Negative and Positive Effects of Globalization - Essay Example

INTRODUCTION Globalization can mean many things. There is the economic component of globalization that is defined as “the integration of national economies into the international economy through trade, direct foreign investment, short term capital flows and international flows of workers and humanity in general”i. As a by product of this economic globalization is the flow of ideas and culture across national borders. The other definition of globalization is “the freer movement of goods, services, ideas and people around the world”ii. This definition encompasses the qualitative aspects of globalization in the sense that it goes beyond mere numbers in defining the exchange of information in a borderless world. Ever since the General Agreement on Trade and Tariffs (GATT) came into effect in the 90’s and the World Trade Organization was established with a mandate to regulate and intervene in the disputes arising out of globalization, the world economy has been integrated in a way that has surpassed the earlier attempts. This is noteworthy, as contrary to popular belief, trade and commerce between nations has always been the case since the first ships carrying silk, spices and muslin from the east and other exotic stuff from the west has set forth for each other’s shores. In fact, the famous voyage of Christopher Columbus is a testament to the ability of nations to seek out markets other than their own for trade. Though the world was integrated in colonial times as well, the process received a setback in the 21st century in the intervening period between the two world wars. It was only after the establishment of the Bretton Woods system that the world economy started regaining some of its interconnectedness. And the demise of alternatives to capitalism and the free market system ensured that all countries with a desire to alleviate poverty and raise the standard of living of the peoples would invariably turn to trade and commerce and utilize the “theory of comparative advantage”iii as proposed by the noted economist David Ricardo. Globalization as a phenomenon cannot be wished away. Despite the setbacks to the process by the events in the aftermath of 9/11, Globalization continues its inexorable march adding new strands to its already well knit thread. The successes of India and China in this decade and the successes of the so-called “Tiger economies” of South East Asia in the previous decades are proof that globalization works. The contention of this paper is globalization is a process that produces more winners than losers and can succeed in lifting large numbers of people out of poverty. As I argue in the next section, there have been setbacks and the dark underside of the process as well. However, if a studied approach is taken towards the same and the countries of the world succeed in thrashing out differences on tariffs and opening up their economies in a structured manner, it would be a process that would benefit everybody in the long run. ZERO-SUM GAME OR WIN-WIN SITUATION We have seen in the preceding sections how there are benefits as well as downsides to the issue of Globalization. Now I want to examine the question whether globalization is just a zero sum game where one side gains at the expense of other or whether it can be a win-win situation for both. The most famous proponent of the win-win situation scenario is Thomas Friedman. In his book, The World is Flat, he talks about “how American companies stand to gain because of the theory of comparative advantage applied to contemporary economic conditions”. The theory of comparative advantage was originally proposed by the famous economist, Ricardo when he stated that two economies stand to gain when one economy that is good at producing a particular product trades with another economy that is good at a different product but not in the first one. Thus, both economies stand to gain in this comparative trade with each other. Thomas Friedman argues that with the “flattening” of the world, there exists opportunities for people and companies all over the world to jump on to the global economy and reap the benefits of tradeiv. Thus, what one company can produce and collaborate with others becomes a sort of synergistic fusion of people, processes and products giving rise to a global economy charged with gains for everybody. While this scenario looks rosy, it overlooks the fact that there exist barriers to trade and movement of people that pull the economy down. This is particularly relevant in the context of the current economic crisis where there might be protectionist trends in the US with the economy in deep recession. A DIFFERENT APPROACH What the current process of globalization could well do with is a saner re-assessment of the realities of “imposing” globalization on the world and take a nuanced view instead of a “one size fits all” approachv. As the thesis of this paper is all about how globalization produces more winners than losers, it is the contention of this author that unless the policy makers of the world indulge in some serious introspection about the direction of the process, there are going to be the setbacks and backlash that I have described in the previous section. What we need is an expansion of “real” economic activity instead of “irrationally exuberant” market fundamentalism. Given the interconnectedness of the global economy, movement of large amounts of “mobile” financial flows may well be attractive to the elites of a particular country in the short run. However, it has to be remembered that such flows are transient and can very well turn to a “flight out” of the country at the first sign of panic. CONCLUSION As we have seen, globalization as a phenomenon has positive effects on the US economy as well as undesirable effects in terms of job losses. The mitigating factors for the undesirable effects would be to outsource non-key functions and ensure that the core competencies are retained. And there can be training programs and skill upgrades for workers who have lost their jobs on account of globalization and alternate employment found for them. In conclusion, it is apparent that globalization, if it has to benefit the people at large has to take a bottom-up approach blended with policy guidance from the top. Without a fair measure of integration of the world markets with that of the native structures of production, there would be serious imbalances in the way in which trade is carried out. Rise in consumption alone does not suffice. It is by understanding the deep linkages between all the aspects of the production and consumption cycle that any meaningful progress can be achieved. On a personal note, I have benefited immensely from studying the process as part of writing this paper and it has been my endeavor to put my point of view across in a persuasive manner. Sources Read More