The Global Context of HRM and HRD - Essay Example

Introduction Prior to the advent and imposition of globalization, national economies exercised a number of protectionist strategies designed to ensure that their industries, especially infant ones, and goods had the space within which to grow and develop. These protectionist strategies which, according to Schwartz (2000), included the imposition of custom duties, additional taxes and tariffs on imported goods, effectively ensured that locally manufactured goods maintained a competitive edge in the domestic market. Globalization, however, eliminated protectionism as a strategy for the protection of domestic industries and formulated and implemented a set of policies which effectively removed all artificial barriers to free trade (Schwartz, 2000). Globalization seeks the integration of the global political economy through the removal of artificial barriers to free trade/movement of goods and services across national boundaries. With this necessitating the elimination of all protectionist strategies, globalization has been interpreted by some as a threat to the well being of national economies and the competitive strength of domestic producers therein. As Yeung (1998, cited CLMS, U2) notes, it is a threat insofar as it removes, or at the very least, substantially reduces, state control over capital and the management of its economy and resources therein. As emphasized by both Yeung (1998, CLMS 1125) and Schwartz (2000), one of the consequences of globalization is that national economies are confronted with extreme levels of global and domestic competition. Whether on the level of the global or the domestic market, the removal of artificial barriers to trade and the elimination of protectionism, implies that single economic units have to confront the competition and challenge posed by numerous economies. This means that the survival of national economies, let alone their growth and development, is problematic and challenging. Indeed, as Robinson (2001, CLMS 1126), points out, the state has become a transnational economic, as opposed to a national economic entity. Regionalization, characterized by the formation of regional trading blocs, has become the response to the challenges posed by globalization. Alagappa (1995) defines regionalism as a phenomenon that refers to the gradual or sudden rise of regionally defined activities and processes occurring in diverse parts of the world. It is about the making of formal regional institutions by regional countries and often involves functional cooperation, and tends to assume the form of geographically proximate governmental cooperation for the pursuit of mutual benefits (Alagappa, 1995). From this perspective, it is, therefore, an economic project pursued by state actors, largely in response to globalization and in an effort to mitigate its economic effects. On the basis of the foregoing introductory explanation of regionalism within the context of globalization, this research aims towards the illustration of two interrelated points. The first aim is to demonstrate how both trading blocs and trading agreements were incited by globalization. The second is to highlight the ways and means by which trading blocs and trade agreements function as a strategy for overcoming, possibly negating the threats which globalization poses towards single economic (national) units. Regional Trading Blocs as a Response to Globalization While there is a tendency to associate regionalization with globalization through definitions which present the former as a reaction to the latter, history indicates that this is not true. As Hurrell (1995) argues, history indicates that regionalization is an outcome of trade relations and is motivated by trade. The fact that there has been an increased interest in regionalization post globalization may have obscured this fact and may have lent to the impression that regionalization is an incontrovertible reaction to globalization. One need only look towards the example of the European Union to realize that this is an erroneous assumption. The project for the European Union began in earnest in the wake of World War II, although it has its roots further back than that, and was further motivated to attain new depths of integration following globalization because of the economic factor. In explaining this, Hurrell (1995) notes that regionalization, entailing the formation of regional trading blocs, has always been motivated by the imperatives of trade and evidences an acknowledgement of the importance of trade to economic development and growth. Globalization, while similarly motivated by the perception of an immediate relationship between free trade and economic development and growth, is perceived of as a threat to small economic units insofar as it pits single national economies against economic superpowers, to the inarguable benefit of the last (Hurrell, 1995; Mansfield and Milner, 1999). What this means is that while regionalization is, historically speaking, independent of globalization and cannot, in any way, be exclusively defined as a reaction to globalization, the rise of globalization has emphasised the imperatives of forming regional trade blocs, of engaging in regionalization projects, in order to withstand the threat of globalization. A fuller understanding of the post globalization imperatives of regionalization, as in the formation of regional trading blocs, is quite effectively provided by Dore (2004, cited CLMS, U2). As Dore (2004, cited CLMS, U2) explains, globalization has impacted domestic economies in a number of potentially undesirable ways. This is especially true as far as developing, or smaller national economies are concerned. It has reduced state control over the economy and has, to a significant degree, limited state intervention in either the economy or the market. The consequences of the aforementioned have been the comparatively unchecked movement of resources, both human and non-human, across national borders, incontrovertibly impacting national economic employment figures and the market performance of domestically produced goods. Within the context of the stated, and as Dore (2004, cited CLMS, U2) emphasizes, the imperatives of enhancing national economic competitiveness are reinforced. To maintain acceptable employment figures and to ensure the survival of national economies within the intensely competitive environment of globalization, regionalization has become an imperative. The formation of trading blocs provides national economies with the level of protectionism needed from external competition as would ensure the maintenance of competitiveness, on the one hand, and national employment figures on the other. As does Dore (2004, cited CLMS, U2), Jenkins (2006, cited CLMS, U2) believes that globalization has the potential to weaken national economies and, in so doing, significantly contribute to national unemployment figures. Insofar as it has removed the barriers to the movement of goods and services across national borders, it has significantly facilitated off-shoring and the growth of this phenomenon. National companies now off-shoring parts of their operations to countries which have a cheap, but suitably qualified labour force/human resources, for the purpose of cutting down on cost of operations and maximising global competitiveness. The problem with this practice, as Jenkins (2006) points out, is increase in national labour unemployment figures. What this means, therefore, is that globalization is a threat to national economies and the labour forces within. Certainly, as Ashton (2002, cited CLMS, U2) quite rightly points out, that threat may be negated by state policies which are geared towards the upgrading of a nation’s human resources and its endowment with the skills requisite for global competition. The implication here is, and as confirmed by Beeson’s (2000, cited CLMS, U2) discussion on the Malaysian experience, that states may institute HRD policies and strategies which can, at the very least, ensure post-globalization national economic survival. The foregoing evidences the validity of interpreting post globalization regionalization as a response to globalization and a strategy for maintaining national economic competitiveness. The implication here is that regionalization, especially when it assumes the shape of formal trading blocs is intended to counter the negative forces of globalization and to offset its potential for undermining national economic competitiveness. This view appears to find support in Hospers’ (2006, cited CLMS, U2) discussion of the extent to which EU-wide policies are designed with the purpose of maximizing regional competitiveness in mind. If regionalization is, in any way, a response to globalization, it is a response to globalization because of the trading blocs to which it gives rise. Trading Blocs, also called Trading Arrangements, have been defined as: “the formation, by neighbouring territorial units, of alliances to boost economic and, subsequently, political integration through free trade areas (FTAs) or customs unions” (Cho, 2001). A free trade area provides for the free circulation of goods and commodities through the elimination of tariffs and non-tariff barriers, while a customs union (CU) adds a common external tariff to the FTA base, centralizing the groups external trade policies (Garcia, 1997) Further along the spectrum of economic integration is the common market which, like the customs union, has a common external trade policy but it also features free movement of the factors of production within the common market (which include labour, capital and technology) (Czinkota, et al., 2005). An even deeper level of integration is possible; this deeper level is an economic union, which has all the features of the common market as well as integration of economic policies. However, members of an economic union seek to harmonize monetary and fiscal policies and adopt a common currency (Czinkota, et al., 2005). The European Union is the only example of an operating economic union. Proceeding from the above stated, the rationale behind the proliferation of trading blocs appears quite clear. Nevertheless, it is useful to turn to scholarly opinion for a more precise explanation. Bhagwati (1991) argues that the single most important reason why regionalism is making a comeback, and is assuming the form of regional trade agreements and trading blocs, is the conversion of the U.S. approach from multilateralism to regionalism or bilateralism. Disappointed by a lack of progress at the GATT (now the WTO) negotiations, the United States has decided to switch course and to conclude first the Canada-US Free Trade Agreement (CUSTA) and then NAFTA. The United States has also announced its intention to negotiate free-trade agreements with groups of other Latin American countries under the EAI (Enterprise for the Americas Initiative). Concurrently, the European Community has continued to widen and deepen its integration process (Bhagwati, 1991). These developments have, in turn, led other countries to consider the regional option. East Asia, in particular, is coming to believe that a regional bloc may be the only way to meet the challenge posed by developments in the Americas and Europe. A key reason for the United States conversion to regionalism in the early 1990s was the slow progress at the GATT, on the one hand, and is dwindling influence, on the other. Krugman (1992) offers several reasons for the erosion of the GATT process. First, the decline in US leadership has made it more difficult to run the system. With the US accounting for an increasingly smaller share of gross world product, and with US dominance in productivity and technology progressively declining, it has been losing both the means and the desire to serve as the global trade hegemon. Second, the number of players participating in the process has grown large, making negotiations difficult and the free rider problem harder to handle. Third, the character of protectionism has changed. The presence of VERs, antidumping (AD) mechanisms, and other forms of administered protection made the negotiations vastly more complicated than it had been in the past. The above stated does not mean to imply that GATT was a failure or that the United States sought its replacement with trading blocs. Instead, as Kahler (1996, CLMS) points out, GATT made significant headway in the removal of barriers to free trade but while it “may remove barriers to trade at national borders … it can do little about the barriers that remain behind the borders of nation-states” (Kahler, 1996, cited CLMS, U2, 2-28). This apparently inconsequential difference is, in fact, a very important one which helps explain the rise of trading blocs in response to globalization. Quite simply stated, what this means is that GATT/WTO removed the artificial barriers to trade but it was incapable of eradicating the variances in standards between nations, as in labour and production quality standards. Within the context of the stated, and as may be inferred from Sapir’s (2006, cited CLMS, U2) discussion on the EU, within the parameters of formal regionalization, trading blocs resolve the aforementioned through the implementation of standardization and supportive policies. The implication here is that there is a strong interconnectivity between globalization and the rose and proliferation of trading blocs. The prospect of enhanced economic growth (stemming from the opportunity to exploit scale economies and regional specialization, as well as attracting investment by expanding the regional market) is a motivation present in virtually every regional trading arrangement, in both industrial and developing countries. The realization of scale effects was a major consideration underlying the Unified Market Program in the EU (Schiff and Winters, 2003). It is also an explicit goal of NAFTA and MERCOSUR. They aim to exploit scale economies, deepen the division of labor within the region, and attract foreign direct investment (FDI) by presenting the region as a stable and prosperous single market. The dynamic growth effects expected by Mexico, especially the anticipated surge in FDI, were also a key motivation for Mexican interest in NAFTA (Schiff and Winters, 2003). Second, regional initiatives may be viewed as a means to promote a broad range of noneconomic objectives, from enhancing regional political cohesion to various foreign policy considerations, such as managing immigration flows and promoting regional security. Within the context of the stated, Schwartz (20000) explains that the formation of the EU had strong political roots, as did the formation of the Association of South East Asian Nations (ASEAN). The desire of a number of EFTA countries to join the EU was also motivated, in part, by noneconomic objectives. MERCOSUR is perceived as a means of fostering cooperation between its member states. The promotion of political and economic stabilization and control of immigration flows were also important elements underlying both NAFTA and the EU’s embrace of Eastern European countries (Schwartz, 2000). Lastly, there may be some kind of domino effects. According to Baldwin (1993), as new regional trading arrangements form or existing ones expand or deepen, the opportunity cost of remaining outside an arrangement rises. Nonmember exporters could experience costly reductions in market shares if trade is diverted to members. This may be sufficient in some countries to tip the political balance in favor of accession, as exporting interests begin to dominate import-competing interests. In turn, as new members join the arrangement, trade diversion from other outsiders may lead to a second round of accessions. The domino effect, or the anticipation of such, appears to have been prominent in the initiative of EFTA countries to apply for accession to the EU, East European countries were similarly interested in improving access to Western European markets and in not being left out of the emerging Unified Internal Market. The negotiations between Mexico and the United States to form a free trade area (FTA) may have started a comparable process in the Western Hemisphere. Canadas interest in NAFTA was strongly influenced by the potential erosion of the benefits expected from the CUSFTA were it not to join the newly emerging NAFTA. In a similar vein, the large number of bilateral trade arrangements between Mexico and several Latin American countries is viewed by Mexicos partners as a first step toward joining NAFTA. Access to NAFTA has become an important objective of many Latin American countries as a way to correct the expected trade and investment diversion toward Mexico (Baldwin, 1993). In consideration of the foregoing explanation of the reasons motivating the formation and proliferation of regional trading blocs, it is evident that there are many positive consequences and implications arising from the formation of trding blocs. A Schiff and Winters (2003) point out, trading blocs promote efficiency by permitting the greater realization of economies of scale, scope and specialization. This efficiency results in lower prices for consumers as well as enabling industries to better compete on a global scale. Indeed, the industries within the trading bloc with their more efficient production methods may be better able to negotiate secure access to major world markets. However, the flip side of this argument is that the removal of tariffs between member countries may result in trade diversion as producers within the trading bloc are shielded from competition with goods originating from outside the trading bloc (Schiff and Winters, 2003). A second benefit which is related to the first, is that regionalism tends to increase foreign direct invest (FDI) since the investors have a larger and more attractive market in which to invest and also since many trading blocs especially CUs require members to improve their economic policy credibility (Schiff and Winters, 2003). These commitments to improve policy may be reinforced by disciplinary measures for non-compliance. It is to be noted that punishment is more likely to be carried out by a concerned neighbour than in the multilateral framework where other countries may not care if another country improves its economic policies. The commitments to policy improvement in a trading bloc also serve to keep internal interests groups, who seek industry protection, at bay. This can be achieved since a government can simply cite their binding commitments to liberalize under the trading bloc as the rationale for not providing greater protection from the effects of removing safeguards, subsidies and other protective devices, formerly enjoyed by internal industries (Trebilcock and Howse, 2005). For these reasons, regionalism has the potential to increase FDI and thus aid in development, if certain conditions are satisfied, namely commitments in the trading bloc to improving each members economic policies and enforcement mechanisms. Thirdly, as foreign direct investment increases, foreign firms (principally multinational enterprises) which have become established within the trading bloc may serve to encourage trade liberalization beyond the bloc (Trebilcock and Howse, 2005). Fourthly, regionalism is often motivated by an attempt to assist neighbouring countries improve their development. This desire may be for altruistic purposes or to avoid spillovers of unrest and population movement (Trebilcock and Howse, 2005). Indeed, where social and economic conditions in a country are much better than its neighbours there is often a tendency for persons to migrate (legally or illegally) to the more prosperous country. A notable example of this is the influx of Mexican workers into the USA. Fifthly, trading blocs can be a means of levelling the international trade playing field. Indeed, as Schiff and Winters (2003) have pointed out, some have argued that the present WTO trade rules are skewed in favour of developed countries. Although developing countries do benefit from concessions and waivers, many are still struggling with the after-effects of colonization and are still heavily reliant on primary products. Indeed, the WTO has not yet achieved the levels of tariff reductions on agricultural and other primary products as it has with respect to manufactured goods. Also, in many developing countries the manufacturing, service and information technology sectors are only just being established. Further, their legal, political and bureaucratic institutions are often in a state of infancy (Trebilcock and Howse, 2005). All these factors hinder developing countries from fully benefiting from the WTO rules. In light of the foregoing, it seems that regional alliances can help to level the playing field by the pooling of resources, the creation of economies of scale, the provision of assistance and encouragement for members to improve domestic policies and also by providing quality regional institutions, such as regional courts. However, a badly crafted trading bloc may not achieve these results. In addition to the above stated, Schwartz (2000) notes that trading blocs can also serve to increase the negotiating power of individual countries, since they negotiate as a group in multilateral negotiations. It should be noted though, that this advantage is more applicable to CUs than to FTAs, since CUs have a common external tariff and often a common trade policy. This is quite significant for smaller developing countries, such as those in the Caribbean, most of which cannot afford to send their own delegations to WTO negotiations. In recent years, various trading blocs involving developing countries have come together to negotiate at the multilateral level and this cooperation between trading blocs has helped to ensure that the interests of developing countries are not overpowered by the economic and political interests of developed countries (Schwartz, 2000). A seventh advantage is that trading blocs may help to speed up decision making in the multilateral negotiations. It is very hard to reach a consensus at the multilateral level, due to the large numbers of countries represented (often with conflicting interests). Trading blocs can help in two ways, firstly by reducing the number of parties involved in the negotiations (since the bloc represents the view of more than one country). Secondly, any consensus reached in regional trading arrangements may serve as a template for broader multilateral negotiations, particularly on sensitive issues such as the environment and labour guidelines (Czinkota et al., 2005) An eighth advantage to regionalism is that it may serve to reduce "vertical regionalism". Cho (2001: 457) explains this phenomenon thus: “As traditional trade barriers such as tariffs and quotas vanish, horizontal discrimination, which is a violation of the MFN obligation, has become less of a problem. Instead, vertical discrimination symbolized by non-tariffs barriers e.g., domestic regulations discriminating against foreign commerce has tended to occupy the centre of recent trade debates.” In other words, as countries within a trading bloc harmonize their non-tariff barriers to trade, it becomes harder for them to discriminate against goods originating from outside of the bloc which are produced according to similar or identical product standards. Proceeding from the above stated, it is evident that the formation of regional trading blocs within the context of a regionalization project, can function as an effective response to globalization. As noted in the foregoing, there are several economic advantages to regional trading blocs, all of which combine to negate globalization’s potentially negative impact on national economies, even as they give these same economies the means by which (combined economic strength, resource and product diversity and negotiating power) to positively exploit the economic opportunities which globalization extends. Concurring with the above stated and conceding to the fact that the formation of regional trading blocs have simultaneously allowed national economies to offset the potentially negative effects of globalization while positively exploiting its opportunities, several researchers have pointed towards the fact that the benefits have been limited to the developed economies (Ohmae, 1985, cited CLMS, U2; Hirst and Thompson, 1996, cited CLMS, U2; Dicken, 1998, cited CLMS, U2). In other words, regional trading blocs have arisen in developed economic regions, as opposed to underdeveloped ones, thereby ensuring the continuation of unequal global economic development and growth. Even while conceding to the fact that regional trading blocs have tended to form in developed economic regions, as opposed to underdeveloped ones, this does not detract fro the argument that trading blocs are an effective response to globalization. Certainly, to date, regionalization has primarily benefited the developed economies and ensured that they, as opposed to the underdeveloped ones, be in a position to realize the economic promises of globalization, this does not mean that it does not have the potential to do the same for the underdeveloped economies. That t has not is simply a reflection of the fact that regional trading blocs have arisen in developed, and newly developed economic regions, as opposed to developing, or underdeveloped ones. In order to establish this, to illustrate that regionalization, in the form of regional trading blocs, is an effective response to globalization, it is important to look at the operation of these blocs. Lion (1994) notes out that there are six principals of regional trade agreements in the Western Hemisphere. They are: the Andean Pact, the Caribbean Common Market (CARICOM), the Central America Common Market (CACM), the G-3 (Mexico-Venezuela- Colombia), the North American Free Trade Agreement (NAFTA), and the Southern Common Market (Mercosur). Concurring, Charnovitz (1995) adds that trade and the environment are already tangibly linked. Questions still persist whether trade policy and environmental policy should be carried out interdependently or separately. The Asia-Pacific and Latin American free trade agreements offer new opportunities for the fruitful links. He argued that new agreements may seek positive harmonization on domestic issues like antitrust policy and environment should be included. In industrialized countries, environment has gained public supports while such supports will be expected within a decade or two in developing countries. Hudgins (1996) concluded that bilateral and regional trade agreements simply remove tariffs and traditional trade barriers. They created incentives for nonmembers to join as traditionally protectionist countries come to the need to join NAFTA. There is similar relationship between regional and multilateral arrangements. NAFTA and EU created incentive for WTO countries to push ahead with further liberalization. Unilateral, bilateral, regional, and multilateral trade liberalization is all valid means to achieve the goal and aim of the market liberals that is the greater economic liberty. Venables (1999) found that Free Trade Area (FTAs) between low-income countries would tend to cause divergence of their income levels where as FTAs between high-income levels would lead to convergence. The agglomeration forces also might amplify divergence forces in FTA between low-income countries. The developing countries are likely to gain more from FTAs with high-income countries where there are better prospects for convergence with the other high-income members. Anderson (2003) pointed out that regional trade agreement is a stepping-stone rather than a stumbling block to freer trade and investment. For the new AFTA members, Cambodia, Laos and Vietnam, whose applications are still at early stage of consideration, AFTA provides an opportunity to liberalize with a subset of WTO trading partners. The choice of products to be liberalized and the strictness of the rules of origin will determine whether that leads to trade creation or diversion. Their economies will be better off by joining AFTA. Anderson (1996) pointed out that six of the more than 20 regional trade agreements are relatively more significant based on intra-group trade. These six groups span the spectrum from free trade areas to common markets. These six groups are: NAFTA (The United States, Canada, and Mexico), the G-3 (Colombia, Mexico and Venezuela), the ANDEAN Pact (Bolivia, Colombia, Ecuador, Peru and Venezuela), MERCOSUR, CARICOM (the Caribbean Community and Common Market), CACM (the Central American Common Market). Also, the 34 democratically elected heads of State which formed a Free trade of the Americas (FTAA) by 2005, stands as the largest free trade arrangement with the overall GNP in excess of US$ 9 trillion and a market of over three quarters of a billion people. Kelegama (2001) argues that the Bangkok Agreement (BA) and the Bangladesh, India, Myanmar, Sri Lanka, Thailand Economic Cooperation (BIMSTEC) have provided opportunities for economic cooperation in Asian region. However, the results of both regional economic groupings have been dismal because BA did not produce the desired results due to inherent shortcomings in the agreement and the ineffectiveness of the preferential system. BIMSTEC could have become Preferential Trading Arrangement (PTA) if Thailand and Myanmar joined the BA but the regional geo-politics and commitment to ASEAN have prevented this process of economic integration. The BA experience also shows that open-ended regional trade arrangements that depend on the increased membership for expansion of trade are not sustainable. Also, expansion of membership is a difficult task especially for a regional grouping without a strong leadership. The BA, however, already has GATT clearance and has a framework for a PTA for BIMSTEC countries. Accordingly, if Thailand and Myanmar join BA, BIMSTEC will automatically becomes a PTA. Mansfield & Milner (1999) stated that economic regionalism is growing rapidly. The United States is actively promoting the formation of PTAs. Regional arrangements have seldom been used as instruments of power politics; instead, they have often been used to promote and consolidate domestic reforms that liberalize markets and foster democracy. The latest pace of regionalism has accelerated by substantial economic interdependence, a desire by countries to mediate trade disputes, and a multilateral framework that facilitates mediation and commercial relation. The current wave of economic regionalism is expected to persist, which will provide a stepping-stone to greater global openness. During the second half of the nineteenth century, an open international trading system was forged largely through bilateral agreements and little to multilateral cooperation. But fears of economic regionalism that can impose constraints on the multilateral trading system are not without merits and create trade-diverting PTAs and limit the systematic openness of the region. 3 Conclusion Regional economic integration, as exemplified by trade blocs, has the effect of increasing "size of the country" and the individual countries within such groups can reap the resulting size-of-country benefits (Buckley et al., 2001). Therefore, its importance to the economic experience cannot be overstated (Shabtai, 2003). It provides the opportunity for within-group firms to expand their operations locally and utilize the immediately accessible markets. As Buckley et al. (2001) mentions, it also motivates "outsider firms" to become "insider firms", furthering a view held by many in the economics community (Motta and Norman, 1996). And as Ricart et al. (2004) indicates, many of the worlds largest manufacturing and service industries are characterized by regional rather than global production or activity systems. From a research standpoint, since countries vary in size, studying effects at the trade bloc level inherently controls for the differing effects a larger country may have on the region as opposed to a smaller one. While it is recognized that trading blocs are also not homogenous, studies utilizing the trading bloc segmentation criteria are justified because of the observation of imperfect globalization and because trading blocs present a clearly visible view of country groupings (Malhotra et al., 1998). One major source of research difficulty when it comes to trading blocs is that they are generally fluid organizations, created with the explicit purpose of promoting free trade. 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