Benefits and Costs of Globalization - Essay Example

Benefits and Costs of Globalization Synopsis According to Anita Roddick globalization means "One of the great myths of corporate globalization is that it will end poverty. It will not! It creates enormous wealth, but only for the elite who benefit from consolidation, mergers, the surge of global-scale technology and financial activity. For the past 50 years — and this is seen in statements by the World Bank and others — the world has seen more poverty than ever and the situation is worse." (http://www.idealswork.com/interview/roddick/roddick3.asp) Professor Richard Haines who is South Africa’s most creative authors on the subject of economics and globalization states that globalization is a resource of anticipation and anxiety for many. What he means is that if globalization flourishes it will ameliorate us with larger markets for manufacturers and improved alternatives for users and if it does not then it will devour us all. The fact of globalization has interested many economists in the past and continues to do so in the present as well. Globalization has many proportions like political, cultural, and economic. Of all the dimensions of globalization economic globalization has attracted many economists, researchers and scholars. This paper attempts to discover the costs of globalization and its benefits. This objective is achieved by formulating a hypothesis and then proving it. Hypotheses This paper has three hypotheses to be proved. They are: a. The paper will try to clear the concept of "globalization" as enforced to the economy of the world. b. It will assess both the latent benefits and the possible costs arising due to globalization. c. It will dwell on how the prices or risks stemming because of globalization can be counterbalanced by broader international group action and the evolution of new worldwide establishments. Introduction According to Hill (2002), globalization indicates a position whereby national economies integrate into an independent universal economic system. It gives a chance to develop further than the domestic markets and provides for a larger level of economies of scale in manufacture and sales. Adam Smith had opined that the level of specialization depends on the dimension of the market. Globalization is directly connected to economic development, which is connected to the expansion of international trade (Van Den Berg, 2001). Maneuvered by the self-established development of world-wide markets and technological advancement, globalization inevitably ruins all antecedently accomplished hierarchic structures. Part played by the nation-state in this circumstance is also extensively losing ground. Multinational corporations rivet huge resources, and become the core bearers of economic action on a global degree. This makes a global refinement in which the market is merged on the global level. The major parts in the economic process are the multinational companies. The role of national states is adorned by the international institutes. International corporate has basic control on the economy and symbolizes natural reaction to the "borderless" financial system which is qualified by homogenous user perceptiveness. These companies gang out national patterns of economy as appropriate units of economic action (Ohmae, 1990). Potter (2002:192) explains economic globalization as “an economy where distance has become less important to economic activities, so that large countries sub-contract to branch plants in far distant regions, effectively operating within a ‘borderless’ world”. On the other hand Inoguchi (2001) sought to distinguish between intercontinental and worldwide economy. International economy indicates significance of national economies functioning as units under the states of a country due to the international economy concerned actions. The economic globalization boomed in 1990s and numerous instances can be brought to authenticate this disagreement (Papers4you.com, 2006). For example Western European combination was the first and initial step taken towards economic globalization by the European countries by signing Maastricht Treaty in 1991. This treaty led to the formation of single market in 1992. This also helped in setting up a base for European Union which went on full operation in the year 1999. In the same way 12 members of European Community and 7 members of EFTA created European Economic Area for free trade. This included 380 million people and they were held responsible for 40% of world trade (Meredith & Dyster, 1999). Hypothetical discussion on globalization The premise of globalization in the present age is an area of exhaustive and multidisciplinary argument. In fact there a number of opposing views to the phenomena of globalization. Ultimately it is defined as means through which the artificial barriers are removed. There are no more barriers to the surge of goods, services and the different factors of production on the world market. This has become possible due to the development of transport facility and means of communication. McMichael (2000) defines globalization as an amalgamation on the foundation of the plan, which elaborates the function of markets on a worldwide level. Waters (1995, p.3) states that globalization is implicit as a social course in which geographic obstructions to social and cultural systems lose significance and where people become more and more conscious that they miss importance. Globalization is the growth of global social relations which connect distant neighborhoods in a way which makes us feel that local occurrences are determined by events taking place several miles away and vice versa (Giddens, 1990, p. 64). Mittelman (2006, p.64) states that there are three theories to define globalization. First, it is defined on the basis of amplification of global streams of goods and production factors taking place because of the modern transportation and communication means. It is also a contraction of time and distance as occurrences in one region of the world will show immediate impact on far-away locations. The third dimension of globalization is to understand it as a historical arrangement of material power. “The roots of globalization are in the concepts that are underneath it. The concepts of economic globalization are the absolute need for economic growth and the viability of the free market. Economic globalization is an acceleration of both of those conceptual frameworks. Those frameworks are not questioned in this society” (http://www. scottlondon.com/interviews/mander1.html, Accessed 13 November 2009). In the area of economics, globalization is contemplated in the altering adoption of free markets and individual enterprise as the chief mechanisms for encouraging economic actions. According to John, (1993) “Its growing importance is captured in such indices as trade in goods and services, private capital flows in different forms, foreign investment, technology transfers, operations of transnational enterprises, business travel and communications, and migration and remittances”. Benefits of globalization Since poverty has not slumped in many growing countries notwithstanding larger economic consolidation, it is significant to examine the impacts of globalization based on the criteria of poverty and difference (Dollar and Kraay, 2004; Harrison, 2005). Globalization has both positive and negative impacts. Competition has grown on a global level. Some companies actually shun competition but the beneficial factor of competition is that it has the capacity to increase production or competence. Broadening of markets has been the effect of competition which ultimately leads to specialization and division of labor. This in turn leads to increases in production. The upsurge in production is not only at a national level, but it is visible at a global level also (Michael, 2003). The next benefit is the economies of scale and scope. This has potentially led to decreases in costs and prices resulting in enduring economic growth. Benefits from trade which both parties gain mutually due to exchange are yet another benefit of globalization. Globalization also brings in altered productivity on account of the systematization of production on a worldwide scale. The spread out of technology and challenging forces for persistent conception on a global basis is yet another advantage of globalization (Michael, 2003). A very good instance of which reaped the benefits of globalization is China. The country has been able to lift hundreds of its people from poverty due to globalization (Michael, 2003). In spite of the exclaimed welfares of globalization, their minus rebounds are also registered. The economic development in the global economy slackens. 3.5% of growth rate of global economy in the 7th decade of the 20th century was recorded while the last decade of the 20th century recorded only 1% per year. Income variances have altered both inside the countries as well as in developed and developing countries. The amount of capital made it further aggressive relative to labor. This only amplified the unemployment problem. In spite of the growth in the markets for the prices of goods there was no such growth to be seen on the markets for factors of production. This is due to the difficulties in mobility of the labor force and added to it are the immigration rules of the developed countries (Nayyar, 2006, p.155-157). Costs of Globalization The costs of globalization might lead to differences of several types, may be at the national, regional, or international level. One such price or issue is that of who benefits from its possible profits. According to Barro (1997)”There can be substantial equity problems in the distribution of the gains from globalization among individuals, organizations, nations, and regions. Indeed, many of the gains have been going to the rich nations or individuals, creating greater inequalities and leading to potential conflicts nationally and internationally.” Some have recommended the option of union of financial gain globally founded on the reflection that the poor nations are developing at a quicker pace than the rich nations. The truth, though, is that a tiny collection of nations who are known as the "tiger economies" of East Asia, particularly South Korea, China, Malaysia and Taiwan, have been developing at rapid rates. Whereas the least developed countries of Asia, Africa, and South and Central America have been developing at a duller rate than the wealthy nations. This has resulted in a bimodal allocation of incomes (Quah, 1996). The second issue of globalization is that of key possible regional or global imbalances stemming from the mutuality of savings on a global basis. There is the possibility that local economic variations or crisis in one country may impact regionally or even globally. This cannot be set aside as a theoretical possibility. It was seen when the financial crisis occurred in Asia which had actually started in Thailand in 1997 and then spread to other Southeast Asian economies. This crisis even spread to South Korea, with checked consequences in Russia as seen from its economic break down of August 1998 (Michael, 2003). A third problem which arises due to globalization is that the power of national economies is considered by some as changing partially, from autonomous governments to other forms. This includes the most prevailing nation countries, transnational or worldwide firms, and international organizations. It is assumed by some that the national sovereignty is being counteracted by the effects of globalization. Hence globalization has the danger of making the national leaders to assume that they are impotently in the clutch of global powers and an approach of hostility prevails among the electorate. The consequence is that extreme nationalism and chauvinism, with calls for economic policy and the potential development of radical or fundamentalist political motions, finally contributing to possible conflicts. It is at times suspected that the price paid for globalization is joblessness in the eminent wage industrialized economies (Michael, 2003). Models of globalization The Heckscher-Ohlin model is very difficult when the real world data is matched to the postwar data. Either abundance or scarcity of any factors in particular is a poor predictor. This tend cannot predict as to whether the factor will be exported or imported. It actually goes the wrong way and what is more to match real world data has generated endless problems with postwar data. And, even more mystifying is the quantity of trade which is too small to be dependable with the model and thus with the so-called absurdity of "missing trade. This can only be resolved theoretically with the help of well-built anti-trade maxims of home prejudice. Thus when data from far off history that is from 1870-1939 is used then problems with the theory might be encountered. This model will suit best for natural resources (http://www.nber.org/reporter/winter06/taylor.html retrieved 13 November 2009) The gravity model, on the other hand answers like an empirical success with diachronic data. This actually corresponds to the practical achievement of the gravity model by means of postwar data. But if the rise and fall of trade to a very great degree has to be understood then the gravity model also will not be of much help. The reason is because the size and distance of country changes to a very small degree over time. Apart from this other measures of policies, changing economic environ and institutions can be included when date for the late 19th and the early-to-mid 20th century is to be collected. The increase and decrease of the gold standard, a financial understanding which was supposed to be a incentive of world trade; the shipping upheaval, which radically brought down long-distance shipping prices before 1914 through technological changes (http://www. nber.org/reporter/winter06/taylor.html retrieved 13 November 2009). Impacts of Globalization Globalization doubtless, has produced great effects on modern economic trends. They attest themselves in the area of foreign trade, external savings and international finance. More expressly, globalization is a process which increments economic receptivity, economic consistency and economic incorporation in the world economy (Nayyar, 2006, p. 137). During the 2nd half of the 20th century, it was noticed that an unknown elaboration of worldwide trade flows took place. World exports altered from 61 billion U.S. dollars in the year 1950, to 883 billion in the year 1975 and 6338 billion dollars in the year 2000. Throughout the same period, the global trade developed significantly than the increase in Global output, and attained the share of 20.2% of the world GDP (gross domestic product) in 2000. The entire stock of foreign straight asset in the world financial system was 68 billion dollars in the 1960s, in the 1980s it was 636 billion and 6258 billion in 2000. The contribution of foreign direct asset in the global GDP is 20% in 2000 (Nayyar, 2006, p. 141). The most conspicuous defect in globalization theory is the premise that it is basically an economic procedure. Karl Polanyi (2001) demonstrates why economic revolts are also political revolts. In The Great Transformation he detects that the thought of a self governing market was at the center of the industrial revolt. It established a new and influential organizing power, finally specifying the key relationships between land, labor and investment as it spread out all through the West. In this logic the industrial revolt was an economic revolt as well. Markets were made the primary agency through which society sought to resolve its key economic issues, a foremost removal in Western social growth. Polanyi (2001) also emphasizes as to how the market economic system of the industrial era was extremely dependant on almost uninterrupted state interference. He opines that a self-governing market arrangement never in fact subsisted because it endangered one and all in society with objectionable social effects. The dangerous effects included deforestation of the landscape, decreasing wages, randomness and instability of money value, dropping prices, mass famine and scarcity, and other classes of harrowing turmoil of the social order. Robert Wade from the London School of Economics, remarked in The Economist (2001), "Global inequality is worsening rapidly...Technological change and financial liberalization result in a disproportionately fast increase in the number of households at the extreme rich end, without shrinking the distribution at the poor end...From 1988 to 1993, the share of the world income going to the poorest 10 percent of the worlds population fell by over a quarter, whereas the share of the richest 10 percent rose by 8 percent." Globalization, difference and the third world The meager literature on the wage-difference and trade relaxation nexus in developing countries is varied in its determinations and contracted in its center. It has focused on 6 Latin and 3 East Asians. The assessment varies acutely between regions and eras. Wage gaps appeared to fall when the 3 Asian tigers slackened in the 1960s and early 1970s (Hanson and Harrison 1999). Adrian Wood (1997) has accurately directed stating that historical setting was crucial, as other factors were not the same during these liberalizations. However this liberalization concurred with the major access of China and other Asian businesspersons into world markets. Conclusions and further research As a consequence the fiscal globalization and its outcomes have made the modernism revolutionary, worldwide and permanent, in the cycle and in the exchange contact. This has created an extensive split in many societal milieus, not only with regard to the conventional ones, but also with regard to the features and social acknowledgments of first modernism (Giddens 1987). The pivot of the social context idea of the first modernism is profoundly destabilized (Sassen 2007); actually the globalization, preferring a world link made the class of space temporary and alienated from place. This allowed links between people who are close by and far from partaking in related social milieus (Giddens 1990). The net consequence of globalization, when considering both benefits and costs depends significantly on the quality of the world system. In a world provoked by struggles, globalization would perhaps have a net damaging affect. On the other hand in an accommodative world, globalization would most likely effect in a net positive attitude. Thus, globalization constitutes a chief confront and at the same time an unparalleled chance in terms of the openings for struggle or unity. Arguments favoring globalization basically go around the core matter of its yielding quicker economic growth. Actually as there is a link between economic growth and expansion of the size of market and its autonomy in operation are the important notions of the rational structure of advanced economic theory. This is the reason that economists normally sustain this development. Since globalization is capable to challenge the supreme power of the state and the exceptional individuality of localized cultures, followers of these more customary characteristics of human society will probably restrict the process. Economic hypothesis and technical transformation indicates at the foreseeable future. Thus the economic course of globalization will continue in the ascendancy. The drift towards globalization is eased by the growth of cheaper communication, deregulation, technologies, and the decreasing cost of transportation. Globalization produces a viable drive that counteracts nationally founded monopolies and confined industries. Globalization is especially significant for less developed countries. It renders ways for future economic development for developing countries. Future research can be conducted to explore the formation of trade of item-by-item commodities probing both the function of countries in world-wide commodity ranges and how this affects the international division of labor. This study will surely provide insights for a question laid by Michael Mann: “can the pressures of comparative advantage reduce Northern domination of the global economy?” (Held and McGrew 2000:140). The reports of the 1999 United Nations Development Project (UNDP) feel that stronger Governance is required for more countries to gain from globalization (Held and McGrew 2000:341). Reference 1. Adrian, Wood. “Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom.” World Bank Economic Review 11 (January) 1997: 33-57. 2. Barro, Robert J., Determinants of Economic Growth: A Cross-Country Empirical Study. 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