Zimbabwe. The latter are symbols of political-economic, demographic, social, and
environmental stress, over population, crime, and the erosion of borders (Shaw,
1994).
Policies that caused economic change
The current phenomenon of global regionalization has been brought about by a
whole sequence of fundamental policy changes in the developed world over the post-
Second World War period. First, the financial control structures that were brought
about by the Great Depression of the 1930s and the Second World War were
beginning to be dismantled during the late-1960s and 1970s. In the process capital
became increasingly liberated while the First World cities lost their manufacturing
industries. New York lost 35 per cent of its manufacturing employment in the 1970s
and London around two-thirds over a slightly longer period (Harris, 1995).
Increasingly, transnational companies started to locate in what is now known as
‘newly industrializing countries’ because production costs were lower there and the
investment climate in those countries was more accommodating (Chan, 1996). This
was a period characterised by a change in the structure of industry, from monopoly
capitalism to flexible accumulation, and from a nation-state focus to a transnational
focus in capitalism (Robinson, 1996; O’Loughlin, 1989). Locally, privatisation of
public institutions started to gain popularity, but it was only during the 1980s that the
process really gained momentum.
In response to the recessions of the early- and late-1970s the developing world
resorted to protectionism in order to protect its local businesses. In their drive
towards greater financial independence from colonial powers, many developing
nations resorted to policies of subsidised and uncompetitive import substitution. In a
climate of protectionism some domestic industries flourished, many of them operating
at well below minimum efficient scale. State controlled regulation and planning
became a regular feature in those economies. As a result of insufficient monitoring
measures and control, debt in the developing world escalated (Roberts, 1978).
Although the increasing number of debt reschedulings over the past twenty years
(Callaghy, 1997) shows that debt is still a major inhibiting economic factor in the
developing world, some of these countries have started to reverse their protectionist
policies since the late-1980s. They are now beginning to turn to more liberal policies
of less government control and market driven economies focussed on the promotion
of export industries (Bhagwati, 1997; Black and Mitchell, 2002; Harris, 1995).
According to Kim (2001) this is a clear indication of the reality of global ‘economic’
and ‘political determinism’.
The impact of foreign direct investment
The flow of foreign direct investment (FDI) is a very commonly used parameter for
the measurement of economic relations between nations. FDI is usually affected by
the political and institutional stability, and demand, supply and cost conditions in a
country. Due to less favourable trade-offs between the potential returns on
investments and direct and indirect cost factors such as restricting tax, tariff, quota
and surcharge structures, developing countries are generally not as popular as
investment destinations, as the developed world. It is therefore not surprising that, for
many years, more FDI has been flowing to the North than to the South, and that the
proportion that has flowed to the North has been increasing relative to the South (Cyr,
2001; Allen and Thompson, 1997). In 1967, 67 per cent of the world’s FDI stock was