Globalization and Canada. Globalization and free trade - Essay Example

Globalization and Canada 2008 Introduction Globalization of business and economies has changed societies in all countries and Canada is no exception. In fact, the term "global village" to denote the effect of globalization was coined by a Canadian journalist, Marshall MacLuhan at the dawn of the 21th century (Gray, 2001). Free flow of capital in and out of Canada, free trade and the existence of multinational companies have together linked Canada to the rest of the world's economies. In addition, Canada has become a part of continental integration through the North American Free Trade Agreement (NAFTA) that has already exposed the trading and business community of Canada to the United States. As a result of the interaction of a global business environment and a multicultural population, the Canadian society is undergoing a change that needs to be explored further. Besides, globalization has had an impact on the sovereignty and democracy of the country as Canada's economy as well as its culture has got integrated with that of the United States. In this paper, I will discuss the economic, social and cultural effects of globalization on Canada and propose a methodology for further questions. Changes in the global economic order Inter-linkages between economies across different geographies have existed for centuries but it is only recently that the world has become truly integrated into a 'global village' rather than in a state of one group of countries exploiting the other. Capitalism and the Industrial Revolution had its roots in technological innovations like the power looms and railroads in Britain in the middle 19th century but it soon spread across Europe and North America, allowing for growth in commerce (Chirot, 2000). The modernization of the European and North American economies was aided to a large extent on the availability of raw materials (cotton from India in the case of Britain) and labor (African slaves for North America) from the colonies. By the advent of the 20th century, however, the limits of the capitalist development had been reached, leading to the Great Depression of the 1920s in North America and Europe (Giddens, 1986). The two World Wars changed the global economic power balance, with most of the colonies gaining independence over the period and Soviet Russia becoming more powerful and dissociated from the western powers. Post war reconstruction, growing urbanization and technology improvements revived the North American and European economies while Soviet Russia too developed technological capabilities. However, the world got bifurcated between the capitalist (mainly North America and Europe) and the socialist (mainly the USSR) camps while the Third World countries (the developing or underdeveloped nations, most typically erstwhile colonies of European powers) aligned themselves to either of the two camps. The 1950s saw a boom in the United States economy, much as a result of Fordist automation of industries and growth of consumerism, and US multinational companies endeavored to invest in other countries, the nearest neighbor, Canada, being the most convenient. However, in the 1960s and 1970s, even the capitalist economies, Canada being an important example, largely believed in economic sovereignty and foreign ownership was not seen as favorable (Smythe, 2001). The global economic order has significantly changed since the end of the Cold War in the late 1980s. As the divergence of the world between the two superpowers and their respective beneficiaries in the so-called Third World disappeared, the world has now become a 'global village' that is increasingly inter-linked for mutual benefits. The processes of production and consumption have undergone significant globalization, aided be the nearly free flow of capital and technology across political barriers. Over the years, multinational companies (MNCs) have ruled world business and governments have had limited roles to play. A survey by Institute for Policy Studies in 2000 found that the world's top 200 companies' sales were greater than a quarter of the world's economic activity and that their combined sales were more than the combined income of all countries except he top nine (Anderson and Cavanagh, 2000). MNCs have become increasingly independent of governments and have grown through mobility of capital, technology and finance. Moreover, the growth of modern telecommunication and the internet has meant that location of units are increasingly irrelevant and possibilities of growth unlimited. With increasing globalization and blurring of economic borders for capital and trade mobility, governments have diminishing roles in the new order. The international order has effectively been replaced by the transnational order, in which governments play a supporting role. Hence, like in most countries that are part of the "global village" sovereignty in economic decision-making has taken a back-stage to business interests of MNCs that rule by the laws of global capital movement. In Canada, the executive-style economic decision making predates the globalization since the mid 1990s, by providing a destination for US capital flows in the 1960s. However, at that time, there were protests over US ownership of Canadian firms since this was seen as a loss of sovereignty of the country. With globalization, MNCs and foreign ownership of Canadian firms are seen as instruments for inflow of capital and technology. Globalization and free trade For Canada, globalization has effectively meant economic integration with the United States. Exports to the US have been a major source of national income for Canada. In January 1994, United States, Canada and Mexico signed the North American Free Trade Agreement (NAFTA) to create the largest free trade area in the world. The agreement, modeled on the European Union, was supposed to reap the maximum potential from trade among the three North American economies by eliminating tariffs between them. The final tariff reduction was done in 2003 and since then nearly all trade between the three countries is free (Foreign Affairs and International Trade Canada). Besides tariff reduction, the trading partners agreed to reduce trade restrictions in a wide range of products, including automobiles and parts, computers, textiles and agriculture. The agreement also protected intellectual property rights and removed restrictions on investments between the three countries. Along with the NAFTA, the three countries also signed the complementary North American Agreement for Environmental Protection (NAAEP) and North American Agreement on Labor Coooperation (NAALC). Since the signing of the NAFTA, trade between the three north American countries have risen manifold but it is difficult to estimate how much of the growth has been on account of free trade. In particular, Canada exports half its manufacturing output to the United States (Foreign Affairs and International Trade Canada). NAFTA has largely been beneficial for consumers in Canada. While free trade has in general reduced costs of production, it has resulted in a lowering of product prices and given consumer more choice regarding products as well as lower prices. NAFTA, however, has provoked serious controversies regarding labor issues. While trade unions in the United States claim that it has resulted in job losses as a result of shift of production facilities to the cheap wage countries and increase in imports to the US, labor unions in Canada have been particularly vociferous about the effects on reducing labor standards in these countries. Far from raising working conditions to the US standards, trade unions in Canada claim that NAFTA has been ineffective to protect labor rights. The agreement does not create any worker safety clause that would make it binding for the trading partners to follow. Neither can workers have the right to redress their grievances directly to a bilateral panel. The NAALC has not created a standard labor standard for the three countries. As a result, there is a race-to-the bottom among US, Canada and Mexico as far as labor conditions are concerned (Spade). Free movement of capital Canada has been a major destination of capital from the United States since the Second World War. Through the period 1960-80, US companies have taken control over ownership of Canadian companies. This was generally welcome at the time since it provided an impetus to growth of the economy. However, it also endangered the country's sovereignty in economic decision-making and there were a series of laws like the Investment Canada Act regulating foreign investment while also establishing crown corporations. By the mid-1990s, however, foreign investments from the US to Canada were declining, thereby affecting its economy as well. This trend was sought to be arrested by the NAFTA, which integrated issues of trade and investment by emphasizing on exports from Canada to the US while providing an investment destination for US capital. As a result, foreign direct investments (FDI) from the US to Canada picked up in the 1990s, largely through mergers and acquisitions of Canadian firms by US capital. However, this time there was less protests over the increasing foreign ownership of Canadian firms than there was in the 1960s as globalization had already been set in motion and foreign, particularly US, ownership of local companies had become common in all countries that had liberalized its economies. Besides, foreign ownership of Canadian companies had also been accompanied with Canadian companies investing abroad. Many companies began to take advantage of the growing market in the US as well as its integration with the larger trading and investment partner (Smythe, 2001). These companies not only invested in the US but also in other countries where US companies had forayed into. US capital is no longer seen as a threat to Canadian firms but as a source of advantage for growth. Global Organization In the age of globalization, the world is the stage, so to speak, for all companies. With globalization of trade, industry and technology, every aspect of a business organization becomes internationalized. According to Goman, "Markets no longer stop at national boundaries, neither do corporations. For organizations to flourish, let alone survive, their perspective must be global." Goman emphasizes that it is not organizations that change but the people who manage and work in these organizations that change. Therefore, in the changing business environment, the leaders can transform an organization only by relating to the employees at the emotional level. Like in personal relationships, communication is as important as understanding each other in an organization. Change communication may be thoroughly misleading to employees when they hear bits and pieces from unofficial sources. On the other hand, candid and honest communication from the top management enables the employees to adjust to the change effectively. Canada is a multi-cultural society hence managers need to develop communication skills that address issues of such a society. Even in day-to-day business operations, cultural differences often hinder effective communication. At the same time, Canadian companies investing abroad also have to deal with requirements of multicultural communication. In this regard, US and Canadian companies are faced with similar challenges. For example, the North American, being inherently optimistic, usually believe in starting off a project immediately and engage in a trial and error process, disregarding the possibilities of failure. In many other fatalistic cultures, on the other hand, individuals would not touch a project without studying all the pros and cons and being convinced about failure. Shame, honor, success and prestige (including family honor) are most critical in many cultures that are typically less individualistic. The North American openness, transparency, ready-to-go, interactive attitude may not work in cultures that give great focus on social standing and hierarchy. To reduce barriers to cross-cultural communication, it is essential to socially interact with different cultural groups extensively. To do so, however, cultural biases in the mind should be eliminated. For example, the communicators should not be biased against any cultural group on account of race, ethnicity and color of skin. To improve cross-cultural communication, the most essential element is to get over fear and hesitation of interacting with different culture groups. Conclusion and questions for further research Globalization has changed the structure of business in Canada as well as in the manner that organizations run. Free flow of capital and trade has meant that Canada has become integrally integrated with the United States so much so that North America, that is United States and Canada together, is considered as a combined entity in matters of market size, investment and trade destinations. There is no doubt that the two countries are quite similar in terms of culture and as the melting pot of various other cultures and races. However, this has meant that Canada's policy makers have lost the control over economic policy making. This has implications for social policy makers since the welfare provisions for sectors like education and healthcare have to be accounted for. Canada's healthcare system is one of the most egalitarian ones with free in-hospital and physician services. So far, the healthcare services in Canada have not given in to market forces and have followed the European pattern rather than the American one. However, with globalization, there are fears that healthcare will go out of reach for the poor. There is the need to research into the effects of globalization on Canada's healthcare system. Other social systems like education also need to be studied in the context of globalization. It is possible that in a multi-cultural country like Canada, there is a vast section of immigrant population. Globalization is bound to throw a part of the vulnerable population out of the economic rat race. A fallout of this, for example, is a rise in street youth in Canada. Researchers are unanimous in their finding that the street youth is the fastest growing category of homeless people in the country (Brannigan and Caputo, 1993). Since the 1970s, sociological and environmental problems have made many vulnerable youth run away. There has been increasing recognition of the fact that society is to blame for the youth taking to the street and hence it should provide support for such youth. Besides family and school stressors, financial strains are an increasing contributor to the rise in street youth. The contribution of globalization in resulting in financial strains on vulnerable population leading to criminal behavior needs to be studied. Works Cited McCallum, John. "Will Canada Matter in 2020" Lecture Series 2020: Building the Future. University of Waterloo, Waterloo. 16 Feb. 2000 Grey, Gabrielle, Globalization, 2001, http://globalization.icaap.org/content/v1.1/gabriellegray.html Goman, Carol Kinsey, Managing in a Global Organization: Keys to Success in a Changing World, Crisp Professional Series, 1994 Foreign Affairs and International Trade Canada, http://www.dfait-maeci.gc.ca/nafta-alena/menu-en.asp Spade, Dean, NAFTA, Labor and the Empty Promise of the NAALC, retrieved form http://www.makezine.org/nafta&labor.html Chirot, D., How societies change,Pine Forge Press. 1994 Giddens, Anthony, Capitalism and Modern Social Theory, Cambridge University Press, October 1986 Anderson, Sarah and John Cavanagh, Top 200: Rise of Global Corporate Power, Corporate Watch, 2000, retrieved on 20.11.2005 from http://www.globalpolicy.org/socecon/tncs/top200.htm Smythe, Elizabeth, Repoliticizing globalization in Canada: From the MAI to Seattle, Journal of Canadian Studies, Spring 2001, http://findarticles.com/p/articles/mi_qa3683/is_200104/ai_n8933564 Mendelson, Michael and Pamela Divinsky, Canada 2015: Globalization and the Future of Canada's Health and Healthcare, Caledon Institute of Social Policy, Queen's University, July 2002 Brannigan and Caputo, Studying runaways and street youth in Canada: Conceptual and research design issues (Solicitor General of Canada Publication No. 1993-05). Calgary: Police Policies and Research Division, 1993 Read More