Competing Conceptions of Globalization - Case Study Example

Introduction Globalization is a process of integration and interaction among governments of different nations, companies and the people, a process aided by information technology and driven by trade and investment across countries in the world (Globalization101.org 1). According to Ramsaran and Price, the term globalization depicts the paradoxical cultural, political and economic processes of the world capitalist integration. In other words, the term is used increasingly more to describe the progressing incorporation of the world in a capitalist political economy (1). This paper looks into the processes of globalization, the triad economies and the extent to which the processes of globalization have resulted in a decline in the relative importance of the TRIAD economies (The triad consists of the European Union, Japan and the United States). Globalization is not new especially so considering the fact that people, for thousands of years, and later, corporations, have been buying from as well as selling to each other at great distances lands, for example, through the renowned Silk Road across Central Asia that in the middle ages connected Europe and China. Similarly, people and corporations for centuries have invested in ventures in other nations. In effect, several of the prevailing features prior to the First World War outbreak in 1914 are analogous to those of the current wave of globalization. However, during the past few decades, there have been developments in policy and technology, which have stimulated increases in cross-border investment, trade as well as migration. The increases are so large that majority of observers believe that the world has gotten into a qualitatively new phase as far as its economic development is concerned. For instance, the world trade volume has risen by 20 times since the year 1950, and foreign investment flows almost doubled from 468 billion dollars in the year 1997 to 827 billion dollars in the year 1999 (Globalization101.org 2&3). Processes of globalization According to Chase-Dunn, the processes of globalization include political, cultural and economic processes. The modern-day transnational corporate networks’ growing stature as well as the growing interconnectedness of services, goods, markets and finances heavily influences these processes. Cvetkovich and his co-authors note that this influence entails the formation of a new global culture, new transnational political organizations and a new world market. This globalization process involves a dialectical relationship between its political, cultural and economic dimensions that frequently appears chaotic and contradictory – the process is not linear. In his lecture on the shifting economic triad of the United States, China and India, Sheth gives a historical viewpoint to the shifting power structure in addition to sharing his forecast on the impact that this change would have on global business and culture. He explains that in the 19th century, the global economic power rested on the Europeans; the 20th century was the American century while the Asian nations would be leading in the 21st century. He further explains that in a world wherein market power reigns predominantly, the reigning superpower’s economies, i.e. the United States, as well as the emerging superpowers, i.e. India and China, will have the utmost impact on the globalizing world (2). Sheth outlines the forces that drive this shift as including globalization, economic pragmatism, the collapse of Communism, and the aging of affluent nations. Further, he strong believes that that if ideological struggles, such as Capitalism versus Communism permeated the second half of the 1900s, then the first half of the 21st century’s overarching drivers would be markets along with economic interests. Moreover, while economic power shift will bring confrontations and conflicts, benefits will prevail over any problems by far (4). The key Measures in Globalisation (Foreign Direct Investment (FDI) and Trade) According to Chase-Dunn, an examination of the rising proportion of world trade as a percentage of world production empirically demonstrates economic globalization. As an indication of this increase in international trade, data from the Human Development Report indicate: ‘world exports, now seven trillion dollars, average 21% of Gross Domestic Product in the 1990s contrasted with 17% of a much smaller Gross Domestic Product in the 1970s’ (United Nations Development Project 25). Rising transnational relationships in production necessarily accompanies this development in international trade and multinational corporations in core capitalist nations undertake technological improvements thereby facilitating it further. The post-1960s ‘electronics revolution’ has hastened economic globalization. According to Sklair, this revolution changed the quantitative prospects of transferring money and cash capital into qualitatively novel forms of personal and corporate financing, entrepreneurship, and, significantly, the credit system on which consumerism’s global ideology and culture mainly rests (150). In the year 1980, average daily foreign exchange trading was eighty billion dollars, compared to today where approximately over 1,500 billion dollars is traded on the global money markets every day (Ellwood 72). According to Cho, the rapid production and financial markets’ integration over the past ten years is possibly the most outstanding face of globalization. Put differently, the major driving forces behind globalization are investment and trade. Over the last two decades, one of the core features of the world economy and globalization has been Foreign Direct Investment (FDI). For over ten years, there has been an unprecedented growth in FDI with just a little distraction during the early 1990s’ recession. More firms are increasingly expanding overseas by means of direct investment, and to attract multinational enterprises, nearly all economies are presently competing. Consequently, in the year 1996, global flows arrived at a historic high of 340 billion US dollars and the Foreign Direct Investment global stock reached 3,266 billion US dollars. Major policy changes in individual nations, complex technological change interaction and developing corporate strategies in the direction of a more global focus have driven this trend. Over the last twenty years, there has been an unequalled modernization and opening of economies in all regions, encircling tariffs’ reduction and simplification, demonopolization, deregulation, privatization and private involvement in infrastructure provision. Foreign investment regimes’ liberalization has been an essential part of this process. In fact, one of the motivating factors behind the whole process of reform has been the wish to draw FDI. Vogiatzoglou explains that although FDI has majorly been a phenomenon among the advanced Organization for Economic Cooperation and Development economies, the newly industrialized economies of Southeast Asia have integrated into the world economy effectively and have been able to draw increasing shares of the inflows of FDI. FDI and international trade have been a key economic development-contributing factor in these countries. Moreover, the development of the 1992Association of Southeast Asian Nations (ASEAN) Free Trade Area (AFTA), gave a further incentive for FDI and trade inflows, coming from outside and within the AFTA regional integration region (1). Recently, the emerging economies of India and China have also opened up their economies progressively and integrated into the global production network as well as global market place. India and China, their long history of distrust notwithstanding, have started forming strong economic ties and trade between them has risen to more than thirty billion dollars. Five years ago, it was below two hundred million dollars and in three years time, it is expected to be over fifty billion dollars. By now, companies from India are investing, in addition to establishing manufacturing operations in China. There are also signs that India has opened up to much larger investment from China, especially in infrastructure-related projects. The optimism for China-India affiliation is so immense that Jairam Ramesh, a chief Indian government’s economic advisor, wrote a book entitled Making Sense of Chindia. This book looks into the countries’ great trade potential and other kinds of exchange existing between them. The impact is already apparent with Chindia topping the largest consumer markets’ growth, which include education, steel and cell phones. Moreover, the growing economic prowess of Chindia is evident from the rise of such global enterprises as China Mobil, Mittal Steel and Haier. Also shifting to Chindia are research plus development and as far as these two are concerned, China is likely to outshine Japan. (Sheth 9-12). Sheth also points out that in the same way, between India and the United States, cooperation has started, with corporations from the United States outsourcing to India a great amount of IT development and call-center operations. Currently, they are at the commencement of an investment wave in facilities for research and development in India (). In March 2006, in a major breakthrough signifying a greater cooperation level, India and the U.S. arrived at an agreement on a far-reaching scientific and economic cooperation agenda, setting a goal for three years of doubling their trade. They also agreed on implementing a July 1995 agreement for civil nuclear co-operation, which would permit fuel and nuclear technologies’ supply to India by private companies as well as the government of the United States (Sheth 13-14). Sheth further explains that the emergence of Chindia’s global enterprises and the rise of its economy that is consumer-driven will be a major innovation driver, influencing services, products and technologies’ accessibility and affordability. He however asserts that despite the fact that tremendous amounts of low-cost goods have freely flowed unrestricted into the United States from China, and that companies in the United States have been major investors in the growth of China, this cooperation has not spread out to China and the United States. Decline in the relative importance of the TRIAD economies In the early1990s, globalization appeared to be working really well. The Asian Tigers experienced a speedy economic growth, countries such as Singapore experienced economic success, such countries as Mexico and Brazil became industrialized, and various other encouraging economic events all over the globe were clear indications that in both richer and poorer countries, globalization’s results of were certainly excellent for development. The United States, in the 1990s, also went through one of her most sustained growth periods, and people had much talk about a ‘new economy’, founded on globalization, which was resistant to economic recession and shocks. Regrettably, this quick growth did not lack consequences. World Trade Organization’s Seattle meetings became a debacle, with groups that were against globalization vehemently protesting against it. Additionally, in the late 1990s, the Asian Tigers experienced major economic drawbacks. In the year 2002 the, economy of Argentina, which had done extremely well the 1990s crashed when the country was no longer able to uphold her currency at the same level with the United States’ dollar (Heil 4&5). Heil explains further that more problems took place in the Triad economies thereby resulting in a decline in the relative importance of their economies greatly. Lately, some phenomena implying the decline in the importance of the Triad in the world are evident. According to Funabashi, the development of North American Free Trade Agreement (NAFTA) can be referred to the enlargement of Asia-Pacific Economic Cooperation (APEC) or to the theory of fortress Europe (Ionescu & Oprea 4). The Triad and regional blocks Source: Ionescu & Oprea, 2008 In the greatest part of the second half of the 20th century, the United States, Europe and Japan controlled international trade as well as investment. In the late 1990s, the economy of Japan experienced a stern period of deflation and recession and in the year 2001; both the United States and the European economies as well took a downward turn. Other global economies in turn suffered because of the Triad’s economic condition (Heil 5). The old power triad, which includes Japan, the European Union and the United States, controlled seventy-five percent of world trade. However, the old power triad now is in a desperate need of economic growth to uphold political stability and employment. It is evident that the developing countries’ growing economy will soon establish a new power triad comprising of China, India and the United States, and its impact on global growth will be tremendous. In effect, that triad is already forming – many concrete indicators predict that a cooperative environment is already forming. In fact, no three countries have more significance in the future of global economic cooperation as Japan, China and the United States have (Sheth 9&10). A good incidence to demonstrate this is the economic imbalances that arose worldwide. Although these imbalances were extensive, the triad played a particularly great role in them: the U.S. was the principal capital-importing country whilst China and Japan were among the chief capital-exporting countries (Petri and Plummer 4). The International Monetary Fund’s new measure of world economies supports the forecast that India China and are growing economic powerhouses. While the IMF ranked U.S. at the top in a Purchasing Power Parity (PPP) measure with thirteen trillion dollars, it ranked China closely second with 9.9 trillion dollars in purchasing power. India at that time was fourth in rank, with a purchasing power of 4.2 trillion dollars. Based on the PPP index, China is the second largest economy and just exceeded Japan. Estimates have it that by the year 2020, China will be the largest single economy, while India, which is currently the fourth largest economy, by the year 2010 will become the third largest economy (Sheth 7&8). As Sheth asserts, the current globalization exhibits a more even power balance compared to that of the 1800s, when the British employed a colonial system to set up a global network of economic and military influence. This power balance is attributable to the aging, and in several instances, decreasing developed countries’ populations, which devoid of developing countries’ growth markets in addition to the human resources, will be unable to uphold their wellbeing (6). Globalization has challenged the sovereignty and territoriality of the Triad as well as other nation-states, it has reduced their authority to act independently or unilaterally, it has de-nationalized their markets; it has compelled them to act in ways and to take on policies broadly proportionate with the highly mobile capital’s whims thereby compromising their economic sovereignty. Moreover, globalization has created international competition patterns for foreign investment in addition to compelling the states to act in response to an international instead of purely domestic constituency; something that they were was not designed for since their accountability and legitimacy basis are internally located, yet a great deal of their material needs now achieved through external economic dealings. This way, under reflexive modernity, globalization erodes the democratic genuineness of citizenship and the mechanisms of probity and accountability, otherwise the hallmark of industrial society and modernity, become compromised by the progressively powerful non-domestic based economic processes and actors’ role (Jarvis 5). Jarvis further explains that consequently, globalization gives rise to ‘a power-play between non-territorial economic actors as well as territorially fixed political actors resulting in the political economics of indecisiveness and risk where outsourcing, relocation, capital strikes, offshore production and capital flight can challenge the states’ economic security. The effects that result from this tend to tumble down, infusing government policy by rolling back the welfare state owing to budget restraint resulting from a declining corporate tax base. This in turn, erodes the capability of the states to support costly and extensive public goods’ provision (eg health and education), the destitute, and the physically disabled, idle labour, among others. This turns out to be a ‘domino effect’ since the states are forced to retreat from their traditional responsibilities, transferring them on to their citizens thereby increasing the risks faced by individuals by making their welfare an individual responsibility purview by means of self-provision (6). The large capital flow to the U.S., associated with trade imbalances in recent years, aided in the creation of the environment that made possible the financial crisis of recent years. The subsequent rapid global spread of the crises was made possible by globalization, a process that has closely unified trade, housing, stock and financial markets, goods and services worldwide, ensuing into greater international interdependence. Bartlett & Ghoshal point out that one of the backlashes against globalization is the tragic ‘globalization growth bubble bursts’. They are for the view that it came about in the era of transition to trans-nationality 1990s and 2000s wherein new competition bases emerged with the surfacing of competitors who had different strengths. Devoid of the forces of globalization, at least globalized capital, the various financial institutions would have been incapable if borrowing, lending and collateralizing, then borrowing, lending and collateralizing again (Karam 4). During the crisis’ early months, the trade imbalances of the aforementioned new power triad dramatically declined. Below is a chart showing trade imbalances decline in the triad. Net Exports, 3-month MA Source: ADBI from CEIC database. Since the onset of the crisis, the three countries comprising the triad trimmed down their trade imbalances. The reductions have more than halved the US deficit and the Chinese surplus on a monthly basis. The more modest surplus Japan has now turned into a small deficit, unlike in the past decade throughout which it sustained at a steady rate. The US deficit in early 2009 was running at the rate of approximately thirty billion dollars per month, while China’s surplus ran at a rate of about fifteen billion dollars per month, suggesting a deficit of two and a half percent of GDP for the U.S. and a surplus of about five percent of GDP for China. These levels are analogous to those of almost twelve years ago, and while possibly still too much, do not pose a severe instantaneous threat to trade patterns’ sustainability (Petri and Plummer 17). The triad countries comprise the three world’s largest economies and account for approximately forty percent of world output, and as global leaders; they are playing a major role in designing the worldwide governance’s future. Although the three have long been in the lead as global traders, their dramatic interdependence has become more evident in recent years. In less than ten years, i.e. the years between 2000 and 2007, their trade to GDP ratios has had a sharp increase of roughly three percentage points in the U.S. from 26 to 29 percent; twenty-five percentage points in China from 40-65percent and ten percentage points in Japan from 20-30 percent. It is important to note that the interdependence structure of this triad is intricate and swiftly changing; for instance, while exports of Japan to the United States have remained almost constant, her exports to China almost quintupled in the aforementioned period, almost corresponding with exports to the US. Moreover, much of these exports, are in turn constitutes the products that are eventually exported to the U.S (Petri and Plummer 4). Conclusion Globalization processes are still evident within and between global and state institutions, and across and within cultural, political and economic dimensions, with the major driving forces being technology, Foreign Direct Investment and trade. As revealed in this paper, driving these processes is emergent international elite, but conflicts with non-elite players all over the political economy of the globe and clashes with national elites constrain it. Globalization is therefore not an inevitable process but it is rather contested and negotiated. The Triad economies are key players in the process of globalization and they have greatly fallen victims of globalization processes resulting in a decline in their relative importance. Works Cited Bartlett, Christopher A. & Ghoshal, S. Managing Across Borders: The Transnational Solution. Watertown, Boston: Harvard Business Press, 2002. Print. 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