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Globalization in Eastern Europe: Foreign Investments and International Trade Essay

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Updated: Dec 25th, 2021

Introduction

International trade has expanded rapidly especially in the sunset years of the 20th century and in the 21st century. The world has become a global village and the flexibility witnessed in modern international trade is unprecedented. Foreign investments and capital market flows have peaked and most national economies are relying on international trade. The digital revolution brought about by the rise of the internet has revolutionized international trade because geographical barriers have been removed. This has led to the decline in transportation costs encouraging more foreign investments. The volume of international trade has gone up and new technological innovations have led to faster financial transactions (Zuquete, p. 7). There is a lot of overseas expansion by multinational companies especially from Europe and the USA. Companies like Wal-Mart and Coca-Cola are global trading companies which means that they affect the policies that are made in every country they are located. Corporate alliances are being made more easily due to that transformation in the financial markets that has increased the financial flows. The flexibility in the use of foreign currencies is another factor that has been brought about by the financial and economic globalization.

This paper critically analyses the effects of globalization in Eastern Europe including the former Soviet Union states in the eastern part of the continent. The paper will address the challenges facing those countries brought about by globalization and economic liberalization especially after the collapse of communism and the Soviet Union. The paper will take a foreign relations perspective, focusing on the role of the west, the Breton Woods institutions and other responsible agencies.

Rise of Globalization in Eastern Europe

The dominance of transnational capital across the borders has really affected economic survival and foreign policy of the countries in Eastern Europe and the countries are searching for other paths of development because globalization and economic liberalization have created more problems for theses countries (Wall, p. 17). It all started in the early 90s when the economic structures in Eastern Europe were transformed following the fall of communism and the disintegration of the Soviet Union. Market oriented reforms were adopted to promote economic development in these countries which were largely communistic and were aligned to the Soviet Union. There were many structural changes that were undertaken in this period immediately after the fall of communism which were meant to erase the evils of communism. These structural changes opened the economies of the East European countries to foreign capital and the transnational companies moved in to exploit the economic opportunities in these countries. The entry of the transnational companies due to the liberalization of trade brought about by globalization overturned the economic principles that had been in existence in these countries. These economic policies had insulated the Eastern European countries from the effects of the world market because the policies were based on planned socialistic structures which were stable and viable. When globalization opened up these countries to the world market, there were instant adverse effects.

To start with, production and distribution channels were heavily affected and this had a toll on the living standards of the people. However, the wave of globalization that swept across these countries immediately after the fall of communism really affected their foreign policies.

WTO and Foreign Policy

One of the institutions that heavily affected the foreign policy of the former communist countries in Eastern Europe is the World trade organization. WTO is a relatively young institution which is barely eighteen years old but has received a lot of attention due to its globalization policies and principles which have had many negative and few positive effects around the world especially in the eastern side of Europe (Zuquete, p. 34). The rise of the free trade, open market and tariff fluctuations are some of the positive effects of the principles of globalization established by the world trade organization. However, the creation of WTO led to a revolution that changed the way issues were dealt with during the previous trade regime and this affected some foreign policy principles like dispute settlement mechanisms. The WTO assumed tremendous economic powers and the relationship between WTO and members states became tense because of the organization’s interference on national sovereignty of states especially in Eastern Europe.

One of the issues that most countries in Eastern Europe raise is the double standards manifested by the WTO principles because the organization demands that these developing countries should open their markets. However, the west has refused to open their markets to the former communist countries in the east. This is one of the factors that have affected development in the post communist Eastern Europe, because the countries sought to gain from the liberalized markets when they opened up their markets for the west but the refusal by the west to open up their markets for the East European countries has left them without any trade. The policies of the world trade organization are therefore very unfair and prejudiced because they only promote private interests that have created monopoly in the international trade leaving the developing countries at a disadvantage. The rules tend to favor the powerful multinationals which enjoy a better part of the international trade which means that the concept of free trade is fallacious because the East European countries have been used as doormats by the west (Moore, p. 56). They were forced to change their economic principles and foreign policies but they did not benefit from the changes they made. These changes only served the corporatist interests of the west because WTO never created a level playing field for all the countries. The dispute settlement procedures within the WTO do not favor the developing countries including those in East Europe. These countries are not included in the decision making organs of the institutions neither are they involved in policy formulation. The specific problems of the East European countries are not properly addressed because the structures within the organization are tilted in favor of the developed countries. One of the issues that have been condemning the East European countries is the demand that tend to create a link between trade, Labor and human rights issues because these demands have been limiting market access for these countries (Murray, p. 56). Tying trade to human rights issues has created a myriad of problems for the East European countries. To start with, this link creates a loophole that enables the west to neo-colonize the East economically. This scenario also enables the west to control the foreign policy of the east which ensures that the east conforms to the rigid democratic ideals of the west which are largely unpopular in Eastern Europe. Forging link between human rights, labor standards and trade is an opportunistic gimmick that is aimed at helping the west to achieve its objectives in the free markets. The WTO rules deliberately affect the foreign policy of the East European countries by eating away their sovereignty while at the same time creating double standards by failing to force the west to observe and respect the economic and Socio-cultural structures of the East European countries.

For the WTO to be friendly to the foreign policies of these nations, it must reform its procedural mechanisms and make them more flexible and inclusive. This will give enough attention to discordant voices within the bloc. The WTO also needs to review the substantive issues underlying the principles of trade because the current regime of trade is not friendly to the developing countries and their foreign policies (Klein, p. 67). Liberalization of trade should have a balanced agenda so that its processes and outcomes can be friendly to all the members and in tandem with the foreign policies and the sovereignty of all the nations. The agenda should also consider the sectors where the developing countries especially the East European countries have a comparative advantage like agriculture and construction because this will help in spurring development in these countries. Presently, the agenda is tilted towards the sectors which are friendly to the developed countries and this has helped the West European countries to economically exploit the East European countries because they can access their markets while the eastern countries cannot access the western market because of the rigidity of the WTO agenda (Mackenzie, p. 45).

Globalization in Eastern Europe and the financial institutions

The Bretton Woods institutions are the World Bank and the International Monetary Fund. These two institutions have played a bigger role than the WTO in structuring the global economy. They have penetrated deep into the nerves of the developing nations, affecting their sovereignty and self governance. In Eastern Europe, the foreign policies of the nations is under the control of these two globally influential institutions and this has affected their right to self determination and the ability of the countries to enjoy social –cultural and economic rights (Kingsnorth, p. 79). This has created deep seated issues within very many sectors of national interest like education health and the welfare of the people. The World Bank has come under heavy criticism due to its inhuman projects that do not respect the environment and the social-cultural institutions. One of the reforms undertaken by the World Bank is called the Washington Consensus which has been under scrutiny because of their negative ramifications in the developing countries. These Washington Consensus reforms were shock therapy measures that were aimed at structurally adjusting the developing countries in the face of globalization in the late eighties and the early nineties. However, these reforms did not succeeded in addressing the economic poverty in East Europe because the western countries hijacked the reform process and tricked the countries into opening their markets. The Bank also failed to link its activities to human rights obligations because it was unable to address its poverty alleviation strategies to the needs of the people in these countries when it focused on market liberalization and conditionality’s (Holloway, p. 23). The IMF has an extremely narrow concern for the issues in the East Europe and the developing countries. The fund is obsessed with corruption and the need for transparency, relegating key developmental issues to the sidelines. The standards set by the fund are not inclusive and they tend to serve regional and ethnic interests under the guise of good governance. The governance practices of the fund are arcane and they curtail the growth of the developing countries by limiting their market access, yet there is a notion that the market has been liberalized. The conditions set by the fund are duplicitous and the rationale for the disproportionate management puts unwarranted pressure on the democratic institutions of the developing countries especially in East Europe. It is very clear that the institutions of globalization have failed to critically address the issue of human rights. They should approach it fundamentally from a democratic angle and help the countries to meet those demands. The institutions have only paid lip service to civil and political rights but have not made a holistic and a genuine commitment to the issues of human rights, labor standards, transparency and democracy and this has thrown the East European countries into a web of confusion.

Apart from affecting the foreign policies of the countries, aspects of globalization like liberalization of trade, development of high speed communication infrastructures and global competition have revolutionized trade around the world and this has impacted heavily on the sovereignty of the East European states (Juris, p. 67). The states have been challenged by this wave of globalization because they are no longer in charge of the dissemination of ideas, development of technology and control of national economic assets. The role of the East European states in business has diminished with the entry of the multinationals. The multinationals from the west seem to be calling the shots on the economic front and the states have been left as mere observers. The governments are losing the control they had on economy because they no longer have a lot of influence on economic policies. The economic diminution of the state in the face of economic globalization is therefore a barrier to the sovereignty they used to enjoy. Supranational organizations have come up to challenge the sovereignty of East European governments (Donatella, p. 78). There are many NGOs and Transnational organizations that are keeping governments on their toes and attracting international pressure when the governments’ fail to meet their national organizations. The organizations are acting as auditors and have limited the action of governments within their territories. These supranationals have become integral parts of global politics though they have interfered with the sovereignty of East European states (Lucas, 1999).

The other negative effect of globalization on the foreign policies of the Eastern European countries is the imposition of the neo liberal policies on these countries by the first world countries and the Breton Woods institutions which has created economic crises in most of the countries. Globalization has created economic pressure on the East European countries by trapping them into debts and they have remained slaves of the first world countries. Most of the policies prescribed by globalization like privatization of industries, deregulation and tax reforms have been used by the wealthy countries to create small, elite groups in the East European countries which they use to exploit the wealth of those countries using opportunistic tendencies under the guise of foreign aid. Globalization may have been criticized as the root cause of the problems that are afflicting most of the East European countries but there are indications that globalization is the necessary evil that these countries needed to be where they are today. Globalization may have affected the east negatively but it is worth noting that the inflation rates in these countries have remained low since the collapse of communism, unemployment rates have gone down and workers in the economic sectors created by the direct foreign investments have been receiving higher wages than during the socialistic era (Bhagwati, p. 45). Despite the aforementioned macro economic advances, levels of poverty have remained low and a large percentage of the population has no access to basic amenities.

Conclusion

The west has for a long time used its economic muscle to create a global government that has been regulating relationships among governments and interfering with the foreign policies of many developing countries. The United States of America and its European allies have been using their positions of wealth to force the post communist countries in Eastern Europe to adopt economic policies that are friendly to these capitalistic giant. However, the emergence of the People’s Republic of China as an economic powerhouse is bound to change the situation in Eastern Europe. The tremendous growth of the People’s Republic of China is a threat to the political and economic authority of the west and the power they used to wield over the developing countries seems to be waning. East European countries were originally founded on socialistic principles and they often find it easy to work with China which also has a tradition of socialism. The entry of the transnational companies due to the liberalization of trade brought about by globalization overturned the economic principles that had been in existence in these countries. These economic policies had insulated the Eastern European countries from the effects of the world market because the policies were based on planned socialistic structures which were stable and viable. When globalization opened up these countries to the world market, there were instant adverse effects. Unlike the west, which has been placing unrealistic demands on Eastern Europe while duping them into the free market, China as emerged as a genuine trade and economic partner which does not attach strings to its markets and economic opportunities. The country has already opened its markets to the East European countries. The fantasy of a liberal market has now become a reality and the eastern European countries are moving away from the dark shadow of the big brother from the west to establish healthy trade relations with the People’s Republic of china which has brought a new meaning to the concept of globalization in Eastern Europe (Zuquete 67). The UN bodies and the west have wrecked havoc in Eastern Europe through the application of double standards and policies that subjugate the east but these countries are slowly emerging out of this mess. The waning influence of the west especially in the 21st century is definitely going to create changes in the structure of the foreign policy of many countries in the world. The UN and the West will no longer be able to bulldoze these countries or hold them at ransom using their opportunistic policies and Eastern Europe may in the long run manage to conquer the evils of globalization. All in all, Globalisation is the evil these countries need to fight for them to stand up again

Works Cited

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