by Kanes
Although globalization has been hailed as a panacea for all the economic ills of developing countries, the fact of the matter is that the benefits of trade and investment associated with globalization are unevenly distributed. Globalization through liberalization opens up markets but those who can exploit the open markets are those countries which have the goods and services in demand on tap, and they are the developed and the newly industrializing countries which have advanced agriculture and industry, in most cases developed and operated by transnational corporations or their affiliates.

The majority of developing countries without modernized agriculture and industry lack the goods and services they need to seize new trading opportunities. They have been ignored by the transnational corporations and have attracted little foreign investment to develop agricultural and industrial exports needed to derive benefits from globalization. Thus, while a few newly industrializing developing countries in East Asia and Latin America have benefited from globalization the majority have been marginalized.

Exports of developing countries may have increased in recent years, but 80 per cent of the total exports of developing countries are accounted for by just 15 countries. It is these few countries which have benefited most from globalization. Africa, for instance, consisting of some of the poorest countries of the world, has apparently not benefited. Her share of world trade fell from about 3 per cent in mid-1950s to just over one per cent in 1995. It is the same story with foreign direct investment. According to World Bank statistics, 95 per cent of all foreign direct investment in developing countries went to just 26 countries in 1996, leaving the balance 5 per cent to be shared by 140-countries. Africa's share of world foreign direct investment fell from about 10 per cent in the 1980s to about 5 per cent in recent years despite her signing 260 bilateral investment treaties to welcome and extend concessions to foreign capital and liberalizing trade and investment regimes.

Sri Lanka's liberalization policies, as shown earlier had failed to attract much foreign direct investment; in fact she attracted only $0.8 billion in the eight years 1990-97. There were only 139 foreign affiliates of transnational corporations in Sri Lanka in 1995. The little foreign capital that was invested appears to have gone mainly to garments industries, partly because of low wages and partly because of the country's unutilized garments export quotas in US. Globalization may have helped to expand the garments export industry but it failed to develop other industries to diversify the export base. Thus, garments exports which formed 61 per cent of the country's industrial exports in 1990 increased to 66 per cent in 1997 making Sri Lanka excessively dependent on one industry - garments. If globalization helped to expand the garments industry, it has failed to stimulate agricultural exports. Between 1990 and 1997, the country's industrial exports (mainly garments) more than doubled in volume or increased by 119 per cent but agricultural exports rose by only 19 per cent; rubber exports actually fell by 26 per cent in volume and coconut exports rose by 14 per cent; the volume of tea exports increased by 29 per cent thanks to Russia's purchases.

Import Liberalization
The liberalization of imports by reduction or elimination of import duties and import restrictions by allowing the domestic market to be flooded with cheap imports, has tended to undermine domestic agriculture and industry in many developing countries. In India, for instance, import liberalization under the previous government led to a large increase in imports which adversely affected several domestic industries such as chemicals, electrical machinery, iron and steel, pigiron based items, pharmaceuticals, paper and paper board, sugar and some capital goods. The last Indian budget recognized the problem and increased the import duty by 8 per cent all round and raised import duties on some items even further, e.g. cold rolled iron coils, wrought copper and paper and paper board. It also reduced import duties on several imported inputs for domestic industry.

In Sri Lanka, import liberalization by means of reducing the maximum import tariffs from as high as 500 per cent to 35 per cent from 1978 to 1997 and elimination of import restrictions except on a very few items undermined domestic industries such as handloom textiles, fabricated metal products, chemicals, bicycle tyres, printing paper and dairy products. A country which exported tea machinery to Indonesia and Kenya has now become a tea machinery importer from India. The recent abolition of 35 per cent import tariff on textiles dealt a crushing blow to the local textile industry which if protected and upgraded could save Rs.82 billion spent annually on textile imports for the garments industry. The lowering of import duties and relaxation of import controls on the import of rice, potatoes, chillies, onions and pulses has threatened the livelihood of thousands of farmers who have no alternative employment. Besides, agriculture is not merely production of saleable goods; it is a way of life that must be preserved - as it is being done in most developed and developing countries in spite of globalization.

It is argued that import liberalization is needed to provide competition to inefficient and high cost agriculture and industry to goad them to upgrade and reduce costs. If a proper study is made on this matter, it will be seen that the high cost of production and inefficiency are to a great extent beyond the control of the local industrialist or farmer. Take for instance, the cost of credit: the prime lending rate in Sri Lanka is 15.1 per cent now when it is 7.5 per cent in Singapore and 8.1 per cent in Taiwan. Poor infrastructure results in high cost of transport and communications; in addition to narrow roads and traffic congestion, the numerous security checks tend to raise transport costs; the loading time and turnaround time of cargo ships are longer than in East Asia and the number of public holidays is relatively high in Sri Lanka. Has anyone compared the costs of agro- chemicals, fertilizer, power for water pumps and tractor hire in Sri Lanka with those of others? Many who blame domestic agriculture and industry for high cost and inefficiency also fail to take into account the rate of exchange. If for instance, the rupee is devalued by say 25 per cent, ineffident sectors may turn out to be efficient and competitive!

Import liberalization may suit a country which has modernized agriculture and industry producing quality goods competitive in world markets but not to the majority of developing countries who are struggling to build their new industries and to modemize their agriculture. Many seem to forget that the USA through various trade restrictive measures such as the McKinley Tariff of 1890 and the Dingley Tariff of 1897 became the most protectionist country in the world by the beginning of the twentieth century and that Japan even went further by closing its doors to global market forces until its industries reached world standards. It was after their industries were well established that they began to talk of trade liberalization.

Threat to Indigenous Enterprises
Transnationalization poses another danger to developing countries: transnational corporations tend to crush or swallow up rival indigenous enterprises. In the wake of India's liberalization for instance, foreign transnational corporations appeared to be gaining control of Indian industries by buying up the domestic companies with whom they had formed joint ventures. For example, the Korean Daewoo, raised its share In the car venture with DCM (a Shiram family business) from 51 per cent to 75 per cent; British Carlton Communications bought up a television venture from the Mody family; General Electric bought out its partner in a lighting venture; Coca Cola and Pepsi Cola bought out local soft drink bottlers. It is in this context that the Indian Prime Minister made his pledge to protect domestic industries by adopting a selective approach instead of an open door one to foreign investment. The new government has made it clear that the economic policy would have a "Swedish" thrust to encourage, support and protect Indian indigenous enterprise on the principle that "India shall be built by Indians".

In Sri Lanka, will Coca Cola after swallowing up Pure Beverages, allow Elephant House to compete with its products for long? Will Unilevers which has introduced Walls ice-cream to the market allow rival indigenous ice-cream makers to survive? In Brazil it bought up the largest local ice-cream maker for $930 million in order to dominate the market.

The Asian currency crisis following liberalization of the financial sector has provided an excellent opportunity to take over the troubled Asian firms at very low prices. Examples of acquisition or mergers are: BASF (Germany) acquired a section of Korean Daesang conglomerate for $600 million; Commerzbank (Germany) bought a stake in Korea's Exchange Bank for $250 million; Bosch (Germany) acquired car parts manufacturing section of Korea's Mando Machinery Corp for $22 million; Volvo (Sweden) acquired the construction equipment arm of Samsung Heavy Industries for $572 million; Tesco (UK) acquired Lotus, the Thai supermarket chain from Charoen Pokphand for $180 million; AES (USA) bought a section of Korea's Hanwha Energy for $874 million; Coca Cola (USA) bought over Korean bottlers for 500 million; Hewlett-Packard (USA) acquired a part of Samsung Electronics for $36 million; Interbrew (Belgium) acquired 50 per cent of Korea's Oriental beer; ABN Amro Bank (Netherlands) acquired 75 per cent of Thailand's Bank of Asia for $183 million; many other cash-stripped Asian firms are being acquired by foreign transnational corporations almost daily with the blessings of the IMF.