What factors have shaped the processes of globalization - Essay Example

Globalization Introduction Globalization refers to the democratization and integration of the economy, culture, and infrastructure through the transnational investment, the rapid proliferation of communication information technologies, impacts of the free-market on national, regional and local economies. Dr. Mahbub-ul-Haq of Pakistan defined globalization as a fact rather than an option. The developing countries should either learn to manage it skilfully or either be drawn in global, cross currents. The process of globalization started as earlier as mankind began trading (Garrett 154-171). Throughout history, globalization had had a number of bursts such as the time of great explorers, colonial experience, industrial revolution and transport revolution. The world has progressively shrunk with economic time and space. Globalization can also be defined as a process which based on the international strategies and it aims at expanding the business operations worldwide. It is usually precipitated by facilitation of the global communications in technological advancements, political, environment socioeconomic developments (Guisinger 65-69). Globalization can also be defined as process of the growing interdependence between people in the world. People are linked socially and economically by investments, trade and governance. The links are spurred by the liberalization of trade, information, communication and transport technology. Normally, any global economy is considered as an unprecedented phenomenon and should not be confused with the economic internationalization. The world economy has been in existence since 16th century based on development of the international trade, migration and foreign investment. The national state acts as engine of the national state. A globalized economy has the potential of working as a unit on a planetary scale and in real time. Globalization may be as a result of growth of the multinational corporations, increased international trade, and application of computer and information technologies and the internationalization of finance (Guisinger 65-69). However, definitions for globalization vary based on approaches and sentiments by the definer. Globalization and globalism are used to express similar phenomena. Globalization is the process while globalism is the approach. The two can be differentiated with usual implication of globalization being negative and globalism being positive; globalization refers to the process through which corporations move their factories, money and products throughout the world at extremely rapid rates in quest for cheaper raw material, labour, and the government may ignore and abandon the environmental protection, labour and consumer laws. Ideologically, this is unfettered by moral and ethical considerations. On the other hand, globalism entails the belief that the world is a fragile planet form survival, and it requires careful treatment and mutual respect for all the people. Therefore, like all the values and ethical beliefs, it calls for active practice in the daily lives. The three central features undergirding globalism include communication, resource sharing and mutual aid (Guisinger 65-69). Causes of Globalization The state ventures like colonial conquest act as key drivers to the globalization process. Globalization has reflected the market forces, particularly the exploitation the exploitation by both large and small businesses leading to a lot of benefits from the trade in commodities, capital and opportunities for emerging investment and markets. The global economic integration has been perpetrated through the behest of the World War II after leaders in Britain and United States enhanced the establishment of the international monetary fund and World Bank, to promote capitalistic and liberal world to counter the effects of Marxism and Socialism. The World Bank and IMF grant loans on condition that borrowing country reduces the role of the state in economy, remove the restrictions on the foreign investment, decrease the barriers on imports, eliminate the subsidies for the local industries, wage reduction, reduction of spending on social welfare and to emphasize of export production instead of local consumption. The imposed conditions act as the foundation to the open economies in steering the economic integration mechanism (Mayer-Foulkes 2009 23-27). In mid 1950s economies in Pakistan benefited from joining international defence treaties with United States. This marked the beginning of enduring trend to ensure that the strategies are followed and promoted globally, and it was termed as development fashion listing the seven sins of the economic planners. Before the development of economic theory, the practice was redesigned in a significant way of addressing the lingering issues of the social justice that was literally hijacked to enhance an aggressive service to the agenda on mobile global capital to enhance a deeper integration of the national economies into ideological and structural framework for the neo-liberal globalization. The donor countries use foreign debts in breaking the resistance for the imposition of the external economic development policies and agendas (Mayer-Foulkes 2009 23-27). Factors shaping the globalization process The world is experiencing rampant changes in the globalization process. The technological determinism contends to the shrinkage of space and time which has been so dramatic and pervasive. The changes in technology have propelled the international economic activities and governments have been extremely irrelevant. Liberalization of the policy has been understood through acknowledgement of the government of the futility of resisting globalization instead of acting as the prime mover in the market integration. The technology perspective of globalization is reflected in multinational production and international finance. The governments can influence the control at the cross-border liquid movements in capital. Contrary, though the internet creates problems, it makes it easier for governments to regulate the cross-border movement of goods (Rapoport & Gerts 45-62). The global trends can be as a result of the declining barriers due to the voluntary choice by governments to liberalize the trade across the borders. Countries persisting with the protectionist barriers that affect the economic behaviour as well as sending the support signals to the constituencies that are adversely affected by the market integration. The technological determinism regarding the international finance can be considered in terms of the internet, semiconductor technology and the fibber optics which have cut the transmitting costs radically in the past years. The financers can operate wherever they are cutting the deals in the financial instruments that come up. The regulation of the financial flows at the international level is attributed to the IT revolution (Rapoport & Gerts 45-62). The technological changes have increased the international integration. This has enhanced the insulation to the external market forces by governments. This has also increased the opportunity costs for the closure. The gains of openness for the hypothetical efficiency offset the costs caused by volatility and uncertainty of the international financial markets. The increased costs for the closure have enhanced liberalization of the foreign direct investment which is a key driver for growth. FDI provides the transmission mechanism used for the diffusion of the technological innovations and managerial skills (Rapoport & Gerts 45-62). The government policy has been a key contributor to globalization. The phenomenon is a political construct that fails to improve economic conditions for the society as a whole. The contemporary globalization lay in Thatcher revolutions, and they were spread out by the EU and Bank of International Settlements, and extended by the World Bank and IMF (Rapoport & Gerts 2010 45-62). Nevertheless, these ideological changes can be endogenized in terms of the technological determinism within the international finance as well as the increase in the opportunity costs. The domestic political incentives for the governments enhance the maintenance of the restrictions on the cross-border capital movements. As a result, the policies send negative signals to the financial markets and many governments may be unwilling to undertake the risk. Trade and multinational production affect globalization. The movement of physical goods across the national borders is transparent where governments monitor the activities. The national borders are extensive, and smuggling affects the trade. The costs of closure have increased free trade and globalization (Rapoport & Gerts 45-62). The Global Economic Crisis and globalization The financial crisis in 2008 was preceded by the credit crunch in 2007. This transformed the benign global political and economic context that ensue a sharp contraction in the global growth. Further reinforcement in de-globalization was caused by trade, FDI and other globalization channels. During this time, the global economy experienced the worst deglobalization since World War II. Contrary to the predictions, Asia was dragged down, and it did not decouple from the west. The banks and the balance sheets were considerably solid, and they suffered deglobalization. The crisis accelerated the shift of the economic gravity to the East giving rise to the sunny Asian optimism. This contrasts sharply to the Western boom. The global economic outlook for most countries remained uncertain due to the turbulent economic times (Rapoport & Gerts 45-62). The policy responses by the East on crisis cause a lot of trouble. The estimates by IMF reflect 0.8 GDP in the world in 2009. The effects of economic crisis on globalization have dramatically been reflected in finance where the international capital flow contracted by 82% in 2008 while loss of value for the financial assets reached $50 trillion at the peak of contraction, in 2009. The lending by the cross-border bank fell by $5 trillion from March to December 2008. The IMF estimates on the volumes of international trade indicated a contraction of 11.9% in 2009. This concentrated in the merchandise goods that led to the collapse of the global industrial output. The East-Asian countries were the ones who were hit hardest due to the crashing of the demand for durable investment and consumer goods. Some parts of the trade suffered equivalently, especially tourism, financial services and transport. Services like professional and business were resilient in registering modest growth. The shrinking of the trade from individual countries led to the global decline in trade. The services in United States traded at an increased level by 2009. The global FID decreased by 15% in 2008. The remittances from the migrants fallen by 5-8% in 2009, while the world tourism projects arrivals fallen by 2-3% in 2009 (Rapoport & Gerts 45-62). The global economic crisis triggered the shift in ideas and policies on free markets to favour the government interventionism. The pro-market reforms in the world slowed down prior to the crisis. This resulted to increased scepticism of policies on liberalisation and globalisation. However, crisis marked the end of free markets and limited the interventions by the government. The government interventions were evident in the economic policies. The domestic crisis interventions were bunched into associated subsidies and massive bailouts but were not confined to the financial services. The automatic stabilizers resulted to the measures on the fiscal crisis amounting to approximate 10% GDP in 2009. This was supported by the near-zero interest rate, emergency monetary policy and the central bank purchases for the government debt. Nevertheless, the financial bailouts have dwarfed the economic interventions. The total economic stimulus and support to the financial sector amounted to $12 trillion in United States and $18 trillion in EU. The financial bailouts within the high-income countries traded at 28% GDP in 2008 (Rapoport & Gerts 45-62). The massive bailouts on the banks are critical in averting the financial Armageddon, and the fiscal stimulus was vital in boosting the aggregate demand. The bailouts from the banks occurred in extreme conditions in late 2008. The extra policies on lose money injected liquidity superdose to prevent fatal contraction of the money supply in 1930s. The fiscal policies least affected the GDP and getting the right policies was a challenge to substantial economies. Wreckage of the public by the physical stimulus packages is a reality. The recent packages reinforce the unsustainable trends in deficit, and public debt in many countries is projected to reach high levels within a short duration. The politics and microeconomics for profligate and financial bailouts are vexing (Rapoport & Gerts 45-62). The consequences of globalizing the economy Globalizing an economy entails increasing the competitiveness of an organization to reduce the operating costs in order to gain a greater number of the customer as well as increase the quality of both goods and services, and this is achieved through the diversification of resources and creation of the new investment opportunities. This facilitates expansion of markers and increases the accessibility to resources and new raw materials (Guisinger 65-69). A globalized economy is characterized by adaptation of different strategies, which are based on advanced ideological trends that maintain the balance between rights and rights of the community and individuals. Such changes enhance competition of businesses in the whole world which signifies the dramatic change for the business leaders. The management and labour legitimately incorporate participation of the government and workers in development and implementation of the strategies and policies of a company. This further reduces risks associated with diversification which is accomplished through the involvement of the organization with other international financial institutions, as well as partnering with both multinational and local businesses (Guisinger 65-69). Globalization also enhances reorganization at sub-national, national and international levels. It specifically facilitates the reorganization of the production, the integration of financial markets and the international trade. As a result, the capital markets and social interactions are affected through microeconomic and multinational phenomena, like the competitiveness of businesses at the global level. Transformation of the production systems affects class structure, technology application, capital organization and the labour process. Globalization marginalizes the low skilled and less educated workers. The expansion of businesses does not imply an increase in employment. Most of the human intensive labour may be replaced by new advanced instruments (Guisinger 65-69). The industrial and financial integration has substantially increased and this has created opportunities for developing and industrialized countries. Developing countries have been considerably impacted by the globalization process where they are able to attract foreign capital and foreign investors (Rapoport & Gerts 45-62). Globalization has also been effective in increasing the living standards. Economic globalization increases the accessibility to funds among the developing nations. Such funds are used in various projects such as infrastructural development, healthcare, social services, education as well improving the living standards. Selectively use of such finances means that only few people will benefit. The globalised economies allow access to the new markets leading to freer trade between various countries. This benefits the developing nations. The home-grown industries are able to develop due to fall in trade barriers fall as well as the increased accessibility to the international market. This generates a growth which allows the companies involved developing new technologies, as well as produce new services and products. Globalizing the economy further widens the income disparities (Rapoport & Gerts 45-62). As the influx of foreign capital and companies reduce the overall unemployment and poverty, globalization can lead to increased wage gap between the educated and uneducated. In the long term, the education levels will increase with the increase in financial health of the developing countries; in the short term, the poor people become poorer and remarkably few people will take part in elevating the living standards (Rapoport & Gerts 45-62). Globalization may also decrease the rate of employment. Influx of the foreign companies towards the developing countries increases the rate of employment in various sectors, especially for the skilled workers. Nevertheless, the improvements in technology are characterized by the emergence of new businesses among the domestic companies. Automation in agricultural and manufacturing companies reduce the demand for unskilled labour, and this increase the unemployment rates. Lack of infrastructure for the unemployed train in the globalized economy strains the social services as they try to accommodate the new underclass (Rapoport & Gerts 45-62). Because of globalization, many countries in the world no longer concentrate on the local markets. They have diverted their focus to regional and world class markets. This has changed the domestic production process for the goods. Any country having the resources and the capabilities of producing the commodity may not necessarily produce the raw materials. If someone else can produce the same commodity at a reduced price and higher quality, then they can just concentrate on what they can produce at a better price (Rapoport & Gerts 45-62). Growth in the global markets has promoted the market efficiency through division of labour and competition. This enhances specialization which allows economies and people focus on their best capabilities. Global markets are also crucial in offering greater opportunity for tapping into a more diversified and larger market throughout the world. This increases accessibility to capital cheaper imports, technology and expanded export markets. Such markets do not necessary assure benefits and the increased efficiency. Countries should be prepared to embrace the appropriate policies, as well as support to the international community (Rodrik 177-186). The broad globalization reach easily extends even to the daily choices for personal, economic, and political growth. Globalization can create a cooperation framework among nations on different levels of non-economic issues, which have cross-border implications, like immigration, environment, and the legal issues. The influx on foreign goods, capital and services in a country creates incentives and increases the need for strengthening education system with recognition of the citizens for the competitive challenges affecting them (Rodrik 177-186). While some countries have incorporated globalization and experienced significant increases in income, other countries are opposed to globalization or have embraced it partially. Similarly, employment has been created more in some countries that in others. Income inequality has increased more in most regions and countries. At the same time, the per capita income has risen virtually across all the regions, including the poorest segments of the population. This indicates the better positioning for the poor people during the globalization era. The consumption data from various groups of developing countries reflect the striking inequality between the richest and the poorest people from different regions (Rodrik 177-186). The advantages of globalization are shared more broadly across the population. This strengthens training and education that ensures that workers are equipped with appropriate skills in evolving global economy. The policies involved increase the accessibility to funds for the poor as well as enhancing liberalization of trade. The additional programs entail provision of adequate income support to cushion and ensure continued employment. Equally important, rejection of globalization on the basis of unemployment is incorrect. The dislocation can be due to forces that are independent of globalization and may be much more related with technological progress. People who normally lose through globalization have a high likelihood of being outweighed by the people who benefit from it (Rodrik 177-186). Works Cited Garrett, Geoffrey. Capital Mobility, Exchange Rates and Fiscal Policy in the Global Economy. Review of International Political Economy 7(1) (2000): 154-171. Print Guisinger, Jonathan. The Supporting Conditions for Trade Liberalization. MS: Yale University. 2000. Print Mayer-Foulkes, David. Long-Term Fundamentals of the 2008 Economic Crisis. Global Economy Journal 9(4) (2009): 23-27. Print Rapoport, Maria & Gerts Ragnarsson. The Global Economic Crisis of 2008-2009. Problems of Economic Transition 53(6) (2010): 45-62.Print Rodrik, Dani. How Far Will International Economic Integration Go? . Journal of Economic Perspectives 14(1) (2000): 177-186. Print. Read More