Multi-Dimensional Triple Crisis on a Global Scale - Literature review Example

RITIСАLLY ЕVАLUАTЕ BАRRY GILLS’ VIEW THAT WE ARE WITNESSING А MULTIDIMЕNSIОNАL “TRIPLE” CRISIS ON А GLOBAL SСАLЕ WITHIN THE GLOBAL РОLITIСАL ЕСОNОMY. by Student’s Name       Course Name Professor’s Name University Name Introduction The current global economic crisis has been discussed and analyzed by many scholars. Barry Gills is among the scholars who have analyzed this issue. In his article, he points out the global crisis can be viewed from three different perspectives. In addition to that, he is of the view that economic powers are shifting to the Southern hemisphere from the traditional power houses in the Northern hemisphere. This paper takes an in depth analysis of the major issues raised by Gills. In addition to that, it will look at a number of concerns raised by Gills, which are discussed by other scholars. Gills points out that the global crisis in which the world is under is serious and comparable to the 1930s great depression. This is true since most scholars are of the view that the 2007-2008 financial crisis was similar in many ways to the Great Depression. He is of the opinion that this global crisis, unlike the great depression, is made up of converging and interacting crises that can be viewed from different perspective. He mentions that since 2007, when the global financial crisis set in, there has been a downfall in the rates of employment, profitability as well as growth. The rate of employment around the globe has certainly gone down as firms try to increase their profitability and reduce their costs. However, as much as the global economy is growing slowly, most emerging markets are experiencing a fast growth rate. Gills adds that this contraction has shown to have the greatest impact on the world’s core economies in Europe, North America and even Japan. With regard to the shift in the global economic powers, he argues that the increased investment, manufacturing production, profitability and continued growth of the emerging economies in the southern hemisphere, has seen countries such as Indi and China play an important role in the global economy. He points out that the era of a single state controlling the world economy is gradually coming to end, paving way for a shared hegemony. This is true given the many business blocks being established around the world. Not only can countries utilize the resources they have as a block, but they also develop better bargaining powers when it comes to importing and exporting. Gills also takes a historic approach in analyzing the current global crisis. He is of the view that the global crisis is a reflection of structural as well as social crises which occurred in the past. He opines that past over-consumption crises, neoliberal economic globalization as well as dogmatic market ideologies has combined, and the end result is the crisis that the global economy finds itself in. His main argument is that the current crisis can be viewed as three independent aspects: Capital accumulation crisis, systematic crisis and civilization crisis. The capitalist crisis is as a result of the collapse of the global market according to Gills. He argues that the finance market has over the past shown to fall at a dramatic rate. The manner in which the global financial market fall is more synchronized and therefore has a negative impact on most economies around the world. Gills blames this to the globalization policies such as finance transnationalism, trade liberalization and financial deregulation. He fails to recognize the benefits that globalization has come with. He points out that these policies have resulted to greater integration of the global market. However, he does not look at the advantages this integration has brought about. Not only can emerging nations increase their opportunities to invest elsewhere, but they also have a wider market to sell most of their products. Gills also points out that individual states are the only entity that can save the globalized markets in case they fail. He views the use of abstract mathematical models as contributing to the errors made by mainstream economies. Gills advocates for historical, scientific as well as comparative approaches in analyzing the causes of crises as well as their impact. World capitalist crisis should be attributed to the global re-structuring as well as capitalistic logic. The crisis in this perspective is long term and structural. His argument is that the causes date back to the 1970s and have had the greatest impact on the old established economies. This is not true to some extent given the many changes that have occurred in the global economy since the 1970’s. Not only has the global life quality improved, but most economies have grown throughout the period. The capitalistic logic that Gill talks about involves globalization of finance, production globalization as well as market and capital self-regulation and deregulation. Gill mentions that the capitalist system was implemented in order to solve the hyper-neoliberal economic globalization. He states that in its attempts to solve the problem, the system fuelled a couple of other problems, thereby destabilizing itself. He points out that the capitalistic system has resulted to a number of negative effects such as inequality, economic and social polarization as well as disparities in terms of development in different regions. This is quite true since the capitalist system has placed great emphasis on profitability while disregarding others in the game. Capitalism has brought about stiff competition and rivalry, where countries try to outdo each other. In addition to that, he points out that it has contributed to the increased levels of global-under consumption and. Capitalism has also brought about environmental degradation, which in turn has resulted to climate change. With regard to systemic crisis, Gill points out that the capitalist system requires stabilization measures as well as counter measures to its negative impact. The state plays an important role in ensuring that such measures and policies are in place. By establishing the counter-measures, the state is able to compensate for the negative impact that capitalism comes with. However, Gill points out that most states in the world pursue their own policies in tackling their financial and economic crises. Such policies and measures include nationalization of banks, financial bailouts, and welfare benefits as well as subsidies. He argues that these measures can only be used for a short-term and cannot be enough to tackle the present global crisis. The policies also vary from country to country and according to Gill, this represents another structural aspect of the crisis. He points out that competition, fragmentations as well as political undertones have contributed to the systemic crisis. With regard to civilization crisis has been brought about by the governing elites according to Gills. They only provide temporary fix to the financial crises. This is true since the solutions offered by these elites are usually effective for a short period of time. Their short durability has been exposed by the re-current crises that keep hitting the global financial markets. Gills states that the current financial regulatory reforms do not take the financial crises with the seriousness they deserve and that they are operating on a “business as usual” basis. He is of the view that any crisis is connected to the underpinning structures, processes as well as institutions. Lack of functionality between this three entities brings about the crises. Lack of cohesion and correspondence results into tension which in turn destabilizes the whole system. The mentalities applied by different entities in tackling crises give rise to policies which according to Gills, have failed to prevent global crises. He mentions that civilization crisis is being expressed through things such as climate change, environmental degradation as well as failure of political systems to adapt to the changing global environment. It is true that some polices and structures have failed to avert global crises, but the policy makers should be given a part on their back for being able to avert past crises. Obstfeld et al (2012, p.81) point out that the worldwide financial crisis that reached its peak August 2008, had the financial market at the center. They point out that it led to a global liquidity crisis thereby supporting Gills view that the different entities played a significant role in the current global crisis. They are of the view that most emerging nations had to react quickly to the crises given the fact that they could not rely on the borrowed reserves. The impact was therefore less adverse than that felt in the established economies. The 2008 financial crisis is considered the worst ever experienced in recent times since the great depression of the 1930s. Most countries experienced a fall in employment, output and trade, with GDP in the developed economies falling at an average of 4.5% by the end of 2008 (Chen and Alfaro, 2). The crisis did not spare the important sectors of the economy, with financial institutions facing the worst impact. Multinational companies experienced slow growth during this period, with most of them registering great losses. The losses were mainly due to the fall in the global trade volumes. The main causes of the crisis are yet to be pointed out but many scholars point to the fact that it came about as a result of the US housing bubble burst. A number of scholars are of the opinion that globalization as well as capitalistic tendencies is to be blamed for the global crisis. Aslund & Dabrowski (2008) argue that the world economy has reached its highest level due to globalization but the concept of globalization has come with a number of challenges. The main challenges they focus on is economic imbalance and financial crises. They point out that one challenge that globalization has brought about is the imbalance in international payments. While some nations like Russia and China have huge international reserves, others like the United States and Central and Eastern European countries have large current account deficit. In addition to that, they are of the opinion that the most benefits brought about by globalization are not real. They claim that globalization has led to higher inequality between the poor and the rich across the globe. Callaghan (2014), points out that globalization has brought about a number of risks one of them being dislocation within the financial markets. He points out that this may happen due to lack of regulations and scale of capital movements. Apart from that, another risk associated with globalization is that while some countries will experience economic growth, others, especially those in sub-Saharan Africa, will be left behind since they are yet to take advantage of globalization. Another challenge of globalization is that it has resulted to great competition between different states and the risk here is that that the developed countries might find it hard to keep up with the pace of competition thereby resulting to such countries opposing the whole idea of globalization. Globalization is said to pose four main challenges. The first challenge is to ensure that all countries in the world benefit from globalization. This a very difficult issue to tackle due to the fact that different nations in the globe contribute differently to the world economy. In addition to that, not all states have taken up the opportunities that globalization presents to them. The second challenge of globalization is the fear in developed countries that globalization will lead to instability. Another challenge faced by globalization is increased global competition will lead to increased wages demands, labor rights and better working environment (Sewell, 2014). Griswold (2014), gives a deeper explanation of the challenges of globalization. He states that the critics of globalization argue that it has undermined both environmental and labor standards. In addition to that, the critics are of the view that globalization has widened the gap between the rich and the poor across the globe and even within individual countries. Griswold explains that liberation of trade will make the developed countries to weaken their environmental and labor standards in order to compete with the developing nations where production is less regulated. In addition to that, globalization faces a challenge from environmentalists who argue that it encourages free trade but is silent on environmental protection. The 2008 financial crisis came with a number of negative factors. The reduced power of financial institutions to lend out money meant that businesses could not borrow funds to expand their operations (Mitra 2010, p.212). Currently, banks in the developed nations have reduced their lending to both individuals as well as organizations. This has led to fall in the rate of Foreign Direct Investment as well as local investment (Savona et al 2011, p. 121). Chen and Alfaro (2 ) state that the sales of companies affiliated to multinational corporations fell by 4.6% in 2008. This was a sharp contrast to the previous years when the sales by multinational subsidiaries had grown by 24%. The growth rate of the multinational corporations also fell to -4.4% in 2008, compared to 20% growth rate in 2007 Conclusion Many scholars have analyzed the global financial crisis. He is of the opinion that this global crisis, unlike the great depression, is made up of converging and interacting crises that can be viewed from different perspective. There has been a downfall in the rates of employment, profitability as well as growth as result of the global crisis. Gill is of the view that the current crisis can be viewed as three independent aspects: Capital accumulation crisis, systematic crisis and civilization crisis. Reference list Aslund, A. & Dabrowski, M. (2008). Challenges of globalization. Washington, DC: Peterson Institute for International Economics, Center for Social And Economic Research. Callaghan, L. (2014). Opportunities and risks of globalization | interaction council. [online] Available at: http://interactioncouncil.org/node/73 [Accessed: 24 Feb 2014]. Chen, Maggie, and Laura Alfaro. Surviving the Global Financial Crisis: Foreign Direct Investment and Esstablishment Perfomance. N. p., 2010. Web. 24 Apr. 2014. http://www.hbs.edu/faculty/Publication%20Files/10-110.pdf Grisworl, D. (2014). The blessings and challenges of globalization. [online] Available at: http://www.cato.org/publications/commentary/blessings-challenges-globalization [Accessed: 25 Feb 2014]. Mitra, P. (2010). The Impact of Global Financial Crisis and Policy Responses the Caucasus, Central Asia and Mongolia. Global Journal of Emerging Market Economies, 2(2), pp.189--230. Obstfeld, M. (n.d.). Global economic crisis. 1st ed. Reinhart, C. and Rogoff, K. (2010). From financial crash to debt crisis. Savona, P., Kirton, J. and Oldani, C. (2011). Global financial crisis. 1st ed. Farnham, Surrey, England: Ashgate. Sewell, J. (2014). Challenges of globalization. [online] Available at: http://www.carnegiecouncil.org/publications/archive/dialogue/1_11/relevance_social/588.html [Accessed: 25 Feb 2014]. Read More