Benefits From The Globalisation - Essay Example

It is believed globalization is beneficial but only for the developed world it is an evil concept for the underdeveloped world. Comment on this statement"- ORDER NO-102498 Globalization is a powerful real aspect of the new world system, and it represents one of the most influential forces in determining the future course of the planet. It has many dimensions: economic, political, social, cultural, environmental, security, and others. Globalization will be understood to mean major increases in worldwide trade and exchanges in an increasingly open, integrated, and borderless international economy. There has been remarkable growth in such trade and exchanges, not only in traditional international trade in goods and services, but also in exchanges of currencies; in capital movements; in technology transfer; in people moving through international travel and migration; and in international flows of information and ideas. Globalization has involved greater openness in the international economy, an integration of markets on a worldwide basis, and a movement toward a borderless world, all of which have led to increases in global flows. Michael D. Intriligator’s paper (2001) indicates several sources of globalization over the last several decades. One such source has been technological advances that have significantly lowered the costs of transportation and communication and dramatically lowered the costs of data processing and information storage and retrieval. A second source of globalization has been trade liberalization and other forms of economic liberalization that have led to reduced trade protection and to a more liberal world trading system. A third source of globalization has been changes in institutions, where organizations have a wider reach, due, in part, to technological changes and to the more wide-ranging horizons of their managers, who have been empowered by advances in communications. A fourth reason for globalization has been the global agreement on ideology, with a convergence of beliefs in the value of a market economy and a free trade system. A fifth reason for globalization has been cultural developments, with a move to a globalized and homogenized media, the arts, and popular culture and with the widespread use of the English language for global communication. It must be understood that globalization has clearly changed the world system and that it poses both opportunities and challenges. The question is to ascertain whether it is more of an opportunity or more of a challenge. Globalization has led to growing competition on a global basis. While some fear competition, there are many beneficial effects of competition that can increase production or efficiency. Competition and the widening of markets can lead to specialization and the division of labor, as discussed by Adam Smith and other early economists writing on the benefits of a market system. Specialization and the division of labor, with their implications for increases in production, now exist not just in a nation but on a worldwide basis. Other beneficial effects include the economies of scale and scope that can potentially lead to reductions in costs and prices and are conducive to continuing economic growth. Other benefits from globalization include the gains from trade in which both parties gain in a mutually beneficial exchange, where the "parties" can be individuals, firms and other organizations, nations, trading blocs, continents, or other entities. Globalization can also result in increased productivity as a result of the rationalization of production on a global scale and the spread of technology and competitive pressures for continual innovation on a worldwide basis. Overall, these beneficial effects of competition stemming from globalization show its potential value in improving the position of all parties, with the potential for increased output and higher real wage levels and living standards. The result is a potential for greater human well being throughout the world. Of course, there is the distributional or equity issue of who does, in fact, gain from these potential benefits of globalization. H.E.Fuad Siniora (2001) speaking of optimizing the benefits of globalization says that it is a trend that carries great challenges and great opportunities at the same time. Indeed, opportunities such as the greater availability and accessibility and movement of international capital, the reduced cost of communications and transport and, thus, the larger accessibility and faster dissemination of knowledge and the expansion of world trade are having a profound effect on the international economy. One can say that an individual countrys economic progress has become far less dependent on its geographic location and endowment of natural resources than it had been a decade ago. Instead, it has been proven that economic prosperity has become increasingly dependant on the quality of a countrys domestic investment climate, on the skills and flexibility of its workforce, and on its producers’ ability to respond quickly to opportunities in the global marketplace. Prosperity is also dependent on a country’s capacity to compete in this global world. The key contribution of globalization is increased free trade between nations. Increased liquidity of capital allows investors in developed nations to invest in developing nations. Corporations have greater flexibility to operate across borders Global mass media ties the world together Increased flow of communications has allowed vital information to be shared between individuals and corporations around the world. Greater ease and speed of transportation for goods and people has been noted Cultural barriers have reduced leading to an increase in the global village effect. Democratic ideals are spreading to developed nations. There is greater interdependence of nation-states which has lead to reduction of likelihood of war between developed nations. Environmental protection has increased in developed nations. Proponents contend that globalization is a positive force that lifts countries out of poverty through faster economic growth and thereby promotes human well-being. They argue that foreign competition is expected to increase efficiency in resource allocation, while trade liberalization propels the demand for semi- skilled and unskilled workers, who increase their wages and thereby reduce overall poverty. Properly managed, globalization may also be the most powerful force for social good in the world today, leading to greater widespread prosperity—especially in underdeveloped nations—by rapidly reducing child labor and increasing literacy. Moreover, when parents have sufficient income, they send their children to school rather than having them engage in child labor. Globalization is viewed, in particular, as the manifestation of the competitive advantage of international trade. For example, whatever we can obtain from overseas at a lower cost may boost reciprocal demand for our own products produced at lower costs; and with higher demand comes higher economic growth , higher productivity, and rising living standards. Conversely, ill-fated protectionist policies retard this positive economic cycle. As an illustration, India was a relatively closed economy with an annual growth rate of 4 percent. The poverty rate hovered around 55 percent. However, in the two decades since the country opened up its economy to foreign trade and investment, economic growth has averaged 5 percent. By 2000, the poverty rate had fallen to 26 percent. China’s experience was similar. With liberalization came spectacular growth. Between 1978 and 1998, poverty declined from 28 percent to 9 percent. Although India and China provide the most dramatic examples, the rule applies more broadly: openness brings growth, which reduces poverty. But is the picture really rosy? It seems that the benefits are somehow limited to developed countries. Are the developing countries really going places in the process? Michael D. Intriligator’s paper (2001) - Globalization involves not only benefits, but also has costs or potential problems that some critics see as great perils. These costs could lead to conflicts of various types, whether at the regional, national, or international level. One such cost or problem is that of who gains from its potential benefits. There can be substantial equity problems in the distribution of the gains from globalization among individuals, organizations, nations, and regions. Indeed, many of the gains have been going to the rich nations or individuals, creating greater inequalities and leading to potential conflicts nationally and internationally. Some have suggested the possibility of convergence of incomes globally based on the observation that the poor nations are growing at a faster rate than the rich nations. The reality, however, is that a small group of nations, the "tiger economies" of East Asia, have been growing at rapid rates, while the least developed nations of Africa, Asia, and South and Central America have been growing at a slower rate than the rich nations. These poor nations are thus becoming increasingly marginalized. The result has been not a convergence but rather a divergence or polarization of incomes worldwide, with the rapid-growth economies joining the rich nations, but with the poor nations slipping even further behind. This growing disparity leads to disaffection and possibly even international conflicts as nations seek to join the club of rich nations and have-not nations struggle with the have nations for their share of world output. This issue of distribution is a major challenge in the process of the globalization of the world economy. A second cost or problem stemming from globalization is that of major potential regional or global instabilities stemming from the interdependencies of economies on a worldwide basis. There is the possibility that local economic fluctuations or crises in one nation could have regional or even global impacts. This is not just a theoretical possibility as seen in the exchange rate and financial crisis in Asia, starting in Thailand in 1998 and then spreading to other Southeast Asian economies and even to South Korea. These linkages and potential instabilities imply great potential mutual vulnerability of interconnected economies. A worldwide recession or depression could lead to calls to break the interdependencies that have been realized through the globalization process, as happened in the Great Depression of the 1930s, with competitive devaluations, beggar-my-neighbor policies, escalating tariffs, other forms of protectionism, etc. The result could be economic conflict, gravitating to economic warfare and possibly to military conflict, repeating the history of the interwar period leading to the largest war in human history. A third type of problem stemming from globalization is that the control of national economies is seen by some as possibly shifting from sovereign governments to other entities, including the most powerful nation states, multinational or global firms, and international organizations. The result is that some perceive national sovereignty as being undermined by the forces of globalization. Thus globalization could lead to a belief among national leaders that they are helplessly in the grip of global forces and an attitude of disaffection among the electorate. The result could be extreme nationalism and xenophobia, along with calls for protectionism and the growth of extremist political movements, ultimately leading to potential conflicts. It is sometimes alleged that a cost of globalization is unemployment in the high wage industrialized economies. The low unemployment rates in many high wage nations and their high rates in many low wage nations disprove this allegation. National policy and technological trends are much more important determinants of employment than global factors. A related myth is that globalization is threatening the social welfare provisions of some states, but other factors are much more important, including domestic fiscal policy and demographic trends. In both cases, globalization is a convenient scapegoat for failures of national policy. It is important also to appreciate that the economic aspects of globalization are but one component of its effects. There are potential noneconomic impacts of globalization involving great risks and potential costs, even the possibility for catastrophe. One is that of security, where the negative effects of globalization could lead to conflicts, as suggested above, or the very process of globalization leading to integration of markets could make conflicts escalate beyond a particular region or raise the stakes of conflict, for example, from conventional weapons to weapons of mass destruction. A second non economic area in which globalization could lead to catastrophic outcomes is that of political crises, that could escalate from local to large-scale challenges and, if unresolved, to a catastrophic outcome. A third such area is that of the environment and health, where the greater interconnectedness stemming from globalization could lead again to catastrophic outcomes, such as those stemming from global environmental impacts, such as global warming, and pandemics. Globalization means that countries that are not able to survive the competition will be marginalized. Besides, there is a danger that some countries will not be able to attract international capital, increase exports, or otherwise take advantage of the opportunities that globalization provides. Of equal importance, instability in one country could spillover to the whole world economy as experienced during the financial crises in East Asia and Russia. "Cities in a Globalizing World: Global Report on Human Settlements 2001" argues that technology-driven options for growth and development -- which spur globalization -- have led to divided cities where the lines of stratification between people, places and groups are becoming more magnified. The costs and benefits of globalization are unevenly distributed both within and between cities. " Studies presented in the report indicate that while some population groups have improved their housing conditions, a disproportionate share of the worlds population has seen its housing situation deteriorate further. In many countries, real incomes have fallen, the costs of living have gone up and the number of poor households has grown, particularly in urban areas. Sixty countries have become steadily poorer since 1980.Cities, home to one-half of the worlds population, are bearing the brunt of declining living standards. The report notes that one billion urban inhabitants live in inadequate housing, mostly in the slums and squatter settlements in developing countries. In Africa, only one-third of all urban households are connected to potable water. In Asia and the Pacific, a mere 38 per cent of urban households are connected to a sewerage system. In Europe, the processes of social exclusion marginalize many low-income and minority households, while urban crime and the decline of peripheral housing estates undermine the social cohesion of many communities. In North America, problems of residential segregation, discrimination in housing markets and affordability persist, particularly in larger cities, despite recent economic growth. Traditional goals of urban planning and development, aimed at supporting cities as engines of economic growth, are too narrow. Globalization does have benefits as elucidated earlier. However, on closer look, the disadvantages are just as many, if not more ,especially for developing countries. The first and foremost being an increased flow of skilled and non-skilled jobs from developed to developing nations as corporations seek out the cheapest labor. There is an increased likelihood of economic disruptions in one nation effecting all nations. Corporate influence of nation-states far exceeds that of civil society organizations and average individuals. Threat that control of world media by a handful of corporations controlling the world media may in the future limit cultural expression. There is a greater chance of reactions for globalization being violent in an attempt to preserve cultural heritage. Also, a greater risk of diseases being transported unintentionally between nations. A trend of materialistic lifestyle and attitude that sees consumption as the path to prosperity is catching up all over the world. International bodies like the World Trade Organization infringe on national and individual sovereignty. There is also an increase in the chances of civil war within developing countries and open war between developing countries as they vie for resources .Environmental integrity is decreasing as polluting corporations take advantage of weak regulatory rules in developing countries. When developing countries are unable to repay their debts, the World Bank and IMF impose "economic reforms" on the country. Under the label of "structural adjustment" even more of the countrys resources are channeled to debt repayment, and laws are rewritten to open national economies to the global economy in which the developing country cannot compete. Such programs are declared successful when GNP growth rates increase. Yet country trade deficits, and debts are seldom reduced, and social conditions usually worsen. When the World Bank was created to facilitate capital investments in "backward and underdeveloped" regions of the world, "little note was taken of the evident contradiction," writes Mr. Korten, "that if maintaining the U.S.-style economy required access to most of the worlds resources and markets, it would be impossible for other countries to replicate that experience. Nor is it evident that much thought was given to the contradiction of financing industrial exports to low-income countries with international development loans that could be repaid by these countries only if they developed export surpluses with the countries that had initially extended the loans." Indeed, every $1 contributed to the World Bank, claims the U.S. Treasury Department, returns $2 to the U.S. economy. Meanwhile, the gap between the rich and the poor continues to grow--not only in the developing countries, but also in the U.S. A new survey by the U.S. Federal Reserve found that the nations poor are not just falling further behind the more fortunate--they were worse off, in absolute terms, in 1998 than in 1995. Mr. Korten writes: "In 1950--about the time the commitment was made to globalize the development process--the average income of the 20 percent of people living in the wealthiest countries was about thirty times that of the 20 percent living in the poorest countries. By 1989, this ratio had doubled to sixty times.... "The argument that globalization increases competition is simply false. To the contrary, it strengthens tendencies toward global-scale monopolization." Globalization offers extensive opportunities for truly worldwide development but it is not progressing evenly. Some countries are becoming integrated into the global economy more quickly than others. Countries that have been able to integrate are seeing faster growth and reduced poverty. Outward-oriented policies brought dynamism and greater prosperity to much of East Asia, transforming it from one of the poorest areas of the world 40 years ago. And as living standards rose, it became possible to make progress on democracy and economic issues such as the environment and work standards. By contrast, in the 1970s and 1980s when many countries in Latin America and Africa pursued inward-oriented policies, their economies stagnated or declined, poverty increased and high inflation became the norm. In many cases, especially Africa, adverse external developments made the problems worse. During the 20th century, global average per capita income rose strongly, but with considerable variation among countries. It is clear that the income gap between rich and poor countries has been widening for many decades. The most recent World Economic Outlook studies 42 countries (representing almost 90 percent of world population) for which data are available for the entire 20th century. It reaches the conclusion that output per capita has risen appreciably but that the distribution of income among countries has become more unequal than at the beginning of the century. These were complex crises, resulting from an interaction of shortcomings in national policy and the international financial system. Individual governments and the international community as a whole are taking steps to reduce the risk of such crises in future. At the national level, even though several of the countries had impressive records of economic performance, they were not fully prepared to withstand the potential shocks that could come through the international markets. Macroeconomic stability, financial soundness, open economies, transparency, and good governance are all essential for countries participating in the global markets. Each of the countries came up short in one or more respects. At the international level, several important lines of defense against crisis were breached. Investors did not appraise risks adequately. Regulators and supervisors in the major financial centers did not monitor developments sufficiently closely. And not enough information was available about some international investors, notably offshore financial institutions. The result was that markets were prone to "herd behavior"— sudden shifts of investor sentiment and the rapid movement of capital, especially short-term finance, into and out of countries. What is fatal in globalization is not the fact that a liberal spirit advances through the world overcoming borders and oceans, opening markets, encouraging trade and making financial streams flow again. Peter Boelke says that what is fatal is that the liberal spirit acts very one-sidedly so some may export but not others and money streams often only flow to please speculators. More than a billion people live on only a dollar per day according to estimates of international financial institutions like the World Bank. Another two billion with two dollars daily are hardly in a better position. More than half in Africa with its 600 million people live in complete poverty. Beyond all speculations and vague prognoses, facts and development tendencies are manifest that are not optimistic. Even a military superpower cannot remove the trouble-spots in the world (Middle East, Balkans and Africa). Industrial countries suffer under antiquated structures and high debts. The immense problems of the developing- and threshold countries of Africa, Latin America and parts of Asia are not solved at all. The disaster of continuing environmental damage persists. The most grave environmental problem, the greenhouse effect, also has serious economic consequences. Climate researchers seem agreed that global warming increasingly causes extreme weather conditions through the massive output of carbon dioxide and other gases. The devastations that can arise through hurricanes, drought periods and floods alarm many insurers who calculate annual damage up to $150 billion. Two elements of the germinating new worldwide economic order are very clear in the environmental problematic. One is the dominant role of the US. In the Kyoto protocol on the climate convention, states are obligated to reduce the output of CO2 by burning less oil, gas and coal. However the US has not signed the protocol. US emissions have risen around 18 percent since 1990.The other element is the constantly widening gap between industrial- and developing countries. The largest part of CO2 emissions comes from the industrial countries. However the ecological consequences are borne by the poor countries afflicted by droughts and floods. If globalization means that everything aims at the "one world", other rules of the game must be found in the economy and politics. Different elements and developments marking this new world order encourage new conflicts that will be harder to overcome than our present unsolved conflicts. One of the difficulties with globalization is that its proponents tend to make no distinctions as to its impact on countries and societies at different levels of socioeconomic and technological development. Moreover, peoples are defined as if they are nothing other than maximisers of wealth. Critics also contend that while globalization may promote high productivity, technological development, and output growth, employment for semiskilled and unskilled labor tends to drop, thus increasing income disparities. In addition, there are employment losses for persons who are ill equipped to find employment in the sectors that may expand as a result of technological change. There is also the perception that globalization, incorrectly applied, encourages degradation of the environment, neglect and exploitation of the poor, and instability in the global economy. In what is referred to as the “Washington Consensus,” developing nations are encouraged to pursue deregulation programs, beginning with internal liberalization of their economies, which include the dismantling of cumbersome bureaucratic procedures through privatization and state divestiture programs, decontrolling of administered prices, and cutting budgetary allocations to social services. Unfortunately, these policies often destroy jobs and lower national incomes ,increase poverty and income inequality, and intensify suspicion of Western—especially American—motives in promoting globalization. Some countries in the South, such as Singapore, Chile, and Malaysia, have also found it necessary to resist the pressures for global capital liberalization if and when it goes against their national interests. Thailand was pressured to keep interest rates high in order to reassure foreign investors; but this action drove hundred of the country’s firms into bankruptcy, thus scaring off the investors who were supposed to be reassured. Brazil and Russia maintained some financial capital controls throughout (although not on foreign purchases of government securities), but such measures offered little protection. In Russia, the government had to privatize state-owned firms even though the lack of corporate-governance laws ensured that many of the firms would be looted by their new private owners. These arguments point towards the evil aspects of globalization towards developing countries. The challenge is to create a new world system and the movements toward globalization that would enhance its generally beneficial effects and that would minimize its actual or potential costs. Sources: -Publication by Earthscan Publications Ltd , London , 2001 , “Cities in a Globalizing World : Report on Human Settlements 2001.” - Michael D. Intriligator , April 6 , 2001 , Globalization of the World Economy : Potential Benefits and Costs and a Net Assessment , http://www.sppsr.ucla.edu/egpr/docs/workingpaper2.doc - H.E.Fuad Siniora , January 17 , 2001 , Optimizing the benefits of globalization , http://www.finance.gov.lb/speeches/ind15jan1701.pdf. -World Economic Outlook , 2000 , International Monetary Fund , Washington D.C - Nicholas Crafts , April 2000 ,Globalization and Growth in the Twentieth Century , IMF working paper , WP/00/44 , Washington DC - Peter Boelke , At the Edge of Chaos : Is Globalizaton the Root of all Evil? , http://www.dgap.org/IP/ip0307/boleke_p.htm Read More