Globalisation and Global Economic Integration - Assignment Example

Response Questions Student’s Name Course Tutor Date Part A 2. What are the benefits of globalisation and global economic integration? Are they sufficient to justify further expansion of globalisation? Select only one form of globalisation for your answer, that is, economic, political and cultural? Economic globalisation Economic globalisation generally refers to the ever rise in interdependence of global economies due to the fast growth of cross-border trade in products and services, international capital flow as well as rapid and spread of modern technologies. It therefore gives a reflection of the mutual integration and continuing expansion of markets. Economists have reasoned that globalization is a trend that can not be reversed in the wake of the ongoing economic developments the world over since the beginning of this millennium. The two main driving forces of globalization include the fast growing importance of information in all activities of production and marketisation. In fact the rapid globalisation in recent years of the world’s economies is principally based on the fast development of science and technologies. This has led to a unique business environment where market economic systems are spreading at an alarming rate in the world over. It has also developed on the ground that cross-border labor division has been increasing and penetrated down to the production chain levels within businesses of different countries (Held et. al., 1999). The essence of globalisation and global economic integration The current advancement in science and technologies has tremendously reduced transportation and communication costs hence making it possible for economic globalization to thrive. For example, the ocean shipping cost at the moment is just a half of what it used to cost in the 1930s. The average price of computers two decades ago was only about 1/125 of what it used to cost in the 1960s, and the level of pricing drastically reduced in 1998 by over 80%. This example of what is known as ‘time and space compression effect’ brought about by advancement in technology has substantially reduced the cost of cross-border trade and investment, hence making it easier to effectively organise and coordinate production of goods and services globally. For instance, Lyman car produced by Ford automaker has its design done in Germany, the gearing system is manufactured in Korea, the engine in Australia and pump originates from the USA. It is in fact advancement in technology that has made such kind of global production achievable. Furthermore the development of new economic concepts based on networking has given rise to so many enterprises, thus making distance and national boundaries concept for some economic undertakings meaningless (Gilpin, 2001). According to Bordo et al (1999), the main carriers of economic globalisation in the modern world are the multinational corporations (MNCs). Such corporations are allocating resources and organising production globally in respect to the principle of profit maximization. Their expansions globally are also reshaping mechanisms of macroeconomic operations in regard to world economies. It has been estimated that in 1996, there were about 48,000 MNCs in the entire world with over 280,000 cross-border branch offices and subsidiaries. In 1997, trade volume from the top 100 MNCs was estimated to be almost a third of the entire total. During the 1990s, it has been estimated that over 70% of international transfers in terms of technology were carried out among MNCs thus this type of international economic activities revolving within the same businesses has posed a great challenge for the traditional method of international trade as well as theories of investment. Financial sector globalisation has become one of the fast developing and influential parameter of economic globalisation. The idea of international financing was mooted with an aim of serving the activities of international trade and investment needs. However, international financing in the wake of economic globalization development, has increasingly gained more independency. In comparison labour and commodity markets, it is only financial market that has conceptually realised globalisation in the true spirit of world economy. International flow of capital has witnessed a lot of expansion since the 70s. However, ten years later, the total volume of international transactions in terms of stocks and bonds the world’s developed economies were still way below their GDP. In 1995, this figure surpassed the 100% mark as the value of the average daily foreign exchange transactions has significantly grown from about US$ 200 billion in the mid 1980s to the current US$ 1,200 billion, which proportionately represent 85% of the world’s foreign exchange reserves (United Nations, 1999). The process of economic globalisation is also fundamentally the very process of world industrial restructuring as well as readjustment. Wade (1996) argues that with the increase in the levels of income and development of science and technology, industrial structures of all nations have been also experiencing upgrading and readjustment. In recent times, developed nations in the western part of the world are slowly entering the knowledge economy era and have therefore started to shift to developing nations many of their labor-intensive industries that can not adequately compete internationally. The modern process of international shift is propelling forward intense development in relation to economic globalisation. On the one hand, there has been existence of surplus of productivity since the fall of the cold war, and it is as a result of this that economic globalisation has led to the intensification of the international market competition among businesses from different nations. In an attempt to scale up their positions and at the same time improve their levels of competitiveness in the global market, domestic businesses and those from other nations have gradually resorted to acquisitions and mergers, which have resulted in waves of industrial restructuring. For example, the most recent case is Vodaphone acquisition of Mannesmann and the merger between Citibank and Travelers. Such restructuring activities are known to exert a lot of influence on the pattern of industrial competition in the world (Hirst and Grahame, 1996). Developed nations have over the time been playing a critical role in economic globalisation process. The total volume of exports of originating from the developed nations was estimated to be in excess of US$ 4,057 billion in 1996, thus accounting for over 80% of the total value of the world’s international trade. In 1995, the ten major world economies foreign direct investment was about 85% of the sum of foreign direct investment globally. The dominant and key role played by developed economies in the economic globalisation process is also witnessed in the fact that they are also the principal determinants of the international economic exchange rules. Although current regulations concerning international economic affairs have the adorable aspect of keeping pace with socialized production of goods and services, they are primarily laid down with the domineering influence of the developed economies. International financial and economic organisations are mainly under the control and influence of the United States as well as other western nations. They have been known to use such advantages to dominate and promote globalisation development. They are also the main beneficiaries of the same economic globalization hence calling for an explanation as to whether developing countries are gaining any economic mileage in the wake of economic globalization (Unger, 1997). Benefits and challenges of increased integration in global economy There are so many desirable and undesirable aspects of increased integration of businesses into the global economy. One of the main benefits of the aspect is related to the additional availability of external sources of finance that is available to developing nations in comparison to the earlier years before the 1980s. This has substantially assisted in relaxing the challenges of foreign exchange that had impacted badly on the economic growth in the 1980s. Furthermore an increase in funds allocation has increased the pace of foreign direct investment which is at the moment highly valued by most governments of developing nations. Such funds add to the process of capital accumulation and thus provide avenues for higher growth in world economies. Such capital investments are also known to embrace novel technologies that increase the rate of productivity hence the competitiveness of the emerging world economies (Strange, 1996). Recently, it has been argued in sharp contrast to usual perceptions that the increasing effect of the capital markets such as institutional investors that trades in stocks and bonds may be more in line with transparent and democratic governance than is normally believed. In fact, it is argued that capital markets may generally contribute to good governance and democracy by doing away with oligopolistic structures of corporate in developing world, and also the demand for comprehensive information on foreign investors may increase public and private sector transparency. It should not also be assumed that there are some serious challenges that are being brought in part by the new capital and trade flows and the way they affect the societies and economies of developing world. One of the problems is the increase in polarization across countries and regions as well as within nations as witnesses by firms (King, 1997). According to Stallings, Barbara and Wolfgang Streeck (1995), economic globalisation bear the risk of developing nations being lured into uncondusive external factors. Under the circumstances of free economic environment, the conflict pitching the realisation of external and internal economic equilibriums is a great challenge on the macroeconomic regulatory policies of the emerging nations. With fast expansion of capital assets, increasing innovation of financial mechanisms, rapid expansion of financial assets and the modern trend of international capital privatisation, a huge volume of cross-boarder floating capital has greatly influenced the financial stability and economic safety of developing nations. In relation to some data released by IMF in 1997, the real value of short-period bank credit facilities that flows through financial markets internationally as well as other capital and financial markets amounted to at least US$7,200 billion, which presented about a quarter of the world’s total output. An estimate by the Federal Reserve Board of the US showed that the total value of daily foreign exchanges transactions in New York, London and Tokyo alone in 1997 was about US$620, of which 18% was utilized for investment and foreign trade, and about 82% were pumped into speculation in international financial markets. Such amount of floating cross-border capitals may in effect result in disorderly foreign exchange rate fluctuation and bubbling economies. In the long run they may be a cause of weakening the monetary independency of a nation thus culminating in dysfunctional of its financial policy. The mechanism of self-fulfillment of financial crisis that is experienced in financial markets internationally would be a good remedy for strengthening the loss suffered by developing nations. Although the financial crises that began in East Asia and Mexico in the 1990s were deeply rooted in the malfunctioning of the economic structures and practices, the direct cause was the effect of the floating international capital that also vigorously propelled their destructiveness (Fishlow, Albert and Haggard, 1992). In Africa, in particular, globalisation effect is not only in the domain of economic nature as the process and outcome of it encompass a lot more than just economics. It includes cross-border permeation of political practices and ideologies. It includes permeation of cultural and religious beliefs and practices that leads to cultural dilution. This includes the interference with administrative practices and concepts across organisations and boarders. This does not leave out domineering character of some super-power nations through military imposition and coercion. It also means that ideas that would just attract internal attention are in principle internationalised. The decision and policy making process, and in effect the power and influence of the State has tremendously been shared and globalised among the key world bodies of decision-making. The state is thus currently subjected to international laws and regulations, international human rights organizations, international courts and international military conventions. There are therefore regional and international trade agreements, very powerful international pressure and lobby groups in numerous fields. In the academic arena, there are institutions of higher learning having the mandate of imparting skills, ideologies and attitudes that sharply shift societal behaviours and state leadership. Amalgamation of these factors reinforces the concept of globalisation and fundamentally compels the State to have a behavior shift and the way it deals with its internal affairs and external partners (Stallings,1995). As is the case, some countries have more ability to grab the opportunities offered by economic globalization that can result in an increase in political and social conflicts of globalisation and liberalisation. Governments are also experiencing problems by the new capital flows in their attempts to effectively manage their own economies. Macroeconomic challenges have also been sufficiently documented in several scenarios in the 1990s. One of the outstanding challenges is the role played by capital inflows in influencing the exchange rates overvaluation that results to a decline in competitiveness and worst situations culminating into foreign exchange crises. The volatile nature of capital flows also is a reason for the magnification of macroeconomic policy that can also result in crises. If the event of weak financial supervision that rocked East and Southeast Asia, then obviously financial institutions crises can aggravate foreign exchange crises (Rodrik, 1997). In order to deal with new economic situation, both international and domestic policy changes must come in. As put by Lampreia (1997), openness to the global economy can be the fundamental source of numerous economic benefits if only good mechanisms such as institutions and complimentary policies are domestically put in place. On the international trade arena, it is important to gain some degree of recovery after the debacle of the negotiations by World Trade Organization (WTO) in Seattle. It is also significant to note the current change in attitude with respect to the meeting in Seattle by the developing nations. It is as a result of liberalization that the developing countries are becoming principal advocates of openings as far as international trade is concerned since they desperately need markets in their ambitions of pursuing export-led growth and subsequently channel the benefits to other sectors of their young economies. Developing countries considers industrial nations to only accept trade liberalization if it can benefit them directly. They are also accused by the young economies of holding back economic advancements through environmental and labour restrictions on international trade. In the realm of international financing, there are quite a number of effective proposals for a new global financial architecture. The primary concept is that new rules and regulations regarding cross-border capital flows are promptly required to avert the great volatility that has been witnessed in the recent past. Even though no single country is immuned from such economic volatility, the developing nations such as Africa are inadequately armed to effectively deal with the consequences. This therefore calls for new mechanisms of dealing with global economic crises up on their development (Rosenau, 1997b). According to Oman (1994), if amicable international solutions remain a mirage then developing nations have no choice but to voice their concern and grievances at both country and regional levels. In commerce, regional integration as witnessed in Asia and Latin America has become an effective substitute priority. In the wake of forming regional integrations, individual countries need to come up with sound policies to offer them protection from the volatilities and challenges of international investment and capital flows. During strong international liquidity periods, controls on the entry of short period capital flows have shown some levels of success. There is also need for increased domestic savings in developing nations so as to lower external savings need. Policies are also important elimination of polarisation that is being characterised in the international financial flows. Such policies should encompass both constructive and social policies to help firms that are not able to move with the pace of increasingly competitive world. The road to economic system reformation and readjustment of economic structures should be cleared very fast. International competition in this modern time of economic globalisation is basically fierce considered in terms of competition on mechanisms of enterprise and economic systems. The economic gap between developed and developing economies in relation to economic system and structures are also generally quite large. Developing nations should therefore stay focused in order to solve problems that might edge them from international perspective of doing business. As mentioned by Rosenau (1997a). Direct administrative interventions by the economic power houses in global business should be curtailed and at the same time emerging economies governments should fully strengthen their functions of rallying for equality in business opportunities without biasness. Developing nations should play key role in ensuring the establishment of incentives to be at par with international business demands and corporate governance in order to improve competitiveness and efficiency of enterprises. In regard to industrial structures, the developing nations should lay more focus in the stimulation of rapid technological, scientific, and education development. They should also increase their input in developing human capital for industrial structure upgrade. Part B 6. Examine the ways that globalization deepens poverty in societies. Are you satisfied with government responses? Globalisation and poverty has been a topic that has elicited a lot of heated debate in so many literatures. Numerous studies have indicated that globalisation is a cause for the increases in poverty while quite a lot has also been on the defensive that globalisation has reduced poverty. Those who are favours of globalisation have claimed that over the last two decades there have been very important steps made in fighting poverty globally as well as reduction in inequality. They argue that liberalisation or globalisation of economic policies is solely responsible for such achievement. In sharp contrast to the positivist point of view are the critics who lay their claim to the effect that globalisation has directly resulted to poverty and inequality increases. In fact it is a point to take note that in the modern world, the rich are just increasingly amassing more wealth at the expense of the poor who are driven to the oblivion of economic servitude and suffering. According to Aisbett (2004), a number of research studies have shown there is fear that the less unfortunate have been left behind and tremendously hurt by the wave of globalization. Such findings have been emerging due to the methodologies used in carrying out surveys in relation to world income distribution inequality as it happens during this era of globalization. Most of the studies have sufficiently point the increasing high levels of inequality in the world income distribution when critically examined between the emerging economies and the developed economies. They have also pointed out that there is total lack of convergence in regard to national economies across regions and nations as globalisation is taking effect. Poverty, which is popularly measured a system of headcount ratio has only significantly fallen in the first and second world economies but third world economies such as the Sub Saharan Africa, it is on the rise. Although the entire trend in income inequality and poverty observed cannot be the main attribution of the effect of globalisation without thorough analyses, such numerous study estimates can not be dismissed, as it has shown so far, are some clear signs that there must have been some undesirable effects on income distribution and poverty. The concerns have therefore generated a heated debate in every corner of the world as well as very powerful movements of anti-globalisation. Capitalism which has undergone various stages in the wake of the current phenomenon of globalization has effectively ushered in the continuing process of growing economic and social inequality. For instance, at the beginning of this centuery about 45 per cent of the total population of the world was still living below the poverty level. Globalisation can therefore thrive and prosper either by escalating or perpetuating poverty. Whereas it cannot reverse the ongoing trend, it could only add more impetus to it. Capitalism under the pretext of globalisation has promptly excluded so many people from the economic ladder as it operates through exclusion as well as escalation of poverty. Globalisation is hence manifested through hunger and poverty, unemployment among other inequities (Bardhan, 2003). 8. What are the differences between neoliberal and redistributive policies? Do you think the states should regulate markets? Neoliberalism is principally a tag for the market-driven approach to social and economic policy that is generally based on neoclassical economic theories that put much emphasis on private enterprise efficiency, open markets and relatively liberalised trade. It seeks to fully maximise the role played by the private sector in the determination of economic and political priorities of the government. The term is therefore commonly used by policy opponents as opposed to supporters. Neoliberalism term has also gained prominence use in cultural studies in the description of cross-border prevailing ideological concepts that leads to political, social, cultural policies and practices that usefully applies the language of transactional thinking, markets, consumer choice, efficiency and individual independency in shifting risk from corporations and governments onto individuals so as to extend the market logic into the domains of affective and social relationships. Campbell and Ove (2001) consent to the fact that neo-liberalism is basically a set of economic policies that has witnessed remarkable growth over the last two decades. In countires such as the United States, although the term is not common but it effects is clearly reflected in the society as the rich are continuing to amass more wealth and the poor are getting poorer. In the world over, neo-liberalism has witnessed its imposition by dominant financial institutions such as the World Bank, International Monetary Fund (IMF), and the Inter- American Development Bank. The capitalist crisis that has transpired over the last two and a half decades marred with decreasing rates of profit has injected more impetus to the corporate elite in reviving economic liberalism, which fundamentally makes it to be known as neo or new. Neoliberalism is principally an ideology of the rich economies of western democracies as opposed to poor economies hence its meaning is mostly pegged on its historical development of social, political and economic liberalism in the said western world market democracies. It is not in order to have a look at world institutions such as the World Bank and the IMF to witness the basis of neoliberalism. Such institutions hold nothing novel as far as neoliberalism is concerned. The neoliberal phenomenon considers the nation basically as a business organisation. The nation-organisation is therefore selling itself as a suitable investment location as opposed to traditional selling of export goods. Lack of fundamental belief in any government about the ideology wil has no effects. However, if the government in power embraces neoliberalism, it will have to implement policies that are designed to make the country more attractive as an ideal location of investment. Such policies are considered to be business friendly. It should however be remembered that the neoliberialism concerns national policies that are directed with an intention to cater for the welfare of the people and not of the market. Ironically, it is a form of protectionism in the sense that if there are international markets of investment, then it is wrong for states to artificially induce the suitability of their own country. Governments that are involved in such unethical practices are considered as bad market liberals. In many countries, hard-line market liberals would therefore not embrace the idea of electing a government that is not pro-business. According to Alesina et al., (2001), the idea of distributive policy is at times understood as an indicator for moral assessment of distributions, collective decisions or moral assessment of individual in relation to how they influence distributions. Over the time, discussions concerning distributive justice have laid focus on the moral and economic systems of rules and regulations in light of their effect on distributions. The distributions that affect institutions encompass laws as well as other social rules that govern the ownership of things, system of acquisition, transfer, and forfeiture. It also concerns how production systems and markets are structured and the way in which trade policy decisions and the monetary system are executed. Due to international institutionalisation of markets in labour and capital, property rights structure and regimes of international trading such as the World Trade Organization (WTO), there is room for the assessment of distributions in the global perspective of distributive justice. This has also gaine prominence in theory of politics. The idea of redistribution has featured prominently in distributive justice discussions of both internal and external context. In fact, the emerging differences between popular modern theoretical approach to distributive justice, notably prioritarianism, libertarianism, and egalitarianism are more often than not characterised in relation to their attitudes on redistribution. Even when people with no foundations in philosophy talks about the essence of justice of redistributions, or about distribution that impacts on institutional plans, their arguments generally take the obvious form of trying to understand the circumstances of the justification of wealth redistribution. Escalation of poverty, especially in the developing nations, for instance, has prompted many to ask whether rich nations can have the urge of helping the less unfortunate by redistributing the available resources to them. References Alesina, Alberto, et al., (2001), “Redistribution Through Public Employment: The Case of Italy,” NBER Working Papers 7387, National Bureau of Economic Research. Campbell, John L. & Ove K. Pedersen, eds. (2001): The Rise of Neoliberalism and Institutional Analysis. 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"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. Oman, Charles (1994). Globalisation and Regionalisation: The Challenge for Developing Countries. Paris: OECD Development Centre. Rodrik, Dani (1997). Has Globalization Gone Too Far? Washington: Institute for International Economics. Rosenau, James N. (1997a). Along the Domestic-Foreign Frontier: Exploring Government in a Turbulent World. New York: Cambridge University Press. Rosenau, James N. (1997b). "The Complexities and Contradictions of Globalization," Current History 96 (613): 360-64. Stallings, Barbara, ed. (1995). Global Change, Regional Response: The New International Context of Development. New York; Cambridge University Press. Stallings, Barbara & Wolfgang Streeck (1995). "Capitalisms in Conflict? 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Held, David, et. al. (1999). Global Transformations: Politics, Economics, and Culture. Stanford University Press. Hirst, Paul Q., & Grahame Thompson (1996). Globalization in Question. Polity Press. King, Anthony (1997). Culture: Globalization and the World-System. University of Minnesota Press. Read More