economy.
Technology leap-frog argument from liberal point of view assumes that
globalisation trough trade will benefit developing countries in catching up the
newest technology without the need to invest or to research. Foreign direct investors
(FDIs) of global companies, bring huge capital, expertise and new technology to
developing nations. To some extents this argument might be true; however the FDIs
presence in the developing countries might also bring the consequences that foreign
capital brought by FDIs is being used in speculative attacks against weak currencies
of developing countries constitutes a real threat to economic stability and to the level of
employment in these countries. Furthermore, the developing nations will be confronted
from any front to attract FDIs. In Indonesia, for instance, there are already quite
reasonable number of Taiwanese and Korean investors in Indonesia has moved their
capital to other neighbouring countries where the cost of labour is less expensive

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(Kompas, 2004; Detik[3]). Dani Rodrik has anticipated and warned that globalisation
creates conflict within and among nations over domestic norms and the social
institutions that embody them. He pointed out that:
. . . as the technology for manufactured goods becomes standardised and diffused
internationally, nations with very different sets of values, norms, institution, and collective
preferences begin to compete head on in markets for similar good. And the spread of
globalisation creates opportunities for trade among countries at different level of
development. (Rodrik cited in Timmons and Amy, 2000, p. 301).

Labour and employment

Fear of losing foreign investors, the government of developing countries start to
compete each other to deregulate their policy to attract FDIs, MNCs, a competition
described by some as a race to bottom as government dismantle regulatory
structures ensuring that wages and taxes and remain low (Woods, 2000, p. 7). If the
government of developing nation tries to regulate foreign MNCs by increasing
minimum wage, labour safety standards, etc. it might risk that MNCs relocate their
business to other developing countries. The developing-country labours, who were
probably already on low wages by any standards, lack of union representative and
legal protections are forced to take the jobs that exploit them (The Economist, 2001;
Woods, 2000). Child labour and other gross labour abuses by global companies
operating in developing countries are also other issues (Woods, 2000, p. 7).
In certain industry sector, there are some evidences that could prove these claims. In
garments industry, for instance, some of MNCs in this industry like Gap and
Levi-Strauss has produced their garments in many developing countries. However, as a
result of fierce global competition, these firms looked for the countries that could
produce both the raw materials (like textiles), and provide full-package services from
cutting, sewing to packaging. Traditionally, China and India had the competitive
advantage to provide raw materials and full-package of service in garment industries
(Foo and Bas, 2003, p. 5). This is a threat of some smaller developing countries, which
rely their foreign exchange and employment mostly on garments export[4]. Fears that
global retailers and brand-name MNCs in this industry relocated their production in
these giant countries and would result a potential million of jobs losses, some smaller
developing countries had to allow their labour wages remain low and be exploited (Foo
and Bas, 2003, p. 5). Bangladesh, Indonesia, Sri Lanka, Kenya and the Dominican
Republic are amount the countries that could be named to fall into this category
(International Textile, Garment and Leather Workers Federation, 2003, p. 5).
Owing to global competition pressure, in the early 1980s the global company such
as Nike start searching for alternative, lower-cost producer. The company worked with
its lead suppliers to open up manufacturing plants in Indonesia, China and Vietnam
benefiting low wages and abundant number of labours. These factors permitted Nike
to grow at an impressive rate over the last several decades (HBS Case, 1991). Since then
Nike had been criticized for outsourcing its products in factories/countries where low
wages, poor working conditions, and human rights problems were rampant. Reports
by a variety of NGOs and labour activists claimed that there were rife with
exploitation, poor working conditions, and a range of human rights and labour abuses.
There were underpaid workers in Indonesia, child labour in Cambodia and Pakistan,
and poor working conditions in China and Vietnam (Locke, 1995).

Since, globalisation make the barrier among nations is increasingly becoming

irrelevant, highly skilled workers, professionals and capital owners in developing
countries are now free to move with their resources where they are most demanded.
As the consequences, there are highly skilled workers migration and capital flow and
brain drain from south to north attracted by better salary and/or investment
opportunities in the north, which could have harmful consequences for long-term
growth of the countries in the south.
Intellectual property right
When developing countries join the global organisation, they are bound with
intellectual property right agreement. They are coerced into an agreement, which
transfer million of dollars worth of monopoly profits from poor countries to wealth
countries under the property right law.
The agreement related to intellectual properties such as trade-related intellectual
property rights (TRIPS), TRIMs using global organisation GATT, have been set up.
However, all these agreements is far from favourable for developing words as it only
represented the most strongest and competitive MNCs and industrialised countries. In
TRIPS, for instance, property right agreement in computer software, pharmaceuticals
only to protect industrialised countries based firms, which have comparative
advantage in these products (Stubbs and Geoffrey, 2000, pp. 174-5). In this agreement,
the owner of intellectual property right has 20 years monopoly right, and of those who
break the agreement will face severe trade sanction (Stubbs and Geoffrey, 2000, p. 176).
The costs to developing countries of implementing the TRIPS Agreement are
unreasonably high. Mexico for instance, spent over US$30 million upgrading intellectual
property laws and enforcement (Finger and Schuler, 1999). In bilateral trade
negotiations, US pressure led countries like Nigeria, Uganda, Morocco and Cambodia
to enforce patent protection regimes for pharmaceuticals which are more restrictive than
those required under TRIPS and are thus known as TRIPS Plus. In the USA negotiated
Free Trade Agreement of Americas (FTAA) TRIPS Plus proposals include: limits on the
circumstances in which compulsory licences can be issued; extension of patent terms
beyond the 20 years required by TRIPS; and prohibition on the export of drugs produced
under compulsory licence. European Commission has already enforced a TRIPS Plus
Agreement with Tunisia (Action Aid International, 2004).
Intellectual property right under TRIPS is also applied very broadly to allow patent
rights over individual plant genes, seed and their characteristics and WTO members
must protect plant varieties either through patents (WIPO). Up to now agricultural
biotechnology MNCs have filed thousands of patents on plant varieties, seeds[5]. This
would imply the removal of farmers rights in developing countries over plants, seeds
and increasingly easy for MNCs which own patent to enforce their intellectual
property rights in developing countries.
Farmers in India, for instance, have witnessed the impact of increased costs in
relation to Monsantos Bt cotton seeds. Farmers in Nalgonda district of Andhra
Pradesh in India paid up to 1,600 rupees for a 450-gram packet of Bt cotton seeds
own by MNCs, (of which the royalty component was 1,200 rupees), as against
450-500 rupees for normal varieties. Despite the costs, Bt cotton yields have sometimes
been lower than those of local varieties (The Hindu, Indias National news paper
Sunday, 26 January 2003).

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The implication of patenting seeds, plants would make small farmers in developing
countries dependent on the MNCs that own the patents. In turn, this could lead to
fundamental changes in the way agriculture is practiced in developing countries by
facilitating the growth of global agribusiness operated by MNCs and the decline of
small farms own by farmer in developing countries. In addition, if the use of patented
seeds became the norm and implied strictly, MNCs would dominate the worlds food
In Indonesia, there are also quite a few evidence have shown how the global
rule implemented in TRIPS and TRIMS is working mainly to protect the interest
of industrialised countries and MNCs rather then developing countries. A range of
intellectual property right theft own by American MNCs has been identified including
rampant software, and book piracy; pharmaceutical patent infringement (Office of
United States representative, report, 2006). It is also identified as weak intellectual
property right enforcement. Therefore, the USA has placed Indonesia on the priority
watch list. Owing to international pressure; Indonesian government has to agree to
numerous international conventions on intellectual property right. These include the
Paris Convention for the Protection of Industrial Property, the Berne Convention for
the Protection of Literary and Artistic Works, the WIPO Copyright Treaty, the Patent
Cooperation Treaty, the Trademark Law Treaty, the Nice Agreement for the
International Classification of Unclassified Goods and Services, and the Strasbourg
Agreement Concerning International Patent Classification. Since then Indonesia need
to periodically intensify actions against copyright piracy or will be trenchantly
criticized from global community.
In 2001, due to constant pressure from MNCs and US government the Indonesian
judiciary system began consideration of certain intellectual property right cases in the
commercial courts. In a landmark case in 2001, a US software company won a civil suit
against five retailers for selling computers bundled with pirated software. In their first
two years after the landmark case, the commercial courts have concluded over
150 cases (Office of United States representative, report, 2005).
The new copyright law in Indonesia came into force in July 2003. The law contains a
number of important provisions long sought by MNCs operating in this country
including provision for the issuance of an implementing regulation on optical disks
(OD), criminal penalties for end-user piracy and the ability of right holders to seek civil
injunctions against pirates. Indonesian president at that time, Megawati Soekarnoputri
signed the OD regulation into law in October 2004. The outgoing minister of industry
and trade issued two ministerial decrees required to implement the OD regulation. The
copyright law establishes rights to license, produce, rent or broadcast audiovisual,
cinematographic, and computer software. It stipulates a 50-year term of protection for
many copyrighted works as stipulated by TRIPS Agreement. Periodic raids have taken
place result in the seizure of sizable caches of pirated OD products.
The GNI per capita in Indonesia is still very low of about US$ 710/annum[6]. Even
the middle class have problems making ends meet. Young graduates entering a
profession have starting salaries of around $80-$100 per month (Richter and Pamela,
2004). It is, therefore, unrealistic to expect the country like this to be able to apply
strong ethics such as TRIPS where the livelihood of the general population is still poor.
If copyright law is very strictly applied and the students are required to buy a book
that will cost more then their living expense for a month, (like some foreign textbooks

are) there will not many of them could effort to have it. Meanwhile, unlike their
counterpart in industrialised countries many libraries in developing countries could
only provide very limited exemplar of required textbooks. This will lead to the
situation where there will be quite reasonable number of students be jailed due to
the inevitability to pay fine for breaking the copyright law. This situation will also
make the future generation of developing countries be denied from the newest
technology and knowledge.
Under the incentives created by the global system of patenting, copyright and
intellectual property right protection, the global player in pharmaceutical industries will
be more interesting in producing medicine for the rich rather then the poor. Although the
three prevalent infectious diseases such as malaria, diarrhoea, TB which kills millions
each year in the developing world and should, therefore, become the priority and subject
to further research and development, in another sense they are neglected. For MNCs in
pharmaceutical industries, producing medicine for skin, facial, hair treatment, Viagra,
Ecstasy or the like will be certainly much more beneficial then producing tablets for
neglected diseases like malaria, diarrhoea or TB vaccines. The MNCs in pharmaceutical
industries is unlikely to invest in research and development for diseases that primarily
affect poor countries if it has little reason to think it will recoup the costs.
The environmentalists or greens concern that globalisation is encouraging more
economic growth, mass consumption and large-scale economic activities and thus
excessive exploitation of renewable and non-renewable resources (Helleiner, 1996,
p. 62). A similar problem arises with the exploitation of other scarce resources such as
minerals, raw materials, and waters (Hoogvelt, 1982, p. 130-31). As a result, there will
be faster environment degradation around the world. Since, developing nations is great
supplier of raw materials, the greatest degradation will be seen in these regions
(Hoogvelt, 1982, p. 131).
Indonesia owns one of the largest areas of tropical forest in the world. In fact,
Indonesia possesses very rich biodiversity in its forest cover, with over a dozen major
forest formations (Dick, 1991). Some Indonesian island such as Borneo, Sumatra, and
Irian Jaya was once covered with dense rainforests. With swampy coastal areas fringed
with mangrove forests and a mountainous interior, much of the terrain was virtually
impassable and unexplored. Headhunters ruled the remote parts of the island until a
century ago. However, starting the 1980s these islands underwent a remarkable
transition. There have been illegal logging and forest fire that will endanger
environment. In a discussion paper the World Wide Fund for Nature have mentioned
that while some fire are set by natural caused such as long draught many are set
deliberately, by commercial interests (WWF, 1997, p. 1). Fire has been used as a cheap
method of land clearing; the tropical forest has been converted to rubber, oil palm and
timber plantations (Siscawaty, 1995, p. 51). While the majority of plantation are own by
Indonesian companies quite reasonable number of the large plantation companies with
large concession are own by foreign companies ((Siscawaty, 1995, p. 51). Allegations of
corrupt activities by MNCs logging companies are increasingly documented (Dudley
et al., 1995; WRMFM, 1998; Sizer and Plouvier, 2000) with diverse the range of alleged
and proven improprieties such as alleged bribery or patronage of political figures in
order to gain concessions, a significant recurring theme (Callister, 1999).

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Greens also warn that peoples sense of environmental awareness may be eroding as
economic process spread out over greater distance creating transnational pollution.
When dumping of waste or toxic materials takes in location far away from where they
live, individuals will be less aware. Here again, the developing nations will be seen as
lucrative and comfortable place to dump those materials. Uncontrolled growth in
population due to industrialisation and economic growth will worsen this problem
(Hoogvelt, 1982, p. 130).
Discussion and conclusion
To benefit from globalisation in trade and industry and take the most of it, I argue that
the government of developing countries should still seek limited protectionism. Infant
industries in developing countries have little chance of competing head-to-head with
the established and more mature firms located in the industrialised countries. MNCs in
Industrialised countries have been in business longer and over time have been able to
improve their efficiency in production. They have unfair advantages over skills,
information and knowledge about the production process, about market
characteristics, about their own labour market, etc. As a result they are able to offer
their product at a lower price in international markets and still remain profitable.
Infant industry in developing countries, therefore, still need some degree of protection
before becoming sufficient strong and competitive when protection is eventually lifted.
Many people have argued that this was precisely the industrial development strategy
that was pursued by countries like the USA, Japan and Germany during their rapid
industrial development before the turn of the twentieth century. They had high tariffs
during their industrial revolution periods. These tariffs helped protect fledgling
industries from competition with more efficient firms in Britain and may have been the
necessary requirement to stimulate economic growth. Protection in the strategic
industries will allow the developing countries to get away from their low value added
export like raw agricultural commodities and natural resources in substitute of highly
value added products. The technology diffusion in a developing country will be faster
if it is also supported by local strong industries. Technocrats and industries in
developing countries can dynamically improve their productivity, efficiency through
learning-by-doing. These learning effects might spillover into the rest of the economy
as people in the developing countries open new businesses or move to other industries
in the economy. On the other hand, relying export on raw agricultural commodities and
natural resources will make developing countries vulnerable. The prices of agricultural
commodities and natural resources have historically been extremely volatile. In some
years, prices are very high, in other years, the prices are very low.
Rodrik (2002) has suggested that the developing nations should learn to the success
of Chinas and Indias experience as well as earlier successes such as South Korea and
Taiwan but at the same time should aware of the tragic experience of Argentina. As he
demonstrates, until today, Chinese and Indias economy remains among the most
protected economies in the world but still manage to achieve integration with the world
global economy (Rodrik, 2002). And in fact, both China and India are still one of the
fastest growing economies in the world (The World Bank, 2000). On the contrary,
Argentina, tried harder in the 1990s than virtually any country to endear itself to
international capital markets, only to be the victim of an abrupt reversal in market
sentiment by the end of the decade (Rodrik, 2002). Similar view with Rodrik, Stiglitz

has warned that, the experience in the East Asian financial crisis showed how the
IMFs bailout plans which came with conditionality to force the countries in these
region to liberalize their policy in favour of free trade as well as pushed up interest
rates in the name of fighting inflation resulted a tragic end of high level of
unemployment, stunted growth, and an increase in the deficit (Stiglitz, 2002).
It is obvious that China and India has benefited from the globalisation. What kinds
of experience these countries can share with all the other developing countries. How
these countries take the benefit of globalisation but at the same time maintaining
protection? There are quite reasonable number of research have acknowledged that
protection on a certain degree, when matched with a nations development level, can
lead to remarkable developments (Borensztein et al., 1998; Prasad et al., 2003; Jin and
Lin, 1999). In china for instance, there a lot of evidence have shown that china have
implemented a level of limited opening-up and protection policy at the same time that
fits the countrys own level of development. Infants industries are protected from
undue foreign competition and where trade is open to foreign participation before
finance. By this way, the country have increased the countrys abilities to absorb
foreign capital and other advanced elements and maximize the benefits of opening up
by carrying out reforms in line with the stages of opening up. They avoid risks posed
by portfolio investments and take advantage of the benefits that FDIs can offer in
capital formation, technological upgrading, and management standards improvements
by choosing FDIs over portfolio investments (Fan and Wing, 2002).The promotion of
FDI to growth depends on the level of the human resources of the developing country.
If the human capital of a country can rise to a certain threshold, then the function of
FDI can be fully exerted by developing nations; otherwise, the active role of FDI to
economic growth will be greatly reduced (Borensztein et al., 1998). Thus, to repeat the
success of china one condition is that the protection must be matched with developing
countries development level. However, this is not the only condition there are still some
other conditions. Pundits in international political economy have raised other
(1) There must be a domestic market failure and the first-best governmental
intervention to remedy that failure must be unavailable (Bhagwati and
Ramaswami, 1963).
(2) The bureaucracy must be technically competent so as to identify the industries
that may benefit from protection as well as the degree and duration of
protection that would be optimal (Krueger, 1997).
(3) The bureaucracy must be sufficiently insulated so as to resist capture by special
interests. Otherwise, the industry will likely receive protection until it is a senile
elder in diapers (Krugman, 1987).
(4) The protection must not merely bring later entrants forward in time, which
would actually hurt the pioneering firm (Baldwin, 1969).
The failure of Indonesian car industry as highlighted before is not only because it is
forced to lift protection, by the global community, but also because the failure to satisfy
some of the above mentioned conditions. In Indonesian national car project, the first
and the second condition are satisfied. However, the third are not and only partly of the
fourth conditions is satisfied. The fact that automotive industry exports only amounted

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to $250 million while imports were over $1.5 billion at the time could be justified as a
domestic market failure. Many Indonesians also shared the view that Japan had held a
virtual monopoly on the Indonesian car market since the 1960s, and therefore, need
change. The project was not really success because the Indonesian government could
not to resist capture by special interests of certain party. Timor Putra Nusantara
(TPN), a newly set up company, was the first company to get the major concession to
carry this program happened to be controlled by the youngest son of President
Soeharto. TPN established a joint venture to produce vehicles with Korean based
company Kia Motor Corporation (KIA). The National Car Program was widely
criticized because of nepotism. Before the National car project was started there had
been quite a few number of Indonesian automobile companies had involved in
assembling foreign brand autos under license. Many argue that such companies (the
most prominent one is Astra International, an Indonesian National company) should
had been given preference to carry out the program due to their experience. Analysts
had predicted that TPN would have a difficult time achieving the national goals since it
was a new company, had no manufacturing facilities in Indonesia, and lack of
experience. Indeed, the prediction was later proven to be true.
Benefiting government protection, TPN were not interesting in the transfer of
technology or the use of the local content, but rather, to get very low interest loan, tax
holidays facilities (Kompas, Friday, 14 November 2003; Tempo, 2003). In the early
year of implementation of national car project TPN had already encountered problems
finding a factory in Indonesia in which to build the Timor. To assist this company the
Indonesian government announced in June of 1996 modifications to the program.
These modification allow TPN for a one-year period and on a one-time basis, to be fully
built up in Korea made by Indonesian workers working in Korea and imported free of
duty and tax. After one year had passed collusion with Korean car industries KIA still
continue and local car industry in Indonesia served only as camouflage (Kompas,
Friday, 14 November 2003; Detik, 2003). The main car processing was prepared in
Korea and only the unskilled work such as finishing, part assembling was done in local
industry in Indonesia. Not to mention, the rent seeking behaviour of local licensing
authorities and funding agency providers (Kompas, Friday, 14 November 2003;
Detik, 2003).
Thus, the case of Indonesia clearly suggests that limited protection not necessarily
produce the expected outcomes if it is not followed up by reform to satisfy the preset
conditions. Another disadvantage of limited protection that might limit its advantages
to developing nations is the possibility of retaliation by the global community. As the
impact of this protectionist policy could endanger the sustainability of industrialised
countries export as well as MNCs; the developing countries and infants industries in
developing countries might face retaliation, severe sanction and punishment from the
global communities. In retaliation case, many will ague, while both parties will loose it
is apparently that the developing countries and infant industries in developing
countries will suffer the most. Highly industrialised countries and MNCs have more
resources in subsidising, protecting and buffering their industries and products.
Most of developing nations are not so powerful like China or India that could still
sustain amid the trenchant critics or even sanctions from other nations while
maintaining limited protection. Therefore, the route employed by China and India is
not necessarily applicable to other developing nations. The international intervention

is therefore needed to balance the situation. The global rule needs to be changed in
favour of developing countries to allow developing countries to maintain some degrees
of protection while they could sell their products in the global market. There must be a
commitment to providing developing country governments the space and resources
needed to make use of the existing flexibilities in the TRIPS agreement without fear of
retaliation, trade sanctions or aid cuts. Any commitment from developed countries
should not be contingent upon developing countries commitments to other
agreements. Developed countries should allow developing countries the right to
choose their own policies, at their own pace. It should recognise that developing
countries have the right to protect their vulnerable economies and the right to chose
which industrial products they want to open up to foreign competition. They shall not
be forced to liberalise when it is against their own interests.
One promising way for developing nations to attract global MNC in pharmaceutical
industries operating in developing countries to manufacture more vaccines/drugs or to
do more research for neglected disease which is profoundly found in developing
countries is through advanced purchase commitment (APC). The argument which is
widely known as strong medicine argument has been advocated by M. Kremer and
Rachel, 2004. Under this mechanism, developing countries would commit to purchase a
bulk number of drugs/vaccines, in advance of a drugs/vaccines development and
licensure, to a minimum price. In exchange, global MNC in pharmaceutical industries
would commit to produce or to do more research on such kind of drug/vaccines.
Developing countries could make these incentives more attractive to MNCs in
pharmaceutical companies operating in those countries by arranging the collective
purchase. Arrangement of purchase commitment could be made among neighbouring
developing nations, regional association among developing countries to guarantee
purchasing of a huge among of drugs/vaccines will be purchased. Developing
countries in south East Asia for instance, purchase commitment could be made by
ASEAN[7] secretary in Jakarta. Collective purchase will make developing countries to
be in strong position to bargain when negotiating with the global power such as MNCs
in pharmaceutical companies operating in those countries.
Alternatively, through international intervention, e.g. a purchase commitment is
undertaken by international organisations such as the World Bank, WHO,
international foundation, governments of industrialised worlds. There is some
evidence to prove the effectiveness of this incentive scheme. International AIDS
Vaccine Initiative (IAVI) provides a good example, where the commitments are made
by the Gates Foundation, the World Bank and Governments of industrialised countries
such as the UK. Developing countries must take the role to ensure that the products get
to those who need them most. Systems have to be appropriately organised, managed
and financed to deliver pro-poor health outcomes.
The MNCs and industrialised countries should firmly commit to allow developing
countries to make generic copies of patented drugs needed especially for pubic health
emergencies. The political initiative demonstrated by Canada is a good model for other
industrialised countries to follow. Canada has introduced legislation allowing the export
of generic versions of patented drugs to countries with insufficient manufacturing
capacity (Canadian HIV/AIDS legal Network (2004) Other industrialised countries and
foreign MNCs should follow Canada and adopt procedures, which permit their profit
motives to be harmonised with the self-reliant interest of developing nations.

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The government of developing countries themselves need to find ways to grow more
rapidly, adapt new technologies, improve their human capital base, and create stronger
institutions. In specific eases, the developing countries may encourage the development
of research and development or improved marketing skills in certain sectors or
encourage investment in value-added sectors. In other cases, it might encourage
investment in those sectors where developing countries possess a comparative
advantage other than simply cheap labour costs. information and communication
technology (ICT) is a powerful tool for development and growth and for mobilizing the
capacities of poor people. ICT should be part of developing countries national poverty
reduction strategies as well as integrated into European development programmes.
Nevertheless, the globalisation is ongoing process irrespectively whether the
developing or developed countries want to participate or whether it is a fair or unfair
competition. All countries inevitably have been connected to the global network.
Unless a country could maintain self-sufficiency in any sector and thus has the ability
to isolate itself from outside world, it is self-interest of every nation including the
developing nation to adjust its policy moving synergistically in line with globalisation
process and making the best use of it. The notion whether this process will bring
prosperity to developing economies will depend on how they adjust their policy to
nurture globalisation.
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Further reading
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Prentice-Hall, Upper Saddle River, NJ.
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Addresses, International Monetary Fund, Washington, DC.
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Other India Press, Goa.
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Possibilities of Governance, 2nd Ed., Polity Press, Cambridge, Chapter 5 and 8.
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Development, Macmillan, Basingstoke, p. 4, Chapter 4.
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Fatigued, Lynne Rienner, London, Boulder, Colo..
WRI (1997), The Last Frontier Forests: Ecosystems and Economies on the Edge, World Resources
Institute, Washington, DC.
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Countries, Routledge, London.
About the author
Rusdy Hartungi is a Senior Lecturer at Atma Jaya University and currently doing sabbatical
at the University of Bristol. He did PhD promotion in engineering at TU-Graz/Austria in 2000.
He used to be an academic guest at Swiss Federal Institute of Technology in 1995-1996.
In 2002, he also got MBA focusing on E-business and IT from MSM/The Netherlands as well as
PG Diploma in Business Administration from University of Wales. His research interest,
therefore, varies from Engineering, E-business to ICT and development. During his career he has
been awarded various awards in research from British Chevening Awards, to The Word Bank
Award. Rusdy Hartungi can be contacted at:

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