Electronic Communication Systems

Globalization and Ethiopia


Part 7:  Globalization of the Market Economy

Addis Tribune (04/2100) (Continued from April 7)


 By Dr.Andargachew Tiruneh


 Globalization of the Market Economy


To most partisans of the debate, globalization is, in fact, not concerned so much with the changes we discussed earlier, as with

the world economy. They believe that the market economy has become the global economic system and that a globalized

system, in turn, is what influences all the changes that are taking place around us.


The market economy includes deregulation (minimal state intervention in the economy), denationalization, free trade and free

flow of capital between states.


In other words, market economy is opposed to an economy which is planned or regulated by the state; instead, its ideal is the

management of the economy by market forces. Moreover, it believes that the state should not own the instruments of

production nor the infrastructure and, if it does, it must denationalize them, which means, sell them to the private sector.


On the international plane, the market economy seeks to promote what is called free trade. This is the idea of each state

specializing in the production of what it is best suited to produce and selling its products anywhere in the world without state

intervention or regulation. This was believed to achieve an efficient world economy.


The market economy also means that money should be transferred from country to country without state intervention. Thus,

international transactions like the trading of shares on the world financial markets, the investment and withdrawal of capital, the

repatriation of profits and the payment for goods and services must be carried on freely and without state interference.


The idea of a free trade reached its zenith in 19th century Europe. Free trade could operate smoothly because the economies of the participating states at the time, buttressed as they were by the exploitation of colonies everywhere, where in good shape.

That was followed in the first half of the 20the century by two world wars which were attend by unprecedented rates of

inflation and unemployment. Free trade gave way to the imposition of all manner of trade barriers against the flow of

international transactions.


The second half of the 1940s was the time when the rules governing the reconstruction of the post-war economy were drawn

up and adopted. This included the adoption of the conventions governing the Breton Woods institutions, namely, the IMF, the

World Bank and GATT. A fundamental policy of these institutions was the reintroduction of free trade in the world. However,

the policy could not become truly global in the face of the state controlled economies of the socialist countries and a good

number of the third world states.


In the 1980s, the conservative parties of the West which advocated a most radical version of the minimalist state were elected

to power. Reagan and Thatcher, who later became household names everywhere in the world, were two famous champions of

that policy. By contrast, the socialist countries of East Europe declined and collapsed in the course of the same decade. Since

then, they have been vigorously pursuing denationalization and free trade programs with advisers from the Breton Woods

institutions and the West in general. Third world countries which used to have planned or regulated economies have also fallen

under the sway of the Breton Woods institutions in the post-cold war years.


In the last several years, the conservative parties of the West have been defeated by leftist parties at the ballot box. Interestingly enough, these leftist parties have since been tenaciously pursuing, not their traditional policies, but what has come to be known as 'the third way'. For example, such a shift of policy has taken place in the US, Britain, Germany and France. The third way is a more centrist policy than the traditional policies of the left. Among other things, it has meant the enhancement of minimalism, denationalization and free trade.


Another aspect of the economy that has changed in recent decades is the nature of currency. With the establishment of the IMF in the 1940,s came the world monetary system known as the fixed exchange rate system. This meant that the value of the

various currencies towards each other was fixed, in other words, it was not allowed to change from day to day . The currencies of the various countries were pegged to the dollar, and the dollar in turn was pegged to gold. In other words, the US had guaranteed the currencies of the world so that anyone who has money in any currency could exchange it for dollar or gold.


In 1971, the US demonetised gold and introduced the floating exchange rate system. The arms race, massive global military

commitments and recurrent trade deficits meant that the US economy was too weak to support the international monitory

system. Paper money, unsupported by gold reserves, became the means of transaction. Moreover, the value of that paper

money changed from day to day depending on the performance of the economy concerned.


Since then, the volume of world trade has increased enormously. This meant that paper money was too clumsy to support the

prevailing volume of share dealings, investments and trade transactions. Someone worked out that a trillion ( a million) dollars,

piled into 1000 Dollar notes, would be 120 miles high or 20 times higher than Mount Everest. Yet, far more than a trillion

dollars is now turned over each day on global currency markets.


The result has been the emergency of what is called electronic money. This currency has nothing to do with gold, paper or any

other commodity; it is simply numbers stored in computers in banks and other financial institutions. It does not have any intrinsic value of its own; its value rests simply on the fact that we are willing to accept it in exchange for our labor and our property.


A characteristic feature of electronic money is its ready transferability. Fund managers, banks, corporations and millions of

individual investors can, and do, transfer vast amounts of capital from one side of the world to another. A clique of the mouse

or a few key strokes on the computer is all that is required to effect such a transfer. The ready transferability of electronic

money is made a reality, not only by technological innovations, but also by the fact that the world has embarrassed the market

economy ideology.


Thus, electronic money does facilitate transactions enormously. However, it can also destabilize even economies which are

strong. This happens if investors withdraw substantial amounts of capital from a country, a withdrawal which they can effect

with a clique of the mouse. This is precisely what happened to the Asian economies only a yea ago.


It may be difficult to control the movement of electronic money but is not impossible to do so. In fact, since the collapse of the

Asian economies, there is a tendency at least on the part of the victims to want to impose regulations curtailing capital flows.

However, it is doubtful whether they can withstand western pressure and adopt such regulations.


The above discussion attempts to show that there has been in recent decades a massive global shift to the right. In other words, globalization has meant that the free market has come to dominate the world and looks set to be the prevailing global economic order for the foreseeable future. The important features of that economic order are deregulation, denationalization, free trade and electronic money.


The impact of globalization of the market economy on Ethiopia is more clear than its other manifestations. In the last 15 years

or so of Haile Selassie's government, feudalism had been breaking up and giving way to the rule of the economy by the market.

That was interrupted by Mengistu's Marxist regime which sought to manage the economy through central planning. However,

even before it was overthrown, that regime gave way to what it called the mixed economy. This was due to pressure from

changes in the global economic and political structures.


These structural transformations had even more dramatic effect on the economic policies of the regime that followed. Despite its previous commitment to radical Marxism, the new regime had to adopt policies of denationalization, private investment, the

slimming of the public sector and free international transactions. The only exceptions to this liberal reforms are the government's

continued commitment to state ownership of rural as well as urban land and extra-houses. Whatever the merits of these

policies, there is no doubt that they are part of the global economic transformation as promoted by western governments, big

corporations and the Brton Woods institutions.