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What are the main impacts of neo-liberal development policies on poor countries? Essay Example

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Main Impact of Neo-Liberal Development Policies on Poor Countries


“Neo-liberal development policies refer to the policies and process whereby a relative handful of private interests control to their maximum possible of social life in their quest to achieve the highest personal profitability.” (Chomsky, 1999, p.7).

How neo-liberal policies work

Most neo-liberal policies were conceived with the idea of reducing tax and debt consequently translating into increased capitalistic profits with an aim of encouraging private or public investment in, mainly, foreign nations. The policies include general extension of market regulation, Special Economic Zones as a model for social reorganization, deregulation of national economies, the privatization of public assets, shifting of the tax burden, reduction of the national debt, downsizing and restructuring government, the promotion of charities, enhancement of the state’s coercive power, and the displacement of the “Citizen” by the “Taxpayer”

For effective focus on theMain Impact of Neo-Liberal Development Policies on Poor Countries, this paper concentrates on the establishment of the special economic zones (SEZ).

Social Economic Zones (SEZ)

Special Economic Zones (SEZ) are areas controlled and manned by one organizational body offering incentives to investors whose choice is to make physical an investment in the areas. These include free trade zones, export processing zones, enterprise zones, single factories, free ports and specialised zones. In the poor countries, the free economic zone has had both positive and negative impact.

Transformation through area upgrades — for example, Shenzhen, China transformed from a small fishing village into a booming metropolitan area by becoming an export-oriented economy earning $30 billion in foreign direct investment (FDI) annually.

It is expected that by 2015, as part of the Icheon Free Economic Zone, the new Songdo city in Seoul, South Korea will have been transformed into a full digital city allowing countries to export more sophisticated manufactured goods. (Mishra, 2008).

Although transformation may be considered a positive development, with it comes about gender inequality and the exploitation of female workers in the sense that women are known to be looked down in SEZ zones with lesser rights compared to their male counterparts. This mainly results from the fact that most women in poor countries are considered to be of lower ranks than men with respect to culture and technological awareness. Agarwal (2007) states that in Malaysia, 4 out of every 10 workers are women, contrary to two decades ago when the number of women were 6 out of every 10 workers in simple-technology SEZ areas.

In counter arguing the benefits realised through massive foreign direct investment (FDI), Mishra (2008) argues that many investors avoid costs of taxation, labour standards, human rights oversight, safety and environmental precautions. While supporters of SEZ as a neo-liberal policy argue that the creation of jobs is worth it all, critiques will disqualify this claiming that the benefits of the zones do not measure up to the degradation SEZ cause in developing countries.

Job training and creation of employment opportunities — the investors in the SEZ areas look for new labour force locally e.g. in the SEZ areas of the Dominican Republic in 1970, there were 500 employees compared to the more than 200,000 currently. The SEZ areas in the Philippines were by the year 2010 employing close to a million workers, Murray (2010).

On the other hand, however, the SEZ neo-liberal policy tends to result in poor labour standards. As SEZ operate on capitalistic economic policies, most successful investors tend to overlook proper requirements that ensure health, safety and competence of employees. A good example is the total exemption of investors from national labour laws when the SEZ first came into existence in the 1980s (Mishra 2008). Namibia and Zimbabwe drew immediate criticism from the global rights community when they excluded their national labour acts’ provisions on initiating the EPZ laws in the 1990s. (Jauch 2002). In Mexico the Maquiladoras are believed to, negligible training, work under very detestable conditions, such as poor environments, using materials that pose a hazard to them, with little or no awareness of safe equipment, (Murray, 2010).

Infrastructure development such as good road networks is another benefit brought about by SEZ in poor countries. This especially happens due to the need for support services to transfer produce to and from a zone’s geographic area. The need demand for social infrastructure such as housing, health, education, transport networks and communication, shopping, hospitality, packaging, banking and other social amenities due to the increase in employment opportunities in the special economic zone areas, Murray (2010).

Notable of the demerits related to infrastructure are the challenges arising from the displacement of locals. To implement a geographically-based SEZ, the host country or private investors must acquire land and more often than not a settlement or self-development area owned by the locals. Agarwal (2007), argues that usually land is procured from the locals at extremely cheap rates e.g. the Tamil Nadu administration of local India reduced the farmers’ land by 50% to lure Nokia Telecom development to set aside SEZ areas in Sriperumbadur, Kancheepuram .

Though some poor countries have developed regulations to cushion the locals from cheap land rates, sometimes, prior to the acquisition of the land for SEZ, the farmers might have been using the land as the only source of food through subsistence farming. Secondly, the acquisition of the land forces the farmers to transform to complex SEZ employment skills that they may not be comfortable with in the first place, (Mishra, 2008).

Expensive costs incurred by governments especially in their quests to lure developers by providing incentives through infrastructure, capital and tax subsidies leaves the poor countries in debts or economic positions they may never recover from. This has been referred to by elites as a “race to the bottom”, (Murray, 2010). For instance, the Namibian government presented huge compromised on huge economic as well as investment regulations to foreign investors than its South African counterparts while Madagascar, in its quest for higher ground than its neighbours in luring investors offered investors a 99 years cushion against taxes, relaxation of labour standards, subsidising electricity and water costs . While the Namibian government was successful in the bid for the contract, the introduction did not achieve equally significant socio-economic benefits, Hebert (2002).


Although there have been a number of notable developments from the implementation of neo-liberal development policies in poor countries through the introduction of Special Economic Zones (SEZ), over and above the improvements, opportunities and wealth being achieved the negative impact experienced has been widespread and adverse.


Aradhha A. 2007. Impact of SEZ on Employment. Poverty, Human Development, Indian Council for Research on International Economic Relations. Working Paper No. 194.

Herbert J., 2008. Environment & Urbanization, Export Processing Zones and the Quest for Sustainable Development: A South African Perspective. 14. (108).

Megan M. 2010. A Survey of Special Economic Zones. Viewed on: 14 April 2011. <http://www.uiowa.edu/ifdebook/faq/faq_docs/SEZ.shtml>

Neeraj M. 2008, SEZ (Special Economic Zone) – An Overview, Challenges, and Future. Viewed on: 14 April 2011. < http://neerajmishra.wordpress.com/2008/07/26/sez-special-economic-zone-an-overview-challenges-and-future>

Noam, C., 1999, Profit over people, Seven Stories Press, New York.