Negative Effects of Globalization - Essay Example

?Although globalization has many benefits it also has many negative effects as reflected in the poor standard of living in some nations. Explain whatglobalization is and discuss the latter with support from adequate empirical examples. Globalization has been given different meanings in different contexts. It has been referred to as the homogenization of people’s tastes and demand patterns around the world as communications and information technology, and transportation of people and products has increased across borders. Homogenization of tastes may imply loss of threat to national identity but scholars argue that people being more and more knowledgeable about each other is also a dimension of globalization (Hammond and Grosse, 2003). Globalization is the process of moving towards a single-world society which has led to an increase in the economic activity in the world. For the purpose of this paper globalization would mean economic globalization which has been defined as the integration of national economies into the international economy through trade, foreign direct investment (FDI), through the flow of workers and flows of technology Bhagwati, 2004). Debates ensue but the benefits of globalization are established; however while globalization has many benefits it also has many negative effects as reflected in the poor standard of living in some nations. Globalization has also been viewed as the dominance of western economic and cultural interests over the rest of the world, as the perpetuation of inequality between the rich and the poor countries and region (Brinkman and Brinkman, 2002). This is because corporate power by the MNCs has been utilized for maximizing profits without social responsibility. Frankel (2006) agrees that globalization has intensified competition thereby reducing costs and enhancing quality; it has led to liberalization, deregulation and privatization and opened up capital markets. Frankel emphasizes that at the same time, globalization has undermined the economic prospects for millions around the world. The gap between the poor and the rich has increased as the benefits and costs of globalization are unevenly distributed across the world. Bhagwati believes that charges of hypocrisy, unfair trade practices and double standards against the rich nations are baseless and instigated by NGOs such as OXFAM. Such charges instigate protectionism by the developing countries which can only hurt their own prosperity. Bhagwati fails to recognize that nations that have opened up their economy and have not been protectionists may have registered high growth rates but this does not necessarily translate into poverty reduction, as stated by Akoum(2008). Growth and poverty reduction are the ultimate goals of efforts geared towards development but policies that concentrate on growth may only be looking at a part of the development problem. For instance, Latin America can be cited as a model of trade openness but in terms of standards of living, the results are abysmal. This conforms to the standard economic model, as pointed out by Singer (2004, p92) which suggests that no one’s economic welfare can be improved without reducing the welfare of at least one another person. Unconstrained globalization can no doubt lead to economic efficiencies but the ruling elite have to ensure overall welfare. At the same time due to cost efficiencies, when world production shifts to countries that do the poorest jobs, efficiency is adversely affected. This occurred when the US shifted jobs to Mexico as a result of free trade; this resulted in increase in salaries in Mexico but adversely affected incomes in the United States (Singer, 2004, p78). The drivers of globalization include efforts to reduce transportation and communication costs by the private sector and efforts towards reduction of trade and policy barriers by the public sector (Frankel, 2006). Finding a strong connection between poverty and globalization, Singer (2004) asserts that technological upgradation has taken place in developing nations but there is evidence to suggest that technological change has increased inequality between highly skilled workers and the unskilled workers. Frankel too asserts that globalization is far from being achieved as economic intregration has not taken place. This is because only a small group of “tiger nations” of East Asia have been growing rapidly while others in Asia, Africa, and South and Central American have been slow to develop (Intriligator, 2003). These poor nations are becoming marginalized. This implies that there is not convergence but divergence or polarization of incomes worldwide as the poor nations slip further down. This leads to disparity and conflicts as the poorer nations experience poor standards of living. Researchers and scholars discuss of globalization as economic integration but all cross-national empirical research on globalization focuses on foreign trade or investment as the indicator of globalization. This does not even suggest integration whereas theorists have been talking of unstructured McDonaldization of societies to semi-structured glocalization or of a highly networked society (Babones and Vanada, 2009). This suggests a gap between theory and practice. In recent years focus has been on establishing relationship between global trade and income inequality. Economic globalization can stimulate growth, reduce poverty and generate employment but globalization can affect growth in different countries in different ways depending upon government policies, population growth rate and institutional factors. However, even though, as per UN report of 2004 most of the least developed countries (LDCs) undertook economic reforms and trade liberalization, these very nations found it hardest to derive benefit from liberalization and equal treatment of its members (cited in Hameed and Nazir, 2005). Based on the Granger causality testing, economic globalization has been found to negatively impact poverty in the long-run in Pakistan. Even if globalization generates employment opportunities it increases inequality. Trade liberalization is thus just one of the factors to stimulate growth but this has to be supported by other macroeconomic factors. Income disparities as a result of globalization among the developing and undeveloped nations have been often discussed but Babones and Vanada (2009) point out to income inequality in the developed countries in recent times. Countries such as Australia, New Zealand, Canada, the United Kingdom and the United States that have been at the forefront in trade liberalization and globalization are the ones that are experiencing income inequalities. In Germany and France while trade as a measure of GDP has increased, inequality levels have remained constant. In Mexico inequality has declined as trade has improved. Income inequality has been spreading through the diffusion of neoliberal government economic policies. Flexible labour market is another negative impact of globalization as it increases the risk of incidences of poverty across occupations and categories (Clapham, 2006). Poverty is thus no longer confined to the lower class and can temporarily affect the middle class as well. It has been widely acknowledged that the United States has the most unequal distribution of income among all affluent countries in the world; the gap between the rich and the poor in the US is widening. The process of globalization and labour market transformation (globally driven structural changes in the labour market) has increased inequality in earnings in the United States (Wallace, Gauchat and Fullerton, 2011). This implies that liberalization of trade does not necessarily result in improvement in the standards of living. According to World Bank estimates China’s Gini coefficient increased from 28.8 in 1981 to 38.8 in 1995 (Wei, 2002). This might give rise to the conclusion that embracing globalization leads to income disparities. However, China is divided into several regions (more open regions and less open regions) and all the regions including the less open ones have grown very fast as most regions demonstrate reduction in poverty counts. Interregional inequality may have arisen because people in more open areas have experienced faster rise in standards of living but this does mean that this has been at the expense of the less open areas. Thus embracing trade openness has created opportunities for rural areas which has accelerated their growth faster than the urban areas. Therefore, uneven openness is responsible for inequality of incomes. While globalization permitted corporations to venture overseas, the developing nations too started benefiting in terms of improved health, education and material comforts. However, along with these came the vested interests of the corporations that was detrimental for the well-being of the society (Mandle, 2001). Accordingly, Carr, Chen and Tate (2000) evaluate the adverse impacts of globalization on labour relations and other market transactions. They particularly focus on the informal sector which comprises of home-based women workers and on the effects of uneven distribution of power. Shea butter has gained immense commercial value as it is used for cosmetics around the world but the women who collect the shea butter get a marginal price while the middlemen and end retailers muster the main profits. It is estimated that shea butter is sold to consumers at eighty-four times the price the women receive for the raw material. In clear terms moving across borders has strengthened the bargaining power of the employers and weakened the bargaining power of the labourers (Carr, Chen and Tate, 2000). This is because corporations simply shut down production in one country and move into another as competition intensified. In the global garment industry also market restructuring had to be done in the form of buyer-driven commodity chains and lean retailing (Micheletti, 2006). Soon the manufacturing units turned into sweatshops as women, children or unskilled workers from poverty-stricken families were employed. While the pay is sub-standard, the working conditions are unsafe and unhygienic. They are underpaid and overworked and the situation soon was found in different manufacturing sectors. Industrial home workers are subject to poor working conditions, insecurity, long working hours and low wages (Carr, Chen and Tate, 2000). Nike too shifted its production to low-cost countries to take advantage of obtaining cheaper goods. However, these are nothing but sweatshops as Nike is well known for the physical and verbal abuse of workers, low wages, anti-union efforts and hazardous working conditions. The company has violated labour laws in all the countries that it has manufacturing setups. Nike’s Code of Conduct allows dangerous working conditions to persist. The above discussion brings to light certain salient features of globalization. While economies that have opened up have experienced rising incomes, but income disparities cannot be associated with globalization as local factors play a critical role. Rising income inequalities is not limited to the developing nations but has been experienced by the developed nations as well, of which America is one of the leading ones. Other negative impacts of globalization have been caused by companies that ventured overseas. Labour exploitation has taken place and sweat shops have been running unconstrained. Singer’s contention that no one’s economic welfare can be improved without reducing the welfare of at least one another person holds true. To overcome the ill effects of globalization the corporate sector must be economically encouraged but politically constrained. However, curbing use of excessive use of power can risk the potential benefits. Globalization is an irreversible process; its benefits are inevitable and all it requires is better governance. Akoum, IF. (2008) 'Globalization, growth, and poverty: the missing link', International Journal of Social Economics, 35 (4), pp. 226-238 Babones, SJ. and Vanada, DC. (2009) 'Trade globalization and national income inequality -- are they related?' Journal of Sociology, 45 (5), pp. 5-31 Bhagwati, J. (2004) 'Anti-globalization: why?', Journal of Policy Modeling, 26, pp. 439-463 Brinkman, R.L. and Brinkman, J.E. (2002) 'Corporate power and the globalization process', International Journal of Social Economics, 29 (9), pp. 730-752 Carr, M., Chen, MA. and Tate, J. (2000) 'Globalization and Home-Based Workers', Feminist Economics, 6 (3), pp. 123-142 Clapham, D. (2006) 'Housing Policy and the Discourse of Globalization', European Journal of Housing Policy, 6 (1), pp. 55-76 Frankel, J. (2006). What Do Economists Mean by Globalization? Available at: http://www.hks.harvard.edu/fs/jfrankel/FRB-Globalzn&InflOct4.pdf (Accessed: 22 April 2013). Hameed, A. and Nazir, A. 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