The Arguments For and Against the Current Wave of Globalisation - Term Paper Example

CRITICALLY DISCUSS THE ARGUMENTS FOR AND AGAINST THE CURRENT WAVE OF GLOBALISATION. USING EXAMPLES, EVALUATE THE CIRCUMSTANCES UNDER WHICH COUNTRIES MAY BE JUSTIFIED TO USE PROTECTIONIST MEASURES. by Author’s Name Name of the Class Name of the Professor Name of the School City, State 6 November 2013 Introduction There have been numerous changes in industrialized and developing countries over the last few decades, due to increased interaction and integration in the way people, organizations, and governments conduct their businesses and affairs. With the improved technology and international or regional developed policies, the societies have experienced transformations in their social, political, and economic issues. However, tracing back when the current wave of globalization began in the 1980s, there have been potential gains, but this also introduced certain side effects in the domestic and international realm. In most cases, governments and institutions have had to take protectionists policies to shield their industries and fragile economies in worse situations. Arguments for current wave of globalization Benefits of trade: In the previous waves of globalization, the developing and emerging countries had little power, compared to the western rich countries in Europe and America. At a period marked by imperialism and diverse differences between countries and regions, trade existed but with tighter restrictions. The modern globalization is marked by increased liberalization in trade with more reduced trade barriers that enhance trade across national boundaries (FAO, n.d.). As a result, the more flexibility in trade allowed people and countries to acquire and consume goods and services at a cheaper price. Countries could now enhance their exportation and/or importation to reap the benefit of the trade. For quite a long period, the manufacturing industries in the western nations had flourished before, but the trade liberalization lifted majority of the manufacturing production in the current emerging countries and others in developing world. The presence of adequate aid from institutions (such as IMF and World Bank) in handling the global economic governance facilitates capital flow into diverse markets, and contains political and economic tensions that occur during the periods of transformation in the current wave of globalization (Globesec, 2012). Most of the countries have made efforts to specialize in activities they do best, increasing production of their goods or services, and selling them in the global market to multiple buyers. Most regions and countries, especially in the developing world have gone ahead to lower the non tariffs barriers ( legal prohibitions, import quotas, and export restraints ) and import tariffs to promote free trade, capital markets, and investments (The World Bank Group, 2004). China can be well identified for its increased production and sales of home made products and services within its society and in the global market. The Inward FDI flow for the global economy and respective countries that continue to utilize the liberal trade opportunities are enhanced. Employment opportunities: The competition brought fourth in the current globalization has led to increased job creation and labour supply internationally and domestically. In the last three decades, a high number of people have crossed borders into Europe and United States among other foreign nations, investing and contributing to the nations’ labour productivity (The Federal Reserve Bank of St. Louis, 2008). In connection to reduced barriers to trade, companies are reaping larger returns on exported and imported innovations that come with the migrating labour force. Capital equipment and knowledge can hence be used to further production and its variety. Many countries have managed to harness their labour abundance and experienced competitive advantages in labour intensive manufactures and services. For example, the emerging countries (Brazil, Mexico, China, India, and some East and Northern East Asian countries) have continued to be labour intensive increasing their market share in production, trade, and investment. Companies are developing subsidiary firms in other countries to enhance their markets and reduce operating costs where need be. Firms constructed in developing countries or in low wage or high populated nations utilize the cheap labour and create employment to the citizens. The less or high skilled labours can be shifted to different destinations that demand their skills, eliminating the shortage existing in the countries. Technology and alleviating poverty: What the combined factors of the developing technologies, reduced barriers to trade, and migration have done is reducing poverty worldwide, and improving economies. Generally, workers in relatively poor countries can benefit from new jobs imported into their countries, allowing them to increase their real wages and productivity, while taking advantage of the new ideas and technologies. The economic growth resulting from foreign direct investment leads to direct and indirect employment impacts, which generate an additional income, enhance their aggregate demand, as well as living standards (Lee and Vivarelli, 2006). Since multi corporations have increased, the geographically dispersed supply chains or organizations and their diverse workforce can be easily managed and controlled through modern information and communication technologies. More work can be outsourced and performed at less costs for the corporations, where the necessary resources are available or close to the markets. Arguments against current wave of globalization Integration can mean fast spread of economic crisis: Economies have inter-linked and become inter-dependent to one another through trades and financial markets, which result in devastating situations during global or regional crisis. It causes adverse global or regional shocks that affect the domestic economies, impacting negatively in the changes of real prices of commodities, decline in imports, and portfolio shifts that impinge on interest and exchange rates when dealing with the highly integrated financial markets (Solimano, n.d.). Because most countries have pegged their exchange rates to the US dollar or other dominant western currencies, when the US economy begins failing, they all sink together where strong mechanisms to save the economies are not in place. This is what happened to the economy of Thailand that had opened its capital markets allowing foreign investment, especially from the US and Europe, which fuelled a currency speculation (PBS.org, n.d.). These are some of the risks that arise from the volatile capital movements that may force governments to seek protectionist measures. For example, when a nation wants to protect its currency under pressure from the open market system, and the reserves are depleting, the remaining option may be to use the non tariff mechanism of devaluing their exchange rate for monetary protection. This incident was experienced in Thailand, when the government was forced to devalue, resulting to an Asian crisis as a contagion and request for bailout from the IMF. Job displacement: Globalization brought in flexibility in the labour market; hence both employees and employers are in competition of acquiring the best pay and talents respectively. However, there has been both a looser and a winner due to the tension brought about by job insecurity. When competition increases, a certain group of workforce have to accept lower wages as the firms face lower prices (Lerman and Schmidt, n.d.). Both the low skilled and high skilled labour markets are interfered with in the current wave of globalization, and inequality appears to be stimulated by the fact that the job compositions are changing, which alters the income structure of jobs types. Contrary to what is happening in developing countries, the industrialized and developed nations fear that the immigrants are displacing them in the workplace, and most jobs are being outsourced in foreign countries to be maintained at a cheaper cost. The majority of the less skilled workforce in developed nations has lost jobs, this highly due to shift of production abroad in low wage countries and increased importation, due to free trade structure; others risk loosing them due to increased operations moving offshore, competitive pressure in companies, and pay cut demands from the employer’s part (Indian Institute of Technology, Bombay, n.d.). Income distribution between the less skilled and high skilled workers shows a great difference with the former group being the majority of the unemployed and low wage earners in the western world. There has been consistent demand for high skilled labour allowing the educated, skilled, and trained workforce to acquire jobs and high pays, while the wage of low skilled workers remain flat or decline in advanced countries (Ahearn, 2012). For cases where increased imports have contributed to job displacement, the governments have to take measures to secure the employment of its people. Increasing import taxes to decrease competitiveness of foreign products and imposing quotas on the imports would control the amount of products or services entering into an economy, to protect the jobs and promote the local people and production. The other factor is allowing wage subsidies for low wage workers to improve the standards of living and boost the low wage families. Benefiting multinationals at the expense of the locals: Most small and middle sized business struggle to survive when faced by stiff competition from large companies and foreign corporations. Foreign and large companies are given incentives for investing, producing, and employing in developing or low wage countries, than much is done to promote and develop local countries. While the society receives employment and income, the developed countries evade long term harmful health consequences by shifting manufacturing of risky products (chemical plants) to developing countries, which have low cost regulations in controlling environmental pollution. The local companies may have to produce goods at higher costs that multinational corporations, which also affect their profits because people prefer foreign products and prices; hence chocking the local businesses. China’s economic progression in the current wave of globalization is said to be the driving force of the world economy in the modern times. As a country, it continues to produce massive products that have gained acceptance in most developing countries. Its car industry has boomed in the last two decades, and China has provided it with subsidies to enhance its sales and competitive advantage in the local and foreign markets. Imposing tariffs, quotas, and anti- dumping policies on foreign and large companies, and allowing subsidies on the local industries would protect infant industries and businesses, threats on domestic jobs due to high importation, refrain from international competition, and allow the local economies to diversify. References Ahearn, R. J., 2012. Globalization, Worker Insecurity and Policy Approaches. [online] Available at: [Accessed 7 November, 2013]. FAO, n.d, Globalization in Food and Agriculture. [online] Available at: [Accessed 6 November 2013]. Globsec, 2012. Can the G20 Save Globalization? [online] Available at: [Accessed 6 November 2013]. Indian Institute of Technology, Bombay, n.d. Globalization. [online] Available at: [Accessed 8 November, 2013]. Lee, E. and Vivarelli, M., 2006. The Social Impact of Globalization in the Developing Countries. [online] Available at: [Accessed 6 November 2013]. Lerman, R. I. and Schmidt, S. R. n.d. An Overview of Economic, Social, and Demographic Trends Affecting the US Labour Market. [online] Available at: [Accessed 8 November, 2013]. PBS.org., n.d. Episode Three: The New Rules of the Game. [online] Available at: [Accessed 7 November, 2013]. Solimano, A. n.d. Can Reforming Global Institutions Help Developing Countries Share More in the Benefits from Globalization? [online] Available at: [Accessed 7 November 2013]. The Federal Reserve Bank of St. Louis, 2008. Crossing Borders: The Globalization Debate. [online] Available at: http://www.stlouisfed.org/education_resources/assets/lesson_plans/08ITV_Globalization.pdf [Accessed 6 November 2013]. The World Bank Group, 2004. Globalization: International Trade and Migration. [online] Available at: [Accessed 6 November 2013]. Read More