Crisis in the Global Economy - Essay Example

?Crisis in the Global Economy: Chances of Ending Globalization The global economy encountered an enormous transformation after the year 1980. Transportation, communication, and information-processing were changed by technological advancements that removed the "traditional barriers of time and distance" (Eckes, 2011, p.viii). Four to five billion people joined the global market economy when the Soviet Union fell apart, and China merged with the global trading system (Eckes, 2011, p.viii). This turn of events in history led to the epoch of deregulated capitalism spearheaded by one powerful nation, and that is the United States (Eckes, 2011, p.viii). The global economy of the 21st century has turned into an interconnected chain of nations actively engaging in international trade (Bermejo, 2002, p.1). For instance, investment decisions, the employed method of production, labour market policies, as well as environmental laws of one nation already influence how the other nation responds to the shifting economic behavior. Other than nations, these instances also have an impact to companies and to individuals. As a matter of fact, during this point, it seems unlikely to assume that a nation does not have a connection with the world economy (Bermejo, 2002, p.1). Hence, the variation between the global economy in the past and in the 21st century is in terms of its extent, complexity, and rush of change (Bermejo, 2002, p.1). The term global economy refers to the existing economic relations between nations of the world, wherein the markets of all nations expanded beyond their national boundaries in order to establish coordination with other nations (QFinance, 2011). Furthermore, as defined by EconomyWatch (2010), global economy points to an integrated world economy where goods, services, and labour can move freely and unrestrictedly across international borders. It depicts the development of an integrated world where capital freely moves across nations. The idea of a global economy is not easily apprehended in isolation. Hence, the term globalization has to be understood beforehand, so that a full understanding of the global economy can be done. At present, economists no longer argue about who is the leader in the global economy for they have already visualized a perception that it is a decentralized, competitive market with no room for rules (Folbre, 2011). However, in contrary to that notion, evidences are pointing that the global economy is actually being ruled by large, interconnected multinational corporations. These evidences were obtained from the observations of three Swiss experts in the field of complex network analysis. According to their assessment on the architecture of international ownership, financial institutions are controlling a large portion of the global economy (Folbre, 2011). What describes the current status of the global economy is being reflected in a popular phrase that says "when the American economy sneezes, the rest of the world catches a cold" (Ritzer, 2011, p.95). It means that whatever happens to the US will have an effect to the rest of the world, and that is because of how nations see the US as one powerful nation. Countries often engage in trade because of their inability to satisfy the wants and needs of people. More so, they trade with one another simply because they were not given the resources to supply these needs and wants (Higson, 2011, p.8). Powerful nations influence the flow of trade in the global economy, apparently because they have the capacity to pour on a huge amount of capital for any business endeavor. However, once these nations lose the capacity to control their financial resources in aid of trade or transnational transactions, all else fails in the international market that can lead to a disruption or worst the end of globalization. The world has shifted from a strongly separated international economy to a more interconnected global capitalist economy that is mobilized by the developments in politics, economics, and technology (Gilpin, 2000, p.7). Particularly, during the 1980s and 1990s, the speedy industrialization of markets in East Asia, Latin America, and in the many other regions of the world provoked changes to global economic power and stimulated competition in the international market (Gilpin, 2000, p.7). Moreover, the unending evolution of technology coupled with the birth of the information economy fueled the switching of industrialized countries from the former manufacturing-based economy to a service-based economy (Gilpin, 2000, p.7). Evident developments in the global economy have also resulted to the transferring of jobs from a developed nation to an underdeveloped nation (third world nation). The cause of this shift in acquiring labour force is the presence of lower wage rates in third world nations. This move by the developed nations allows them to save money spent for expensive labour, thus giving them more opportunities to expand in more nations (EconomyWatch, 2010). For instance, nations like the United States pour on their capital in a third world nation like the Philippines to establish a company that produces spare parts for a particular product. Once production is done in the Philippines, the goods are transported back to the United States, and so, after finalization, it ends up being distributed by the parent company in the US. This cyclical process is termed as outsourcing, and although third world nations are benefiting from it, it also leads to exploitation, which fuels to the existing income inequality in these nations (EconomyWatch, 2010). Eventually, due to this significant shift, the number of nations engaging in international trade rises, financial flow smoothens, and the undertakings of multinational organizations lead to the integration of several economies into one global economic system, which is commonly known as the process of globalization (Gilpin, 2000, p.7). Thus, nowadays, international trade is deemed the heart of the global economy, which is also culpable for the various developments "of the modern industrialized world (Higson, 2011, p.8). Globalization refers to the "integration of consumption and production in all markets across the world" (EconomyWatch, 2010). Harris (1993 cited in Ali, 2000, p.5) also defined globalization as the "internationalization of production, distribution, and marketing of goods and services." The globalization of the world economy is referring to a process that is dependent to the establishment of a single market for the goods and services, as well as the other factors of production like capital, labour, and natural resources involving all economic regions and nations (Bozyk, 2006, p.1). In this process, national and international markets merge to form one complex whole. Nowadays, individuals view economic globalization as something that is beneficial for a nation, especially in terms of improving the economy (EconomyWatch, 2010). In its theoretical aspect, globalization is associated with the unlimited access to markets in different countries or economic region. Despite the free characteristic that it poses, globalization also has its conditions. The flow of globalization is being governed by a uniform economic mechanism, and this mechanism allows the smooth flow interaction between nations (Bozyk, 2006, p.1). In the absence of these uniform mechanisms, globalization will not take place. Meanwhile, if no globalization took place, then there will be no uniform mechanism in the world economy formulated (Bozyk, 2006, p.1). Although individuals view the development of a global economy or globalization as beneficial, it may still have a harmful effect to the growth of inequality in some nations. These negative impacts are seen in the economy of nations such as India, China, and Brazil, where the supposedly positive impact of globalization was not spread to those individuals in the lower level (EconomyWatch, 2010). What is worst, at this point, is the wide gap that globalization has created between the well-off people and the less fortunate ones (EconomyWatch, 2010). Because of the ability of globalization in strengthening the integration of national economies, and due to the immense influence that it conveys to people, communities, and nations, the concept of globalization has turned into one intriguing subject of debate amongst the many academes, private organizations, and governments (Oatley, 2005, p.4). These debates are being separated in three categories, and these are in the aspects of the global economy, the foreign economic policy, and governance (Oatley, 2005, p.4). The debates in globalization, which pertain to its impact on the global economy, usually tackle questions that concern the path travelled by globalization, which has led it to the spot of progress. More so, critiques of globalization ask for an elaboration of the consequences that it brings to individuals, communities, and nations. They have argued whether the government's capability to manage economies is weakened by globalization, or if it is enhanced to reach the aims that it hopes to achieve out of this process (Oatley, 2005, p.4). The consequences brought by globalization have prompted historians and economists to share their thoughts regarding this serious matter. Gray (n.d., cited in Held & McGrew, 2007, p.1) has mentioned that the age of globalization is about to end, and according to Saul (cited in Held & McGrew 2007, p.1) this situation manifests "the end of globalism." The present happenings in the world that have provoked these people to commend about the soon ending of globalization are only a portion of the bigger picture. In the earlier years, John Bright and Richard Cobden (n.d. cited in James, 2009, p.12) have made an assumption that the enhancement of commerce may have an impact to peace and stability. This is only one point of the many arguments posed by authors in the past who have been in opposition to globalization referring to it as a version of imperialism (James, 2009, p.12). One saddening event took take place on September 11, 2001, when America encountered terrorist attacks that spur tension leading to the death of many individuals. This tragic event in American history, according to some economists, is considered the turning point towards the ending of globalization. It has then led economic critics of the 21st century to speculate about the near ending of globalization (Kennedy et al., n.d cited in Held & McGrew, 2007, p.1). Whether people agree or not, the US is a powerful and influential nation. Third world countries look up to this country as a role model of economic progress. However, the concept of this perfect economy is now gradually vanishing. What have lead the vanishing of America's rule in the world market is the recession that it underwent and the impact, which is until now being felt, not only by the American people, but also those people from other regions of the world who depend on the US for the development of their economy. Even with the current economic crisis taking place, there are still arguments about globalization. There seems to be some contradicting viewpoint regarding the effects of the current economic crisis to globalization. As claimed by James (2010), this global economic crisis can hinder globalization because of it being an active process. While it has decreased the level of poverty in some countries, globalization is still exposed to unpleasant adverse reactions as evidenced by some events in history like the Great Depression (James, 2010). Developments in globalization are often caused by technical advances making it hard for societies and political institutions to formulate a strategy to cope up easily with it (James, 2010). Because the global economy circulates through the movement of capital, it poses a difficulty to a nation’s capability to adapt as well as to corporations and financial institutions (James, 2010). Nations establish policies that will somehow control the entry of other nations, just like what the US did when it imposed tariffs on Chinese tires to protect their own economy (Lee, 2010). These actions are stimulated by a psychology to economic reality. US blames China because of the surpluses that it sells (James, 2010). Meanwhile, other countries blame the US financial crisis as the cause of the decline in their economies. As long as these things are happening, nations will do all measures for the sake of trade protectionism, and from these instances, critics will again argue about how the so called integration of nations is starting to diminish (James, 2010). In opposition to what James (2010b) believes, Naim (2010) strongly asserts that globalization will not be easily derailed by the economic crisis except when it turns out to be primarily dependent on international trade and investment. He has conceived that globalization is not only about international trade or capitalism. What is clearly seen in the world today is the strengthening of connections between nations, which seems not affected by the economic crisis. For example, the demand for the presence of global charities is likely to soar in the midst of an economic crisis because of those people who seek for their assistance (Naim, 2010). Even those international terrorists will not stop attacking nations amidst the occurrence of an economic crisis. To Naim (2010), these instances prove the incapacity of governments to protect their own economy as well as its society from foreign influences that can threaten them. The reason for such is the exceptional characteristic of globalization. Issues in climate change, illegal migration, transnational crimes, pandemic, and etc. even further stimulate the need for globalization because a single nation alone cannot solve these dilemmas. Whether people or countries like it or not, globalization will remain as it is (Naim, 2010), and no force can derail its existence, not even the current financial crisis. There is one considerable threat to globalization that experts look at in present times, and that is with the Chinese economy. China's economy has boomed rapidly, which has led to its wide penetration of the international market. No other country, in the world, moved up the ladder so quickly like the way China did. Hence, other than European countries, and the US, China's decline is also an enormous danger to globalization (Cowen, 2009). When the Chinese economy falters, Asian economies will weaken, which can have a large impact to the global economy (Cowen, 2009). Some economic analysts and researchers have also questioned the effects of state intervention to solving the present economic crisis (Masca et al., 2011, p.156). There are two obvious implications to an increased state interventionism, and those are failure and sustainability. Will the government succeed in counteracting the unethical practices, which has now turned to customary practices in the global market, or will it fail again in dealing with this economic disaster (Masca et al., 2011, p.156)? It all depends on how the state will intervene in this situation because all things happening in the global economy affect nations; state intervention will always remain an immediate response of any state in times of complexity just like in an economic crisis. However, this intervention may become a hindrance to the supposed stabilization of a struggling economy. For instance, when a nation's government intervenes by making use of its political prowess in imposing financial regulations, the financial sectors role in solving the dilemma is impeded by certain government restrictions delaying the process of economic recovery. The absolute bottom line of all these things is the nation's obligation to protect its economy from the crisis. Countries resort to intervention, and then to financial regulations to protect what is left of the government to protect. Protectionism is like the aftershock of an economic crisis. A nation prioritizes the setting of policies in favor of its domestic industry sacrificing global trade by way of imposing tariffs, import quotas, and other trade restrictions that will limit the entrance of foreign products in the country (21st Century Challenges, 2011). As a consequence, international trade slows down, and if this happens, the nation's participation in the global economy will stop, therefore, contributing to the possible end of globalization. Some people may think that it is difficult to end globalization, especially now that there are several multinational corporations in the world. Still, it may seem worth considering that some unexpected events might cause globalization to sink (Ferguson, 2005, p.65). Just like the unexpected earthquake and tsunami that hit Japan earlier in the year 2011, unforeseeable events can take place that trigger a more worst global financial crisis. When the recent global economic crisis hit the global economy, both developed and less developed nations suffered the consequences. However, much of these sufferings are being felt by poor countries. The truth is that, financial authorities of leading economies are now suffering from the difficulty in managing banking and financial crisis (Giron & Correa, 1999, p.2). When economies of the powerful nations, like the US, Europe, and Canada, will collapse, the global economy can expect major changes. According to Saul (n.d. cited in Walljasper, 2004), grand economic theories usually take effect within a span of a few decades. In the case of globalization, thirty years have proven how this process has dominated the way nations, as a whole, deal with business. Saul (n.d. cited in Walljasper, 2004) believes that globalization is not entirely advantageous to most people. Although the standards of living rose to a higher level, it pushed the poor individuals’ way of living to a lower level. Thus, globalization did not fulfill its promise to spread wealth and decrease poverty (Walljasper, 2004). In 2003, Saul (Walljasper, 2004) has further argued that globalization will not stop unless there remain those powerful people who continue to take advantage of globalization as a means to satisfy their wants. If that is the case, then globalization will continue existing for as long as the world leading economies are stable and running freely in the global market. The world is presently in a position where the process of globalization is already dominating the world market. Multinational corporations exist in almost every nation that is being owned and controlled by the influential nations of the world. However, despite this situation, economic activity has also been moving, shifting from a stable to an unstable condition. While this is happening through the years, great chances of economic instabilities may occur, which may also impede the stability of trade in world leading economies. Since the nation’s leading the world economy are affected, the cycle of globalization gets to be disrupted too. Still, although world leading economies are experiencing a financial crisis, they have remained intact. According to Cowen (2009), there are still many evidences of globalization's presence in the food that people eat, the clothes that people wear, and in the stamps of their own passport. Signs of globalization's end are seen all around the world. Fluctuations in the dollar value take place now and then, as well as the value of international trade. Though the world is experiencing all of these, at the moment, the possibility of the near ending of globalization can still be hindered, unless there will occur another world war or pandemic (Cowen, 2009). For now, we can only expect temporary slowdowns, but these might also return to a normal condition because the integration of world leading economies has not broken down. For instance, the tourism and travel industry is still booming, and tourists visit one country and then another making use of their time to spend for a vacation or seek for business opportunities (Cowen, 2009). How one conceives globalization is the first step into devising the right approach to deal properly with its consequences or benefits. To the nation’s leading in the world economy, globalization is the key to achieving an overall stability. On the other hand, some nations see it as a threat to competition in their local markets. It will make the situation more complicated if one is to conclude that the current economic crisis has either increased or decreased globalization tendencies. At the bottom of everything, the proper thing to do is to consider the economic crisis as one incident in history, which is being fueled by a nation's need to attain a strong and stable economy for the welfare of the people. As mere human beings, prediction of future events is improbable; the only thing that people in nations can do is to become prepared when worst comes to worst. References Ali, A., 2000. Globalization of business: practice and theory. Binghamton, NY: International Business Press. Bermejo, L.R., 2002. Trading services in the global economy. Cheltenham, UK: Edward Elgar Publishing Limited. Bozyk, P., 2006. Globalization and the transformation of foreign economic policy. Hampshire, England: Ashgate Publishing Limited. Cowen, T., 2009. Globalization slowed but not stopped. [Online] Available at: http://whatmatters.mckinseydigital.com/globalization/ globalization-slowed-but-not-stopped [Accessed 10 March 2012]. Eckes, A.E., 2011. 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