The Impacts of Globalization on the Canadian Economy - Essay Example

The impacts of globalization on the Canadian economy Introduction The term ‘globalization’ has become one of the extensively used phrases in various aspects of human life. It is being maximally used in the media, government circles, businesses, by the economists, and so on. Its omnipresent usage in a way reflects its meaning and process. That is, the term globalization refers to the increased development and accentuation of interconnectedness among the countries of the world and its people mainly in the spheres of culture, politics, environment, and importantly economy. Economic interconnectedness and advancement of a country’s economy is one of the key aspects or even crucial results of globalization. However, at the same time, globalization might not cause only positive results and can also cause negative impacts. Canada is one such country which has incorporated and experienced globalization in an optimal manner. Due to its barrier free economic policies and business environment as well as heightened technological advancements, globalization has optimally and positively impacted and still impacting the Canadian economy elevating it to top echelons. It is facilitating a two-way process, as Canadian products and services are exported to foreign territories, while foreign companies and Multinational Companies (MNC) are also investing in high numbers in the Canadian territory thereby strongly contributing to economic growth. At the same time, these increased economic activities because of globalization are also leading to negative effects, particularly increased competition. So, after providing a background regarding globalization and its early impacts on the Canadian economy, the discussion will be about how globalization positively impacted the Canadian economy, particularly regarding its exports, and in the process also made certain negative impacts. Background about globalization and Canadian economy As above-mentioned, when the term globalization is viewed from an overall perspective, it refers to the processes that facilitate businesses, governments, and common people to interact, transact as well as interconnect in cultural, economical, social, and other activities. “Globalization may be thought of as the widening, deepening and speeding up of worldwide interconnectedness in all aspects of contemporary social life, from the cultural to the criminal, the financial to the spiritually”.1 This meaning of globalization was further validated using the contexts of transportation and communication technologies by Nobel prize winner for economics, Joseph E Stiglitz who stated globalization as “the closer integration of the countries and peoples of the world ...brought about by the enormous reduction of costs of transportation and communication, and the breaking down of artificial barriers to the flows of goods, services, capital, knowledge, and people across borders”.2 Although both the above definitions focus on general integration or interaction, economic aspect is evidently featured. That is, the term globalization is mainly used in economical context because the concept and process of globalization was mainly initiated with economic goals. This has led to the formation of the term capitalistic globalization. This term is different from generic globalization because it purely focuses on economic aspects, the way businesses interact and transact, economic policies of the governments, and much more. The definition given by Gilpin and Gilpin (2000) toes this capitalistic perspective, as it states, “The markets increased importance, reflected in increased international flows of goods, capital, and services, has been encouraged by the collapse of command-type economies, and the increasing influence of a conservative economic ideology”.3 When one views from the perspective of the countries and their governments, they are shedding their “restrictive” and “protective” trade regimes and are opening up their economic or business markets to other players from foreign territories thereby facilitating two-way process of exports as well as imports. That is, once countries open their markets and allow the entry of foreign companies, they can in turn negotiate for the entry of their own companies in the respective foreign markets. Countries like Canada are maximally doing this with the aid of international trade organizations like World Trade Organization (WTO), International Monetary Fund (IMF), and others thereby eliciting both opportunities as well as challenges. The world from the mid 19th century has been a place of continuous industrial activities. With the Industrial Revolution originating in Europe, many countries of the world including Canada moved into an optimal phase, resulting in advancements in every walk of life. However, the industrial activities was mainly of manufacturing in nature, and it was only in the last decades of the 20th century that industrial activity got an all new meaning with the development of newer industrial sectors primarily facilitated by globalization. So, tapping the human knowledge and the creating ideas to provide service to the customers became more prominent than developing products from the raw materials and reaching it to the customers. This reorientation of the Canadian economy caused by globalization was further facilitated and accentuated by the successive Canadian governments who signed and became part of many international trade organizations and importantly initiated number of domestic economic policies favoring globalization. Speaking of trade organizations, Canada made a move in that direction way back in 1947 itself, when it was one of the original signatories of the General Agreement on Tariffs and Trade (GATT) and “took part in negotiations that substantially lowered international tariffs”.4 Apart from negotiating with other countries for the lowering of international tariffs, Canada for its part lowered its own tariffs. That is, “in the 1980s, the Canadian business elite abandoned its traditional preference for high tariffs and began advocating free trade”.5 In addition, the ratification of the Canada-United States Free Trade Agreement (FTA) in 1988, adoption of the North American Free Trade Agreement (NAFTA), and the formation of the WTO in 1990s allowed Canada to further tap globalization. “The expansion of the Canadian and global economies, coupled with the growth of emerging markets, resulted in a strong drive by players in Canada and abroad to take advantage of these lowered trade and investment barriers”.6 Apart from establishing operations in foreign lands, Canadian firms established supply chains and contracts in foreign lands in line with the process of globalization thereby accessing low-cost raw materials as well as labor. Companies from foreign countries for their part entered Canadian markets in high numbers thereby increasing the competition for the indigenous or domestic firms. “By 2007, Canada’s foreign imports and exports equaled 62 percent of its GDP, compared with only 43 percent in 1987”.7 Canada’s technological prowess, particularly in the communication and transportation technologies, further contributed to globalization’s impact on the Canadian economy as it is aiding Canadian as well as foreign companies to carry out their business operations or even virtual operations in an efficient manner. Backed by its traditional economic strengths and further consolidated by globalization, Canada has become one of the foremost economies of the world thereby elevating the living standards of its citizens. At the same time, globalization and the resultant changes in the global business environment is challenging the Canadian companies leading to negative effects. Globalizations impact on the Canadian Economy As above-mentioned, globalization has facilitated the entry, exports, and investment of Canadian companies in prospective foreign territories as well as imports and investment by foreign companies or MNCs in Canadian soil, both of which are impacting the Canadian economy in positive as well as negative direction. “Canada too has participated actively in the globalization process by increasing its foreign direct investment (FDI) links with other countries. Indeed, Canada’s inward and outward FDI orientations are higher than in many OECD countries”.8 The geographic locations of Canada’s outward FDI have diversified more in the current times when compared to 1990s. Although, the United States is still remains the number one destination for Canada’s FDI, accounting for close to 50 percent of Canadian Direct Investment (CDIA), Canadian companies, assisted by globalization, are particularly looking at the emerging economies of China, India, Brazil, and others. When it comes to inward FDI also, the United States is the dominant foreign investor in Canada, as it accounted for about 58 percent of Canada’s inward FDI stock.9 Apart from the United States and its businesses, many countries and its companies are also investing in Canada. Although, this inward investment also positively impacts the Canadian economy, these companies are becoming a competitive force to the indigenous Canadian firms thereby necessitating them to come up with effective strategies. This increased business activity on the domestic front also contributes to a certain amount of environmental degradation. Although Canada, its economy, and importantly business environment is still regarded as one the main investment destinations for the MNCs of the world, Canadian companies are taking the alternate route and are planning to channel their investments in emerging economies. This trend was validated through a survey done among the Canadian firms and their CEOs, which stated, “One-quarter of the Canadian survey participants expect to shift some future foreign investments from developed countries to emerging markets this coming year, and nearly 40% will do so in the next five years”.10 In line with the above discussion, it is evident that this trend arose mainly because of globalization and its resultant effects and benefits. As pointed out above, globalization removes trade barriers, provides companies opportunities in newer and untapped markets, gives access to skilled and low-cost labor, and many more thereby facilitating entry into these emerging markets. John Ibbitson talks about this opportunity or benefit of globalization for the Canadian economy by stating, “globalization continues to break down barriers and promote the free flow of capital across borders, for better or worse, Canada stands well positioned to tap the potential of the rising Asian and Pacific economies”.11 The report by Ernst & Young adds to these points by stating that the two primary drivers pushing Canadian corporate investors into emerging markets are the decision to efficiently outsource production and the desire to tap fresh markets.12 Apart from these positive or facilitating reasons, the other key reason why Canadian companies are going in the direction of the emerging economies is because of the increased competition in the domestic market. In addition, the optimal financial structure of Canada is facilitating these companies, who are fighting in the domestic market, to foreign lands. “Weakening of our domestic sector may push exporters who over the past few years sought refuge on the home front to re-engage with the external economy again. In a liquidity-constrained global market, the robust Canadian financial system may prove to be a great support to export activity”.13 When one focuses on the Canadian domestic market, although the local companies are facing increased competition from both fellow Canadian companies and foreign players, the domestic business environment has certain distinct advantages. That is, due to certain inherent factors and increased adoption of globalization, Canada is providing an optimal business environment for both the indigenous Canadian companies and the entering foreign companies. “The government of Canada is striving to create additional opportunities to make Canada a bigger player in a globalized world, which includes seeking out free trade agreements”.14 As part of that optimal business environment, Canada is also providing well-established infrastructures, supportive economic and legal systems, political stability, and many more. “Canada’s considerable attractions for foreign companies include a record of brisker growth than any other G7 country; moderate corporate income taxes (of 15% as of 2012); advanced R&D facilities; a well-educated workforce; an abundance of natural resources; and convenient proximity to the large market the US offers”.15 However, all these advantages favoring Canada as an effective place to do business for both domestic as well as foreign firms, can also act as a disadvantage for the domestic firms. That is, with domestic and foreign companies being given similar advantages and with the foreign companies putting in their best efforts, questions are being raised whether Canadian organizations can tap the available advantages of increased trade and importantly whether they can cope and compete with the ever-rising competition from the foreign companies. “The volume of exports is still 3% below the pre-recession levels, with non-energy exports down 5%. Imports are now above their pre-recession levels, suggesting Canadian businesses are facing increased foreign competition in domestic markets”.16 So, it is evident that globalization and the resultant entry of foreign players into the Canadian market has led to increased competition and is negatively influencing the performance and exports of the Canadian firms. In a way, Canadian companies are not able to increase their export numbers due to the onslaught by the foreign companies thereby necessitating the need to become more productive and innovative. “Rather, emphasis should be placed on the need for Canadian businesses to be more productive and innovative to succeed in a globally integrated economy. This is true for exporters and domestic-oriented firms that compete with foreign rivals”.17 This can be done if the government provides the best support through business-friendly policies, using which the domestic firms can initiate action thereby innovating and becoming productive. “The best role that the government can play is to provide sound and stable macroeconomic policy…Beyond that, businesses have to step up to the plate. This means being more innovative and productive”.18 The role of the domestic companies and the entry of foreign companies aided by globalization brings into focus issues of environmental degradation. Canada has been described as one of the best places in the world to live. This good reputation for Canada stems from variety of factors, which include non-threatening people friendly industries. As most of the industries follow the norms set to prevent Global warming, the Canadian environment is not getting polluted very quickly. At the same time, other sections are of the view that government is not enforcing strict regulations on the companies who might be contributing to pollution, global warming, and the resultant environmental degradation. This includes both the domestic companies as well as entering companies because of globalization. “Critics also say that less stringent regulations have led to environmental degradation”.19 Apart from environmental effects, globalization and the resultant entry of Canadian firms into foreign countries and even outsourcing of their operations to Third World countries has led to the issue of exploitation of workers. That is, Canadian companies are criticized for getting cheap labor without caring for the workers’ working conditions, health, and other aspects thereby not only affecting their ethical image but also bringing in negative image for the Canadian companies and even its economy. Conclusion From the above analysis, it is evident that the global phenomenon of globalization has impacted Canada in various ways, particularly its economic sphere. Aided by government policies, advancements in technologies, and even changes in international trade regulations, globalization has facilitated two-way movement with Canadian companies entering foreign territories in high numbers and at the same time Canadian territory is receiving many foreign firms as well. In the case of Canadian MNCs, they mostly prefer emerging economies because of various feasible factors thereby increasing their profits and positively impacting the Canadian economy. The incoming foreign MNCs for their part are accentuating competition in the domestic market and that necessitates the indigenous companies to optimize their innovation potential as well as productivity, which also positively impacts the Canadian economy. To sum up, globalization has already impacted the Canadian economy and will continue to do so in the future as well. Bibliography “A World of Experience: The Globalization of Canadian Corporate Leadership.” Russell Reynolds Associates. Accessed on March 29, 2015. http://www.russellreynolds.com/content/world-experience-globalization- canadian-corporate-leadership Alexander, Craig. “The Canadian Disadvantage.” Financial Post. Last modified on July 2, 2012. http://business.financialpost.com/2012/07/02/the-canadian- disadvantage/ Azzi, Stephen. “Globalization.” Historica Canada. Last modified on January 30, 2015. http://www.thecanadianencyclopedia.ca/en/article/globalization/ “Canada in a globalized economy: an investment perspective.” Ernst & Young LLP. Last modified in 2011. http://www.ey.com/Publication/vwLUAssets/EIU_Canada-in-a-globalized- economy/$FILE/EIU_Canada-in-a-globalized-economy.pdf Gilpin, Robert and Jean Millis Gilpin. “The Challenge of Global Capitalism.” New York Times. Last modified in 2000. https://www.nytimes.com/books/first/g/gilpin-capitalism.html Hall, Peter. “Canadian Trade: Pros and Cons for 2014.” Huffington Post. Last modified on February 18, 2014. http://www.huffingtonpost.ca/peter- hall/canadian-trade_b_4810897.html? Held, David., Anthony McGrew, David Goldblatt and Jonathan Perraton. “Global Transformations – Introduction.” University of Oldenburg. Accessed on March 29, 2015. http://www.c3l.uni-oldenburg.de/cde/OMDE%20626/Readings% 20OMDE%20626/held_global%20transformations_intro.doc2. Ibbitson, John. “After 25 years, free-trade deal with U.S. has helped Canada grow up.” The Globe and Mail. Last modified on September 29, 2012. http://www.theglobeandmail.com/report-on-business/economy/after-25-years- free-trade-deal-with-us-has-helped-canada-grow-up/article4576313/?page=all Rao, Someshwar, Malick Souare and Weimin Wang. “Canadian Inward and Outward Direct Investment: Assessing the Impacts.” Research Gate. Accessed on March 29, 2015. http://www.researchgate.net/...FDI.../links/543e7f040cf21c84f23b01da.pdf Stiglitz, Joseph E. Globalization and its Discontents. New York: W. W. Norton & Company, 2002. Accessed on March 29, 2015. http://www.qurtuba.edu.pk/thedialogue/The%20Dialogue/2_1/Book_ review_globalization.pdf . Read More