A Price of Globalization - Essay Example

Late-2000s Financial Crisis: A Price of Globalization Late-2000s Financial Crisis: A Price of Globalization Introduction Globalisation has opened up domestic markets to direct foreign investments and goods, allowing capital from foreign financial institutions. While private companies benefit from the profits of international transactions, governments gain both financial and political advantages. In this sense, globalisation can be viewed as the integration of global economies that facilitate more free trade, flow of international capital and the availability of affordable labour markets especially in less developed regions (UNCTD 2005, p. 63). Agreeably, remarkable growth opportunities and financial growth were realised from globalisation but, however, other countries and regions have increasingly become more vulnerable in negative ways to the influence of each other. For instance, the collapsing of the sub-prime mortgage market in the US was a culmination of an era of economic boom which, in turn, had ripple effects between 2007 and 2008 around the world. Stock markets fell, financial institutions were bought out or collapsed and even the wealthy governments were forced to design strategic rescue and bailout packages for their financial systems due to external factors or imperfect financial markets (Dymski 2010, p. 130). This paper will discuss the effects of globalisation in the 21st century and establish a link between the current financial crisis and globalisation. This will be achieved by comprehensively analysing the pros and cons of globalisation basing on real world events during the financial crisis. Effects of Globalisation in the 21st Century Globalisation has affected the 21st century in areas such as economics, the society, culture, politics, the environment and health care both positively and negatively. Globalisation has driven economic liberalisation where countries and regions have entered free trade agreements and relaxed financial regulations between geographical and political borders. Opening up to foreign investment and the underlying policies have raised standards of living among millions of people across the world, but has at the same time contributed towards the impoverished state of millions of others. The conflicting effects are that while a few individuals and political interests benefit immensely from globalisation, its proponents have failed to sufficiently address the resultant systemic poverty suffered by others. As is already witnessed in current markets, there is a growing interstate competition to reduce corporate taxes, a phenomenon that has also been confirmed by the International Monetary Fund. In keeping up with globalisation, more countries are transitioning into the global economy. This has put many governments under pressure to spend more and, especially for the developed world, towards health care and old-age pensions. Inadvertently, most slipped into economic instability and the US serve as a practical example. From a cultural and social perspective, improvements in telecommunications, transportation and technology have brought about economic interdependence which, in turn, contributes to the sharing of ideas, cultural practices and values between geographically diverse countries. The positive side of this development is that capitalist and democratic reforms have been adapted by countries that previously implemented oppressive legislations. Therefore, globalisation has improved human rights, particularly protecting the rights of women and minorities under oppression. However, even with such positive effects, it cannot be doubted that the close links between international societies and growing awareness of foreign culture resulting from globalisation is establishing a homogeneous culture that leans towards the Western world. The environment could be the worst casualty of globalisation because of its simultaneous growth with industrialisation. Commercial activities, deregulations by governments and socioeconomic improvements have contributed towards the climatic changes witnessed in the 21st century, especially from fossil fuel and greenhouse gas emissions. From the health perspective, globalisation has improved living standards and promoted longer, healthier lives. However, challenges also abound through commercial activities, labour migration and tourism because infectious diseases are also propagated across the globe. Globalisation and Crises A closed country’s economy will only be monitored by its domestic investors. On the other hand, when its financial system is liberalized, it is subjected to market discipline practiced by both domestic and foreign investors. As the world moved into the 21st century, issues that affected economic, political and social aspects of different countries and regions kept developing and impacting on the “global village” that was the essence of globalisation. It, therefore, becomes inevitable to discuss globalisation from the crucial perspective of sustainability. The significance of the two terms lies in their intertwined application because if globalisation does not take place at a controlled rate, sustainable development cannot be realised. Essentially, perpetrators of globalisation needed to strike a balance between sustainability and globalisation for realistic outcomes. Without the balance, economic growth and success will be achieved, but their sustainability remains questionable, which explains the financial crisis (Sachs 2011, p. 114). For instance, the financial boom preceding the 2007 crisis was already taking place on a globalised market, and the way financial institutions were financing projects did not exactly cater for potential future glitches. An example is the link between securitization and crisis in the US that spread worldwide. Banks pooled their credits into sellable assets to offload risky ones onto others. This meant that although loans could earn millions, they were tied down for decades and to circumvent that, they were converted into securities (Teslik 2009, p. 69). While technology will motivate and keep the pace of globalisation, sustainability seeks to preemptively establish whether a country or region has attained a developmental level that will satisfy the requirements of its existing population without putting at risk its future generations’ ability of self sustenance. An Analysis of the Pros of Globalisation The economic integration aspect of globalisation has presented opportunities to most businesses. Through free trade, specialisation has been achieved between diverse regions whereby production takes place according to a region’s comparative advantages (Dymski 2010, p. 148). Consumers are also afforded an expanded consumption choice by being offered more opportunities to buy from regions with specialised producers. Accessing larger markets enables firms to experience higher product demands and realise the advantages of economies of scale and, eventually, reduced production costs. Viewed from this perspective, because the choices of consumers and qualities of goods and services are enhanced, and healthy competition lowers prices while raising real wages, international trade can be said to benefit all participants. For example, even during and after the 2007-8 crises, China was able to overtake the US as the leading global exporter of technology and technological products as well as increasing spending in research and development. China was able to source and access cheap raw materials around the globe, allowing its firms to become cost competitive across their overseas markets. China’s government may not be as democratic and transparent as others in the world, but its global trade partners and domestic strategies enabled it to rise above the crisis (Dymski 2010, p. 151). China took advantage of specialised trade and concentrated on manufacturing, especially since it did not lack labour. An Analysis of the Cons of Globalisation Inasmuch as wealthier and more developed countries would want the world to accept globalisation as a continuous procedure of better economic, social and political integration and interdependence on a global perspective, it is riddled with complexities and malfunctioning policies. To the less developed countries (LDC) that have experienced its side effects in the third world, the definition of globalisation is too simplistic and deceptive (Arestis & Caner 2010, p. 298). From their perspective, the concept is only beneficial to developed countries while the disadvantages target the marginalised world. It is as a result of globalisation that LDCs are stuck on economic declines or stagnancy characterised by poverty, lack of welfare, food insecurity and income inequality. Analysing this situation, which brings in the concept of sustainability, it is evident that developed countries are not sufficiently amending what is lacking in the LDCs. The underlying issue is in the countries that set the initial policies. The policies do not favour all participants comprehensively because the LDCs played little or no role in formulating them as their status does not afford them as much leverage as the developed world in setting global political and economic agendas (WTO 2005, p. 21). For example, while individual countries (and firms) in the developed world can take the blame for their own financial crises, it is not the case with LDCs that suffer poverty as a result of international influences. A typical case is that of the Lehman Brothers filing for bankruptcy in 2008, which protected them from legal and regulatory consequences. While the global financial crises affected most countries, predominantly the developed ones, food crisis, which was among the side effects, predominantly affected LDCs but were not highlighted as much in the media. Ideally, they were on their own in a “globalised world”. Conclusion It can be concluded that although globalisation facilitated undoubted potential and actual economic growth, the financial crisis is the price paid for what was achieved. Through securitization, banks borrowed in order to lend. They took huge risks that exposed them to vulnerabilities, which eventually erupted into the 2007 financial crisis. It follows, therefore, that the interdependent nature of countries in a globalised economy would drag many other countries in the turmoil. Sustainability was not considered sufficiently while the blue print of globalisation was being designed by the prominent members in the initiative. As a result, although most could bear personal responsibility as well as afford their own recovery, albeit lengthy and costly, LDCs do not have the same privilege. LDCs, and indeed some developed countries, are suffering the consequences of the system the developed countries created while fronting globalisation. References Arestis, P & Caner, A 2010, ‘Capital account liberalization and poverty: how close is the link’, Cambridge Journal of Economics, vol. 34, no. 2, pp. 295-323. Dymski, G 2010, Why the subprime crisis is different: a Minskyian approach. Cambridge Journal of Economics, vol. 34, no. 2, pp. 123-160. Sachs, J 2011, The price of civilization: economics and ethics after the fall, Bodley, London. Teslik, L 2009, Sovereign wealth funds, Council on Foreign Relations, New York. United Nations Conference on Trade and Development (UNCTD) 2005, World Investment Report 2005, United Nations, Geneva. World Trade Organization (WTO) 2005, International trade trends and statistics, World Trade Organization, Geneva. Read More