Abstract
The growing concern about how global trade has created income inequality prompts the research of the causes and solutions to world poverty. This paper focuses on how wealthy nations have encouraged multinational firms’ unethical and illegal practices in developing countries. Wealthy nations are aware of corruption, lack of accountability, inadequate governance, and weak institutions in emerging economies. Instead of addressing these issues to create employment opportunities and stimulate economic growth, they have used them to their advantage. For example, wealthy nations bribe government officials to secure trade licenses at low costs and hire senior managers from their background. These strategies undermine transparency and deter developing countries from realizing their economic goals. This paper also analyzes how international organizations such as the World Trade Organization, World Bank, and International Monetary Fund have failed to address the income inequality gap. These organizations pretend to assist developing countries while, in reality, they are serving the wealthy nations’ interests. Their money lending system aims at keeping developing countries poor and in debt. Through these organizations, wealthy nations continue to reinforce their imperialistic ideas in developing countries. Nevertheless, this paper suggests different strategies to assist low-income countries without imposing exploitative conditions. This paper recommends debt forgiveness, non-interference, and eliminating foreign trade ties as some of the solutions to world poverty.
International trade has enabled countries to exchange capital and products and gain revenues. Developed countries and the elite groups have benefited from this trade more than low-income countries. International trade has created a power imbalance and income inequality since western countries have imposed policies that have benefited multinational corporations. Emerging economies provide cheap labor and natural resources at low costs. Consequently, they are underdeveloped due to local industries' closure, unemployment, and slow infrastructural growth. Western governments developed a strategy to address income inequality and increased human suffering in developing countries. The plan included the creation of the International Monetary Fund, World Bank, and World Trade Organization. These organizations had the authority to distribute and examine the use of financial resources in developing countries. However, they have failed to alleviate poverty and have pushed the emerging economies into debt. It is imperative to revise foreign aid's significance and the trade ties between developed and developing countries. Although wealthy countries and international organizations such as International Monetary Fund, World Bank, and World Trade organizations take advantage of low-income countries’ situations and propagate neocolonial policies, there are means of assisting the developing countries in achieving self-sustenance and independence.
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Wealthy Nations Using Trade Relations to Exploit Low-Income Countries
Wealthy nations use multinational companies as a means to exploit developing countries. When attempting to attract foreign investments, international companies engage in corporate social responsibilities (CSR). However, the CSR strategies that multinational companies apply in resource-rich African countries aim at maximizing their profits and creating income inequalities (Adams et al., 2019). Multinational corporations invest in developing countries to optimize their hegemony; they mostly concentrate on retrieving natural resources. Besides, they ensure that most investors are from the developed economies to impede economic growth in emerging economies (Adams et al., 2019). These companies have realized that Africa has cheap labor and weak institutions. Thus, they have used these weaknesses to their advantage. Companies such as Google, Dell, Tesla, Apple, and Microsoft are currently under investigation for human rights abuses for extracting cobalt in DRC Congo (Kelly, 2019). These multinational companies are aware that the resource they acquire from Congo comes child labor but have never bothered to address the issue. Besides, the wealthy nations continue to support these firms’ activities in developing countries.
A person living in a developed economy may believe that multinational companies offer employment opportunities to developing nations. On the contrary, global companies are interested in acquiring natural resources at low costs even if the extraction process results in serious injuries and laborers' deaths (Kelly, 2019). The profit maximization agenda that multinational companies focus on supersedes their CSR commitments. According to institutional theory, CSR in developing countries tends to be problematic and non-enabling (Adams et al., 2019). Although some developing countries have attempted to address this issue, the wealthy nations have made it difficult for them to achieve justice. The developed countries note that the weak institutional structures in developing countries are characterized by incapable of legal, regulatory, and judicial systems. As a result, they blame the leaders from developing countries and labeling them as corrupt instead of addressing human suffering and environmental degradation that international trade has caused (Mawere, 2018). With this support, multinational companies avoid engaging in positive CSR actions knowing that developing countries will not hold them accountable for their actions. Instead of working with international governments to improve African countries' governance, wealthy countries focus on profit maximization. Arguably, the developed countries have contributed to human exploitation and suffering in developing economies.
Furthermore, wealthy nations have made it possible for multinational companies to exhibit transfer pricing and tax avoidance traits when investing in developing countries. These corporations pursue cost reduction strategies through outsourcing, inappropriate pricing techniques, tax avoidance, and supply chain accounting (Adams et al., 2019). Tax avoidance and evasion hurt socio-economic growth and human survival in developing countries. They significantly reduce the investment that would have improved developing countries' working conditions and deter infrastructural development. Wealthy nations rarely investigate the unethical acts that result from global trade. Hence, multinational corporations use transfer pricing, which includes optimal allocation of costs and revenues to departments, subsidiaries, and divisions to impede economic growth in low-income regions (Adams et al., 2019). Transfer pricing mechanisms provide misleading information of transactions, promote wealth retention, foster tax avoidance, and enhances capital flight. International trade allows multinational corporations to adopt transfer pricing practices to increase their profits resulting in emerging economies’ social impoverishment. Corporate tax payment is one way to improve developing countries' economic growth (Adams et al., 2019). Some multinational companies have implemented legally acceptable measures that hide them from public scrutiny, and thus, they avoid paying taxes. Besides, global firms adopt price violation strategies to maximize profits, demonstrate managerial effectiveness, and please the shareholders.
Moreover, wealthy nations engage in rent-seeking behavior and long-term license lobbying to create income inequalities in developing states. They seek protection through political rents. As a result, only the elites and powerful groups in developing countries benefit from international trade instead of distributing the revenue to upgrade infrastructure, create employment, and foster economic growth (Henri, 2019). Wealthy nations encourage corrupt practices of government officials and discourage innovations. Nigeria is among the countries in which the resource dependence theory is applicable. The country has adequate resources, including oil, but the citizens have not benefited due to the politics around the shareholder structure (Adams et al., 2019). Multinational companies took advantage of the opportunity of corrupt practices to benefit themselves.
Furthermore, multinational companies’ employment and capital development practices have not benefited developing countries. According to the resource-based view (RBV), analysts should examine the effectiveness of international trade from the resource perspective instead of the product side (Adams et al., 2019). Using this theory, one expects multinational companies to engage in community development projects through employment creation, sustainability and economic growth, and employee training. On the contrary, international companies reserve senior corporate positions for expatriates who receive higher packages and salaries than the locally hired officials (Adams et al., 2019). One may argue that foreign citizens have a better understanding of multinational corporations and global trade than local citizens. However, international companies tend to have discriminatory policies that favor senior officials. This practice creates income inequality since the unskilled and low-earning local employees have low purchasing power, reduced investment capabilities, and increased income liabilities (Adams et al., 2019). The outcome is increased revenues for wealthy nations and slow socio-economic growth in developing countries. Indeed, international trade has not benefited the emerging economies but has fostered income inequalities.
International Organizations Serving as Tools of Neocolonialism
International organizations such as the World Bank, International Monetary Fund (IMF), and World Trade Organization (WTO) serve as neocolonialism tools. Although these organizations have saved some nations from poverty and underdevelopment after the Second World War and the Great Depression, most low-income countries have not benefited (Mawere, 2018). These organizations have pushed African countries into more debt and made it difficult for them to be independent of foreign aid. World Bank, WTO, and the IMF have encountered civil unrest, violations of human rights, and incompetent governance in some African countries. Instead of working with international and local governments to address them, they have encouraged or ignored their impacts. The IMF and World Bank tend to interfere with the developing nations' economic policy and provide more loans to low-income countries (Mawere, 2018). WTO is supposed to ensure that there is a proper use of financial resources. On the contrary, this organization has adopted a one-size-fits-all strategy that has promoted human suffering and slow economic growth in low-income countries. Despite giving billions of dollars to African countries, poverty and underdevelopment are still evident (Mawere, 2018). The structural programs that the IMF and World Bank introduced in Africa have resulted in increased loan areas and interference in the economic process. As a result, the IMF and the World Bank have undermined the local initiatives resulting in unrealistic and unstable economies. These institutions have enforced irrelevant policies in developing nations. For example, the IMF and World Bank demanded that Zambia, Ghana, and Mozambique focus on import trade, yet these countries’ economies depended on exports (Mawere, 2019). These bodies were aware that this strategy would distort economic growth and force them to rely on foreign aid and western governments. The policies that IMF, WTO, and World Bank have imposed have resulted in unfair competition between African countries and western nations. They continue to protect the western industries against African products (Mawere, 2018). Consequently, African countries have experienced increased mass unemployment, brain drain, decreased economic growth, and break-down in the health care system. IMF, World Bank, and WTO have disempowered Africa and destroyed its industries, making it impossible to overcome the “culture of poverty” and underdevelopment. Arguably, the economic austerity measures that World Bank, IMF, and WTO have enforced have sabotaged Africa’s capital development, investment initiatives, and ability to provide social services (Mawere, 2018). Instead of implementing policies that will foster self-sufficiency and sustenance, the World Bank and IMF have made African countries become beggars who depend on handouts and the international donor community.
To make matters worse, World Bank, WTO, and IMF blame African governments for making their citizens poor. Majority of the funds that these organizations never reach the marginalized communities (Mawere, 2018). World Bank and IMF are aware of this trend, and instead of intervening, they continue to offer more loans. These organizations know that the only way that the foreign countries can impose their policies on low-income countries and conduct illegal trade is by holding these nations in debt. World Bank and IMF have encouraged the gap between the wealthy western economies and the struggling nations in Africa. They have promoted neocolonialism by encouraging the western nations to exert total control over the African economy, resources, and markets. Besides, African countries have no significant input in selecting these organizations' directors (Mawere, 2018). Western countries are using IMF, WTO, and World Bank as “impartial” organizations to continue to exert their control over Africa. These firms are tools of neocolonialism.
Different Ways of Giving Aid without Imposing Exploitative Conditions
International organizations and wealthy nations can offer aids without imposing exploitative conditions. China is among the few countries that have set the “no strings attached” principle. For governments and organizations to provide aids without exploiting the recipients, they have to ensure that the terms of the contract benefit both parties. Inclusion of principles such as mutual respect of local and national government and territory integrity, non-interference in internal affairs, and safeguarding the common interest in the contract between the donor and recipient can prevent manipulative acts (Li, 2017). Instead of pushing the recipient to adopt “best international practices,” the donor countries should be patient and let the developing countries allocate resources independently. Organizations such as IMF and World Bank can assist developing countries without manipulating them by eliminating the senseless bureaucracy that traps developing countries into more debts (Li, 2017). Besides, the lengthy discussions that World Bank holds with developing economies before giving aid make it difficult for leaders to adopt swift solutions.
International firms such as the World Bank and IMF need to modify their original goals. Upon its formulation, the IMF had the mandate to provide short- and medium-term loans and offer policy advice (Mawere, 2018). Instead of constantly interfering with the local initiatives, the IMF should serve as a bank. It should only give loans and demand the developing countries pay within a given time frame. Like ordinary banks, IMF and World Bank should not give indebted countries additional loans until they have settled their current balance. Besides, the international channels should clarify the channels used for loan repayment. This strategy will reduce corrupt cases since the government officials will not be assured of other loans.
Another strategy is by allowing leaders from developing countries to lead international organizations. The US government currently appoints the World Bank director, creating room for western imperialism and manipulation (Mawere, 2018). If African leaders are allowed to head foreign aid organizations, they will ensure that the policies imposed on African countries fit each country's economic model. As a result, there will be a proper allocation of resources and prompt debt repayment. The outcome will be reduced dependency on foreign governments and increased self-sustenance.
Strategies to Assist Low-Income Countries
One of the ways of helping emerging economies is through debt forgiveness. The cancellation of debts will allow developing countries to dedicate their resources to poverty alleviation (Oryema et al., 2017). There should be a scheme that the IMF, World Bank, and African countries can establish to determine debt forgiveness eligibility. It is important to include leaders from education, public health, industrial, and infrastructure sectors to ensure that the process is impartial. Countries whose debt to export ratio is more than 150% should be eligible for debt relief (Oryema et al., 2017). If not, such countries may not realize significant economic growth even with more foreign aid. However, international organizations such as IMF and World Bank should work with the local governments to ensure that their countries achieve macroeconomic stability and structural reforms within the first year of debt relief (Oryema et al., 2017). Countries whose debt is forgiven should demonstrate transparency and accountability in the allocation and use of foreign aid. Undoubtedly, debt relief will benefit the public health, education, infrastructure, and industrial sectors. Developing countries will have an opportunity to invest in research and development and find the best models to enhance economic growth and sustainability. Besides, western governments are responsible for creating a debt crisis through irresponsible lending and ignoring the suffering and economic damage (Mawere, 2018). Developed countries are aware of Africa's financial resources' mismanagement, but they continue to offer debts to access resources and markets. Before the colonialization, African economies did not measure their growth using the western nations’ principles. Hence debt forgiveness is a means for the western countries to show their true belief in addressing social injustices. It is illogical for western governments to claim that they want to support the emerging economies while demanding interests in return (Mawere, 2018). If foreign aids are meant to improve the living conditions of people living in low-income countries, the international donor community should not demand payback. This approach pushes the recipients into further debt and impoverished conditions. Debt forgiveness is one of the ways of assisting emerging economies.
Another means of assisting developing countries is through the elimination of foreign trade ties and foreign aid. Developed governments have used foreign aid as a means of extracting resources from emerging economies. Besides, foreign assistance has fostered the implementation of neocolonialism policies, resulting in the impoverishment of the low-income communities and excessive accumulation of wealth by the elites (Mawere, 2018). The civil rights bodies that claim support increase in foreign-aids serve market-oriented purposes. These organizations serve as a white-savior industry that enjoys social acceptance in developing nations and dependence on foreign aids.
Besides, low-income countries can work together without foreign interference. With access to technology, these countries can team up and form regional bodies that can better address their issues than international organizations such as the IMF and World Bank. Former Libyan leader Muammar Gaddafi had proposed a strategy that involved African countries helping themselves. He suggested introducing Gold Dinar to free African economies from the dollar's dependence as the standard monetary system (Swason, 2011). Admittedly, western governments’ principles have resulted in exploiting African resources such as oil and minerals. Instead of African countries trading with the US and western nations, they need to work with Middle East countries to exchange goods and services. With a new banking system, Africa will better than its current situation. This strategy will eliminate reliance on western economies.
Overall, the wealthy countries continue to exploit the developing nations through international trade. Multinational corporations tend to work with the elite political class to avoid paying taxes and being accountable for encouraging human suffering. These companies rarely invest in developing countries and offer low salaries and wages to local employees. Consequently, emerging economies do not benefit from international trade. Bodies such as IMF, World Bank, and WTO that are supposed to offer financial assistance and advice continue to propagate neocolonial ideologies. Consequently, emerging economies are in more debt and poverty than before the international organizations and developed countries’ interference. One way to resolve this problem is by allowing leaders from developing countries to participate in the decision-making process to ensure effective policies. Alternatively, western governments and international organizations should cancel the debts to enable developing countries to focus on poverty alleviation schemes. Another means is to leave the developing countries to run their economies so that they implement progressive strategies. If these strategies are implemented, there will be reduced income inequality and poverty.
References
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