Lesson video

Hello, geographers.

My name is Mrs. Griffiths.

Welcome to this lesson all about top-down approaches to development.

We're gonna be thinking about what the advantages and disadvantages are of the work of intergovernmental organisations and transnational corporations, particularly involved in globalisation.

So let's get started.

Okay, so today's outcome is as follows: I can describe the advantages and disadvantages of top-down strategies used to reduce global inequalities.

So that's our aim for today.

And we have three keywords.

Those are transnational corporation, these are TNCs, and they're firms that own or control productive operations in more than one country.

Intergovernmental organisation or IGOs.

These are established by treaty or agreement between countries pursuing a common goal, for example, the World Bank.

And then thirdly, we have globalisation, the increased interconnectedness of the world economically, politically, and culturally.

So those keywords we're going to be using in today's lesson.

Now, how does our lesson shape up? Well, we have two sections.

Firstly, we're gonna think about, can transnational corporations reduce inequality? And secondly, do intergovernmental organisations have a role? So let's start on that first part.

Now, you and I know that around the world in the 21st century, there is a widening gap between the richest and the poorest in terms of their wealth, but also their wellbeing.

And we can tell that when we look at this selection of homes.

From the Dollar Street website, there's a real variety there, isn't there? And we can see there's a gap in terms of quality of life.

But what can we do about that? How can we reduce global inequalities? Okay, so firstly, let's take top-down strategies.

These are strategies that involve decisions taken by governments or large companies, often large-scale, expensive, and high tech.

The players involved are governments, transnational corporations, and intergovernmental organisations.

And the processes might be aid, foreign direct investment, and also, we have loans.

Now, that's not the only approach to development.

There are also bottom-up strategies that involve local people and communities, particularly in decision-making.

They're usually small-scale, and they might involve intermediate technology.

Who's involved in this? Well, the players are non-governmental organisations, or NGOs, community groups, and workers.

Some examples of processes here are aid, microfinance, and unionisation.

But you know, today we're focusing on top-down strategies, so let's have a look at the work of TNCs.

Ah, but I have a check for you first.

Top-down strategies are often large in scale.

Is that true or false? And I want you to tell me in a moment why.

So pause the video, have a think, and then restart it when you know.

Okay, so if you said it was true, that's absolutely right.

And what was your explanation? Our explanation was as follows: Top-down strategies involve governments, TNCs, or IGOs.

These players can take decisions that affect large groups of people, for example, the workforce of a whole city or those of school-age nationwide, so big decisions being taken.

And here's a big factory.

This Indonesian clothing factory employs hundreds of workers manufacturing goods for sales overseas.

Now, globalisation is the process of countries becoming ever more interconnected.

And of course, one of the key ways they're becoming more interconnected, we're all interconnected, is trade.

International trade is one way that countries are, today, more connected.

Within the global economy, you only have to think about the flow of imports and exports around the world and those container ships taking our goods, bringing our goods to us from distant places.

A transnational corporation, TNC, is a company that has operations in more than one country.

Depending on the type of industry, a TNC might operate some or all of the following.

So we've got factories, offices, shops, research and development laboratories.

Most TNCs that sell goods are very large companies with famous brand names, so we're talking about the big, sort of, commercial giants of trade.

And Aisha says, "Like brands for clothes and technology?" Yes, I'm sure you can think about some brands that are global TNCs, well done.

Alex asks, "Why do TNCs have operations in more than one country? That sounds complicated and could cost more." Yeah, it does sound complicated.

In fact, having headquarters in one country, for example, a developed country, but manufacturing products in other countries, for example, emerging or developing countries, can have a number of benefits for the company: wages are lower, taxes may be lower, the cost of waste disposal may be lower, and it provides access to new markets for that transnational corporation.

So there are a whole range of benefits from dividing up its different functions over different continents.

So TNCs make more profit by locating their factories abroad, not less.

Yep, absolutely right, Alex.

So let's have a think about that process, step by step.

So TNCs relocate factories to an emerging country to reduce labour costs.

As a result, skills and technology transfer takes place, benefiting local companies.

And as a direct result of this, manufacturing industries create export-led economic growth.

So homegrown manufacturing industries are then getting involved in export.

The rapid growth of emerging countries in the late 20th century and early 21st century has shown how the development of manufacturing industries can reduce global inequalities.

For example, if we think about, say the Asian tigers, so Hong Kong, Singapore, South Korea and Taiwan, they've had huge growth in the late 20th century and 21st century.

Now, not all of that growth was driven by foreign TNCs, but certainly manufacturing industry had a major role in their growth.

The BRICS, so that's the abbreviation for Brazil, Russia, India, China, and South Africa, have seen, again, a large amount of growth that has been manufacturing-led and has been led by the investment of transnational corporations into their economies.

Let's take the example of China then.

So here we have a stacked line graph here showing the percentage of the workforce that are working in different sectors.

So we've got agriculture, manufacturing, and services between 1990 and 2022.

Now, look at how that pattern has changed the way the workforce is divided up between those three sectors.

I'm sure you've noticed that the amount of manufacturing industry appears to have enlarged because we can see that the percentage of the workforce that is employed in manufacturing has gone up over time.

China as an emerging country now with the world's second largest economy after the USA.

Attracted by China's low wages and low tax zones that were created specifically to bring in the TNCs, those TNCs chose to manufacture goods there for export from the 1980s onwards, a little bit of history about how China has its its export growth happened.

Today, china is nicknamed Workshop of the World.

Check for you here then.

Put these statements in the correct order to show how investment by TNCs can lead to a reduction in global inequalities.

So I'd like you to read them through, think about what the correct order is.

So pause the video now and then restart it when you have an answer.

And if you said the correct order is C, B, and A, you'd be absolutely right.

So we've got C, TNCs relocate factories to an emerging country to reduce labour costs.

Then we've got B, skills and technology transfer takes place, benefiting local companies.

And then A, manufacturing industries create export-led economic growth.

Well done.

Oh, another check here for you.

What does this graph show? We've seen this graph before.

Can you remember, what does this graph show? You've got a choice of A or B there.

So pause the video and then restart when you know the answer.

Okay, and if you said the answer was B, what it shows us is that the share of China's work employed in manufacturing and services increased over time, you'd be absolutely right.

It's also true that China's income has increased over time.

However, that's an inference, isn't it? Something to do with what we know about the growth of China over time.

We can't see this exactly from this graph about the workforce.

When TNCs invest in manufacturing facilities outside the country they're headquartered in, this is called foreign direct investment, often abbreviated to FDI.

The place where the new or expanded factory is located will benefit in a range of ways, and this overall is called the multiplier effect.

Can you think about what the multiplier effect might involve? Have a think about that.

Okay, so what I'm going to do, I'm gonna create a diagram that illustrates the multiplier effect.

So my first box says TNCs invest in an area, so they might buy a company, in an emerging country.

And the result of that is that the factory that is created actually generates new jobs within that factory as well as for local suppliers, so they recruit also.

So we've got this job creation, which leads to local people having higher income because they have these new jobs.

A knock-on of that is that services in the area, for example, shops, benefit as those people who have those new jobs, they're spending their wages in the shops, which in turn creates more jobs.

So we've got that kind of virtuous circle there.

The knock-on impacts of the company buying the factory, employing all these people, and the local shops and services benefiting is that the government receives more tax, which it can invest in local infrastructure.

So perhaps it improves the roads, or it improves perhaps the connectivity and the internet in the area.

Now, the knock-on effect of that is that better infrastructure leads to further FDI.

So one transnational corporation locating an area can lead to further transnational corporations and further investment being attracted to the area.

So we can see that idea of a virtuous circle known as the multiplier effect.

However, foreign direct investment by TNCs has disadvantages.

So let's have a think about what they are.

So firstly, low tax zones are created by a local or a national country to attract TNCs into their economy.

However, as a result of those policies, the local impact in terms of tax revenues might be less.

The impact might only be short term.

So for example, TNCs seek locations with the lowest wages all the time on an ongoing basis, meaning that future relocation is possible.

Those jobs might go elsewhere.

And then thirdly, leakage of profits.

So profits go abroad to the country in which the TNC is headquartered, or certainly a share of them will.

So we have a leakage of profits out of the country.

So some drawbacks in terms of relying on TNCs and globalisation to bring about a big step change in development within a country.

And here, when I was talking about missing taxes within low tax zones, I've actually made an amendment to the diagram so that you can see missing taxes, if a TNC invests in a low tax zone mean that actually the government has less to invest in local infrastructure, so that's what those dotted lines mean.

Now, check for you here.

Using my diagram, can you add back in some of the missing labels? So we've got A, B, and C.

Pause the video and restart it when you think you know the answer.

Okay, now, did you say that A was taxes? I'm sure you did.

What about B? Well, that's missing taxes in the context of a low tax zone.

And then C being the idea that we've got some improvement in infrastructure, leading to further FDI, hopefully.

But obviously, it's limited in this context because it's a low tax zone.

So not all the revenues are going to the local government.

True or false, FDI in emerging countries may only create short-term jobs in manufacturing industries.

What do you think? True or false, and why? And if you said true, you are absolutely right.

What was your explanation of why? Well, our explanation was TNCs continue to seek locations with the lowest wages, meaning the future of relocation of manufacturing jobs created by FDI is possible.

Practise task for you now.

Is foreign direct investment by TNC a top-down or a bottom-up strategy to reduce global inequalities? And you'll need to explain your answer.

Okay, question two.

Alex and Aisha have different views about the benefits of TNCs investing in emerging countries as an approach to development.

Discuss these views with a partner.

So let's have a look at those views.

So Alex's view is, "FDI by transnational corporations can transform the fortunes of whole area and boost the economy," whereas Aisha says, "TNCs can switch their operations to a different country at the drop of a hat.

Sounds risky to me." So I'd like you to discuss those two views with a partner.

You might think about perhaps those pros and cons, advantages and disadvantages of investment by transnational corporations and try and weigh them up.

So if you're going to have that discussion, maybe you need a pen and paper so you've got that work to do, questions one and two.

Pause the video now and then restart it when you want to check your answers.

Okay, how'd you get on? So we had this first question which was, is A TNC investing in an emergent country a top-down or a bottom-up strategy? Now, I'm sure you said it's a top-down approach and perhaps you flesh that out a little bit because you were asked to explain your answers.

It's really important to do that.

Government decisions are taken at a national scale, for example, to create low tax zones to attract foreign companies.

We've also got the idea that TNCs are large companies with operations all over the world.

So decisions are taken to relocate production at a global level.

Well done if you had something like that.

Secondly, Alex and Aisha have different views about the benefits of TNCs investing in emerging countries as an approach to development.

What was your discussion like? What did you come up with? Perhaps you discussed, as we have, advantages and disadvantages of a FDI by TNCs.

So we've got, this investment creates many jobs, directly and indirectly.

Global TNCs serve large numbers of customers or have large markets, so that means that the potential for exports huge.

They can lead to improved infrastructure for all in the local area, and skills and technology transfer benefit local businesses too.

So it's not just kind of a factory that perhaps is owned by the TNC.

TNCs, however, may not pay local taxes, limiting local impact.

They may also not create long-term jobs, as TNCs will relocate if they can to save on wages.

And profits leak, don't they? Profit leakage occurs because, in reality, globalisation benefits some countries more than others.

Okay, so that's the first section of our lesson, and now we're gonna have a look at, do intergovernmental organisations have a role? What do you think? In the late 20th century, many developing countries borrowed money from intergovernmental organisations, or IGOs, including the World Bank.

We have a question here.

What did they spend the money on? Well, that's a good question.

Loans were for developing infrastructure, such as transport networks to support the process of industrialization.

And we've got a real world example here.

Loans are still being agreed today.

And in 2024, Nepal agreed a US $100 million project to improve provincial and local roads, a significant size of project there.

True or false for you then, loans from IGOs to developing countries are typically for large infrastructure projects like roads, railways, and energy networks.

What do you think, true or false? And remember, I need you to explain why in a moment.

Well, that's true.

And what did you say in terms of why? We had infrastructure, such as a reliable energy network that delivers electricity to industry, is essential for industrialization and economic growth.

Now, loans, when we talk about loans, we also have to think about the issue of debt.

So debt is money you owe, borrowed from an individual or organisation.

It must be paid back, and you are charged interest on the loan, meaning the amount you pay back in the end is often much more than the original amount borrowed.

So that's also true for the government of a country.

For some developing countries and emerging countries, the debt burden, so the amount of money they had to pay back and the interest they were paying on those loans, became unmanageable over time.

So for example, in 1982, Mexico's government said it could no longer make payments to service its debts.

So this was a major problem for its economy and its government.

Mexico wasn't alone.

This was true for a number of different developing countries around the world at the time.

But why did loans from intergovernmental organisations lead to unmanageable debt for developing countries? Well, there are a number of reasons.

One was corruption of ruling elites within those developing countries.

So not all the money went into the projects they were promised for.

Secondly, the people that ran the intergovernmental organisations were called out for poor governance.

So they didn't really know, they weren't keeping a close eye on whether the money that they were loaning was being spent on what it was promised for.

Thirdly, we've got the idea that developing countries at the time were reliant, and many still are reliant on a few export commodities.

And with the fall in the price of those export commodities, we've got reduced revenue for the countries.

So the country as a whole is poorer.

Not only that, but with a rise in the price of key imports, such as oil at the time, we've got that mismatch between the money coming into the country and the money leaving the country when they're paying for imports.

So as a result, these countries were getting poorer.

They had less money to spend on interest payments and repaying the debt.

Not only that, but some developing countries were involved in conflicts, which was very costly.

And remember that these loans that were given were for high-risk investments.

So we're talking about millions of dollars of loan being spent on huge infrastructure projects that might have been kind of technologically advanced, and they may end up taking much longer than was initially thought through.

So all these countries saying they could not repay their debts was termed a debt crisis, an international debt crisis.

What did that mean for people living in those countries? Well, it meant that the governments of the affected countries were spending more on interest payments than they were on providing health and education services to their own people.

So that obviously had real world impacts on their quality of life.

Non-governmental organisations, or NGOs, including charities and religious groups, campaigned under the banner of drop the debt.

Together, they worked to raise the profile of this global problem around the time of the millennium, so year 2000.

What happened next? Well, in 2005, a group of the richest developed countries, including the UK, which we is termed the G8, made a plan to accelerate the cancellation of debts for many highly indebted poor countries.

To be eligible for debt relief, developing countries must face an unsustainable debt burden; reform their economy, so make some changes according to what the IMF, the International Monetary Fund, and the World Bank advice was, for example, they had to demonstrate no corruption; and they had to develop and implement a poverty reduction strategy involving the participation of civil society, so looking at what the people on the ground actually wanted.

Check for you then.

In terms of this timeline, we're talking about the international debt crisis.

I've got it starting from the 1970s and going up to 2005.

Can you fill in the gaps on this check here? I'll give you a few moments to have a look at it.

Restart the video when you know the answers.

Okay, so I'm sure you spotted that the IGOs, including the World Bank, made loans to the developing countries in the 1970s and the 1980s.

But by 1982, Mexico fails to make debt repayments, and it's the first country of many.

By 2000, we have a head of steam where a big group of NGOs are working together and urging those responsible to drop the debt.

That was their slogan.

In 2005, the G8 agrees to accelerate a debt relief plan for those poor countries, so the highly indebted, poorest countries.

What's happened to date? So to date, due to debt relief initiatives, 37 different countries have had more than $100 billion of debt cancelled.

31 of them are located in the African continent.

And we can see that those in Africa are grey in colour, but also the purple highlights the other countries around the world.

And we can see that they're spread across different continents.

Now, we've got the question here, 37 countries, what's the new joiner? Big reveal, the new joiner is Somalia.

So in 1923, not 19, 2023, Somalia's reforms meant it received $4.

5 billion in debt relief from creditors including the World Bank, IMF, African Development Fund, as well as commercial banks.

A huge amount of debt relief for Somalia.

Check for you here.

Where are most of the developing countries that have benefited from the IGO's Debt Relief Initiative located? So where were those countries located? And if you said Africa, you'd be absolutely right.

Can you name the latest country to benefit from debt relief? That's right, it's Somalia in 2023 in East Africa.

Somalia's debts were as high as 64% of GDP, which is clearly unmanageable.

With debt relief, its debts are equivalent to just 6% of GDP, or they were by 2023.

What's Somalia gonna spend the money on? Key question, more than 2/3 of the Somali population live in extreme poverty.

So that's worth knowing that they're living on less than $2.

15 a day.

Hard for us to imagine.

With the support of the UN, Somalia launched its first national safety net programme.

Well, what was involved in that? Well, there were food-linked cash reserves, cash transfers and emergency cash to support early recovery from shocks, for example, natural disaster, crop failure, or conflict.

A quarter of the population was expected to have benefited by 2025.

So this debt relief had a real world impact for the population of Somalia and, in particular, the poorest in that population.

Debt relief is part of the UN's final sustainable development goal, SDG 17, which countries aim to achieve by 2030.

So I'm sure you've heard of the SDGs.

You'll remember that they are numbered.

Number 17 is to revitalise the global partnership between countries needed for the sustainable development of all.

Are there any problems with debt relief though? That is a key question, isn't it? What are the problems with debt relief? There are a couple of concerns, and these are as follows.

Firstly, lack of accountability.

So we had developing countries that borrowed money to undertake big infrastructure projects.

Those projects perhaps didn't finish, or they didn't happen at all, and that debt wasn't repaid.

So lack of accountability, if they borrow more money, could the same international debt crisis take place? Secondly, the current international approach is limited to the poorest countries only.

So there are some that think that there are emerging economies that would benefit from debt relief also.

Check for you then.

To be eligible for debt relief on loans from IGOs, countries must have.

Let's have a look at A, B, and C.

I'd like you to read those through which, if any, are true.

Pause the video now.

And if you said B and C are true, you'd be absolutely right.

So they must have reformed their economy on IMF, World Bank advice.

And secondly, plan the poverty reduction strategy involving local people.

I have a practise task for you now, or rather I have three, but let's have a look at the first two.

Suggest two benefits of loans from IGOs such as the World Bank.

So what are the two benefits? Secondly, can you complete the following to explain why loans from IGOs led to an unmanageable debt burden in some developing countries? So I'll let you read that through and try and work out what are missing words.

But before you do that, let me just show you the third task.

Explain how debt relief on loans from IGOs can help to reduce global inequalities.

So an explanation task there, third task.

Okay, so I suggest you get pen and paper together now.

I'm gonna give you time to have a go at those three tasks, and then restart the video when you'd like to check your answers.

Okay, and first question was to suggest two benefits of loans from IGOs such as the World Bank.

How did you get on? We had these.

The government of of a developing country can invest in developing key infrastructure to, firstly, support industrialization.

So for example, companies can more easily transport goods overseas via new ports and rail links, boosting sales and jobs, but also that infrastructure will improve the lives of a country's population.

For example, people can move around more easily and access healthcare in towns and cities.

Well done if you had something like that.

So our second exercise was to complete this text, which explains why loans from IGOs led to unmanageable debt for some.

Let me read it through.

So large infrastructure projects such as railways and power plants were high-risk given their scale and complexity, meaning costs overran.

In some cases, corruption of ruling elites in developing countries meant funds disappeared and past governance by IGOs was inadequate.

Finally, because developing countries depend on export commodities, when their global price fell while key imports like oil increased in price, they became poorer, so the developing countries became poorer.

As the loans could not be repaid, interest on the debt built up.

Well done if you've got all those gaps correctly filled.

Thirdly, you are asked to explain how debt relief on loans from IGOs can help to reduce global inequalities, and your answer might have included something like this.

We've given a real world example of Somalia.

So in Somalia, debt relief has meant that the government has more money to spend on its people.

Without having to make interest payments on its previously huge debts to IGOs, the government set up a new programme known as a national safety net than makes emergency cash payments to the poorest families.

Such payments help them to cope with economic shocks such as crop failure.

This top-down programme can make a big difference in Somalia where many people live in extreme poverty and have few savings.

So we've got a really clear explanation between debt relief and what that meant for people on the ground.

I'm sure your answer looked like that.

Okay, so in summary, we have the ideas that we've covered today.

So top-down and bottom-up strategies to reduce global inequalities differ in scale, aims, funding, and technology.

Foreign direct investment by TNCs can lead to large-scale economic change, but in low tax zones, profits leak out of the country.

And remember, that jobs may be only short-term.

Loans from IGOs for large infrastructure projects can deliver technological solutions, which is great, but also, there is this risk of countries being seriously indebted, as we've seen with the international debt crisis.

Okay, so we've looked at pros and cons of top-down there today.

Hope you're a little bit clearer on that, and I look forward to seeing you again soon.