Globalization and Economy - Essay Example

?Introduction Globalization involves the changes and trends that have taken place in relation to economic, social, cultural and geographical interactions. These factors have an influence on the markets of different countries globally. The manner by which these factors interact has led to the development and emergence of a new kind of global market. The global market change has had a variety of effects on various areas such as the economic and trade activities between countries, as well as on the labour markets. The labour market over the last few years has changed dramatically, especially in developed countries. What is Globalization? Globalization means that the market goes beyond national borders, thus integrating world trade and financial markets (Czenter, 2002, p. 8). Globalization is the result of countries reducing their barriers for other countries to trade with them or directly investment in the country’s industries. These barriers were traditionally erected, so that each country had a buffer between all other countries, and globalization dismantles them (O’Riain, 2000, p. 2). This integration of world systems is accomplished in one of three major ways, according to O’Raiain (2000). The first way is through an integration of markets through the process of international trade and production. The second way is that states compete with one another to attract foreign capital and also compete with one another for the right to organize the global economy. Third, “models of state market interaction may diffuse through the world-system through the interaction of the states and particularly through the influence of transnational organizational actors” (O’Riain, 2000, p. 3). That said, 70% of trade occurs between the triad of North America, Western Europe and East Asia (Ostry, 2005). Multinational companies are the drivers for free trade. However, Ostry (2005) argues that these companies really are not globalizers, as much of their trade and investments are regional. For instance, multinational companies in Western Europe tend to trade to other countries in Western Europe, while American firms by and large invest in their neighboring countries of Canada, Mexico and South America. Meanwhile, Japanese firms tend to trade and invest with South Korea, China and Southeast Asia (Ostry, 2005). Advantages and Disadvantages of Globalism Globalization may be either advantageous or disadvantageous, and whether it is one or the other depends upon different factors. For instance, globalization might break down the economic backbone of some countries that are still developing (Czenter, 2002, p. 14). Some countries that were considered to be developing as of 2002 were China, Malaysia, the Phillipines and India, and the effects of globalization on these countries’ labour markets were studied by Frenkel & Kuruvilla (2002). Frenkel & Kuruvilla note that there were two competing schools of thought on how globalization would affect labour markets and employment relations in developing countries. One school of thought was that free trade and foreign direct investment can only help developing countries, as these countries should experience job growth and increased wages due to there being an increase of industrial activity in these countries. The other school of thought was that free trade and foreign direct investment would have a negative effect on labour markets and employment relations in these developing countries. This is because of increased competition from the foreign firms, so that domestic goods are replaced by those made abroad; a displacement of domestic workers due to the fact that multinationals export jobs to these countries; and increased technology means fewer jobs for workers (International Labour Organization, 2011). This is also because some international markets are only open to the stronger countries, closing the door to countries that do not have a strong international portfolio (Frenkel & Kuruvilla, 2002, p. 3). Dries & Swinnen (2003) found that globalization is often advantageous for firms, because of the process of vertical integration, which means that foreign processing companies vertically integrate with local suppliers, and, along with this integration, comes reforms, such as enhanced quality controls, access to technology, credit and inputs. Additionally, there is a horizontal spillover effect, in which domestic firms copy these vertical integration strategies, therefore the vertical integration affects the entire industry (Dries & Swinnen, 2003, p. 6). In other words, the presence of foreign firms has a positive impact on domestic firms, because these foreign firms, in essence, show the domestic firms how it is done. These domestic firms do not necessarily have the infrastructure or expertise in place to take advantage of the global market, so they need a kind of mentor to show them the way. This is where foreign direct investment helps these domestic firms gain a foothold in the global market. The United Nations Council on Trade and Development (UNCTAD) theorizes that globalization will have either a negative effect on employment or a positive one, depending upon other conditions, such as demand conditions, the workings of the global financial markets, and the impact of technological change (UNCTAD, 2001, p. 1). UNCTAD also states that globalization’s impact on wages and labour has to do with the strength of capital accumulation – if capital accumulation is strong, then labour markets will be prosperous; if weak, then unemployment and income inequality will be the result (UNCTAD, 2001, p. 2). Furthermore, Korpi (2003) argues that globalization is a process that will put pressures on countries to move away from the welfare model, as exemplified by the logic employment-income protection. This is because countries increasingly rely upon their exports in financing the kinds of programs that full employment schemes entail. Therefore, these programs are sensitive to the global markets. When countries become distressed, they decrease their imports. This, in turn, means that the Western countries who are export driven will realize fewer export opportunities. This, in turn, means that the Western countries who rely upon exports will have less money in their government coffers, which means less money for welfare programs such as those advocated by the employment-income protection model (Korpi, 2003, p. 603). Which brings a paradox – when firms cannot export as much as before, it stands to reason that layoffs would result. This would lead to more people being out of work and reliant upon the safety net provided by the employment income protection logic. Yet, because the very factor that caused them to lose their job, loss of exports, also causes the country to lose money, these individuals cannot get the kind of insurance that they need when they are out of work. UNCTAD (2001) has posited other theories on why globalization has helped or hurt different markets. According to UNCTAD, the biggest deleterious effect on global markets has been seen because of the loss of manufacturing jobs around the world (UNCTAD, 2001, p. 2). This is shown by the fact that unemployment rates have increased, around the world, from 1970 until 1996, with Europe being particularly hard hit (International Labour Organization, 2011). This was echoed by Iversen & Cusack (2000), who note that, while agriculture and manufacturing were traditionally the sectors that dominated the global market, these sectors have largely been displaced, which has meant the loss of jobs around the world (Iversen & Cusack, 2000, p. 314). This shift from the manufacturing base to the service sector base is risky, as workers who have lost their manufacturing jobs are discovering that the skills they acquired in the manufacturing sector do not translate to the service sector. Moreover, even if the manufacturing worker does find work in the service sector, it often means a decrease in wages for the workers, as well as a decrease in benefits (Iversen & Cusack, 2000, p. 314). Iversen & Cusack also believe that the loss of manufacturing jobs is not due to globalization, but by the internal driver of deindustrialization. In other words, manufacturing jobs are being lost because of a shift in productivity that is not due to globalization, but to the fact that certain industries simply no longer are able to employ as many workers as they once did (Iversen & Cusack, 2000, p. 317). Jessop (2002) refers to this shift away from manufacturing and towards a new economy that is based upon service and technology as "Post-Fordist," as "Fordism" referred to the manufacturing age that was brought in by Henry Ford and the automobile (Jessop, 2002, p. 99). According to Inagami (1999), Fordism is characterized by a number of different aspects. First, in the Fordist model, the male is the breadwinner. Second, that male was expected to stay with his same employer throughout his working life, or, at the very least, for a long time. Third, the work was homogenized and standardized. Fourth, working time and leisure time had a clear-cut separation. Fifth, there was a short life expectancy after retirement. Sixth, the work was industrial work, and unions were dominant (Inagami, 1999, p. 691-692). The effect that the Post-Fordist shift in labour has on labour relations is manifold. One, there is a demand for skilled and educated workers. The technological advances that are characteristic of post-Fordists paradigms are creating new industries, and these new technological industries are demanding ever-more educated and skilled workers (Jessop, 1999, p. 12). Two, the labour market has changed to reflect changing market conditions, which means that there is more flexi-wage and hire and fire schemes. Moreover, collective bargaining has been decentralized "from the national to sectoral and retional or even company and plant levels" (Jessop, 2002, p. 101). Because of this, connective and pattern bargaining is limited (Jessop, 2002, p. 101). Post-Fordism, according to Jessop, has yet to supply workers with the equivalent of the "American Dream" that workers were able to attain under Fordist paradigms. This is due, in part, to the uncertainty as to what will replace Fordist labour processes as economic expansion's driving force (Jessop, 2002, p. 101). It is further complicated by the uncertainty over whether urban, national or regional models are superior models for production, societalization and consumption (Jessop, 2002, p. 101). The effect that the high-technology revolution has further had disparate impacts on different industries. Rifkin (1995) states that the family farm has been devastated by the advances in technology that have revolutionized the way that farming is done, including farm mechanization, which features computerized robots in the fields, mechanical reapers and new plant-breeding techniques. These advances have vastly improved production, resulting in higher yields. However, the higher yields have depressed food prices, and leads to overproduction, as farmers have to produce more and more yields to make a profit. This has resulted in millions of rural individuals living below the poverty line, and a decline in the number of family farms, as farming is no longer a way to make a liveable wage (Rifkin, 1995, p. 113). A similar effect is being seen in the automotive industry as a result in the revolutionary high tech, lean labour model that was pioneered by Toyota. This paradigm has resulted in the loss of millions of blue collar jobs, as the race is on to finish automobiles in less and less time, which means that fewer workers will be required to work on the lines (Rifkin, 1995, p. 130). Technology that is labour displacing is seen as the best bet for companies to remain competitive, and reduce labour costs which were, in the mid-1990s, 10 to 15 percent of total production costs. Automotive companies saw, at that time, that reducing their labour by half would triple their profits (Rifkin, 1995, p. 131). This same philosophy was echoed in the steel industry, which also went automated and displaced workers, the textile and rubber industries, and many others (Rifkin, 1995, pp. 132-140). Conclusion Technology and globalism have teamed up to alter labour forces throughout the world in an inexorable and permanent way. Technological innovation has created a labour market that has put the emphasis upon jobs that are meant for individuals who are highly skilled and highly educated. In the meantime, jobs which are lower skilled are being sent overseas, as cheap foreign labour is doing the jobs that were once done by workers who were relatively unskilled and uneducated. What this means is that the lower end of society, in terms of skills and education, are being squeezed, permanently, out of the job market. The changes in the labour force are also seen in the fact that flexible working arrangements, such as part-time and temporary work, are being increasingly used. This, in turn, has meant a decline in unionism, as part-time and temporary workers tend not to be union members, and firms who employ these workers predominantly tend not be union employers. At the same time, globalism has meant that countries are sensitive to global pressures. Hence, when a country is in distress, because of recession, that country will not be in the market for imports. This, in turn, means that countries have fewer and fewer targets for its exports, which means that these countries have less money coming in to fuel government programs. Which is a vicious circle – people get laid off because firms are exporting less, which means that the they need government assistance. However, this government assistance is less or non-existent, because the government also relies upon exports to fuel its coffers. So, just when the people need the government the most, in terms of assistance, the government fails to deliver. Of course, this is not to say that the advent of technology and globalism is entirely a bad thing. On the contrary, globalism and technology has contributed to wonderful innovations and have made markets and firms much more efficient. It is arguable that technology is necessary to a growing world, because food has to reach tables and cars need to reach individuals, and technology makes all of this possible. Moreover, globalism had made corporations much more profitable, because labour costs are much less, due to the fact that many jobs can be sent to countries that have lower labour costs than the Western world. This also means that our goods are cheaper, because the cut in labour costs is passed onto the consumer. All of this contributes to growth, which is a good thing for the economy and to individual firms. 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