Globalization Is Good - Essay Example

Debate: Globalization Is Good

Introduction

The integration of investments, trade, capital, labour, and technology across has facilitated progressive economic growth. Globalization features an integrated world system where sovereign countries and private players exchange ideas, inventions, culture, and productions with the sole aim of making significant progress (Asmussen and Devinney, 2011). The social, economic, political, and cultural advancement made in the recent decades reflect an international system with a high degree of interdependence. Nonetheless, globalization remains a complex and controversial phenomenon in the world economy (Lester, 2011). The following paper seeks to analyse and present highlights some of the controversial or demerits that globalization has brought to the global economies. Globalization has brought unemployment, diminished role of sovereign states, the threat of transnational corporations (TNCs), wage stagnation, environmental costs, low cultural, diversity, and a regime of tax evasion. However, the phenomenon has intensified trade, the emergence of new economies, the growth of middle class, and poverty reduction.

The Discontents of Globalization

Diminished Role of the State

The governance of sovereign countries diminished in the new wave of globalization. An era geopolitical conflicts have emerged between developing and developing countries due to the threat of status quo (Scherer and Palazzo, 2011). While the world economy features an integrated system of ideas, innovation and trade, countries must negotiate their positions particularly in the developing countries with high multinational dominance. In addition, the collusion between absolute corrupt powers and multinational companies provides a limitless access to wealth for a small population at the expense of many citizens. The World Bank (2016) admits that the diminished role of the states in the developed economies is the primary for the high poverty statistics. While globalization seeks to promote equality for states and individuals across income groups, the history of industrial revolution favours the few developed countries, which dominate in the international economic systems.

The Threat of Multinationals

Globalization has led to the increase the transnational companies (TNCs) seeking to exploit the global trade opportunities for raw materials. However, the TNCs have become a threat to the growth of the developing economies with natural resources. The substantial driver of multinational expansion is the manufacturing opportunities other than the growth of the individual states (Tan, 2009). Most of the oil producing countries in Africa has a large manufacturing base, but they do not have corresponding GDP growth. The companies repatriate their profits to the homeland countries due to the loose taxation regimes in the developed economies. TNCs drive global inequalities instead of becoming the engines of growth (Schuster and Holtbrügge, 2012). The companies fail to implement corporate social responsibility despite strict guidelines from WTO and European Union among other governing bodies. TNCs have become a threat rather than an opportunity for fostering growth in the global economy. Furthermore, the threat of TNCs has introduced an era of tax avoidance, competition, and non-compliance.

A Regime of Tax Avoidance, Competition, and Non-Compliance

TNCs have advanced the idea of transferring profits to their subsidiaries due to the free trade movement. Developing countries face significant losses by failing to implement stringent tax compliance measures for foreign firms at the expense of the domestic organizations (Clausing, 2009). Offshoring has facilitated the new era of tax avoidance among manufacturing companies, which only pay little taxes to the host countries. In addition, the multinationals bring unfair competition to the domestic firms because they benefit from the same corporation tax structures. While the TNCs provide FDI countries, have not registered corresponding growth in tax revenues. According to Sikka and Willmott (2010), transfer pricing has been the greatest threat to economic growth in OECD countries in the recent decade. Globalization opened up new opportunities, but it has created a loophole for corporate tax avoidance. Moreover, wage stagnation is a common occurrence in an era of globalization.

Wage Stagnation

Wage stagnation is among the adversities created by globalization. Most of the U.S and U.K companies are offshoring to China to reduce the cost of production, but the strategy has reduced the proportion of wages paid to the workers in the host countries (Weiher and Beladi, 2011). Outsourcing is a growing trend threatening the wages of lower income groups as well middle class due to outsourcing. TNCs opt to manufacture in developing countries to take advantage of the competitive wage structures. The emergence of low-wage employment is a threat to both developed and developing countries due to the inexistence of relevant control measures. Consequently, 12-15% poverty level reported by the World Bank (2016) will increase in the coming years. Unemployment in the U.S and U.K due to outsourcing creates a population of poorly reimbursed workers in the destination economies. Conversely, outsourcing has led to decreased employment in developed countries.

Decreased Employment

The greatest threat global growth is the increasing unemployment due to outsourcing. Globalization encourages companies to consider shifting their production location to destinations with low labor costs. The resultant effect is loss of jobs in the home countries, which hope to benefit from tax revenues. While unemployment rates in U.K have reduced to 5.4%, the Office for National Statistics (2016) admits that outsourcing will drive job cuts in the next five years. Npower confirmed 1460 job cuts in 2013, which was 13% of the UK workforce, to facilitate restructuring and finance outsourced operations in India (Gosden, 2013). On the other hand, the overall globalization of industries has led to significant environmental costs.

Environmental Costs

Increased utilization of non-renewable resources in the globalized world brings environmental consequences. The intensities of pollution and global warming are high due to the existence of relaxed climate change policies in developing countries where most TNCs are offshoring their production (Lester, 2011). The creation of satisfactory environmental standards in the EU region aimed to increase environmental responsibility among global firms within and beyond the region. Globalization remains a central challenge to the sustainability of the forest ecosystems among other outlets that support global food production. In addition, urbanization is a subset of globalization, which has created a high demand for land use expansion. Meyfroidt et al. (2013) argued that uncontrolled utilization of land limits agricultural production meant to feed at least 9 billion people annually. In addition, the greatest threat of globalization entails loss of culture

Loss of Cultural Diversity

Countries are losing their unique traditions to fit in the newly integrated global system. Economies are struggling to retain their indigenous practices to benefit from free trade among other major developments experienced through globalization (Stiglitz, 2015). Increased economic activity should promote cultural supremacy to give countries a competitive edge in the global market. Building and advancing economic, social, as well as political agenda in the globalized world, calls for retention of cultural diversity (European Commission, 2016). Nonetheless, the globalization wave threatens the existence of established cultural-based economies such as China. Nonetheless, the phenomenon has brought noteworthy benefits.

Merits of Globalization

Intensified Trade

Both developed and developing sovereign nations have benefited from increased trade due to rapid globalization. The rise of multinational companies has led to inroad markets due to the growing demand for various goods and services (Asmussen and Devinney, 2011). Some of the goods on high demand include automobiles, electronic equipment, and food products. The response for intensified trade in the developing countries has been high due to the growing but capable populations. Companies with more revenues and profits have created high-waged workers, who can afford diverse goods and services. In addition, the concept of the free between countries has become common, which has increased overall capital liquidity for global investors. The flexibility of the multinational in extending their operations in various countries has reduced the trade barriers that used to impede global market before the advent of globalization. World Trade Organization (WTO) (2015) confirms that the world has experienced trading stability for the last 30 years guided by the steady flow of commodities from industrial and non-industrial countries.

Emergence of New Market Destinations

The emergence of new market economies other than the traditional U.S and U.K markets has been the greatest world achievement due to globalization Lester, 2011). Countries such as Brazil, Russia, India, China, and South Africa (BRICS) have registered significant growth in the recent decades due to the flexible international trade. While the growth of BRICS features considerable problems such as environmental pollution and unplanned urbanization, the availability of the alternative trade routes is a key element of the overall world growth. Levy Yeyati and Williams (2012) attribute the growth of the emerging economies to the financial recoupling due to the advanced business cycle in the globe. The study acknowledged stronger economic ties in BRICS countries due to financial globalization. In addition, the rise of the global equity and bonds funds creates a new financial pool where sovereign economies such as India and South Africa can invest or borrow to foster development (European Commission, 2016). According to Madhok and Keyhani (2012), the internationalization of manufacturing beyond advanced economies has created a new platform for entrepreneurship despite historical and institutional differences with the old stabilized economies. Globalization has eradicated a significant proportion of poverty, particularly in the developing countries.

Significant Poverty Reduction

Poverty reduction remains the agenda of the new economy created through globalization. The rapid integration between developing and developed has reduced extreme poverty cases in last ten years due to the substantial flow of foreign direct investment (FDI) and technological advancement. The World Bank (2016) admits that the world economy registered a historical low of 17% in 2011 from the 52% in 1981. India and China are among the economies with the highest poverty reduction numbers, which is attributable to the economic growth through globalization. Ravallion (2010, p.72) found that the macroeconomic stability in countries such as Vietnam, Honduras, Brazil, India, China eliminates the decades of inequality.

The success of Brazil and India is due to the market-oriented reforms directed towards poverty reduction. World Bank (2016) acknowledges the market-led growth removes the low inequality due to high investment opportunities for all income groups. Barrientos and Hulme (2009) acknowledged the consensus by developed countries to create viable global platforms so that impoverished nations can benefit from the economic and social development irrespective of the existing regional diversity. The emergence of new entrepreneurship opportunities through globalization has led to the rise of the middle-class group.

Expanding Middle-Class Group

The emergence of the middle class in the developed and developing countries such as China and Brazil shows a considerable consumption of goods and services available through the intensified trade. According to Eisenhauer (2011), the population is among the key drivers of the new markets due to poverty reduction efforts. While the definition of the middle class varies in developed and developing economies, the increasing number of workers seeking financial stability constitutes a population joining higher social ranks. Globalization has been the substantial driver of the national and regional growth, which has expedited the easy access to goods and services.

Countries such as Vietnam, Bangladesh, and Indonesia enjoy a fast growing trend that empowers middle-class rank (Worldbank.org, 2016). The economic advancement and global distributional shifts in the 2000s have been the source of support for at least 1.2 billion people in the developing countries (Martin, 2010). An expanding middle class in Africa and South East Asia reduces the median poverty, which further increases the rich standards of the affected economies. Globalized trade and opportunities for all income groups will continue to expand the middle-class population in the coming years. On the other hand, overall life expectancy increases due to the income-generating opportunities created through globalization.

Conclusion

The shortcomings of globalization outweigh the benefits. The few advantages associated with globalization include intensified trade, the growth of middle class, poverty reduction, the growth of emerging economies have contributed to noteworthy growth in the world economy. However, the World Bank confirms poverty levels are still high due to outsourcing by multinational companies. The rapid industrialization and trade have brought environmental costs, wage stagnation, as well as unemployment to developing countries without the financial clout to compete. The new regime of tax evasion and environmental degradation through globalization threatens the future of the generation considering the increasing population against the available non-renewable resources. Relevant social and economic measures would suffice to combat globalization vices.