Issues in Global Economy - Coursework Example

Issues in Global Economy In this is era of globalization all the countries around the world are gradually converging into a single global nucleus. For discussing all the issues related with the operation of this global nucleus, we should analyze the structure of this nucleus regarding politics, finance, growth, trade, market, business, evolution of science and technology, poverty, health, environment, equality and social justice, sports, terrorism, culture, capitalism, monopoly power, communication, exploitation, almost every issues that are related with living of human being. Before discussing the contemporary issues we first look at the history of globalization for functioning of the global issues. . Doctrine of invisible hand as also reflected in the thought of Adam smith mainly talked about the power of market economy over the state governing economy. He spoke about market mechanism that ultimately leads to the equilibrium. Any gap between demand and supply will be automatically adjusted through the mechanism of market. The role of government here is nothing but to facilitate the process.  Breaking of Soviet Union in the 20th century strengthens this thought of ‘power of market over state’. This thought was the founding stone of today’s globalization and global economy. However the economists and the historian thought that there are many factors those facilitated the process of globalization. According to them, in 19th and 20th century many countries across the world faced the European imperialism that first makes them known about the world economy. Besides this the period saw a rapid development of sophisticated technologies that was never seen before. Rising of machine gradually cleared the new methods of reaping more profit. All this factors was seeking a process through which they could merge for functioning global economics, trade and politics. The stage was prepared for processing of the global issues through the hand of the ‘process of globalization’. With respect to recent period there emerge some more aspects that control and assist the globalization process more rapidly. Today the progresses of international trade are mostly dependent on international commercial agreements such as FTTA, CAFTA, NAFTA etc. Such agreements have opened the door to the northern export and give more opportunities to the developing nations. Nowadays the export processing zones operate as productive vicinities for overseas ventures, investments and employments. These zones are playing their role in many ways to support the economies by relieving tariff duties, state tax etc. They also look after diverse range of rules and regulations for the labor group such as environmental protection, medical security, labor wages and good and healthy working conditions. There are emerging many worldwide large-scale organizations, which are supporting and sponsoring widespread liberalization. Besides, they are improving the overall business standards and health atmosphere across the nation-states. Today the opportunities for the foreign direct investments are giving more confidence to the individual entrepreneurs and the international companies for investing in the foreign countries.  The FDI has increased the amount of money for investments to almost ten times over the previous twenty years. (Globalization, n.d.). Issues regarding the global governance are necessary to formulate and implement the rules and regulations and to facilitate the cooperation among the world states. There are different forms in global governing, such as international regulatory bodies, international coordination groups, regional economic bodies, national regulatory bodies and local community agencies. From the Breton Woods system there emerges mainly three international governing bodies, the International Monetary Fund(IMF), the World Bank and the General Agreement on Tariffs (GATT). Established in 1945, IMF was formulated mainly to encourage the monetary cooperation internationally, to stabilize exchange rate, to foster economic growth, to generate world employment and to provide financial assistance to the member countries facing the balance of payment problem. On the other hand the main role of the World Bank is to provide long term project finance. GATT was formulated for liberalizing trade by removing barriers and reducing tariff. For discussing issues related to the globalization of trade we have to incorporate the issues of agricultural trade, industrial trade and trade in services. One of the key factors behind the enhancement of the globalization is the reduction of obstacles to trade in the form of either tariff or quota. This lead to the principles of free trade globally which is thought as a major instrument for reduction of global poverty by promoting export to access the foreign market, increasing employment through the provision of FDI and increasing world-wide competition to help in lowering the general price level so as to improve the welfare of the consumers. The provision of free trade also helps to improve the global efficiency in allocating resources. For example use of mobile phones in Africa is the fruit of global trade. Free trade has given the opportunity to reap more benefits by the tools of comparative advantage as specializing in the production of more advantageous products helps the producers across the world to improve the quality of the product and to reduce the costs. However, the stage for provision of free trade in the world history was formulated through the establishment of GATT in 1947. GATT existed until 1994 when in the Uruguay round of negotiation it was replaced by the WTO, the forum through which it is possible to negotiate on the issues related with trade. It is the forum that works in implementing and policing trade agreements. Liberalization of trade promoted and increased world output through international specialization and allowed the developing nations to access the highly protected markets of the developed nations. This is the reason why many economists argue that the liberalization of trade promoted the world development by facilitating the functioning of the international market with the movement of price signal by guarantying efficient resource allocation. The issues regarding the reduction of tariff were continued in all the eight round of GATT. But achieving the international agreement was very difficult. In the Uruguay round, there were 123 countries who took the part in negotiation. It considered almost all trade related aspects It was fairly the largest ever trade negotiation. with the establishment of WTO in this round, four agreements were given the most priorities. These are as follows: a) General agreement of the WTO. b) Trade Related Investment Measures (TRIMS) c) General Agreement on Trade in Services ( GATS) d) Trade Related Aspects of Intellectual Property Rights (TRIPS) In its Doha (2001) round of negotiation, the main discussion was on the issue of investment, competition, transparency in government procurement and trade facilitation. However, it was argued that though some progresses were achieved, but the position of the members of WTO was yet to establish. This led to the 5th ministerial conference of the WTO in Cancun, Mexico. But this conference also collapsed on September 14, 2003 as the member countries did not reach in any consensus. The next two meetingf on the governance of of world trade were held in Hong Kong(2005) and in Geneva(2006). But in these two subsequent meeting the world econmies did not come across in any consensus. (Trade and Development at the WTO: Learning the lessons of Cancun to revive a genuine development round, 2004). We cannot neglect the facts that despite the failure of the negotiations, in GATT and WTO conferences, international trade have almost got liberalized today. There are many reasons behind this. First the tariff and quota has been reduced in a subsequent manner. Technology transfers have also become more sophisticated so that trade in services has improved significantly; market of developing countries like India and China are still increasing, and licensing system has been revolutionized. However, in this context it is should be observed that share of the developing world is merely one-fourth in the total volume of world trade. So many economists claim their concern over the fact the liberalization of trade only facilitated the trade of the developed world. For example in case of world cotton export, the developed nations are gradually giving price subsidies to their cotton exporter. This ultimately rising the price distortion in the world cotton market. Subsidized low price cotton are getting more access in the world market by taking the help of free trade mechanism and cotton exporter and the producers of the developing countries still facing competition with their developed counterparts. Therefore, the developed nation needs to remove the subsidies to their export for giving more favour to the poorer nations in the world export. (Gillson, Poulton, Balcombe and Page, May 2004), The growth in the amount of world export on the time span of 1980-2002 has been shown in the following figure. Source: WTO. Globalization and free trade have given proficiency for openness of markets, comparative advantage and economies of scale. Miracle of exchanges across the national border have compressed the world, placed all the world people in get in touch with each other along with the fear of competition for the best products and thoughts. However, global warming sets a twist in this global euphoria as this new order reminds us that we also have embraced the costs of negative externalities that is producing through the emission of carbon dioxide and other green house gases from the transport and airborne of goods across the world for bringing them easily to the market at the consumption point. According to a recent report of the British Met Office, 2010 is possibly is going to be recorded as ‘the world's warmest year’. They argue that the main responsible factor behind this is ‘man-made climate change’ and 2010 may suppress the record of the year 1998, which has been recorded as the warmest year in the last 160 years. It will be the emission of green house gases throughout the world that will make the difference. (Leopold, December 28, 2007; 2010 to be the world's warmest year, December 11, 2009; Global Warming n.d.; Identify & Get Informed n.d.). Regarding the issues of global fiancé, trade policy reform has created the opportunities to the foreign service providers to access the market beyond the national territory. With the policy of deregulation of the domestic financial markets, free movement of capitals have become very easy between the nations so that accessing foreign investment becomes simple for operating businesses. Capital account liberalization has increased the capital flow that grants permission to the investors of the developed nations in investing on the unused assets of the developing nations. Commercial markets throughout the world have become so supple that businesses of the global giants are not limited to the borders of its economy. Communication network has become so improved across the world that flow of information becomes uncomplicated. This helps the companies to assess their business more rigorously across the world. So the issues of domestic financial reform have reduced the role of state in the financial system and simplify the limits on the financial institutions so that the financial market of the world has become more transparent with the variety of financial instruments. When we analyze the proficiency of the more liberalized financial market of the world we should not forget to consider the issue of recent global financial crisis across the world. There were mainly three shocks that took place behind the formation of this crisis. These are a bust in real estate and housing, hike in oil prices and effects of increase in interest rate in U.S that led to a prickly slowdown in U.S as the U.S. economy was already experiencing low savings, huge budget deficits along with huge deficits in current account, a bubbling real estate and low demand. All these shocks made US consumer to face a fall in their real wages so that their savings became negative, debt ratios became high, labor market alleviated. This ultimately resulted in a fall down of confidence of the consumers. Due to the percolation effect of globalization, this recession affected the other developed and developing countries, as they had to face a sharp slowdown in growth. (Roubini, September 2006; Lerner, March 18, 2010, Shah, July 25, 2009; Sen, December 2008; The Global Economic Crisis, Systemic Failures and Multilateral Remedies, 2009; Rude, November 2008; Strydom, July 1, 2009). Issues regarding the world poverty, there is a battle between the two opposite thoughts. The socialists argue completely against globalization and state that globalization is the cause of increasing world poverty and hunger. On the other hand, capitalists argue that the process of globalization has reduced the level of world poverty, rather increasing it. Therefore, globalization and poverty characterize the most burning issues in the context of today’s world development. Whereas free trade acquires a massive possible ability for hastening economic growth and development, the intensity of hunger and poverty is still incongruously lofty in the developing nations. Although there is an international debate occurring on the globalization effect on the poor of the world, the studies that have thoroughly and methodically inspect the various devices with which globalization can affect the poor in various context, are still very limited. (Does globalization cause poverty?, n.d.; Howard-Hassmann, n.d., Shah, March 1, 2010). There is no doubt that provisions of free trade has reduced the cost of production and increased the profitability of the world production. The improvement of technology has also help the companies to capture new market besides maintaining existing market. There occurs a dynamic interaction between technology and the process of globalization. With the sophistication of technology transfers across the world, knowledge has become a public good. So the government should play a leading role for developing and implementing technology policies. At present context, we know that this is the age of information technology, which is anticipated to grow noticeably in the next few years. Besides, the formation of NGOs on different dimensions as the agencies of economic, social and political relief will also take place in a subsequent manner due to the easy availability of information. Emergence of this kind of transitional environment will loosen the hand of the governments in controlling and dictating the flow of national resources. Conglomeration of free trade and flow of capital with the tactful management of information technology may deteriorate the ability of the governments for manipulating the power of the big corporations and NGOs. The international groups of criminal will also use the fruits of advancement of technologies. This will further soften the control of the governments. However, the governments will also be benefited somehow with the advancement of technologies in moving goods, services and information quickly. In this changing environment policymakers have to reorganize on how the state will accommodate such emerging global issues so that the states across the world can define such new global order in favor of themselves. (Global Trends 2010, November 1997; Carnoy and Castells, 2003) References: 1. “Globalization” (n.d.), Economy Watch. Available at: http://www.economywatch.com/world_economy/world-economic-indicators/global-economy/globalization-economy.html (accessed on March 20, 2010) 2. “Trade and Development at the WTO: Learning the lessons of Cancun to revive a genuine development round” (2004), International Development Committee, House of Commons, Volume 1. Available at: http://www.publications.parliament.uk/pa/cm200304/cmselect/cmintdev/92/92.pdf(accessed on March 20, 2010) 3. Gillson, I, Poulton, C, Balcombe, K and S Page, (May 2004), “Understanding the impact of Cotton Subsidies on developing countries”. Available at: http://www.odi.org.uk/resources/download/3608.pdf (accessed on March 20, 2010) 4. Leopold, L ( December 28, 2007), “Globalization Is Fueling Global Warming”, Environment, Alternet. available at: http://www.alternet.org/environment/71873/ (accessed on March 20, 2010) 5. “2010 to be the world's warmest year” (n.d.), Global Warming, The Times of India, available at: http://timesofindia.indiatimes.com/home/environment/global-warming/2010-to-be-the-worlds-warmest-year/articleshow/5326240.cms (accessed on March 20, 2010) 6. “Global Warming” (n.d.), Issues, Natural Resources Defense Council. 7. available at: http://www.nrdc.org/globalWarming/ (accessed on March 20, 2010) 8. “Identify & Get Informed” (n.d.), Environment, Global Issues, Takingitglobal. 9. available at: http://issues.tigweb.org/environment (accessed on March 20, 2010) 10. Roubini, N ( September 2006), “Macroeconomic Issues and Vulnerabilities in the Global Economy:A Summer 2006 Overview”. available at: http://pages.stern.nyu.edu/~nroubini/DOC2.htm (accessed on March 20, 2010) 11. Lerner, J ( March 18, 2010), “INNOVATION, ENTREPRENEURSHIP AND FINANCIAL MARKET CYCLES”, OECD. available at: http://www.oecd.org/dataoecd/29/27/44840087.pdf (accessed on March 20, 2010) 12. Sen, S ( December 2008),“GLOBAL FINANCIAL CRISIS,A Classic 'Ponzi' Affair?” , ISID. Available at: http://isidev.nic.in/pdf/WP0812.pdf (accessed on March 20, 2010) 13. The Global Economic Crisis, Systemic Failures and Multilateral Remedies” (2009), United Nation. Available at: http://www.unctad.org/en/docs/gds20091_en.pdf (accessed on March 20, 2010) 14. Rude, C ( November 2008), “The Global Financial Crisis:What Needs To Be Done?”, Friedrich Eberto Stiftung. Available at: http://library.fes.de/pdf-files/bueros/usa/05869-20081126.pdf (accessed on March 20, 2010) 15. Strydom, P ( July 1, 2009), “THE INTERNATIONAL FINANCIAL CRISIS” . Available at: https://www.fnb.co.za/economics/econhtml/docs/Comment20090701.pdf(accessed on March 20, 2010) 16. “Does globalization cause poverty?” (n.d.), The Globalization Website. available at: http://www.sociology.emory.edu/globalization/issues03.html 17. Howard-Hassmann, E, R (n.d.), “Globalization, Poverty Reduction, and Economic Rights”, global-e. available at: http://global-ejournal.org/2009/03/09/globalization-poverty-reduction-and-economic-rights/(accessed on March 20, 2010) 18. Shah, A ( March 1, 2010), “Poverty Around The World”, available at: http://www.globalissues.org/article/4/poverty-around-the-world (accessed on March 20, 2010) 19. “Global Trends 2010” (November 1997), National Intelligence Council. available at: http://www.dni.gov/nic/special_globaltrends2010.html (accessed on March 20, 2010) 20. Carnoy, M and M, Castells (2003), “Globalization, the knowledge society, and the Network State: Poulantzas at the millennium” , EBSCO. Available at: http://educ.ubc.ca/faculty/bryson/565/carnoycastells.pdf (accessed on March 20, 2010) Read More