Economic Benefits of Globalization - Case Study Example

Economic Benefits of Globalisation Introduction Without any doubts, never in the human history have we discussed globalisation with such intensity and curiosity as we are doing these days. Nevertheless, we have reasons to do the same. Today, no one on this planet is safe from the direct or indirect consequences of globalisation. Consider the following scenarios. Bavarian Motor Works (BMW), a German automobile manufacturer found itself hurt by the Mumbai terrorist attacks of 2009 because it has a production plant in Calcutta that had to be shut down . Even any unrest in South Africa, United Kingdom, Austria, or United States would result in immense damage to this German automobile manufacturer (Chatterji & Gangopadhyay, 89-93, 2005). 3M (Minnesota Mining and Manufacturing) would lose more than 53% of its revenues if the American government asks them to restrict their operations within the United States (Barrera, pp. 17, 2007). Exxon Mobil is an American firm but it receives only 25 percent of its yearly revenues from operations within the United States (Welfens, 102-103, 1999). Finnish employees no longer form the majority at Nokia’s head quarter, which is a Finland based company; surprisingly, employees from China and India dominate the numbers (Chatterji & Gangopadhyay, 89-93, 2005). Honda, a Japanese automobile maker, has its biggest production plant in Ohio. When Pakistani government decided to impose a 25% duty on the import of cell phones, Nokia (Finnish company), Sony Eriksson (Japanese cum Swedish company), Samsung and LG (South Korean Companies) came into action and found ways to persuade the Pakistani government not to do so (Scholte, pp. 22-25, 2000). These were just a few glimpses and examples that how globalisation has affected each one of us. However, today we do not realize or feel that with such intensity but most of the products that we consume today, are manufactured or processed in strange lands, millions of miles away, lands that we have never seen or heard of. The rest of this paper is an attempt to asses the effects and changes brought by globalisation considering the specially the economic grounds. Discussion Despite the fact that there several definitions of globalisation but in its broadest sense, “globalisation refers to the rapid growth of linkages and interconnections between nations and social communities” that make up the present world system (Barrera, pp. 17, 2007). It is important to note that in economic terms globalisation has many forms. Firstly, it involves and facilitates trade between individuals, companies, corporations and countries no matter how far they are .Organizations like World Trade Organization (WTO) have helped this phenomenon to strengthen even more in the recent past. According to the reports of 2008, international currencies of worth more than 1.5 trillion US dollars are exchanged everyday, in any given 24 hours. Moreover, another report suggests that more than 20 percent of the goods and services produced around the globe are traded (Kofman & Youngs, pp. 3-9, 2003). Secondly, globalisation also involves the phenomenon of many companies setting up their manufacturing plants, investment centers, production houses and services offices in other countries. Official statistics tell us that at least thirty nine thousand transactional corporations currently own production houses out of their native country (Kofman & Youngs, pp. 3-9, 2003). Moreover, the pace with which direct investments is growing by these firms as twice as the growth of overall trade volume (Welfens, 102-103, 1999). This can happen for various reasons. Many companies that sell most of their goods or services in other countries would do the same for eliminating the costs associated with shipping or other transportation tariffs. Many other companies do the same in search of cheap labour and in turn, lower cost of production. For example, most of the call centre jobs from America are now begin outsourced to developing countries of Asia like India and Pakistan. These companies find labour as cheap as ten times as compared to what they would for it in America or Britain (Welfens, 102-103, 1999). Also important to note here is that by increase in foreign direct investment we also mean that now developed countries and large multinational organization have now more opportunities to invest in developing or under developed countries where there is immense need of this capital and investment (Harrison, pp. 56-59, 2007). Quite understandably, both of the basic above mentioned forms of globalisation have had positive impact on the lives of most of the people. Imagining of a world where no trade can happen across the borders of countries would be a nightmare. Even if countries raise trade barriers then life would become a difficult affair. Because, today most of the products that we use come from foreign markets and sadly, majority of us cannot comprise on our lifestyles. Furthermore, allowing companies from outside to sell or manufacture their products in our country would mean increased competition and more employment opportunities (Scholte, pp. 22-25, 2000). Both of the above-mentioned consequences are desirable. Increased competition would mean that companies would fight and work harder to lift their quality standards. Moreover, they would try their best to decrease their cost of production thus decreasing the inflation in the home country to some extent (Harrison, pp. 56-59, 2007). From the point of view of a customer, increased competition means more options for the customers, weakening of any monopoly and consumer empowerment. In fact, consumer empowerment mean that consumer are now not at the mercy of the producers but they have enough power to force the producers. Ethical consumerism, a recent practice where consumers force companies to avoid and discourage any unethical practices or linkages is a direct consequence of consumer empowerment (Chatterji & Gangopadhyay, 89-93, 2005). Economics tells us that it forces the producers to utilize the resources effectively and efficiently. Moreover, this is only because of free trade polices that immense transfer of technology has been possible between many countries. On the other hand, these foreign direct investments have provided employment opportunities to many developing countries. By reducing unemployment in these countries, globalisation has saved or at least has minimized the risk of many short term and long term undesirable consequences. More employment opportunities in these countries have certainly lowered the inflation level in these countries and have increased the standard of living. Economics tells us that if the demand of labour were higher than the supply of labour then the equilibrium would occur at some point with a higher wage rate (Welfens, 102-103, 1999). Higher wages would mean more available cash for the labour and this would in turn mean more spending, more consumption, more savings, and higher standard of living for the general labour (Chatterji & Gangopadhyay, 89-93, 2005). However, one may argue that higher wages mean higher cost of production for the companies and that can result in higher prices charged by the producers. However, this is not completely true for a globalisation favoring, free market, and competitive country. This is because higher competition and consumer empowerment makes the demand highly elastic. A slight increase in the price would result in upsetting many customers. Therefore, companies usually do not take this risk and balance this decrease in per unit of output by increasing the total production (Welfens, 102-103, 1999). This is also true that if we look at all this with a different lens then we will end up seeing a complete different picture altogether. The same globalisation that appears to be glamorous, elegant, providing win/win situations and making the lives simpler would seem to be creating destruction, exploitation, and reason of unrest in many under developed and developing countries. Let us consider the first argument of free trade and let us go back to the very beginning of this essay where various situations of some multinational companies have been presented. Quite understandably, this whole activity has increased the profits and revenues of these countries put this all has happened with strings attached. Now these companies find themselves in an irresistible situation and very much volatile to the happenings in other parts of the world. Why should a German company pay the price for terrorist attacks in Mumbai? Why should an American company be concerned regarding the happenings in Brazil or Ohio? Important here to note is that for all these companies globalisation is not an option or a choice but an obligation (Barrera, pp. 17, 2007). This is because if they fail to go global then their other counterparts would become stronger to beat them. In short, this process has increased the risk for many companies. Even worse are the situations when these big multinational companies try to control, directly or indirectly, the events and happenings in these small and developing countries (Barrera, pp. 17, 2007). Continuing the last presented point, globalisation now mean more control of richer countries over poorer developing or under developed nations. The idea of “free markets” is nothing else but a trick of these nations to sell their surplus goods in these countries, get excess to other countries resources, labour at cheap rates, and make them import more goods thus disturbing their balance of payments (Barrera, pp. 17, 2007). Moreover, another important to note here is that with this idea of free markets, the power and say of governments have been eliminated to some serious extent. Previously, all of the trade conducted amongst countries was through governments or through direct government’s involvement. However, the same is no true for today. For example, these days more than one third of all trade happens between companies and organizations other than the governments (Kofman & Youngs, pp. 3-9, 2003). Many authors now agree to the fact that World Trade Organization (WTO), International Monetary Fund (IMF), World Bank (WB), Organization for Economic Co-operation and Development (OCED), European Union and others nothing but just a way for the western superpowers to exploit the resources of the developing countries (Chatterji & Gangopadhyay, 89-93, 2005). In fact, IMF and WB have faced much of the critics. Many economists argue IMF and WB are nothing but tools used by the American government to control their inflation and force other countries to take huge loans and let Washington govern their countries and do the policymaking (Scholte, pp. 22-25, 2000). For the past few decades, US have been printing a lot of money and they had no choice but to restrict this money from spreading into their own markets due to the fear of inflation. Therefore, they decided to inject these dollars into other economies in forms of loans (Kofman & Youngs, pp. 3-9, 2003). Furthermore, if any country takes loan from these agencies then it becomes binding on them to abide by all the Washington orders and make polices accordingly. Many developing countries due to such pressures have recently removed subsidies on public facilities like health, education, water, gas, electricity, and others (Harrison, pp. 56-59, 2007). This leads to more political and social unrest in these countries. “Your economy grows but your politics shrink” (Harrison, pp. 56-59, 2007). Without any doubts, all writers agree to the fact, despite of all the globalisation during the past few decades, income disparity in countries that were supposed to benefit from globalisation has increased dramatically. Quite understandably, globalisation is very much responsible for this income disparity. Moreover, increased competition when restricts firms from increasing the prices of their products they then respond by using dirty tricks like child labour and policies that are not friendly with the environment. In fact, one can say that globalisation is indirectly responsible for much of the child labour and environmental degradation through industrialization. By increasing competition, preventing governments from practicing even a bit of socialism and disturbing the demand and supply of labour, globalisation has worsen the life for low skilled workers who would have been in a better state without globalisation (Kofman & Youngs, pp. 3-9, 2003). References Barrera, Albino. (2007). Globalisation and economic ethics: distributive justice in the knowledge economy. Palgrave Macmillan. Chatterji, Manas, & Gangopadhyay, Partha. (2005). Economic globalisation in Asia. Ashgate Publishing, Ltd. Harrison, Ann E. (2007). Globalisation and poverty. University of Chicago Press. Kofman, Eleonore, & Youngs, Gillian. (2003). Globalisation: theory and practice. Continuum International Publishing Group. Scholte, Jan Aart. (2000). Globalisation: a critical introduction. Palgrave Macmillan. Welfens, Paul J. J. (1999). Globalisation of the economy, unemployment, and innovation: structural change, Schumpetrian adjustment, and new policy challenges. Springer. Read More