There is a misconception that liberal market reformsinemergingcountries is the solution to economic woes. Becoming a globalization success story via liberal market reforms, lures many governments to hastily implement certain reforms that suit the government's needs. This limited approach gives credence to the notion that globalization only benefits a corrupt few. In countries experiencing a significant degree of ethnic conflict that implement reforms, this is especially true. Success in these countries is contingent on addressing institutional shortcomings.
Introducing free market reforms in counties where minority groupshave unfettered market control,thanks to complicit governments, results in violent opposition by the ethnic majority. The system is organized so that only the minority ruling elite and government benefit. A majority ethnic group that successfully deposes agovernment, will associate these reforms with corruption so they dismantlethese reforms. Unfortunately, rejecting all liberal market reformsfor less open market policies can result ineconomic failure.
This essay examines globalization in a greater context and how countries experiencing ethnic conflict are recommended to cautiously implement reforms. Closer scrutiny of how economic liberalization causesfurther instabilityin an ethnically divided country reveals why. Next I examine why a few preconditions are necessary before implementing reforms.
Globalization is broadly defined as opening markets by removing trade barriers to increase international trade creating an interdependence among its member. Countries that participateneed to privatize or loosen state control. This promotes liberal trade policies and encourages foreign investment. The tequila crisis in Mexicopromptedthe privatization of banks in a bid for foreign investors.
Gaining foreign investment interest required more transparency in the banking sector. Prior to the reforms, the banking sector was rife with tacit agreements between greedy bankers and politicians. The reformsushered in a new economic era in Mexico. Many argue that in addition to boosting the economy, reforms led totrue party plurality. The election of President Vicente Fox' ended the Institutional Revolutionary Party's (PRI's) seventy-one year oldstranglehold on politics.
Open markets are theoretically designed to benefit the masses. Sierra Leone offers a perfect example where the market dominant minority and the President practiced crony capitalismin their favor creating an unequal distribution of wealth. The ethnic majority grew tired of their tactics resulting in a violent backlashtoward the ethnic minorityand globalization.
Sierra Leone would have circumvented the backlash had theyimplemented reforms such asstrengtheninglegal and political institutions, expanding the middle class, educatingits citizenryandfostering a more inclusive attitude in itsruling minority. Sierra Leone, a country that severely lacked these characteristics, failed to address their shortcomings resulting in a liberal markets failure.
While globalization is nota perfect system, it remains the best option. Open markets allow the flow of goods that are otherwise unavailable in some countries. An open market also creates a competitive environment where, barring certain goods that are taxed or subsidized, consumers benefit from lower prices. Eventually there is a trickle down effect of personal gains. Unfortunately when few selfishly reap the benefits, the masses are discontent. This becomes an excuse to wage a war against globalization and its sole beneficiaries: the ethnic minority elite.