Global Economics - Hudson Bay Company - Case Study Example

Sur Supervisor Global Economics A way back in 1670s, Hudson Bay Company established that globalization was away to fulfill the mutual needs of the people living in different parts of the world. Taking risks on their lives, the sailors of the company would land on the shores of Hudsons Bay, and collect fur in exchange of guns and wine from native Indians of the bay area. Fur was in high demand in England during the time as King Charles I in 1938, had made it mandatory to use fur while putting restriction on other materials in making of caps within the country. Due to this, Londoners were not happy as either they had to spend a lot to buy hats or they had to live with lower quality of hats. In another instance, the East India Company based at England was sailing all through the Indian Ocean to bring back spices, tea, silk, indigo dye and many more commodities from India and China to satisfy the local needs (Steger). The point is that the process of globalization did exist in one form or the other since last several centuries regardless of the fact that such processes in those days were mired with self interest and unethical dealings. The paper attempts to explore how the modern form of globalization has so rapidly expanded and how it affects masses across the world, economies and nations. Steger argues, "The world is becoming a more interdependent place that enhances peoples chances to acknowledge their common humanity across arbitrarily drawn political borders and cultural divides" (Steger, 14). The phenomenon of globalization is not restricted to simply business transactions across the nations but has spread to every important sphere of life surpassing national boundaries. For example, the 2010 FIFA World Cup final match between Spain and Netherlands was seen simultaneously by 620 million people across the globe. The tournament was truly global in the sense that while the balls used in the tournament were made in China, the latex bladder was supplied by India with Taiwan giving a hand in producing thermoplastic rubber that in turn, was produced from the crude oil supplied by Norway and the Middle East. All balls reached to the venues of the tournament using South Korean ships. Such a collaborative approach to accomplish the task was not palatable a few decades back. That is to say that the world has learned some of the new ways to bring comparative advantages of the different regions to the benefit of entire human race (Steger). Scientific and technological advances have increased human needs manifold and those human needs are fulfilled through a process called globalization. No country in the world can claim to have all natural and human resource skills to fulfill most needs of their citizens single handedly and that too at the most economical cost. Steger categorically defines globalization as, "The myriad forms of connectivity and flows linking the local (and national) to the global - as well as the West to the East, and the North to the South" (Steger, 22). After the failure of communist bloc in late 1980s, the political doctrine in most countries has changed in favor of free trade eliminating state restrictions and controls so that people’s aspirations could be fulfilled by increasing their income levels and making them available a variety of goods and services at the most affordable costs. With the demise of the Bretton Woods system in 1970s, the world ushered into a new economic order that aimed at reducing the state controls on their respective economies. With the collapse of communist bloc including Russia politically and economically, the globalization process gained momentum as most countries began resorting to capitalism in large scale. The third world countries began vying with each other to attract foreign direct investment in their countries. At the same time, large organisations with capital and technological resources at their disposal saw a great opportunity to expand their operations beyond their national boundaries. The large investment institutions such as the IMF, WTO, and the World Bank began providing funds to the developing countries for needed developments. Large corporate companies from the developed economies began expanding their operations by establishing manufacturing facilities across the globe hiring local workers. This not only provided goods and services to the local populace at affordable costs but surplus goods were exported back to the developed economies. The large multinationals were benefitted from the low cost of workers in third world countries such as China, India, Indonesia, South Korea, Taiwan and many more. With increased competition across the companies among the developed nations, the focus was to reduce the costs of goods and services to increase their share in the market. In this process, they moved their manufacturing operations to the regions that were abundant with raw materials, skilled labourers, and the least amount of state controls. Increasing global trade was strikingly visible as the world trade from $57 billion in 1947 exploded to massive $14.9 trillion in 2010. In 2010, a developing country such as China garnered 11 percent share in the world exports with the US remaining a major importer constituting almost 13 percent of the global imports. These massive trades across the nations were possible through several measures such as massive tax cuts, privatization of public enterprises, liberalization of trade and industry, deregulation of the economy, establishing control on organized labour, reduction in social spending or pubic expenditures, reducing import duties as per global convention, reducing controls on global financial flows and so on. It is a fact that with the increased competition among the nations, when the economies were set free from the clutches of government controls, new productivity levels were achieved among the companies resulting into increased wages for workers. In this process, millions of workers in the developing countries such as India, Indonesia, China, Philippines were raised above poverty lines in their respective countries. While the World Bank report shows that poverty levels have decreased across most regions of the world, it is also important to note that the gap between poor and rich across all regions is widening at a rapid pace. So as to say, in spite of several beneficial results accrued from globalization processes, it has failed to satisfy many across the nations and societies. As Steger argues, "The competitive rules of the free market destroyed complex social relations of mutual obligation and undermined deep-seated norms and values such as civic engagement, reciprocity, and redistribution. As large segments of the population found themselves without an adequate system of social security and communal support, they resorted to radical measures to protect themselves against market globalization” (Steger, 138). One cannot deny the fact that widening disparities has resulted into a large scale violence and unrest in certain parts of the world. Long-term social or political instability in some region is not conducive to the process of globalization that is essential to bring solutions to the common issues at large. The globalization has also led to the free movement of financial resources in a large scale. This has been possible due to solid growth of investment banking, the removal of credit controls along with deregulation of interest rates. Moreover, technology has played a key role in recent years in moving the money from one part of the world to another. Currently, investors make use of the IT technologies to place their orders and make trades at lightning speed. Information floats across the countries in real time and available to all freely. Free floating of major world currencies across the major exchanges at London, New York, Tokyo, Frankfurt and Singapore has made it possible to move money from one region to another in seconds. However, this has caused greater risks to the nations, especially to the third world countries. Large speculators can take advantage of weaknesses that prevail in developing countries related to financial and banking regulations. They can not only pour hundreds of millions of dollars in stock markets of developing countries but also can withdraw the money rapidly. It is important to note that external debt of emerging economies has increased from USD569 billion in 1980 to USD6.85 trillion in 2013. When measured in terms of GDP, this amounts to 23.5% of their GDP and almost 72.25% of the exports made by them collectively. This clearly reveals that emerging economies are prone to huge risks when money moves out of their countries in a short period of time creating negative fallouts to their national economies. The glaring example is the 1997-98 Southeast Asia crisis involving countries such as South Korea, Malaysia, Indonesia, Thailand, and the Philippines. In ‘90s, in a bid to attract foreign direct investment, these countries had lifted controls over the movement of capital in their countries. The action resulted into a huge influx of foreign capital into real estate and stock markets of those countries. When prices reached to astronomical levels, the foreign investors began unloading the stocks withdrawing over US$105 billion in relatively a short span of time. In 1996, these five countries had collectively received capital inflows of US$93 billion and a year later they were experiencing out flow of capital that was exceeding inflow by US$12 billion amounting to 10 percent of their combined GDP. This resulted into a huge economic chaos as currencies of these countries depreciated against USD by over 30% to 50%. Suddenly, debt component of foreign loans in local currencies increased dramatically. Imports became costlier making manufacturing operations of several companies unsustainable. Unemployment increased significantly while their economies entered into deep recession. Many of the commercial assets in those countries were sold to foreign investors at petty prices. As such, there was nothing structurally wrong with the economies of these countries yet financial liberalization took the toll of their economies. Once financial conditions of these countries got stabilized, a quick recovery was imminent with currencies of these countries reaching to their previous levels. This indicates that free financial markets are prone to huge speculative activities that can derail national economies from their growth trajectories. The point is that the short-term capital inflows can create financial instability in any region and create economic chaos in any country. The 2008 financial crisis is another instance to prove that even developed countries are not free of possible financial irregularities that can put the economies of all other countries, in the globalization era, at ransom. The subprime mortgage crisis in the US reveals that even developed countries can fall prey to liberal flow of private capital spreading crisis to other countries as the world is now interlinked. Many of the foreign financial institutions and banks invested heavily in ‘subprime toxic securities’ – remained largely unaware about its real worth until real estate markets came down crashing in the US. Many countries in the Europe are still facing the brunt of it. Large financial institutions such as AIG, Lehman Brothers, Fannie Mae, Bear Stearns, Freddie Mac and many more either declared bankruptcy or they were bailed out by the US establishment through public exchequer to prevent economy going into great depression. Ditto happened in other affected countries such as the UK, Germany when their governments declared bailout packages to safeguard their own domestic financial institutions and large banks. Indirectly, in the long run, all losses were passed on to the taxpayers across all affected countries. It can be said that all misgivings and financial irregularities that have occurred anywhere in the world including the recent financial crisis of the US are due to rampant forms of capitalism practiced in the liberal societies. However, one needs to accept the fact that the phenomenon of globalization that has evolved in the last few decades has been possible only due to vibrant capitalism followed by nations of the world. Dani Rodrik argues, "Globalization is the worldwide extension of capitalism. Indeed, so intertwined has capitalism become with globalization that it is impossible to discuss the future of one without discussing the future of the other" (Rodrik, 221). This implies that globalization and capitalism cannot be separated out. Dani Rodrik argues that capitalism has been able to invent itself whenever it encounters a crisis and renews itself with more strength. Post World War II the most countries were busy developing their own economies imposing economic controls through tariffs, quota systems and restricting movement of private capital. Antitrust policies and monopolies restrictive trade practices act have been able to control the ill effects of rampant capitalism in the past. Increased public spending and launching social welfare schemes became a part of governance in many developed and developing economies during mixed-economy period. The point is that a mixed-economy model persisted after World War II in which public sectors were allowed to flourish by the national governments along with private investments applying necessary checks on capitalism. Nevertheless, the world has moved forward a lot since then. Dani Rodrik argues, "We need to imagine a better balance between markets and their supporting institutions at the global level" (Rodrik, 223). While globalization era is here to stay and outdated trade barriers or rampant capital controls cannot come back, some kind of reorientation in globalization policies is necessary because markets can never self-regulate themselves as numerous incidents during the last two decades have demonstrated. While domestic markets are governed by plethora of institutions that regulate and keep balances in the system, there is nothing to control global markets. It is a need of an hour that global markets fall within a purview of some systems of governance; however, it is also true that establishing global governance is a stupendous task because national governments cannot give up their own autonomy in favor of global institutions. Political communities across the nations are more tilted towards their domestic compulsions rather than global considerations. Huge differences prevail among them on creating institutional arrangements for global governance. While the European Union has been successful, to a certain extent, in developing combined governance for EU region, global governance for the world as a whole appears a distant possibility. While nations have every right to preserve their own regulations, social arrangements and governing institutions as per their own needs, there is a need to come on common platform for the issues that mankind is now facing. Rodrik’s argument has substance when he says, “A world with a moderate globalization would be a far better place to live in than one mired in the quixotic pursuit of hyperglobalization” (Rodrik, 225). The point is that rampant economic achievements should not remain a sole aim of globalization. Due to rapid industrialization, ecology of the Earth is in great danger. If the human race has to survive, a collaborative approach is necessary that can eliminate environment hazards, mitigate effects on climate change, protect human rights across the globe, safeguard cultural diversity and establish social security for all. Globalization that aims at achieving economic achievements for some sections of human society is likely to create unrest and social disharmony across the nations. That in turn, is likely to put entire human race in jeopardy. Nations need to rise above their insular interests and work for palatable solutions to common issues plaguing the world. And globalization provides a platform to solve those issues to the benefit of all. Works-Cited Rodrik, Dani. The Globalization Paradox: Democracy and the Future of the World Economy. W.W. Norton & Company. New York. Steger, Manfred. Globalization: A very short Introduction. Oxford University Press. 2013.Oxford. Read More