Globalization and Convergence of the Labor Market Regulation - Coursework Example

? Globalization has led to a significant degree of convergence in markets and in business practice. As a consequence of this, the risks associated with international business operations have decreased Introduction Globalization is an aspect observed in the renewed world system. It is being regarded to be an important influential force that would help in determining the coming features of the world. It has several dimensions that can be in the form of economic aspects, political decisions, security concerns, environmental and health issues as well as social and cultural dimensions. "Globalization" is understood as a source to bring in major increases in the world trade along with trade exchanges within an open, integrated economy that would span across borders. Remarkable growth has been observed in such form of trade or exchanges that had been observed not only within the traditional international trade of goods and services, but was also observed in the exchanges of country currencies, in various capital movements and many more. One aspect featuring the extent in globalization has been the volume in international financial transactions that peaks over $1.2 trillion every day as per the New York currency markets (Intriligator, 2003, p.4). Globalization has also led to greater openness within the international economies resulting in integration across worldwide markets. A second aspect of globalization has been the liberalization of trade and other different forms in economic liberalization. This has resulted in reductions in the trade protection norms thus establishing a more free world trading system (Intriligator, 2003, p.5). The third aspect of globalization has been the changes as seen in the institutions where the organizations had wider reach apart from the technological advancements and the wider horizons for the managers that were facilitated by the advances made in communications (Intriligator, 2003, p.6). Globalization and convergence of the labor market regulation- an assessment An assumption seen across industry analysts is that globalization has led to an increased convergence in the traditional national economies, labor regulation and ability for tax capital (Drezner, 2001, p.1). The globalization concept says that an increased trend in bringing together the lower economies of the world by increasing world trade would contribute in capital mobility as well as the global operations in the multinational companies that would propel technological changes, even out the wage and productivity differences across economies. The term “convergence” has been found to have an ambiguous definition. As had been mentioned by Daniel Drezner “the scholarly work on this subject is spread across multiple disciplines, including law, economics, political science and sociology. The problem leads to a certain redundancy in theory building, as disciplinary boundaries prevent ideas from spreading across fields” (GAHAN, et al. p.8). The increase in the imports and the exports seen in the overall output level provides a clear picture of the extent the globalization has spread across the goods markets. Foreign goods are now available in all countries today than was not seen previously. This was the proof for the product market expansions due to globalization. Though globalization has led to an integration of the global markets and reducing labor costs, it is also believed in some literature that that globalization had increased the unemployment situation and widened the levels of income disparity (Slaughter & Swagel, 1997, p.6). An important trend that has been observed in the labor markets present in the advanced countries has been the rapid shift in the demand moving from less skilled workers to the better skilled ones. This trend had led to a dramatic increase in wages and the income inequality observed between the two sets of workers found in some country, along with the unemployment levels as amongst the less skilled workers in different countries. What explains the differences in outcomes for wages and employment across countries is differences in labor market structures. In countries that have a relatively flexible wage structure seen in the decentralized form of labor market places such as United States of America and the United Kingdom, the reduction in the relative demand for the less-skilled laborers had manifested itself into a lower wage structure for the same workers. In contrast to the countries that have a relatively rigid wage structure found in the centralized labor markets as in France, Germany or Italy, it had led to lower form in relative employment (Slaughter & Swagel, 1997, p.7). Another question that makes the round is if an increased international trade conducted with the developing nations have in fact, worsened the income inequality (Slaughter & Swagel, 1997, p.8). Economic theory had suggested that this form of international trade had always affected the prices of the products for both the exporting as well as the importing nations that in turn also affects its price of labor which means wages in countries getting influenced by demand for labor. Theory also suggested that an import competition often lowers the prices of the products in the form of apparel and footwear that are made by the low-skilled labors in comparison to the prices of those products in the form of office equipments which are made by the skilled labors such that the domestic firms get a tendency to move towards manufacturing more skill intensive products or goods (Slaughter & Swagel, 1997, p.9). The United States generally tends to export the skilled-labor-intensive goods and to import the unskilled labor-intensive goods. This had led to an increase in the importance of trade as in the U.S. economy which increased the supply in unskilled labor in comparison to their supply for the skilled labors. Analysis had suggested that the trade had accounted for almost 15 percent in the overall rise seen in income inequality as in the nineties but which had diminished in the later years (Slaughter & Swagel, 1997, p.10). Thus we can conclude that globalization had led to two facets in the labour and capital markets of the world. Globalization as seen in the financial markets Benefits Financial globalization is seen as an integration of the country’s financial system along with the international financial markets or the institutions. The integration generally requires that the local governments liberalize their domestic financial markets and their capital account. Integration can occur only when the liberalized economies of the world bring in an increase in the cross-country movement in their capital that would call for an active form of participation from the local borrowers or the lenders in the international markets. This would also require a widespread usage of the international financial intermediaries (Schmukler, 2004, p.2). The potential benefits arising from financial globalization would probably help to build a higher form of a financially interconnected world making it essential to conduct a deeper degree in financial integration for the developing countries with the international financial markets. Perhaps, the main benefit that can arise from financial globalization for these developing countries would be the development in their financial system that would involve participations from a complete, deeper, and stable as well as a form of financial market that would be better regulated (Schmukler, 2004, p. 3). Financial institutions, by the internationalization of these financial services cab evolve as major driving force for contributing in financial globalization. Financial globalization can thus help to improve the working of any financial system by two main ways. Firstly, financial globalization can improve the availability of capital or funds. Secondly, financial globalization can help to improve the infrastructure of a financial institution that can lessen the problem faced by asymmetric information (Schmukler, 2004, p,. 7). Risks Financial globalization also bears some forms of risks. These risks often appear in the short run for the company, especially when the countries open up for financial trade at international levels. One of the well-known risks has been that of globalization which could be associated with financial crises. The crisis seen in Ecuador 2000, Turkey 2001 and Uruguay 2002 are a few of the examples arising from financial crisis that gained worldwide interest (Schmukler, 2004, p.3). If the market fundamentals are found to deteriorate, a speculative attack would occur in the capital outflows that could be generated by both the domestic as well as the foreign investors. The local markets should be always properly regulated or supervised. The need for a strong fundamental is the key as despite of every other aspect remaining the same, financial globalization could lead the country to an intense level of sensitivities such as the foreign shocks. Moreover, different international market imperfections, in the form of herding, or panics, and the boom-bust cycles, or the fluctuating tendency of the capital flow could lead to severe crises (Schmukler, 2004, p.4). Globalization could also bring in to crises arising out of the importance for external factors, even for countries having sound fundamentals or even in any absence of imperfections as in the international capital markets. If a country gets increasingly dependent on the foreign capital, a sudden movement in the foreign capital flows could lead to financing difficulties as well as economic downturns (Schmukler, 2004, p. 9). Globalization as in the stock markets of the world Stock markets can be regarded to be pulse of an economy for the present century. It seems to control the backbone of the economy of a country. With increased globalization, the different stock markets of the world got to do business daily or in precise terms twenty hours in the day. Market integration manifests itself as the convergence in the stock valuation ratios in the market in the long run, where the valuation ratios are found to be reactive of the stock fundamentals that get driven by the common global consequences across the markets. In an international setting, globalization brings about an increased form of cross-border economic as well as financial activities, an advancement in the information technology as well as a dramatic evolutions in the financial markets (Tamy & Tamz, 2012, p.9). The stock market fundamentals seen across the markets get increasingly driven by the global macroeconomic or the financial factors. For matters that are related with the stock markets, any expected rates of return (ROR) on the investments would tend to vary across different markets, especially between the developed nations and the emerging markets (Tam & Tam, 2012, p.12). The process of global stock market integration was seen to be time-dependent in its nature, as there were many emerging markets which were still undergoing profound development in the fundamentals of their stock markets. Apart from these, the transition paths as observed in many developed as well as the emerging markets for an ultimate convergence gets constantly disturbed or perturbed by the shocks arising out of the global political or economical or financial events. We can also discuss the effect of globalization on the banking industry across the world. The banking system of Egypt can be explained in this context. After the application of the Economic Reform Program in Egypt during the early 1990s, Egypt had paid tremendous attention in order to reform its banking system by merging within the established domain of financial globalization (Kenawy, 2009, p.10). Economic Reform Program had had a positive impact over the performance seen in the banking system. The banking system had also accepted the BASEL committee norms. Globalization has also led different foreign banks to collaborate with the lesser known emerging banks to raise or grant capital. Globalization and mergers and acquisitions One of the important aspects of globalization has been the increase in the mergers and the acquisition in the business world that had reduced the level of operational risks to a great extent. Mergers and acquisitions (M&A) as observed in the corporate scenario has been achieving increasing importance or attention due to the increasing advent in globalization. Thompson Financial reports as in 2005 had announced that the worldwide M&A deals volume stood at US$2.7 trillion, that was a 38.4% increase from 2004 when the value stood at US$2 trillion level. As per the year 2004, the US deal value had by increased by 33.3% to US$ 1.1 trillion that was announced in deals as in 2005, European deal volume had gone up by 37% amounting to US$1.2 trillion that was also in announced in deals, and the Asian deal volume saw an increase of 64% to US$280 million that again was announced in deals (Hoang & Lapumnuaypon, 2007, p. 6). Many organizations across the world had been considering to incorporate M&A strategies in order to cost synergies that were against increased competition, the pricing pressures, the gaps seen in the product mix and the asset concentration. According to Datamonitor (2007), the global investment banking along with the brokerage industry had generated a total revenue amounting to of US$ 57.5 billion in the year 2005, amongst which US$19 billion was generated from the M&A segment alone (Hoang & Lapumnuaypon, 2007, p.6). There are many reasons that can explain the trend for industrial consolidation. One of the reasons is with the increase in multilateral trade agreements as well as the reduction in national trade or investment barriers, the average worldwide levels in tariff had dropped from a level of 40% to 6% as observed during the past twenty years. This provided ample opportunity for the companies to expand their trade internationally. Besides, cross border M&A could lead to a reduced risk on failures of the business ventures. Cultural failures could lead to an unsuccessful M& A (Lanave & Stullein, 2010, p.3). A successful cross-border M&A is one that has the capability to embrace the cultural diversity in the form of a creative and a fertile source in a positively new ‘ways of doing things’. This goes a long way to build a ‘third culture’ that could be shared by all the employees as well as be embraced by the external stakeholders. Globalization as a form of risk sharing It is often questioned what impact globalization has on welfare and sharing risks. Newbery and Stiglitz (1984) had provided an early and an influential example for how this could happen. They had assumed globalization to be a reduction in the trade costs as seen in a developing open economy. Before globalization, the shocks to the production levels could lead to many offsetting movements in the goods prices that could stabilize the individual incomes. After globalization, the shocks to the production could no longer affect the goods prices and thus the individual income became volatile. Newbery and Stiglitz had also showed that these costs resulting from the worsening of risk sharing could exceed most of the gains made from goods trade that could eventually lead to a welfare loss (BRONER & VENTURA, 2011, p.1). Newbery and Stiglitz, however, could not explain as to why the individuals were unable to insure themselves against any income risk. This was shown by Dixit. Dixit had shown that globalization would lead to welfare improvements as long as the exogenous restrictions do not get applied on the features of the private contracts that are made or the different types of government policies which could be feasible (BRONER & VENTURA, 2011, p.1). Conclusion Globalization is a feature that has impacted almost all aspects of the business industry. Whether it is financial or non financial, there will be an element in the sector that would be impacted by globalization. As explained from the above different sectors, globalization helps the industries in various ways. It helps in boosting not only the economy as a whole but lowers various risks too. As seen in the financial sector, increased globalization helps in reducing the risks of liquidity and fund shortage. Through globalization, the different banks around the world are connected with each other. So if any bank faces the liquidity crunch it can immediately borrow it from its related bank. The stock market is heavily dependent on globalization as it functions all throughout the day. There are different facets of the stock market industry that is dependent on the technological advancements made because of globalization. But still there are certain concerns over if globalization leads to inequality of income and unemployment. As stated in the IMF report, as per the records of the 20th century, the global average level in per capita income had increased strongly, but with a considerable variation as observed among the countries. It was thus clear that though the income gap seen between the rich and the poor countries had widened for many decades. It led to the conclusion that the output per capita had increased appreciably but the overall distribution in the income among the countries had become more and more unequal than it was during the beginning of the present century. That this income gap as observed between the high-income and the low-income countries had widened wider had become a matter for concern. Also the large number of people in the world living in poverty was deeply disturbing. It can be assumed that globalization had thus led to divergence but it would be inappropriate to jump to any conclusion that this form of globalization had led to the divergence across countries and there was no solution to improve the worsened situation. It has been shown that it were the low-income nations that were not being capable to collaborate with the rapidly growing globalization as the other developed nations. This was partly due to their chosen governmental and societal policies and partly due to the factors beyond their control. No country even if it is the poorest of all nations can today afford to alienate or remain isolated from globalization or from the remaining world. Every country must take initiatives to reduce its levels in poverty. The international community must perform here by strengthening its international financial system by engaging in trade and by sending aid of many types to help these poorest countries mingle and join into the world economy that would also help them to grow more rapidly thus reducing poverty. That would be the way for ensuring that all countries have an access to the different aspects of globalization (IMF Staff, 2000). Thus we can conclude that globalization does lead to convergence and risk mitigation in many ways. It is at the discretion of the country to frame its policies adequately so as to reap in the maximum benefits of globalization. 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