Globalization Past and Present - A Review of Pros and Cons - Essay Example

Globalization Past and Present: A Review of Pros and Cons Although the concept of globalization is no longer new the basic issue regarding whether itis good or bad for the world economy is still heavily debated. The perceptions regarding globalization have evolved significantly. In the early economic and political theory literature globalization was understood merely as an integration of the global markets, abolishment of territorial bounds etc. In modern business literature globalization is understood to have a considerably more dynamic and multidimensional character than perceived initially. It is now viewed broadly as a “Trend toward greater economic, cultural, political and technological interdependence among national institutions and economies” (Wild et al, 2010). Integration of markets is now understood to signify convergence in preferences of consumers while the profitable dispersal opportunities of production processes all over the world to obtain efficiency gains is also a part of the process. While such integration of markets leads to significant declines in production costs and generates new marketing opportunities globalization of production yields access to cheap labor and other resource sources and technical know-how (Wild et al, 2010) The recent discussions on globalization involve the arguments on its existence, the importance given to it today as compared to the past, the change in the concept of nation and citizenship because of globalization, the importance of globalization as against regionalism and localism. In addition a crucial debate is continuously rising on weighing the positive and negative impacts of globalization from past till now and exploring the people who are directly or indirectly influenced by the changes brought in by this concept. Globalization is a comprehensive and broad topic and covers a huge list of important issues including economic, social, political, cultural, religious and moral etc. The definition of globalization is also defined in the light of all these perspectives. As it is defined by James Rosenau, a political scientist, as "a label that is presently in vogue to account for peoples, activities, norms, ideas, goods, services, and currencies that are decreasingly confined to a particular geographic space and its local and established practices" (1997, p.360). The differences and changes that occurred from the first era till now are observed in many instances and measures. For instance, the exported materials produced about 7% of the GNP in the late 19th century and this figure has risen up to 8% in the current era, which cannot be defined as a dramatic change. Another important factor to consider in comparing the two ages of globalization includes the trade statistics. An export to tradable productions ratio was as lower as 20% in the first era of globalization and it has now more than doubled in its current context (i.e. more than 40%) (Bordo, Eichengreen & Irwin, 1999). Most of the researchers bordered their research on the economic impacts of globalization. It is undoubtedly clear that globalization has impacted the overall economic situation of the current world. However, the social, political and other areas also require attention as globalization has affected the policies, education, culture and overall social structure of the states. If we compare these areas with the first age of globalization, we end up concluding the political backwardness, inequality, volatility and lack of diversity. However, the economic aspects of globalization are not limited to its effects on microenvironment but it has affected markets on a macro level. The microeconomic effects refer to the technological advancements and the impact at individual firm levels, whereas, the macroeconomic effects involve the collaborative analysis of markets for business purposes (Oman, 1994). These effects were developed gradually and up till now a great improvement has been observed on the economic grounds. A significant difference in erstwhile and modern perceptions is evident in that previously the mere removal of trade and investment barriers were thought as enough to enhance integration. GATT, WTO and other Regional Trading Arrangements were results of the same. However in the modern era liberalization is far more dependent upon technological innovations. For instance, internet intranet etc, email and videoconferencing allows better coordination and controlling opportunities and thus far more effective managerial control. Advancements in transportation services also have contributed significantly to improvements in dependability and efficiency in shipping products. (Wild et al, 2010) All countries experience some positive and some negative influences of more and more integration in the world economy. The list of positive aspects of globalization includes the excess availability of external finance. This excess amount of finance is helpful especially for the developing countries. The excess availability of excess finance from external sources is evidenced by the IMF, Direction of Trade Statistics Yearbook and World Bank, Global Development Finance, 1999. For instance the increase in capital flows is observed in the East Asia Pacific from 15.8 in 1980 to 36.3 1997. Similarly, an increasing trend of capital flows has been observed in Eastern Europe and Latin America. The percentages of this increase varied from region to region. The availability of external finance helped in releasing the constraints on foreign exchange that reduced and somehow suppressed growth and development in 1980s. The availability of foreign direct investments that were included in the new funds cannot be ignored. The concept of foreign direct investments is encouraged by the governments of the developing states. Foreign Direct Investments are encouraged because they improve the capital accumulation process and help the country develop with a faster pace in the present and thereby, affirm its success and prosperity on economic grounds in the upcoming years. Globalization does not only provide direct advantages to the countries influenced by it but also indirectly helps them in improving the overall working and living standards. The emergence and increased Foreign Direct investments can be perceived as a direct advantage that globalization brought in but the large number of benefits that are now accessible due to the availability of foreign direct investments can be viewed as indirect advantages of this concept. Globalization has encouraged the interest of foreign companies in developing and expanding their businesses in countries other than their native state. The expansion of their businesses does not only make the products and services available in the foreign countries but also provide them with the thought and insight of new technologies, strategies and plans. The foreign investors also aim to introduce new technologies in other countries. This helps the recipient country increase productivity, efficiency and competitiveness and encourages growth in the developing countries. New technologies, which are financially impossible to be attained by developing countries, are accessible through Foreign Direct investments and they may be more profitable for the country’s businesses than the technology used locally for ages. Maxfield argues that the rise in capital markets (specifically those institutional investors dealing in bonds and stocks) can comparably be more consistent with democracy and transparent government than people normally assumed (Maxfield 1999). Undeniably, this argument does contain a logical aspect that capital markets can in fact support democracy by demolishing oligopolistic corporate arrangements in developing nations. Another logical view of this argument is the fact that the demand for further knowledge and information on the call of foreign investors and International Monetary Fund may help building transparency on public and private sectors. Although the positive influences of globalization carry great importance, the negative impacts must also be considered. Without keeping the negative points in mind, no country, organization or individual can make the most of an available opportunity. There has to be a balance between the positive and negative outcomes to take full advantage of any opportunity. The issues that arise as a result of globalization include some grave and noticeable impacts. For the developed countries, the negativity of these problems is manageable as they have excess support, technology, funds, education and tactical plans. However, the developing countries suffer the most as they do not have enough resources to immediately tackle the problems that may arise. The problems that may be difficult for the developing nations to be resolved include those that are resulted because of new trade and capital flows and the manner in which they hit the economy and society of such countries. The emergence and increase of heterogeneity and polarization on national and regional levels is one of the important problems associated with globalization. This problem is not limited to the grounds of firms, countries and regions only but also exists between the groups of workers. Some possess more abilities and skills to take benefits of the opportunities that are presented by globalization while the others either lack skills, abilities, resources or guidance. This results in a situation where conflicts may arise on social and political grounds and further in the opposition of globalization approach. The increase in capital flows that were discussed as being advantageous also resulted in the creation of new problems for the governments in the management of their economies. Macroeconomic issues are also observed in 1990s. The capital inflows also result in creating a problem that is the overvaluation of exchange rates. This overvaluation causes a reduction in competitiveness and in intense situations, causes foreign exchange crises. The instability of capital flows also result in the magnification of the normally pro-cyclical nature of macroeconomic policy that may also end up creating crises. A strong financial supervision is required to prevent the banking crises that may further worsen foreign exchange crises. In such circumstances, to improve the situation there is a need to bring necessary changes in domestic policies as well as changes in the international policies. The emphasis on the alteration of policies can further be identified by the statement of an excellent analyst of globalization as he states : "Openness to the world economy can be the source of many economic benefits…. But these are only potential benefits, to be realized in full only when the complementary policies and institutions are in place domestically" (Rodrik, 1999, p. 1; see also Rodrik, 1997). Many theoretical and empirical studies have been carried out to examine the relationship of globalization and labour market trends. However, it is unusual but true that a relatively smaller number of econometric studies are available to examine if globalization has some influence over the income inequality in most of the countries including the developing and the developed ones. More emphasis can be observed on the economic effects of globalization ignoring the significant impact of globalization over social and political conditions of the countries. Most of the studies focus on the changes in trade flows, capital flows, FDI, capital accounts etc. ignoring the social, cultural and political aspects. The study of Dreher and Gaston (2007) provides that globalization resulted in de-unionization of Organization for Economic Co-operation and Development (OECD) member countries through social integration. The political and social integration are greatly ignored while searching for evidence on inequality in the economics research. For instance, a state may either end up reducing taxes as a result of unavailability of limitations on capital mobility or propose subsidies to focus on investment. The similar the cultures of the countries are the simpler it is to exchange information. Reduced taxes further end up lowering the social standards and this is one of the social aspects that prove that globalization can be an important concept in understanding income inequality. In contrast, if we focus on the political integration concept it is apparent that it may revolutionize the concept of race-to-the-bottom concept brought about by economic globalization (Dreher 2006). Hence we may conclude that economic and political globalization work in contrary to each other. The economic globalization increases inequality whereas political globalization tends to decrease it. To understand the relationship between income inequality and globalization Axel Dreher and Noel Gaston carried out a research and observed that globalization has worsened the situation. The results of their study showed a devastating result on income inequality among OECD countries. They also observed that the less-developed countries have had a little impact on the inequality fractions. Their study also revealed that increased democracy did not result in low income inequality but there are more facts to prove the contrary that is it contributes in increasing income inequality (Dreher& Gaston 2008). More evidences and researches are required to further clarify the impact of globalization on the less centralized governments and the policies adopted by them. In conclusion it can be said that globalization has far reaching effects both positive and negative. These effects influence individual national and global life of people businesses and countries. The positive effects of globalization are of immense importance and are integrated in today’s world with such a tendency that it is not possible pull out its effects. The negative effects are harming the society, culture, environment and economic conditions of the world economies but it is not possible to eliminate this concept for the good of people. Somehow it has become inseparable part of our lives. However, governments and local authorities may take necessary steps to lesson or eliminate the negative effects of globalization. In addition more comprehensive and improved laws and regulations may help generating an equality based, unbiased and socially sound environment for the people in today’s diverse world. references WILD, K., WILD, J. J., & HAN, J. C. Y. (2010).International business the challenges of globalization. Boston [u.a.], Pearson. BORDO, M. D., EICHENGREEN, B., & IRWIN, D. A. (1999). Is Globalization Today Really Different than Globalization a Hundred Years Ago? Working Paper Series. ALL. ROSENAU, J. N. (1997). The Complexities and Contradictions of Globalization. Current History. 96, 360. OMAN, C. (1994). Globalisation and regionalisation: the challenge for developing countries.Development Centre studies.Paris, France, Development Centre of the Organisation for Economic Co-operation and Development. Rodrik, Dani (1997). Has Globalization Gone Too Far? Washington: Institute for International Economics. RODRIK, D. (1999). The new global economy and developing countries: making openness work.Policy essay, no. 24.Washington, DC, Overseas GROSSMAN, G. M., & HELPMAN, E. (1991).Innovation and growth in the global economy. Cambridge, Mass, MIT Press MAXFIELD, S., (1999).Financial Reform and Market Democracy in East Asia and Latin America, paper presented at National Endowment for Democracy conference on State, Market, and Democracy in East Asia and Latin America, Santiago. RODRIK, D. (1997). Has globalization gone too far?Washington, D.C., Institute for International Economics. DREHER, A., & GASTON, N. (2007). Has Globalisation Really had no Effect on Unions? Kyklos. 60, 165-186. DREHER, A. (2006). The influence of globalization on taxes and social policy: An empirical analysis for OECD countries. EUROPEAN JOURNAL OF POLITICAL ECONOMY.22, 179-201. DREHER, A., & GASTON, N. (2008). Has Globalization Increased Inequality? 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