Virtues of Globalization and the Role of International Financial Institutions - Term Paper Example

Globalisation is Good Globalisation can be defined as the process, which leads to “growing interdependence” of countries all across the world through the “increasing volume and variety of cross- border transactions” of goods and services as well as of “international capital flows” (Dinello and Squire, 2005, p. 67). In fact, globalisation is considered to be the contributing factor that links “distant realities” in a way, where “local happenings” are influenced by “events” occurring thousands of miles away, and vice versa (Goldstein, 2007, p. 5). Thus, it can be seen that globalisation is being referred to as the vehicle of “change in the contemporary world” due to the large number of opportunities it presents (Scholte, 2002, p. 3). However, it also has a lot of demerits or cons, which question the actual benefits as well as positivity evoked by globalisation. One of the main arguments put forth by supporters of globalisation is that countries “integrating rapidly” with the “global economy,” experience “higher economic growth rates” as compared to closed economies (Batterson and Weidenbaum, 2001, p. 2). This argument is supported by claims such as open markets driving “higher output” of both goods and services, and “economic growth” as well as leading to increase in “per capita income growth” (p. 2). Batterson and Weidenbaum evidence this through, for instance, the peso crisis in “1995,” when Mexico was able to average “5%” growth rate per year owing to its increased exports, and comparison of per capita income in free nations, which was above “$18,000 in 1997,” whereas only “$1,700” in “least free” economies respectively (2). The opponents of globalization agree that it may bring a lot of benefits to the economy as a whole, but they assert that it is a negative process, as it does not help individual citizens. This argument is supported by the claim that globalization may improve growth rates, increase productivity and so on, but it “cannot redistribute created wealth and income” in a way that favours the poor (Bigman, 2002, p. 27). Thus globalisation has “made the rich richer,” (Conley, n.d., p. 1) and the poor poorer, for instance, in Cuba, where the “living conditions have improved,” yet the income of the citizens remains “stagnated” (Lucas, 2007, p. 6). Another argument made by both proponents as well as opponents of globalisation is based on employment opportunity as well as how the process impacts the worker. The former argue that globalisation gives greater emphasis to profits than workers, as it results in “corporate expansion” that enriches businesses “at the expense of worker’s jobs and wages,” thus undermining rights of employees (Batterson and Weidenbaum, 2001, p. 10). However, the latter finds that open markets lead to faster economic growth, which results in “higher wages, more employment, and improved working conditions” (p. 11). They validate their claim by presenting evidence of how US companies that have branches overseas, “pay higher wages” as well as provide “better working conditions” than local businesses (p. 11). Also, various studies conducted based on the employment levels, wages of workers etc, reveal that foreign workers who work for US multinationals “fare better” than their local counterparts (p. 11). For instance, employees working in Nike’s footwear plants in Vietnam earn “$55” per month as compared to “$26” per capita income of a Vietnamese (p. 11). Advocates of globalisation further assert that increased liberalisation of trade and capital markets bring with it “greater efficiency in resource allocation,” and empirical evidences presented in several studies back this claim (Mrak, 2000, p. 8). However, on the other hand, capital account liberalization, which although presents certain benefits, can also lead to “depressed long term growth rate” due to absence of factors such as effective corporate governance, capital market development, “banking regulations” etc (p. 8). Thus, it can be seen that globalisation has its own merits and demerits, however, since the benefits outweigh the limitations it can be concluded that globalisation is indeed good. This especially holds true due to the fact that a country’s development is directly related to the level of its engagement with global trade. History bears witness to various developed countries now that owe its progress and advancement to trade that was not confined to the country’s national boundaries. Similarly, the countries that are still in the developing stage, have benefitted a lot from globalisation as well as trade with other nations. This is the reason why the governments of such countries encourage “global supply chains (GSCs),” as these chains enable linking of “developing countries” with “international markets” (Nicita, Ognivtsev and Shirotori, 2013, p. iii). Not only does global trade help “boost development and reduce poverty” through the provision of better “commercial opportunities and investment,” but it also broadens country’s productive base through “private sector development” (European Commission, 2012, p. 1). For example, in the time period of “2000 – 2008,” GDP per capita jumped from “$325” to over “$625” in least developed countries as a result of global trade (p. 1). Global trade further encourages “export diversification,” which helps countries gain access to “new markets and new materials” (p. 1). For instance, when India cut down its import duties to “30%” from the earlier “90%” in“1997,” the industrial output increased by “50%” out of which new products accounted for “25%” (p. 1). Therefore, it becomes clear that global trade plays an important role in the development of a country. There are several international organisations that monitor as well as regulate and further facilitate globalisation and trade between different countries. These organisations include the World Bank, International Monetary Fund (IMF), World Trade Organisation (WTO), European Union (EU) etc. World Bank and IMF were created with the aim of preventing “economic crises” as well as rebuilding economies “shattered by war” (The LEVIN Institute, n.d., p. 2). For instance, the 2008 financial crisis, which originated in the USA, had significantly affected most countries of the world putting economies in debt and a state of bad recession. However, international financial institutions such as the World Bank and IMF played a crucial role by developing “special programs to protect developing countries” from this crisis as well as “reducing their liquidity” (Ibreljić and Kožarić, 2009, p. 163). WTO is the body responsible for setting up “global rules of trade between nations,” therefore, its main function is to facilitate trade flows as “smoothly, predictably and freely as possible” (World Trade Organization, 2011, p. 1). Furthermore, WTO has around “150 members,” of which “two thirds” are developing countries, and the organisation ensures “special provisions” for such countries, as well as its Committee on Trade and Development and Secretariat deal with “trade and debt, technology transfer,” “technical assistance” etc (World Trade Organization, 2008, p. 93). These international organisation always seem to follow ideologies that promote theories such as ‘Laissez-Faire.’ The Laissez-Faire theory state that governments of countries should not interfere with trade activities of the economy, that is, it encourages freer trade between different countries, thereby reducing government restrictions, tariffs etc. The activities of WTO, IMF etc that involved “multinational corporations” seemed to target “Laissez-Faire ideologies,” but were first rejected by “nationalist and anti-free trade forces” of different countries (Holroyd, 2002, p. 196). However, since this ideology makes possible for “government intervention” when “economic conditions violate” (Fine and Harris, 1987, p. 371) the harmony of markets, “planned economies” (Haberler, 1951, p. 375) also resorted to adopt ideologies followed by market economies, thereby forming the new mixed economy system. Another significant factor, which influences the development of a country is world trading patterns. References Batterson, R. and Weidenbaum, M. (2001). The Pros and Cons of Globalisation. Center for the Study of American Business. Available at: https://wc.wustl.edu/files/wc/imce/the_pros_and_cons_of_globalization.pdf [Accessed 29 May. 2014]. Bigman, D. (2002). Globalisation and the Developing Countries: Emerging Strategies for Rural Development and Poverty Alleviation. [ebook] International Service for National Agricultural Research. Available at: ftp://ftp.cgiar.org/isnar/Publicat/globalization/Glob_06%20ch01.pdf [Accessed 29 May. 2014]. Conley, T. (n.d.). Globalisation and Rising Inequality in Australia Is Increasing Inequality Inevitable in Australia? Griffith University. Available at: https://www.adelaide.edu.au/apsa/docs_papers/Others/Conley.pdf [Accessed 29 May. 2014]. Dinello, N. and Squire, L. (2005). Globalization and Equity: Perspective from the Developing World. 1st ed. UK: Edward Elgar Publishing Limited. European Commission, (2012). 10 Benefits of Trade for Developing Countries. European Commission. Available at: http://trade.ec.europa.eu/doclib/docs/2012/january/tradoc_148991.pdf [Accessed 30 May. 2014]. Fine, B. and Harris, L. (1987). Ideology and Markets: Economic Theory and the'New Right'. Socialist Register, 23(23). Goldstein, N. (2007). Globalization and Free Trade. 1st ed. New York: Infobase Publishing. Haberler, G. (1951). Business Cycles in a Planned Economy. pp.375--404. Holroyd, C. (2002). Government, international trade and laissez-faire capitalism. 1st ed. Montreal, Que.: McGill-Queen's University Press. Ibreljić, I. and Kožarić, A. (2009). The role of the international monetary fund and world bank in solving global financial crisis. Facta universitatis-series: Economics and Organization, [online] 6(2), pp.161-176. Available at: http://facta.junis.ni.ac.rs/eao/eao200902/eao200902-09.pdf [Accessed 30 May. 2014]. Lucas, M. (2007). Does Globalization Cause Inequity Among Rich and Poor Nations? Available at: https://mises.org/journals/scholar/lucus1.pdf [Accessed 29 May. 2014]. Mrak, M. ed., (2000). Globalisation: Trends, Challenges and Opportunities for Countries in Transition. Vienna: United Nations Industrial Development Organisation. Nicita, A., Ognivtsev, V. and Shirotori, M. (2013). Global supply chains: Trade and Economic Policies for Developing Countries. In: United Nations Conference on Trade and Development. Geneva: United Nations. Scholte, J. (2002). What is globalization? The definitional issue-again. University of Warwick. Centre for the Study of Globalisation and Regionalisation. The LEVIN Institute, (n.d.). New York: The State University of New York. Available at: http://www.globalization101.org/uploads/File/IMF/imfall.pdf [Accessed 30 May. 2014]. World Trade Organization, (2008). Understanding the WTO. 1st ed. Geneva: WTO Publications. 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