Examining the Pros and Cons of
Global Capitalism

Most developmental economists believe that conditions of the world’s poor have improved in the past few decades as a result of modern global capitalism. Still, while the world’s wealthy nations have become richer, more than 1 billion people continue to live in extreme poverty. Perhaps, as Rice’s Doug Schuler and other university researchers suggest, the contentions by socialist economists regarding capitalism’s role in inequality and poverty may be truer than liberal economists care to admit.

“To some extent, multinational corporations have benefited people in developing countries,” Schuler says, “but in other instances, international capitalism has failed to make much of a dent in reducing world poverty.”

As part of a conference on multinational corporations and global poverty reduction, Schuler, an associate professor at the Jesse H. Jones Graduate School of Management, co-authored a study titled “Multinational Corporations Through the Uneven Development Lens” with Stefanie Lenway of the Carson School of Management at the University of Minnesota and Lorraine Eden of the Mays Business School at Texas A&M University.

Their paper examines recent trends in international business from the perspective of Marxist–Leninist ideology. While many theories of “uneven development” have been debunked, Schuler and his colleagues found that some of these older, largely discredited arguments regarding capitalism should not be completely discounted.

“The basis of uneven development is that international exchange is inherently unequal and that international capitalism through foreign trade and investment tends to exploit the underdeveloped world,” explains Schuler.

On the other hand, the liberal, more currently accepted position is that capitalism has raised the standard of living for many of the world’s poor.

To assess whether the promises of capitalism have been realized or have failed, Schuler and his colleagues examined five phenomena involving international business: strategic alliances and joint ventures, nongovernmental organizations and anti-sweatshop campaigns, terrorism, poverty, and knowledge competition.

They conclude that multinational corporations generally have improved the lot of poor people, but they also concur with some of the predictions made by socialist economists that free trade and capitalism can be destructive to developing countries.

“Multinational corporations that bring sophisticated products and efficient production to developing countries may not displace thousands of local workers as uneven developmentalists predicted,” Schuler says, but those activities haven’t necessarily reduced the number of poor people in those countries either.

Industries requiring highly skilled labor seem to improve a country’s economy by way of “knowledge competition” or “learning by doing.” In essence, local skilled workers and managers hired for high-tech industries tend to learn so much about the product they manufacture that they eventually create the next generation of products.

“Although knowledge competition largely has been limited to specific Asian countries,” explains Schuler, “it’s still an aspect of global capitalism that’s creating new places of knowledge and new bases of products, thereby improving the situation not only of workers but of others as well.” However, Schuler adds, knowledge competition does not achieve the egalitarian structure advocated by socialist theorists because the nature of such industries favors educated workers over the uneducated.

Schuler and his co-authors also reviewed the current role of nongovernmental organizations in response to claims by even developmentalists that a competitive global market will cause multinational corporations to locate their production facilities in countries with the lowest wages and least expensive working conditions.

“Multinational corporations generally provide better wages and working conditions than local companies in developing countries,” Schuler says, “but NGOs have not been particularly effective in influencing companies’ social practices.”

He cites the fact that fewer companies have complied meaningfully to improving their labor or environmental conditions in developing countries and that many environmental groups rely on the very corporations they monitor for their own funding.

In looking at the overall record of global capitalism, Schuler concludes that the liberal economists’ perspective may be too rosy.

“To buy into the argument that open trade and private global enterprise ensures economic development,” Schuler says, “is just as simplistic as believing that controlling a nation’s economy will benefit that country’s people.”