This article was downloaded by: [Heriot-Watt University]

On: 28 December 2014, At: 08:59

Publisher: Routledge
Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House,
37-41 Mortimer Street, London W1T 3JH, UK

Construction Management and Economics

Publication details, including instructions for authors and subscription information:
http://www.tandfonline.com/loi/rcme20

Impact of globalization on the construction sector in

developing countries
a
Timothy Michael Lewis
a
Department of Civil and Environmental Engineering , The University of the West Indies , St
Augustine, Trinidad & Tobago, West Indies
Published online: 11 Jan 2007.

To cite this article: Timothy Michael Lewis (2007) Impact of globalization on the construction sector in developing countries,
Construction Management and Economics, 25:1, 7-23, DOI: 10.1080/01446190600601248

To link to this article: http://dx.doi.org/10.1080/01446190600601248

PLEASE SCROLL DOWN FOR ARTICLE

Taylor & Francis makes every effort to ensure the accuracy of all the information (the “Content”) contained
in the publications on our platform. However, Taylor & Francis, our agents, and our licensors make no
representations or warranties whatsoever as to the accuracy, completeness, or suitability for any purpose of the
Content. Any opinions and views expressed in this publication are the opinions and views of the authors, and
are not the views of or endorsed by Taylor & Francis. The accuracy of the Content should not be relied upon and
should be independently verified with primary sources of information. Taylor and Francis shall not be liable for
any losses, actions, claims, proceedings, demands, costs, expenses, damages, and other liabilities whatsoever
or howsoever caused arising directly or indirectly in connection with, in relation to or arising out of the use of
the Content.

This article may be used for research, teaching, and private study purposes. Any substantial or systematic
reproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in any
form to anyone is expressly forbidden. Terms & Conditions of access and use can be found at http://
www.tandfonline.com/page/terms-and-conditions
 Construction Management and Economics (January 2007) 25, 7–23

Impact of globalization on the construction sector in

developing countries
TIMOTHY MICHAEL LEWIS*
Department of Civil and Environmental Engineering, The University of the West Indies, St Augustine, Trinidad &
Tobago, West Indies

Received 25 August 2004; accepted 9 January 2006

Downloaded by [Heriot-Watt University] at 08:59 28 December 2014

The international movement towards open markets promoted by the World Trade Organisation (WTO) has as
its premise that trade liberalisation will benefit all concerned. Each country should be able to exploit its position
of comparative advantage once a free and fair trade regime has been implemented. Although most
commentators agree that in theory free trade should be beneficial, its implementation has been anything but
beneficial for the developing countries. The construction sector falls under the provisions of the services
negotiations of the WTO, and stands to experience the effects of trade liberalisation. Whether construction
firms from the developing countries stand to gain or lose from this exposure to open competition is discussed in
the light of the inequity with which the developing countries have been treated in the globalization of markets to
date.

Keywords: Free trade, inequality, construction, globalization, WTO

Preface Introduction

‘The most pressing economic problem of our time is The Universal Declaration of Human Rights (United
that so many of what we usually call ‘‘developing Nations, 1948), states: ‘Everyone has the right to a
economies’’ are, in fact, not developing’ writes standard of living adequate for the health and well-
Benjamin Friedman (2002). Despite increasing relative being of himself and his family, including food,
global prosperity, and despite the claims that trade clothing, housing and medical care and necessary social
liberalisation will distribute wealth more equitably, the services, and the right to security in the event of
gap between the haves and the have-nots is growing unemployment, sickness, disability, widowhood, old
wider. Not only is free trade not improving the age or other lack of livelihood.’ It is currently believed
situation, but many people believe that this is inten- by many that the best way of achieving such minimum
tional. To these commentators, it appears that the main standards for everyone is by encouraging global trade
objective of opening the markets is to enable the with the minimum of restrictions. Ensuring that all
developed countries to maintain their position of markets are competitive and open to everyone is the
dominance, by encouraging their large transnational primary objective of what is called ‘globalization’. All
corporations to exploit the resources of the less countries should participate in international trade
developed world and to repatriate the proceeds. The because this will enable them to exploit their positions
rules of trade liberalisation are written and implemen- of comparative advantage. This means using their
ted so as to suit the purposes of the developed world. natural assets—physical, human, technological or
The response to these accusations has been weak and financial—to produce what they are best at making,1
unconvincing. and then trading this for the things that other countries
produce best, in a way that is fair and equitable.
Historic data suggest that increased trade can provide
significant economic benefits to the countries involved,
*E-mail: tmlewis@eng.uwi.tt by showing a positive relationship between freer trade
Construction Management and Economics
ISSN 0144-6193 print/ISSN 1466-433X online # 2007 Taylor & Francis
http://www.tandf.co.uk/journals
DOI: 10.1080/01446190600601248
 8 Lewis
and economic growth (Dollar, 1992; Frankel and
Romer, 1999; Ben-David and Kimhi, 2000; Ben-
David, 2000). Subsidies, tariffs and other barriers to
trade are considered harmful because they distort the
workings of the market and allow firms that are
inefficient, technologically backward and often produce
poorly designed and manufactured goods, to stay in
business. Such ‘protected’ firms also tend to have poor
health and safety records as well as being negligent
towards the environment. Open, competitive markets
can improve all this.
There is much truth in all of this, but there is a down
side as well, and one’s perception of the balance
between the good and the bad depends upon where one
is standing. The view from the side of the developed
world is always more rosy and optimistic. The essential
Downloaded by [Heriot-Watt University] at 08:59 28 December 2014
foundation for development is the existence of a stable
industrial base upon which a modern economy can be
built; and developing countries (DCs) generally do not
have that. In particular, the DCs tend to have small,
weak firms that cannot survive the rigours of open
competition from the biggest and strongest companies
in the world; they will inevitably lose out. They need
protection and government support, in exactly the same
way that other countries (notably the UK and USA)
nurtured their young firms in the past. It seems obvious
that while competition is good for economic efficiency,
it must be moderated when firms are small and
struggling to survive.
Background
The concept of free trade is built on a number of
assumptions about trade and competition that owe
much to the principles of specialisation and compara-
tive advantage first proposed by Adam Smith and
David Ricardo respectively. Smith recognised that
despite the many potential advantages of free trade,
strong countries would always try to ensure that the
terms of trade with weaker countries would be in their
favour. As he wrote:
the encouragement of exportation and the discourage-
ment of importation are the two great engines by which
the mercantile system proposes to enrich every country
… Its ultimate object, however, it pretends, is always the
same, to enrich the country by the advantageous
balance of trade. It discourages the exportation of the
materials of manufacture, and of the instruments of
trade, in order to give our own workmen an advantage,
and to enable them to undersell those of other nations in
all foreign markets; and by restraining, in this manner,
the exportation of a few commodities of no great price,
it proposes to occasion a much greater and more
valuable exportation of others (Smith, 1776, p. 577).
Some 50 years later, Lord Goderich, a British MP
wrote:
It was idle for us to endeavor to persuade other nations
to join with us in adopting the principles of what was
called ‘free trade’. Other nations knew what we meant
by ‘free trade’ was nothing more nor less than, by means
of the great advantage we enjoyed, to get a monopoly of
all their markets for our manufactures, and to prevent
them, one and all, from ever becoming manufacturing
nations (Smith, 1994, p. 123).
In a similar vein, US Senator Henry Clay (Chaitkin,
1985) wrote in 1832 that ‘The call for free trade, is as
unavailing as the cry of a spoiled child … It never has
existed; it never will exist’. The modern view is similar
with O’Hara (2003) writing:
Unfortunately, American ideas of ‘fair trade’ largely
revolve around removing the rules in order to make the
playing field level. It can never be level, however, due to
differing factors inherent in the situation of each country
and culture, such as levels of technological develop-
ment, accumulated wealth, established industries,
natural resources, suitability and diversity of climate,
infrastructure, population size etc … Of course the US
holds almost all of the possible environmental factors
like these in their favour.
He goes on to speculate as to whether the US pursues
‘free trade in order to conquer the poverty and despair
of others, or to increase their own wealth and
comfort?’—with the obvious conclusion that it is the
latter not the former.
Similar views prevail in much of the developing
world, where there are serious reservations about the
implications of open markets. The fine rhetoric from
the developed countries about ‘free trade’ has been
backed by protectionism of many of their own markets
(e.g. steel and textiles), and massive subsidies and tariff
barriers on others (e.g. on agricultural produce).2 As
Khor (2000) notes,
The crux of the problem is the unequal distribution of
power and wealth in the world. We must recognise this
and not skirt the issue. Those that hold power and
wealth want to keep it and protect it. Thus we see the
double standards that exist between what is preached
towards others and what is protected for themselves to
maintain the monopoly of power and wealth.
This has led to the growing dissatisfaction of the DCs,
the mass mobilisation against the WTO in the streets of
Seattle in 1999, and the unresolved conflicts between
the developed and developing worlds on agriculture,3
textiles, steel, the environment and labour standards,
for example. The construction industry has long been
more open than most, with large consulting and
contracting firms operating in a global marketplace.
 Impact of globalization on the construction sector in developing countries
Increasingly, however, the DCs are wanting their own
domestic firms to play a larger part in their public
sector developmental projects and this has thrown a
spotlight on the policy restrictions that are inherent in
trade liberalisation. Some of the issues surrounding
globalization and the construction industry are dis-
cussed here.
The role of the WTO
The process of globalization is inherently tied to the
implementation of the terms of trade promulgated by
the WTO. The basic principles of the WTO were set
out in the Uruguay Agreement in 1986 (WTO, 2004)
and they were that the international trading system
Downloaded by [Heriot-Watt University] at 08:59 28 December 2014
should be:
N without discrimination—a country should not
discriminate between its trading partners (giving
them equally ‘most-favoured-nation’ or MFN
status); and it should not discriminate between
its own and foreign products, services or
nationals (giving them ‘national treatment’);
N freer—tariff and non-tariff barriers should be
reduced (removed) through negotiation;
N predictable—foreign companies, investors and
governments should be confident that trade
barriers will not be raised arbitrarily; market-
opening commitments are ‘bound’ in the WTO;
N more competitive—‘unfair’ practices such as
export subsidies and dumping products at below
cost should be discouraged;
N more beneficial for less developed countries—they
should have more time to adjust, greater flex-
ibility, and special privileges.
These principles underlie the General Agreement on
Tariffs and Trade (GATT), the General Agreement on
Trade in Services (GATS), the Multilateral Agreement
on Investment (MAI), and the Trade Related Aspects
of Intellectual Property Rights (TRIPS), which form
the basis of the WTO. Essentially, these agreements are
designed to restrict government’s ability to interfere
with free trade, by phasing out barriers to international
competition—and they are backed by the threat of
WTO-enforced trade sanctions. Their purpose is to
create internationally competitive markets for trade in
virtually all goods and services, including those
procured for the public sector. This has far reaching
implications as well as limiting governments’ policy
options, as Jamieson (2004) notes:
In addition to economic costs and benefits, trade
liberalization has an impact on many other aspects of
9
our society: the environment, population movements,
health, dissemination of knowledge and expertise,
national identity, political and cultural sovereignty and
social cohesion. Some critics see international trade
agreements as impinging on national sovereignty and
posing a threat to basic social policies and programs,
social solidarity and the distinctness of national identities.
There has also been a strong public reaction against the
power and influence of ‘faceless’ transnational corpora-
tions and a perception that international regulatory
institutions, such as the WTO, are undemocratic.
Progress, poverty and equity
During a lecture at the British Museum, Nelson
Mandela (2000) said, ‘We welcome the process of
globalization. It is inescapable and irreversible.’
However, he added,
if globalization is to create real peace and stability across
the world, it must be a process benefiting all. It must not
allow the most economically and politically powerful
countries to dominate and submerge the countries of
the weaker and peripheral regions. It should not be
allowed to drain the wealth of smaller countries towards
the larger ones, or to increase inequality between richer
and poorer regions.
Mandela’s concern over increasing inequality reflects
the fact that despite apparently good global economic
performance over the past decade or so—more than 3%
per annum growth of output and low levels of
inflation—income and wealth disparities have grown.
Extreme inequality of income, wealth or opportunity is
unfair, and trade liberalisation was intended to improve
the situation by raising the income of poorer societies,
and particularly of the poorest members of those
societies so as to at least bring them above the poverty
line.
The issue of poverty is an underplayed but critical
aspect of the globalization debate. As Amartya Sen
(2002) pointed out, the continuing deprivations and
rising disparities in standards of living of the poor
people of the world are key to current dissatisfactions
with globalization. There are important differences
between ‘poverty’ and ‘inequality’—‘poverty’ is con-
cerned with absolute standards of living, and the ability
to provide oneself with sufficient food, while ‘inequal-
ity’ is about the disparities in standards of living, and
comparisons between the wealth owned by rich and
poor people. While people are obviously concerned
about absolute poverty, there is good evidence that they
are also concerned about inequality or ‘relative
deprivation’. Development is not just about economic
growth4 but also about how the newly created wealth is
 10
distributed5—if all incomes grow at the same rate then
relative inequality6 is unchanged, and, typically (Dollar
and Kraay, 2002), trade openness is ‘distribution-
neutral’. Deininger and Squire (1998) found that there
was a strong positive relationship between economic
growth and the reduction of poverty,7 but no link to
changes in inequality. Stiglitz (2002) agrees and points
out that the policy options favoured by the international
financial agencies have done nothing to improve the
situation, in fact they have tended rather to make it
worse. He points out in particular that IMF structural
adjustment programmes have caused widespread suf-
fering, that free trade agreements mainly benefit the
rich, and that privatisation has proved disastrous in
many countries. He warns that unless the rules of
global capitalism are significantly changed the gap
Downloaded by [Heriot-Watt University] at 08:59 28 December 2014
between the world’s rich and poor is unlikely to
decrease.8
The developing countries
Over the past 30 years or so of the WTO’s existence,
the process of globalization that it has promoted has
failed to address the issues of poverty9 and inequality.
There are some 1.6 billion people, or one-quarter of the
world population, who are worse off than they were 15
years ago. The number of people living in absolute
poverty is increasing by about 25 million a year. If those
living in relative poverty are included, the worldwide
poor population amounts to about 3.3 billion. The poor
are not confined to the developing world. The number
of people living in poverty in the US, for example, has
increased from around 31.7 million in 1989 to 34.6 mil-
lion in 2002 (DHHS, 2003; ERS, 2002)—12.1% of the
population. Similar or worse figures apply for most
countries (Indexmundi, 2003; see also Khor, 2002).
The fact that globalization has not reduced poverty is
causing social unrest and alienating many who perceive
that the only beneficiaries are the rich and large
transnational corporations.10 As Bunzl (2001) writes,11
Far from some altruistic motive to see those in poor
countries improve their lot and thus narrow the gap
between rich and poor, globalization therefore merely
serves as an efficient, low-cost method for TNCs
[transnational corporations] to take advantage of low
taxes, weak regulations and vulnerable labour whilst
penetrating the economies of developing countries.
The World Bank classifies countries with populations
over 30,000 into income groups according to gross
national income (GNI) per capita, calculated using
the World Bank Atlas method. The groups are: low
income (LIC), $76512 or less; lower middle income
(LMC), $766–3,035; upper middle income (UMC),
Lewis
$3,036–9,385; and high income, $9,386 or more. The
term ‘developing countries’ is used to include low and
middle income economies. The term ‘developed
countries’ is used to denote only the high income
economies (World Bank, 2004). By this definition, in
2005, the World Bank listed 56 developed countries
and 154 developing countries (World Bank, 2004,
p. 255). The differences between countries can be
dramatic, with, for example, a large, resource-rich
country like Guyana only having a GNI/capita of $900,
while for Ethiopia it is $90, for South Africa it is
$2,700, for the UK $28,350, the USA $37,610 and
Norway tops the list with $43,350.
Our interest here is with the construction industry in
developing countries, so the focus is on those countries
that have an annual per capita income below $9,385.
Among this group there are other characteristics that
are, perhaps, of even greater importance as far as the
construction sector is concerned. These include such
things as:
N low living standards associated with high income
inequality, poor health and inadequate education
and limited life expectancy;
N low levels of productivity often due to limited
resources, unskilled labour, weak management
practices and backward technology;
N high population growth rate (often due to a
falling death rate) resulting in significant depen-
dency burdens;
N large-scale unemployment and underemploy-
ment;
N a small industrial sector with outdated technol-
ogy unable to employ large numbers of poorly
educated workers;
N a large but neglected agricultural sector and
outward migration from rural to urban areas;
N market imperfections and weaknesses such as,
typically, in the financial sector;
N a colonial past, with numerous consequent
‘hang-ups’;
N limited technology, infrastructure, and social and
political institutions;
N low social capital and social cohesion.13
Most developing countries will demonstrate some if
not all of these characteristics. Another important
characteristic is size. Obviously the issues that a large,
sparsely populated country like Namibia (two persons/
sq km) faces are different from those faced by a small,
heavily populated island like Malta (1,247 persons/sq
km). These differences should not be underestimated.
Perhaps the most vulnerable of the developing coun-
tries are the small island states, particularly as they tend
to be short on most if not all resources. Because their
 Impact of globalization on the construction sector in developing countries
economies are small they are susceptible to any
international economic fluctuations and they are also
prone to local distortions—for example a single large
construction project can have a fairly dramatic effect
not only on the sector’s output but also on gross
national product (GNP). For example, the new airport
terminal in Trinidad cost the equivalent of three times
the total output of the construction sector in 1997, the
year before it started.
Where it is going wrong
Despite differences in their assessments of the benefits of
globalization most commentators would agree that the
underlying principles are theoretically sound. So, why is
Downloaded by [Heriot-Watt University] at 08:59 28 December 2014
it not working as it should?14 The answer lies in the way
the WTO functions. For a start, countries have to abide
by its rules regardless of their immediate circumstances,
preferences and inclinations.15 Even when governments
with different political objectives come into power, the
same WTO rules continue to apply. Governments no
longer control policy options over trade. Many doubt the
advisability of a system run by appointed bureaucrats
that is so unresponsive to special circumstances or the
political preferences of elected governments. The over-
riding principle behind WTO policy is supposed to be
that of trade liberalisation—but concerns with the way
that this process is progressing have been highlighted by
various authors such as Rodrick,16 Khor,17 J.W.
Smith,18 Soros,19 Barlow (2001), Smith (1994), Shah
(2004) and Esty (2001). Some of the key issues and
arguments are discussed below.
Services
The construction sector is a ‘service’ industry as far as
international trade is concerned, and thus falls under
the GATS framework. This agreement is similar in
structure and philosophy to the others and has six
elements of consensus:
(1) Sectoral coverage—which requires equal cover-
age of all service sectors.
(2) Most-favoured-nation treatment—which means
that market access that is granted to companies
from any one country must be granted to
companies from all other countries too.
(3) National treatment—which means that compa-
nies from all countries must be treated the same
as domestic service providers.
(4) Market access—which addresses any measures
that restrict the ability of any service provider to
access a particular market.
11
(5) Transparency—which requires that all of the
measures that govern the process of procure-
ment by the public sector must be available and
‘transparent’ to all.
(6) Denial of benefits—members of the Organisation
should be able to deny the benefits of the access
granted by these agreements to any supplier who
does not meet appropriate membership criteria.
It is difficult to restrict the access of services into a
country, and even to create a barrier in the form of
border tariffs or taxes, so they can only effectively be
controlled by government regulation. The WTO
provisions seriously restrict the ability of governments
to impose such regulations and give service providers
means for objecting to and overturning those that are
introduced.
Because it has been such an engine of growth, the
services sector is one of the most important areas for
trade negotiations, and, within services the construc-
tion industry is a very important element, both because
of its size, and because it not only covers a full range of
commercial activities, but also has strong backward and
forward industrial linkages. It is also affected by most of
the contentious issues arising in the negotiations, such
as government procurement, the free movement of
people, market access, subsidies and the right of
establishment (Lewis and Imbert, 2002). These are
the issues that are important to the construction
industry in both operations and policy terms.
Government procurement
The WTO Agreement on Government Procurement
(GPA) addresses the procurement of goods and
services (including construction services) by the public
sector for any purpose. The GPA is a plurilateral
agreement that only 27 members of the WTO have
signed so far, but pressure is being applied to the
remaining members to conform.
The traditional view is that the public service is
inefficient, slow, unresponsive and wasteful of
resources. The way to improve the provision of public
services is to privatise them, and to allow competition
to improve the overall efficiency. The GPA requires
that all the measures that govern the process of
public sector procurement must be transparent, non-
discriminatory and available on an internationally
competitive basis to all. The GPA allows the procure-
ment of construction services below the level of
5 million Special Drawing Rights or approximately
US$6.77 million (Abdul-Aziz and Tan, 1998) to be
set aside for local firms. An issue that the DCs must
address is whether this level of set-aside is acceptable. Is
 12
it sufficient to enable national or even regional
economic and social policy implementation within a
country or to enable the growth and development of the
firms in the local construction industry? Engineering
firms within the Caribbean, for example, indicated that
US$20 million would be more appropriate for con-
struction contracts, and US$3 million for consulting
contracts (Lewis and Imbert, 2002).
An issue that cannot be avoided is that of project size.
There has been a tendency across the globe for
infrastructure and other public sector projects to become
larger in size—and this has tended to put them out of
reach of consulting and contracting firms in the DCs.
This is an obvious bone of contention, as there is very
little reason why most large projects cannot be broken
down into smaller packages that will achieve the same
Downloaded by [Heriot-Watt University] at 08:59 28 December 2014
objective. Such smaller packages would be within the
competitive reach of local firms as well as the large
transnational ones. This is, of course, particularly the
case with ‘linear’ projects such as roadways or pipelines.
The basic premise of the GPA seems reasonable, but
it denies countries the opportunity to use government
spending to provide an economic boost to specific
regions or sectors of industry. Governments cannot
favour local materials suppliers, contractors or con-
sultants, even if they want to use this to boost local
employment. Competition for significant public sector
projects can, of course, never be equal,20 because there
is a significant advantage in favour of large firms—
which tend to be transnational corporations—due to
their expertise, technology, economic and financial
strengths and their other resource advantages, not to
mention simple economies of scale.
In DCs, government agencies tend to be the largest
purchasers of construction services, and often use these
projects to implement economic and social policies by
favouring local firms. Implementation of the GPA is
likely to mean that a significant amount of government
work will be won by foreign construction firms, and that
large cash flows and profits will be going to foreign firms
instead of local ones, and also that skills and technology
development will be handicapped. Similarly, govern-
ments will no longer have the discretion to spend as they
wish to boost their social policies, by favouring small,
local or regional firms, or firms in specific industrial
sectors, in order to promote local employment and
economic growth and development. For a developing
country, this is obviously a significant problem.
Free movement of natural persons
The WTO requires progressively freer movement of
natural persons, under the Mode 4—presence of natural
Lewis
persons form of trade in services. The construction
sector is labour intensive, and involves not only
professional engineers, architects and surveyors, but
also a whole range of sub-professionals, tradesmen,
craftsmen and other artisans. Ideally, firms would
like to use their regular personnel wherever they
work, and so in principal, the industry should benefit
from the enhanced freedom of movement. It may be
expected that this would result in quite significant
movements of workers related to the industry, although
this does not seem to have happened in Europe,21 for
example (Papapanagos and Vickerman, 1999; Janssen,
2000).22
This ‘freedom of movement’ is becoming increas-
ingly important and its logic is that economic efficiency
(and social welfare) will be better served if labour could
move freely to areas where job opportunities exist
internationally.23 If there are trade imbalances between
countries, then geographical movement of labour to the
trade-surplus countries, or capital to the trade-deficit
countries, should help to eradicate the differences, and
at the same time, alleviate the tensions due to the
imbalances and ease unemployment problems. As
Bourne (2002) writes,
To put it bluntly, barriers to the inter-regional mobility
of labour and capital lower factor productivity, frustrate
the emergence of scale economies and retard interna-
tional competitiveness … The policy issue is how to
facilitate such equilibrating movements of capital and
labour, especially in the face of structural and natural
resource disparities …,24 and how to minimize the
magnitude of the labour transfers.
For professionals, the GATS Protocol requires mem-
bers to
establish common standards and measures for accred-
itation or where necessary for the mutual recognition of
diplomas, certificates and other evidence of qualifica-
tions … [and] to determine equivalency or accord
accreditation to diplomas, certificates and other evi-
dence of qualifications secured by nationals … [and] the
coordination of legislative and administrative require-
ments of Member States (Caribbean Community
Secretariat, 2001).
It is recognised that many of the most successful
contractors in the industry have little or no academic
training or qualifications. Such individuals are not
currently accepted into the professional associations,
and so miss out on the status accorded by membership
of such bodies. Thus there is a move to acknowledge
their competence in terms of their experience, and
through technical and vocational qualifications. In the
same way, there is no existing international standard for
measuring or accrediting the capabilities of sub-profes-
sionals, technicians or skilled artisans, tradesmen or
 Impact of globalization on the construction sector in developing countries
craftsmen. This is a deficiency that needs to be
addressed.
Construction projects provide a valuable source of
short-term employment especially for the disadvan-
taged and less skilled, and thereby fulfil a very valuable
socio-economic function. This would be lost if foreign
firms brought their whole workforce with them. Local
communities have already spoken out against this
practice (Lewis and Imbert, 2002), especially when
the workers are described as ‘skilled’ but in reality have
very dubious capabilities. Although it is only anecdotal,
there is evidence to suggest that some foreign contrac-
tors use indentured-type labour25 on overseas projects,
for what must be minimal cost. There is no doubt that
their presence is resented locally.
These foreign contractors may also be treating
Downloaded by [Heriot-Watt University] at 08:59 28 December 2014
their workers in ways that are not legally acceptable
locally, for example, by paying them below local
minimum wage standards, and providing working
conditions and accommodation below what would
normally be considered acceptable locally. This reduces
the company’s costs and makes them highly competi-
tive, though unfairly so, on purely financial terms.
This goes against the international objective of ensur-
ing that labour conditions are both equitable and
regularised.26
In addition to this, there are concerns that the
sudden influx of a large itinerant workforce into an area
with limited socio-economic infrastructure will have
damaging effects on that area. As Summers and Lang
(1976) write, ‘More often the industry clearly gains
while having a negligible or even negative effect on the
host community over the long run’; and Waterhouse
(1991) says, ‘Traffic congestion, air pollution, the need
for new schools or public safety services are all possible
downsides to the jobs and taxes upside’.
Thus, while it may be beneficial to the firm in terms
of enhanced efficiency for a construction project team
to travel and work together, it may not be politically or
socially acceptable particularly on publicly funded
projects in countries which have high unemployment
and a fairly vocal labour force. Firms from the DCs
themselves would be unlikely to take their entire
workforce to a project in another country, especially a
DC, as they tend to require time-consuming and
expensive work permits.
The unrestricted movement of ‘natural persons’
is unlikely to be fully implemented in the short to
medium term—especially with the wide economic
differences that exist between developed and develop-
ing countries. Poor countries are concerned that it
would promote a more rapid ‘brain drain’, and richer
countries fear an overwhelming influx of ‘economic
refugees’.
13
Market access
Under the WTO, market access is subject to ‘national
treatment’, which means that goods and services coming
into a country must be treated ‘no less favourably’ than
those from domestic suppliers. In the context of the
construction industry this would mean giving consul-
tants and contractors from the smaller and less devel-
oped countries access to project opportunities in the
larger and more developed countries, and vice versa. In
theory, this seems fine and fair; anyone can bid for work
anywhere, and a client can choose any provider, from
anywhere, for the services required. However, the
process is only really fair if all of the players are starting
on equal terms. They must face the same terms and
conditions and receive the same institutional support.
This is patently not the case. First, the large ‘transna-
tional’ companies have huge physical, technical, finan-
cial and human resources that firms from the DCs can
only dream of. Second, they receive significant organisa-
tional and financial support from their home govern-
ments in the form of trade promotions, export credit
guarantees, tax relief and other financial subsidies—
none of which are available to firms from the DCs.
Because of their limited size and shortage of resources,
these latter firms find it difficult to contemplate working
outside their home region (or country, very often), at
least in the short term. As a result, there is little for the
industry in the DCs to gain from the market being
‘opened up’—all that will happen is that competition for
the ‘best’ local projects will be increased.
Thus local firms in DCs tend to be sceptical of the
benefits of ‘market access’ designed to allow them to
work outside their home countries, when they have
little or no inclination or capacity to look for work
there. Even the largest local firms are relatively small by
international standards, but they are big enough to bid
on most of the major projects that are internationally
tendered in their home countries. However, even then,
they are often excluded by the pre-qualification criteria
used by the international financial agencies that tend
strongly to favour larger foreign firms, by, for example,
giving extra weighting points to size even when this may
not be particularly relevant to the job at hand.
Another problem facing the industry in a developing
country is that foreign contractors or consultants may
take relatively small jobs in the region to get a foothold
in a new market, and that they may take those jobs at
cost, or even at a loss, for strategic reasons. Local firms
cannot compete on these terms, as it is a form of
‘dumping’ via under-pricing, and as a matter of policy it
should not be tolerated in the construction industry,
just as it is not tolerated in manufacturing because of
the damage it causes.
 14
The WTO also implements a Technical Barriers to
Trade (TBT) Agreement. This is intended to harmo-
nise environmental and other standards, but it
effectively creates a ceiling but no floor for such
regulation. Under its rules, a nation must be prepared
to prove, if challenged, that its environmental and safety
standards are both ‘necessary’ and the ‘least trade
restrictive’ way to achieve the desired conservation
goals, food safety or health standard. This means that a
country bears the burden of proving a negative—that no
other measure consistent with the WTO is reasonably
available to protect environmental concerns. The WTO
TBT Agreement also sets out an onerous procedural
code for establishing new laws and regulations so
arduous that it is very difficult for any nation to meet.
(Barlow, 2001)
Downloaded by [Heriot-Watt University] at 08:59 28 December 2014
This is a very important issue for the construction
industry, as its output affects and is affected by the
environment. Although it may help to standardise
environmental regulations internationally, there is the
fear that it will initiate a ‘race to the bottom’ by
accepting the lowest standards that are in place
anywhere and then imposing them internationally
(Rosset, 1999).
Subsidies
Most industries in countries within the larger trading
blocs receive hidden subsidies that help them compete
abroad. Although the actual forms of the subsidies and
inducements received by the construction industry are
less well known than those in agriculture, for example,
there is no doubt that they exist. Charles Ram (Lewis
and Imbert, 2002) investigated the support, subsidies
and incentives affecting the construction industry in
Guyana, and noted that,
even within countries, let alone across the region, there
are differences in the policy of taxation and subsidies. In
Guyana the principal savings and loans organisation is
tax exempt, allowing that organisation to compete
unfairly with other lenders. A contractor who operates
in the residential housing sector is in a preferential
position vis-à-vis a contractor in the commercial sector
which does not enjoy any special tax concession or
subsidy. Thirdly, many major projects are financed by
foreign governments and groupings such as the
European Union and international financial institu-
tions. By virtue of the conventions under which they
operate, income and imports under contracts financed
by them are exempt from all taxes. … Some Caribbean
Countries still have the product based fiscal incentive
regime under the post-WWII UK modeled Income Tax
(in Aid of Industry) Act. This Act gives generous tax
holidays, initial and annual capital allowances to
Lewis
manufacturing and processing activities. It does not
recognize services.
The British government, for example, uses the
Export Credits Guarantee Department (ECGD)
(NCE International, 1979), to provide support to the
construction industry in many areas, including the
marketing of the sector’s skills abroad, the insurance of
overseas operations, the guaranteeing of bank loans,
and the provision of bond coverage. All of these
significantly reduce their cost of doing business in a
way that is not available to firms from the DCs.
Quite apart from such home-country subsidies, the
project’s host country also often offers foreign firms
inducements that work against the interests of their
own nationals. Tax concessions and the waiving of
import duty on machinery and equipment imported by
foreign contractors for a construction project, are
typical forms of such ‘subsidies’. Local firms do not
enjoy the same luxuries. In addition, contractors from
the DCs tend to be further disadvantaged by the
immature financial services sectors in their countries in
that the commercial bonding that is available locally is
both inadequate and expensive. In theory, under the
WTO, subsidies are prohibited, as they work against
free competition.
Right of establishment
There are four distinct ‘modes’ of trade defined in the
GATS (Article 1):
specifically, services supplied from the territory of one
Member to the territory of another (cross-border);
services supplied in the territory of one Member to the
consumers of another (for example, tourism); services
provided through branches of entities of one party in the
territory of another (for example, a branch of a foreign
bank); and services provided by nationals of one party in
the territory of another (for example, construction
teams). (Committee on Trade and Development, 1994)
Mode 1—cross-border supply
Cross-border supply consists of services supplied from
the territory of one Member to the territory of another
across a border. In the past the cross-border supply of
construction services was generally assumed to be
practically non-existent because it just was not feasible
(i.e., construction services cannot be supplied without
the movement of service providers). However, some
services (such as electronic draughting and design,
and internet-based project monitoring) may nowadays
be traded via telecommunications. As electronic
 Impact of globalization on the construction sector in developing countries
commerce develops there are likely to be further
changes in the way that construction services are
supplied.
It is also possible that, for example, an engineer
in London may carry out a design for a client in Guyana
without ever having even visited that country, simply
e-mailing the final product. In principle this may
appear fine; however, in practice there are a number
of specific problems particularly in relation to service
providers from outside the DC. For example, there may
well be a distinctive local aesthetic that is expressed in
the built environment. Ideally, the DC may wish the
practice of architecture to be restricted to local firms, or
foreign firms that are involved in joint ventures with
local firms.
A similar situation exists within the engineering
Downloaded by [Heriot-Watt University] at 08:59 28 December 2014
community, where design parameters are affected by
factors such as the locally available materials, the
culture, work ethic, climate and seismicity that may
not be familiar to the foreign engineer. These factors
could significantly affect the design, the effectiveness
and efficiency of a structure, which would be compro-
mised if these issues were overlooked. Some form of
joint-venture arrangement with a local firm would go a
long way to overcoming these reservations.
Mode 2—consumption abroad
Consumption abroad consists of the supply of a service
by a member of Country A to a consumer of Country B
who is present in Country A. An example of this could
be the construction by a South African contractor of a
British bank building in Cape Town.
A significant number of firms, especially in insur-
ance, banking, distribution and manufacturing, have
branches, subsidiaries or other types of holdings in
numerous countries around the world. This is expected
to become a more common occurrence, especially as
more firms globalise their operations. All of these
organisations are expected increasingly to use the local
construction industry—for both cost and the socio-
political reasons that it creates local employment,
forges links with the local community and reflects well
on them. Apart from the increased demand there are
also spin-off benefits for the local construction industry
involved in these projects in capacity and reputation
building.
Mode 3—commercial presence
Commercial presence consists of the supply of service
by a member of Country A to consumers in the
territory of member Country B, via a branch in
Country B. An example of this could be a contractor
from Barbados that owns a company, or is involved in a
15
joint venture with a firm in Grenada, in order to
provide services to Grenadian clients. Currently this
tends to be a popular approach among construction
firms that try to keep a ‘presence’ in different part of the
world in order to be ready for changes in the
international economic climate.
By and large, the DCs have actively tried to
encourage foreign firms to establish a ‘commercial
presence’ in their home territories, so there are few if
any barriers, and those that do exist are under review
for removal (Ifill, 2002). It is expected that local
construction firms in the DCs will also increasingly be
prepared to set up subsidiaries in other countries where
they work or would like to work. This approach has the
double benefit of being politically correct (it’s a local
company) and of limiting the parent company’s
exposure (if things go wrong).
The only restrictions on commercial presence that
appear to be reasonably common amongst the DCs are
those where non-resident construction contractors are
required to submit a deposit or post a bond before they
can work there, or where there are residency or work
permit requirements, or, increasingly rarely, where
there are across-the-board restrictions on the owner-
ship of assets, particularly real property.
Mode 4—presence of natural persons
This involves services provided by nationals of
one country in the territory of another. An example of
this could be a Nigerian consultant who travels to
Tanzania to provide design services to the Nigerian
construction sector. The issues here tie back into the
comments regarding the free movement of natural
persons.
It need hardly be noted that it would be economi-
cally more desirable for a country to encourage local
engineering entrepreneurs to establish their own con-
struction firms. This way many more of the benefits
of construction work can be enjoyed by the domestic
economy. For example, local firms constructing
large projects would mean that the local economy
would benefit from technical and managerial skill
enhancement, project cash flows and profits, and their
associated multiplier effects and also the spin-off
of upstream and downstream inter-industry expendi-
tures.
Two other important issues need to be included in
any discussion of globalization and the construction
industry, and they are issues surrounding the environ-
ment and culture, as both have become major issues
with the professional institutions around the world and
with organisations such as the International Council for
Research and Innovation in Building and Construction
(CIB).
 16
Environment
Copeland and Taylor (2003) illustrate how the
environment has become involved in trade policy, with
‘For the last ten years environmentalists and the trade
policy community have engaged in a heated debate over
the environmental consequences of liberalized trade’.
The environmentalists’ concern stems from the
requirement for equality of treatment27—which means
that no country may be more favoured than any other,
and so countries with lower environmental and safety
standards cannot be discriminated against. This leads
to what has been termed a ‘race to the bottom’, in that
the lowest standards tend to define the norm, and
countries tend to lower their standards accordingly.28
Thus, for example, the ‘Virginia-based Ethyl Corp.
Downloaded by [Heriot-Watt University] at 08:59 28 December 2014
forced the Canadian government to reverse its legisla-
tion banning the cross-border sale of its product,
MMT, an additive to gasoline that has been banned
in many countries.’ (Barlow, 2001, p. 6)
The concern over the environment was heightened
by the US’s rejection of the Kyoto Protocol, which
deals with responses to global warming and the threat
of climate change. It is widely believed that this
rejection was motivated by big business interests.
Furthermore, a great deal of ill will was created by
the release of an internal World Bank memo, in 1991,
from its then Chief Economist, Lawrence Summers, in
which he wrote:
Just between you and me, shouldn’t the World Bank be
encouraging more migration of dirty industries to the
LDCs [less developed countries]? … The economic
logic behind dumping a load of toxic waste in the lowest
wage country is impeccable, and we should face up to
that … Under-populated countries in Africa are vastly
under-polluted; their air quality is probably vastly
inefficiently low compared to Los Angeles or Mexico
City … The concern over an agent that causes a one in a
million change in the odds of prostate cancer is
obviously going to be much higher in a country where
people survive to get prostate cancer than in a country
where under-five mortality is 200 per thousand. (The
Whirled Bank Group, 2001)
The ‘economic logic’ may have been ‘impeccable’, but
it was far from politically or morally correct. Sadly the
idea that some countries are under-polluted reflects the
real attitude29 of the developed countries, transnational
corporations and the international financial agencies.
In theory, market liberalisation should help the
environment because, if it is considered valuable, then
markets will be created that address the relevant issues,
either introducing non-harmful technologies, or by
cleaning up damage afterwards. Tussie (1999), Barlow
and Clarke (2003) and Johnson (2004) provide good
Lewis
discussions of the issues and recognise that the North
will dominate any discussions involving the effects of
market forces on the environment. The sad truth is that
the immediate effect of increased globalization is likely
to be a decline in environmental standards.30
It needs hardly be said that the civil engineering
profession ought to be directly involved in discussions
regarding the environment, and to deny concern or
responsibility would be tantamount to lack of interest
or neglect.
Culture
A Canadian policy paper (Department of Communi-
cations, 1987), states that:
The bond that holds Canadians together is our distinct
culture—not just in the sense of the arts, but in the
larger meaning of our pastimes, habits, images, institu-
tions, perspectives on the world, collective memory and
our bilingualism and multiculturalism. Our culture is to
a large extent the expression of who we are.
UNESCO (1998a) similarly defined culture as includ-
ing ‘not only the arts and letters, but also modes of life,
the fundamental rights of the human being, value
systems, traditions and beliefs’. There are important
concerns that the distinctive cultures existing in
different parts of the world are under threat of
‘homogenisation’ due to globalization. It is feared that
the impact of free trade will be that local culture will get
drowned out by a flood of imported culture. The main
issue here is how a society can best manage the
interaction between free trade and local culture, and
the secondary issue for civil engineers is how cultural
concerns can be factored into the management of
international projects.
A UNESCO (1998b) report addresses these issues
and is basically upbeat on the positive aspects of the
contribution that diversity can make to creativity and
cultural development, though it does recognise that not
all ‘diversity’ is good. In theory, it says, provided
culture is valuable to people, consumer choice in a free
market will lead to the selection of products and
services reflective of that culture and so preserve it. It is
natural for a culture to evolve through interaction and
hybridisation though contact with external influences,
and attempts to subvert this process by erecting barriers
will deprive the culture of the very influences that keep
it strong and vibrant. (Free Trade, 2004). As Alexander
(2001) notes,
In order for ‘free markets’ to be ‘free,’ the exchange of
labour, land, currency, and consumer goods must not
be encumbered by elements of psychosocial integration
such as clan loyalties, village responsibilities, guild or
 Impact of globalization on the construction sector in developing countries
union rights, charity, family obligations, social roles, or
religious values. Cultural traditions ‘distort’ the free
play of the laws of supply and demand, and thus must
be suppressed. In free market economies, for example,
people are expected to move to where jobs can be
found, and to adjust their work lives and cultural tastes
to the demands of a global market.
In other words culture must not be allowed to get in the
way of the workings of the free market—if local culture
gets damaged in the process, so be it.
It is even dangerous to try to sponsor the survival of a
threatened culture, because it is not a morally or
culturally neutral activity. It puts considerable power of
choice, and expression of taste preference—over what
forms of culture to support—into the hands of the
sponsors. As Martin (2000) writes:
Downloaded by [Heriot-Watt University] at 08:59 28 December 2014
It is all very well for Bill Gates to charitably donate
$750m to pay for immunization programmes for certain
diseases, as he recently announced he would do, and for
James Wolfensohn to urge transnational companies sett-
ing up in poor countries to contribute financially directly
to local education services. Societies which depend on
such largess to meet their basic health and education
needs are neither sustainable, democratic nor equitable.
Two of the most outspoken groups on cultural issues
in free trade have been the Canadians31 and the
Australians.32 Both are particularly concerned that the
‘choice’ in cultural services should not be determined
purely by economic muscle.33 If that is the case then
the US providers will quickly dominate and local
cultures will suffer. Seabrook (2004) is in no doubt:
as he writes, ‘Globalization is a declaration of war upon
all other cultures’. Governments must combat this by
support for their indigenous cultures. Jamieson (2004)
summarises a number of studies and highlights the ‘key
messages’:
Trade is not an end in itself, but the means to a broader
objective—a better society. The significance of cultural
works is also social and political as well as economic.
The pursuit of national cultural objectives is just as
important as foreign and trade policy objectives.
Cultural goods and services are not like other forms of
merchandise. Cultural diversity is preferable to homo-
geneity. Governments have an important role to play in
promoting and preserving cultural diversity.
Perhaps the last word on this issue should be that ‘we
must remember that the important issue in regard to
maintaining culture when framing economic policy is
not whether, but how’ (Trade and Culture, 1999).
One aspect of cultural and economic imperialism
that is highlighted by the globalization process is the
choice of pay rates for different parts of the world. This
is not only an issue for Nike and its running shoes, but
for every company that operates in different cultural
17
settings. The Institute for Economic Democracy (IED,
2004) demonstrates how low wages for the same work
will always leave the developing countries at a
disadvantage. Unless wage differentials are addressed,
developing countries will never catch up, in fact they
will always keep falling further behind.
Consider this: You are in America producing one
widget an hour and are paid $10 an hour. I am in
Indonesia producing one widget an hour and am paid
$1 an hour. We are equally productive but we have a 10
times pay differential. We ignore monopoly patent costs
which only increase the discrepancy and price these
widgets at the labor cost of production. (Capital is but
stored labor so all justified costs are labor costs.) I must
work 10 hours to buy one of your widgets. In that same
10 hours you earn $100 and can buy 100 of my widgets.
The difference in retained wealth is not mathematical it
is exponential (high pay divided by the low pay squared)
… When you do this math remember the key is the
buying power gained in the same working time-span by
equally-productive labor producing products for trades
between countries … If the well-paid nation is paid
twice that of the low-paid nation, in direct trades
between them the well-paid nation accumulates 4 units
of wealth and the low-paid accumulates 1 unit of
wealth. At 4 times the pay differential for equally
productive labor the high-paid nation retains $25 and
the low-paid nation retains $1. At a 20 times pay
differential the high-paid nation retains $400 while the
low-paid nation retains $1. This sixth grade math is the
first of the three fundamentals of plunder-by-trade.
Currently, the process of globalization is helping to
keep wages low in developing countries, on the pretext
that this helps preserve their ‘comparative advantage’.
It should be apparent that maintaining this differential
confers only a continuing disadvantage. On the other
hand, of course, paying much higher wages than the
norm would also be socially disruptive. It is not a
problem with a pat solution, but it is one that deserves
much wider discussion among observers and commen-
tators on the construction industry globally.
The system is not working the way it was supposed
to. globalization is not reducing the imbalance of trade
or decreasing the gap between rich and poor. The
construction industry provides employment for large
numbers of people around the world and must consider
its obligations, and what the concept of a fair day’s pay
for a fair day’s work implies.
Summary and conclusion
The general principle behind globalization is that the
most efficient form of market is a competitive one, and
as a result, the WTO and other organisations have
 18
focused on increasingly open markets.34 This is
supposed to help developing countries to grow, by
allowing competition to break down the inefficiencies
of industries that were hidden behind various barriers
to trade. This process of liberalisation has included
opening government procurement to competition even
for markets for social services and utilities. This has
effectively taken economic and social policy options
away from the elected representatives of the people
(Bello, 1999). This in turn has led in some situations to
social disorder and disruption.35
It is generally agreed that free trade has much to
recommend it in theory; the problem is that many of
the necessary assumptions and requirements of imple-
mentation are incorrect or missing. Perhaps the most
important missing element is the concept of fairness in
Downloaded by [Heriot-Watt University] at 08:59 28 December 2014
the trade negotiations and the trade that is occurring. It
is folly to think that small, immature firms can compete
on equal terms with huge transnational corporations.
As a result, it would seem logical that developing
countries should maintain some form of protection for
their fledgling industries, and not expose them sud-
denly to the full rigours of international competition.
This is especially the case when a vast range of
industries in the developed countries are supported by
hidden, market-distorting subsidies on things such as
transport and energy costs—which are elements of the
cost of trade of all goods (Chomsky, 1994).
It would also seem sensible for developing countries
to encourage the creation of their own industries, rather
than rely on subsidiaries of transnational corporations.
This is not a new concept, for as Smith (1994) wrote:
[I]f a society spends one hundred dollars to manufac-
ture a product within its borders, the money that is used
to pay for materials, labor and other costs moves
through the economy as each recipient spends it. Due
to this multiplier effect, a hundred dollars worth of
primary production can add several hundred dollars to
the Gross National Product (GNP) of that country. If
money is spent in another country, circulation of that
money is within the exporting country. This is the
reason an industrialized product-exporting/commodity-
importing country is wealthy and an undeveloped
product-importing/commodity-exporting country is
poor.
If it is accepted that trade encourages economic
growth, and that there is no reason why equity cannot
accompany growth, then increased trade should be a
good thing. The way to enhance the chances of
increased equity in the distribution of income and
wealth is to put in place a policy of investment in
human capital (particularly in the form of education
and training). Governments should focus more on
trying to ensure that all members of society have an
Lewis
equal opportunity, than on illusions such as equality in
the distribution of wealth. As it stands, free trade
between unequal nations is itself unequal and will only
perpetuate inequality as a result.
In more specific terms, the construction industry
stands to benefit from the free movement of natural
persons, and one part of this can be addressed by
ensuring that there is mutual recognition of profes-
sional qualifications. To achieve this, there is a need for
a common global accreditation system that recognises
equivalent qualifications as well as a standard legislative
framework defining and protecting the engineering
profession and the public around the world. Once this
exists there will be a sounder basis for true globalization
of the profession. The Washington Accord (2003) has
made significant steps in this direction and should be
supported. In a similar manner, the competencies of
tradesmen need to be recognised and accredited in
order to make their skills more mobile (though this
obviously has a down side too).
In general terms the construction industry has long
supported the concept of free and fair competition on
the basis of the competitive bidding system that has
traditionally underwritten the award of work in the
industry. Even the DCs are generally happy with the
concept of competitive tendering provided that
the playing field is level. Indeed they are more
concerned with unfair competition in tendering for
projects in their home countries than with wanting
access to global markets. One aspect of this is the call
for smaller public sector projects (e.g. construction
contracts less than US$20 million) to be set aside for
local companies.
There should be a focus—particularly within the
public sector—on ensuring fair competition by repacka-
ging work into contracts of an appropriate size, and by
the removal of any biases that may exist in selection of
consultants or contractors, as well as by eliminating or
equalising the subsidies and other financial induce-
ments that are available.
‘Stiglitz points out that today’s industrialized countries
did not practice free trade when they were first develop-
ing, and that even today they do so highly imperfectly.
(Witness this year’s increase in agricultural subsidies and
new barriers to steel imports in the US.) He argues that
forcing today’s developing countries to liberalize their
trade before they are ready mostly wipes out their
domestic industry, which is not yet ready to compete.’
(Friedman, 2002)
Notes
1. Economists commonly use the expression ‘least worst’
instead of ‘best’, because comparative advantage only
 Impact of globalization on the construction sector in developing countries
exists in terms of lower opportunity costs that the
production of one good has over another in any
particular economy compared with another.
2. Burgi and Golub (2000) express a similar view,
‘globalization is institutionalising a new balance of
power between states that hardens the sovereignty of
some while reducing the autonomy of the others. The
worldwide free market accentuates the disparity between
the centres of capital and the peripheries. The players
with knowledge and power lay down the rules; the others
fall into line.’
3. Arundhati Roy has written passionately about agricul-
tural subsidies (Roy, 2004).
4. The role of investment in growth has not been addressed
here but it is of great importance; the Friends of the
Earth (2003) provide an interesting briefing on this
issue.
Downloaded by [Heriot-Watt University] at 08:59 28 December 2014
5. The IMF position is outlined in a report (IMF, 1998).
6. ‘‘‘Absolute inequality’’ depends on the absolute differ-
ences in levels of living, rather than relative differences,
as captured by the ratios to the mean. Consider an
economy with just two household incomes: $1,000 and
$10,000. If both incomes double in size then relative
inequality will remain the same; the richer household is
still 10 times richer. But the absolute difference in their
incomes has doubled, from $9,000 to $18,000. Relative
inequality is unchanged but absolute inequality has risen
sharply … It is not that one concept is ‘‘right’’ and one
‘‘wrong.’’ They simply reflect different value judgments
about what constitutes higher ‘‘inequality.’’ These value
judgments carry considerable weight for the position one
takes in the globalization debate’ (Ravallion, 2003a).
7. The World Bank (2000), for example, also reported that
globalization is good for the poor. ‘Growth generally
does benefit the poor and that anyone who cares about
the poor should favor the growth-enhancing polices of
good rule of law, fiscal discipline, and openness to
international trade’, it noted.
8. See World Bank (2003) for its views on global economic
prospects.
9. What is meant by poverty? A guide is provided by the
baseline figure of US$1 per day that is often quoted. A
more meaningful measure is how much money is needed
to buy enough food in terms of its calorific value, to
survive. The poverty line is an income level less than that
required to provide a per capita direct calorie intake
(DCI) that is the minimum needed to sustain life. Richer
countries tend to have higher poverty lines even when
the costs are converted to establish purchasing power
parity (PPP). Poverty is a survival issue.
10. Whether the perception is correct or not is a moot point,
and many references can be quoted to substantiate
either side of the argument. For example, a recent book
by the International Forum on Globalization (2001)
asks: ‘Does globalization help the poor?’ and answers
with a profound negative, while a publication from the
Institute for International Economics (Bhalla, 2002)
asks ‘Who has gained from globalization?’ and answers
with equal conviction that it is the poor. As Ravallion
19
(2003b) notes, both are misleading, for neither is able to
separate the contribution of ‘greater openness to
external trade (as one aspect of globalization) in the
distributional changes observed, versus other factors
such as rising agricultural productivity, demographic
factors, changes in the distribution and returns to
education and internal policy reforms.’
11. Bunzl (2001) also notes, ‘History shows us that the more
powerful nations have devised international economic
agreements that promote more dependency upon those
wealthier countries. In a twisted sense then, such an
interdependency as implemented would be good for
‘‘stability’’ of the status quo. Real interdependency on
the other hand, that deals with equity and cooperation as
well, may have more likelihood of being good for all, but
that would be less likely to happen because it would
threaten to reduce the influence and power of the
wealthier nations and multinational corporations’.
12. All figures are in US dollars unless stated otherwise.
13. Based on a description of developing countries found on
website note http://www.tutor2u.net/economics/con-
tent/topics/development/development_ldcs.htm (access-
ed April 2004).
14. Martin Khor discussed these issues in Khor (1994).
15. On this point, Bunzl (2001) writes, ‘Certain electorates
around the world still generally believe they live in truly
democratic countries, a misapprehension which is
leading to a marked and increasing mismatch between
voter expectations and political-economic reality. Voters
are led to believe that in selecting a particular party they
are voting for a particular political approach. But they
become confused when, once in power, their party fails
to deliver what they might have expected … Since our
politicians and their parties must now position them-
selves according to what free-market competition
dictates and not necessarily to what the electorate
desires they have, to a great extent, ceased to represent
a mechanism through which political choice can be
expressed. Instead they have become puppets of the
quasi-dictatorship serving principally to preserve among
the electorate the false illusion of political choice; the
false illusion of democracy.’
16. For example Rodrick (2001) criticises the one-size-fits-
all approach of the international financial agencies such
as the IMF and World Bank. See also Mosca (2002),
which reviews Rodrick’s book (1997), and makes much
the same point.
17. For example, Khor (1999) made a plea on behalf of the
International Forum on Globalization (IFG) for a
reformed WTO, and warned of troubles to come at the
Seattle meeting of the WTO. His warning was prescient.
18. For example Smith (1994) launches a powerful and
wide-ranging attack on globalization.
19. For example Soros (2002) points out how the global
financial system is biased towards the interests of the
central, developed countries while starving the poorer
periphery of financial resources.
20. A field may of course be flat but tilted, and a not
untypical comment from President Clinton’s Secretary
 20
of Treasury, Lloyd Bentsen, was quoted in the Wall
Street Journal (cited in Chomsky, 1994), ‘I’m tired of
this level playing field business. We want to tilt the
playing field in favour of US industry.’
21. It is possible that such movements have not occurred
because the marginal extra cost, of moving a person
rather than employing a local, is too high.
22. Janssen both supports and undermines this conjecture
by recognising that there has been an ‘increase in labour
mobility in the construction sector’ but then goes on to
say that ‘studies … invariably confirm that labour is
predominantly recruited in the locality where the
construction establishments are located or projects
carried out.’
23. It is accepted that this implies that capital could also
move to areas where needed.
24. Caribbean Single Market and Economy.
25. Some even claim that convicts are used on such
Downloaded by [Heriot-Watt University] at 08:59 28 December 2014
contracts.
26. This is not as simple as it may sound as, for example, it
echoes the debate on whether Nike should pay US levels
of wages to Indonesian workers making shoes in
Indonesia (Kempley, 1998).
27. See also Kumar (2003) on the related issue of
performance requirements.
28. Wallach and Woodall (2004) give a number of examples
of damaging environmental impacts of the WTO’s rules
and their implementation.
29. I.e. global pollution can be redistributed before we need
to worry about reducing it.
30. Johnson (2004) discusses the positive and negative
impacts that trade liberalisation can have on the
environment, and emphasises the need for awareness
of the potential for damage.
31. See for example Greenwell (2004) and Jamieson (2004).
32. See for example O’Hara (2003).
33. For example, Hollywood will quickly overpower local
film industries in Canada or Australia because of its
economies of scale and financial and technological
resources, unless barriers are erected to protect the local
industries.
34. See a discussion of this issue at note www.globalissues.
org/TradeRelated/SAP.asp (accessed 13 March 2006).
35. See Chomsky and Barsamian (1994), and at note http://
www.zmag.org/chomsky/rab/ (accessed 13 March 2006).
References
Abdul-Aziz, A.-R. and Tan, A. (1998) GATT, GATS and
the global construction industry. Engineering, Construction
and Architectural Management, 2(2), 105–20.
Alexander, B. (2001) The Roots of Addiction in Free Market
Society, Canadian Centre for Policy Alternatives, Ottawa.
Barlow, M. (2001) The Free Trade Area of the Americas and the
Threat to Social Programs, Environmental Sustainability and
Social Justice in Canada and the Americas, Fighting the
Octopus, available at www.infoshop.org/octo/actions/ftaa
barlow.html (accessed May 2004).
Lewis
Barlow, M. and Clarke, T. (2003) Making the Links: A
Peoples’ Guide to the World Trade Organisation and the Free
Trade Area of the Americas, The Council of Canadians,
Ottawa.
Bello, W. (1999) Dark Victory: The United States and Global
Poverty, 2nd edn, Food First Books, Oakland, CA.
Ben-David, D. (2000) Trade, growth and disparity among
nations, in WTO (2000) Income Disparity and Poverty, WTO
Special Study 5, WTO Publications, Geneva, available at
www.wto.org/english/news_e/pres00/pov2_e.pdf (accessed
13 March 2006).
Ben-David, D. and Kimhi, A. (2000) Trade and the rate
of income convergence. NBER Working Paper 7642,
April and available at http://www.nber.org/papers/w7642
(accessed 13 March 2006).
Bhalla, S. (2002) Imagine There’s No Country: Poverty,
Inequality and Growth in the Era of Globalization, Institute
for International Economics, Washington, DC.
Bourne, C. (2002) Regional economic performance and
prospects. Caribbean Investor and the CAIC Times, 1(4),
12–15.
Bunzl, J.M. (2001) The Simultaneous Policy, An Insider’s Guide
to Saving Humanity and the Planet, New European
Publications, London.
Burgi, N. and Golub, P.S. (2000) The states we are in. Le
Monde Diplomatique, April, available at http://mondediplo.
com/2000/04/07golub (accessed 13 March 2006).
Caribbean Community Secretariat (2001) Programmes for
Removal of Restrictions—Protocol 2, CARICOM, George-
town, Guyana.
Chaitkin, A. (1985) Henry Clay: national development must
take precedence over debt payments. Executive Intelligence
Review, 8 November 1985, also available at http://mem-
bers.tripod.com/,american_almanac/hclay.html (accessed
May 2004).
Chomsky, N. (1994) How free is the free market? Resurgence
(extracts from Chomsky’s speech in London, May 1994),
available at http://www.lipmagazine.org/articles/featchomsky
_63.htm (accessed 13 March 2006).
Chomsky, N. and Barsamian, D. (1994) Keeping the rabble
in line: interviews with David Barsamian, available at http://
www.zmag.org/chomsky/rab/ (accessed 13 March 2006).
Committee on Trade and Development (1994) Developing
Countries and the Uruguay Round: An Overview WTO,
available at http://www.wto.org/english/docs_e/legal_e/
ldc2_512.htm (accessed 13 March 2006).
Copeland, B.R. and Taylor, M.S. (2003) Trade, growth and
the environment. NBER Working Paper 9823, May,
available at http://www.nber.org/papers/w9823 (accessed
13 March 2006).
Deininger, K. and Squire, L. (1996) A new data set
measuring income inequality. World Bank Economic
Review, 10(3), 565–91.
Deininger, K. and Squire, L. (1998) New ways of looking at
old issues. Journal of Development Economics, 57, 259–87.
Department of Communications (1987) Vital Links:
Canadian Cultural Industries, cited in Jamieson (2004).
DHHS (Department of Health and Human Services) (2003)
The 2003 HHS Poverty Guidelines, available at http://aspe.
 Impact of globalization on the construction sector in developing countries
os.dhhs.gov/poverty/03poverty.htm (accessed 13 March
2006).
Dollar, D. (1992) Outward-oriented developing economies
really do grow more rapidly: evidence from 95 LDCs,
1976–1985. Economic Development Cultural Change, 40(3),
523–44.
Dollar, D. and Kraay, A. (2002) Growth is good for the poor.
Journal of Economic Growth, 7(3), 195–225.
Esty, D.C. (2001) Bridging the trade-environment divide.
Journal of Economic Perspectives, 15(3), 113–30, also
available at www.sice.oas.org/geograph/environment/esty.
asp (accessed 13 March 2006).
ERS (Economic Research Service) (2002) County-Level
Poverty Rates for United States, available at www.ers.usda.
gov/Data/povertyrates/ (accessed 13 March 2006).
Frankel, J. and Romer, D. (1999) Does trade cause growth?
American Economic Review, 89(3), 379–99.
Downloaded by [Heriot-Watt University] at 08:59 28 December 2014
Free Trade (2004) Does Free Trade Force Countries to Make
Economic Gains at the Expense of their Cultures?, available at
http://www.freetrade.org/faqs/faqs.html (accessed 6 June
2004).
Friedman, B.M. (2002) Globalization: Stiglitz’s case, review
of ‘Globalization and its discontents’ by Joseph E. Stiglitz.
The New York Review of Books, 15 August, available at
http://www.economics.harvard.edu/faculty/friedman/papers/
NYR_Stiglitz.pdf (accessed 13 March 2006).
Friends of the Earth (2003) Investment and the WTO—Busting
the Myths Briefing, June, World Development Movement
(www.wdm.org.uk) and Friends of the Earth (www.foe.
co.uk) (accessed 13 March 2006).
Greenwell, J. (2004) Free Trade or a Culture-Free Country?,
available at http://www.friendsoftheabc.org/freetrade.pdf
(accessed 8 June 2004).
IED (Institute for Economic Democracy) (2004) A Summary
of Plunder-by-Trade That All Can Understand, available at
http://www.ied.info/summary.html (accessed 21 April
2004).
Ifill, S. (2002) Operationalising Caribbean services industries.
Caribbean Investor and the CAIC Times, 1(4), 46–7.
IMF (International Monetary Fund) (1998) Should Equity Be
a Goal of Economic Policy?, IMF Fiscal Affairs Department,
International Monetary Fund, Washington, DC.
Indexmundi (2003) Population Below Poverty Line—Country
Comparison, available at www.indexmundi.com/g/
r.aspx?c5in&v569 (accessed 13 March 2006).
International Forum on Globalization (2001) Does
Globalization Help the Poor? A Special Report, International
Forum on Globalization, San Francisco, CA.
Jamieson, B. (2004) Trade liberalization: culture, identity and
social cohesion. Paper for the PRI-GCON Working Group
on World Trade Issues, available at http://www.dfait-
maeci.gc.ca/eet/pdf/06-en.pdf (accessed 8 June 2004).
Janssen, J. (2000) The European construction industry and its
competitiveness: a construct of the European Commission.
Construction Management and Economics, 18, 711–20.
Johnson, N. (2004) Does freer trade mean lower environ-
mental standards? About, available at http://economics.
about.com/cs/development/a/freer_trade_p.htm (accessed
13 March 2006).
21
Kempley, R. (1998) Michael Moore, sticking out like a sore
thumb. International Herald Tribune, 23 April, review of the
movie The Big One by Michael Moore.
Khor, M. (1994) Continuing debate. Martin Khor defines the
issues involved. Third World Network, Penang, Malaysia,
available at http://www.sunsonline.org/trade/areas/environm/
02230094.htm (accessed 13 March 2006).
Khor, M. (1999) On what the plot is for Seattle. Paper for
Seattle International Forum on Globalization (IFG) Teach-
In, 26 November 1999, available at http://www.ratical.org/
co-globalize/ifg112699MK.pdf (accessed 13 March 2006).
Khor, M. (2000) Opening statement to the millennium forum.
Third World Network, 28 May, available at http://www.
globalpolicy.org/msummit/millenni/khor00.htm (accessed
13 March 2006).
Khor, M. (2002) WTO: the new threats to developing
countries and sustainability. In Motion Magazine, 26
September, Penang, Malaysia, available at http://www.
inmotionmagazine.com/global/mkhor1.html (accessed 13
March 2006).
Kumar, N. (2003) Performance Requirements as Tools of
Development Policy: Lessons from Experiences of Developed
and Developing Countries for the WTO Agenda on Trade and
Investment, RIS-DP #52 /2003, Research and Information
System for the Non-Aligned and Other Developing
Countries (RIS), India Habitat Centre, New Delhi.
Lewis, T.M. and Imbert, C.A.C. (2002) Report on The
CARICOM Construction & Installation Services Sector:
Elements For Competitive Strategies Study, Caribbean
Regional Negotiating Machinery, Kingston, Jamaica.
Mandela, N. (2000) Oil and Gas Report, Sector Reports,
United Nations Environment Programme, Department of
Technology, Industry and Economics, August 2002,
available at www.uneptie.org/outreach/wssd/sectors/oil-gas/
oil-gas_sum.htm (accessed 21 April 2004).
Martin, B. (2000) New Leaf or Fig Leaf? The Challenge of the
New Washington Consensus, Bretton Woods Project, avail-
able at http://mirrors.zpok.hu/www.brettonwoodsproject.
org/briefings/econ/newleaf/index.html (accessed 13 March
2006).
Mosca, S. (2002) Dani Rodrick, Has globalization Gone too Far,
available at www.com-web.com/rodrick.htm (accessed 13
March 2006).
NCE International (1979) Contractors take cover …. NCE
International, April, pp. 44–5.
O’Hara, S. (2003) Free culture vs free trade. Arts Hub
Australia, 21 November, available at www.artshub.com.au/
ahau1/process/printnews.asp?ContentID551981 (accessed
13 March 2006).
Papapanagos, H. and Vickerman, R. (1999) Borders, Migration
and Labour Market Dynamics in a Changing Europe, avail-
able at: http://www.kent.ac.uk/economics/research/1europe/
ERRSBorders.pdf (accessed 13 March 2006).
Ravallion, M. (2003a) The Debate on Globalization, Poverty
and Inequality: Why Measurement Matters, Development
Research Group, World Bank, Washington, DC.
Ravallion, M. (2003b) Have We Already Met the Millennium
Development Goal for Poverty?, Development Research
Group, World Bank, Washington, DC.
 22
Rodrick, D. (1997) Has globalization Gone Too Far?, Institute
of International Economics, Washington, DC.
Rodrick, D. (2001) Trading in illusions. Foreign Policy,
March/April, available at http://www.globalpolicy.org/
socecon/develop/2001/0307pro.htm (accessed 13 March
2006).
Rosset, P. (1999) Food First Trade Principles, Institute for
Food and Development Policy, www.foodfirst.org/pubs/
backgrdrs/1999/f99v5n2.html (accessed 13 March 2006).
Roy, A. (2004) Do turkeys enjoy thanksgiving? The Hindu, 18
January.
Seabrook, J. (2004) Localizing cultures. Korea Herald, 13
January, available at http://www.globalpolicy.org/globaliz/
cultural/2004/0113jeremyseabrook.htm (accessed 13 March
2006).
Sen, A. (1982) Choice, Welfare, and Measurement, Massachusetts
Institute of Technology Press, Cambridge, MA.
Downloaded by [Heriot-Watt University] at 08:59 28 December 2014
Sen, A. (2002) Why half the planet is hungry. Observer of
London, 16 June, available at http://www.globalpolicy.org/
socecon/develop/2002/0616hunger.htm (accessed 13 March
2006).
Shah, A. (2004) Free trade and globalization; criticisms of
current forms of free trade. Global Issues, February,
available at www.globalissues.org/TradeRelated/FreeTrade/
Criticisms.asp (accessed 13 March 2006).
Smith, A. (1776) Wealth of Nations, 6th Printing, Book
IV, Chapter VIII, Everyman’s Library, Dent & Sons,
London.
Smith, J.W. (2002) Economic Democracy; Political Struggle of
the 21st Century, 2nd edn, 1st Books, Sun City, Arizona,
2002, Chapter 2: The world’s wasted wealth, available at
http://www.ied.info/books/ed/externaltrade.html (accessed
21 April 2004).
Soros, G. (2002) The will to act can save global financial
system. Business Day (Johannesburg), 4 October (reposted
at AllAfrica.com, accessed 13 March 2006).
Stiglitz, J. (2002) Globalization and Its Discontents, W. W.
Norton, New York.
Summers, G.F. and Lang, J.M. (1976) Bringing jobs to
people: does it pay? Small Town, 7(September), 4–11.
Lewis
The Whirled Bank Group (2001) Lawrence Summers;
The Bank Memo, available at http://www.whirledbank.
org/ourwords/summers.html (accessed 13 March 2006).
Trade and Culture (1999) Trade and Culture: America’s Blind
Spot, September, available at http://www.columbia.edu/
,jb38/trade_culture.pdf (accessed 4 June 2004).
Tussie, D. (1999) The environment and international
trade negotiations: open loops in the developing
world. The World Economy, available at http://www.flacso.
org.ar/areasyproyectos/areas/ri/esiei/pdf/WE-Tussie.pdf
(accessed 13 March 2006).
UNESCO (1998a) The Power of Culture, Report of the
Intergovernmental Conference on Cultural Policies for
Development, Stockholm, Sweden.
UNESCO (1998b) Culture, Creativity and Markets, Part 3,
Creativity, Markets and Cultural Policies, World Culture
Report 1, UNESCO, Paris.
United Nations (1948) Universal Declaration of Human
Rights, Article 25, UN General Assembly, Geneva.
Wallach, L. and Woodall, P. (2004) Whose Trade
Organization? The Comprehensive Guide To The WTO, The
New Press, New York; sections also available at www.
citizen.org/trade/wto (accessed 13 March 2006).
Washington Accord (2003) Washington Accord, A
Multinational Agreement Signed in 1989, see at http://
www.washingtonaccord.org (accessed 13 March 2006).
Waterhouse, M.D. (1991) Building viable communities—the
essence of economic development. Economic Development
Review, 9(3), 14–23.
World Bank (2000) Growth is Good for the Poor, World Bank,
Washington DC.
World Bank (2003) Global Economic Prospects and the
Developing Countries 2003: Investing to Unlock Global
Opportunities, World Bank, Washington, DC.
World Bank (2004) A Better Investment Climate for Everyone,
2005 World Development Report, The World Bank and
Oxford University Press, Washington, DC.
WTO (2004) Understanding the WTO: Basics—The Uruguay
Round, available at http://www.wto.org/english/thewto_e/
whatis_e/tif_e/fact5_e.htm (accessed 13 March 2006).
 Impact of globalization on the construction sector in developing countries 23

Appendix 1

List of 152 developing countries as declared by the US Minister for Foreign Affairs—updated 2004

Albania Armenia Azerbaijan Bosnia and Herzegovina

Croatia Georgia Macedonia Moldova
Turkey Yugoslavia, F.R. Algeria Egypt
Morocco Tunisia Angola Benin
Botswana Burkina Faso Burundi Cameroon
Cape Verde Central African Rep. Chad Comoros
Congo, Rep. Congo, D.R. Cote d’Ivoire Djibouti
Equatorial Guinea Eritrea Ethiopia Gabon
Gambia Ghana Guinea Guinea-Bissau
Kenya Lesotho Liberia Madagascar
Downloaded by [Heriot-Watt University] at 08:59 28 December 2014

Malawi Mali Mauritania Mauritius

Mayotte Mozambique Namibia Niger
Nigeria Rwanda St Helena Sao Tome & Principe
Senegal Seychelles Sierra Leone Somalia
South Africa Sudan Swaziland Tanzania
Togo Uganda Zambia Zimbabwe
Anguilla Antigua and Barbuda Barbados Belize
Costa Rica Cuba Dominica Dominican Rep.
El Salvador Grenada Guatemala Haiti
Honduras Jamaica Mexico Montserrat
Nicaragua Panama St Kitts and Nevis St. Lucia
St Vincent & Grenadines Trinidad and Tobago Turks & Caicos Is Argentina
Bolivia Brazil Chile Colombia
Ecuador Guyana Paraguay Peru
Suriname Uruguay Venezuela Afghanistan
Bangladesh Bhutan Burma Cambodia
China, (excl. H.K.) East Timor India Indonesia
Kazakhstan Korea, D.R. Kyrgyz Rep. Laos
Malaysia Maldives Mongolia Nepal
Pakistan Philippines Sri Lanka Tajikistan
Thailand Turkmenistan Uzbekistan Vietnam
Bahrain Iran Iraq Jordan
Lebanon Oman Palestine* Saudi Arabia
Syria Yemen Cook Islands Micronesia, F.S.
Fiji Kiribati Marshall Islands Nauru
Niue Palau Islands Papua New Guinea Samoa
Solomon Is. Tokelau Tonga Tuvalu
Vanuatu Wallis & Futuna
F.R.5Federal Republic; D.R.5Democratic Republic; F.S.5Federated States
*Palestine5Territories Administered by the Palestinian Authority
Source : http://www.ausaid.gov.au/ngos/display.cfm?sectionref52789411849 (accessed 13 March 2006)