Effects of Globalization on the US and Saudi Arabia - Essay Example

Running Head: Effects of Globalization on US and Saudi Arabia Effects of Globalization on US and Saudi Arabia [Institute’s Effects of Globalization on US and Saudi Arabia As the world moves to change itself from a group of secluded countries surviving on their own, it moves towards globalization. This phenomenon is the integration of the economies, cultures and societies present in the world, through the establishment of common networks of communication and trade. Developed and developing countries experience very different changes as a result, where each change has both positive and negative impacts. A major change that economies all over the world experience due to globalization is the liberation of goods and services. Countries, which previously depended on their own resources for the production of goods and services, are now able to choose from one further option. They can purchase cheaper materials needed for production. Hiring cheaper or more highly skilled labor that is available in a different country is now a feasible option. Even simply buying finished products from different countries is possible due to globalization. While on the surface, this liberalization seems to help only the country that is able to avail these goods and services, this is not the case. It is true that the country importing the goods is able to take advantage of the lower prices of raw material, services, and products in the other countries. This country is most often a developed country. On the other hand, the country it imports these cheaper goods and services from are usually developing. This liberalization helps the exporting country as well. This is because these countries have excess of these goods and services. For example, many developing countries will have an excess of unskilled labors, and not enough employment opportunities for them. This would not only result in unemployment, but also an economy in recession. To be able to use this excess labor to fulfill the need for cheap labor in other countries is a considerable benefit to the developing country (Stallings, 2001). The liberalization that accompanies globalization can also result in several problems for the country, which need more immediate attention. For instance, the high growth that liberalization in trade will cause will result in that country’s carbon dioxide emission increasing inevitably. The emission of carbon dioxide (CO2) is an example of how this high growth in the world economy would be detrimental to the natural environment. Issues like global warming and pollution would only be aggravated due to this effect of globalization, and seems to decrease the importance of stressing on a high growth strategy. Another issue that arises with this increase in trade due to globalization is the increasing inequality in incomes. The more developed economies, due to their more developed nature, demand and award more handsomely, labor that is skilled rather than unskilled. This means that unskilled laborers in that country see a considerable difference in their and the skilled laborers’ wages. In addition, as this demand for skilled labor stretches to an international extent due to globalization, the inequality spreads on an international level (Tang, 1998). These issues are some of the many issues that become more important to resolve with the occurrence of globalization, and can be seen as some of the few factors that are holding back the world from fully prospering from the advantages of trade liberalization. There are also several other effects that globalization has on the world economy. One important way; it helps the countries prosper is by increasing the development, specifically, economic development. A country is able to choose from all sources of factors of production, and is able to pick the cheapest one due to the possibilities that globalization opens up. This results in two factors very important for the development of the economy. Firstly, there is an economic advantage, in terms of being able to lower the cost of production. When this advantage can be availed, the economy is sure to prosper. Industries will not only be able to earn a higher profit margin due to their decreased cost of production, but would be able to cut prices and increase their sales as a result. Also, they would be able to invest more capital from this greater profit margin into further research and development, which in itself would lead them to the stages of advancement it is necessary to venture in order for development. These advantages would be greatly prominent in the development of any economy, from the perspective of the producer. Moreover, a country would see further development as it observes an increase in employment in its labor force. Laborers, who might have been previously unemployed in their country due to shortage of jobs, are able to locate employment elsewhere in the world. This decreases rates of unemployment and at the same time, increases the input the country contributes to the world economy. This factor is again, a contributor to the development of an economy (Brown and Lauder, 1996). The US, for instance, enjoys high levels of increase in development due to these reasons, as it is able to hire cheap labor from abroad, for several different industries. In addition, it is recorded to be the one of the largest outsourcers in the world (“Statistics”). Saudi Arabia, on the other hand, while not as prominent a country as the U.S., is the largest country in the Middle East. Sufficient research has not been conducted on the role of this country in globalization, but it is known to use its fair share of outsourcing, especially in field of information technology. A study researched a broad sample of 496 firms in Saudi Arabia, who are reportedly hiring help from abroad and discovered that most of them are satisfied with the services provided to them. This shows how this country also enjoys economic development due to globalization (Sohail and Obaid, 2005). This shows how major countries from all parts of the world, whether the west or the Middle East, experience a significant amount of development with the steady rise in globalization. One other major effect globalization has on all economies in the world, is the increase in privatization in the industries. Research shows that since the spread of globalization, a majority of countries, especially developing countries have witnessed a boom in the process of privatization or denationalization with the interest of multinationals in different national structures of economy. According to C.P. Rao, author of the book ‘Globalization, Privatization and Free market economy, globalization, liberalization and privatization are three interlinked forces, which occur side by side, and need to be studied collectively in order to understand either of the three. He explains that privatization occurs along with globalization mainly when the country’s policies are tweaked to accommodate more liberalization and privatization, to make globalization smoother (Rao, 1998). To explain the link between privatization and globalization, one needs to shed light upon the main motives a firm will have for privatization. As international trade gets increasingly competitive, it is a logical step for countries to increase their levels of privatization. This will help achieve several goals. It will help increase revenue that the country earns, as well as the levels of investment capital. Other than this, there could be many other reasons, like increasing the levels of efficiency, encouraging share in ownership, and increasing competition in the economy. All these factors are related to development and essential for a country’s survival when it is under the influence of globalization. There can also be other impacts of privatization, which is associated with globalization. One important observation made in the United States was the increase in privatization of the educational sector. This increase was logically not in line with the motives for privatization given above, as the educational industry is not one that prioritizes profit. Rather it aimed to improve, perhaps the quality of the education. One major factor that necessitated this improvement is the increasing competition that globalization is resulting in. This gives rise to the need for educated and skilled workers, as well as a better awareness of what goes on in the world, instead of just in one’s own country. The reason why privatization is sometimes essential for this purpose is that the government may not be able to handle alone, the burden of providing education of such high quality. Thus, several nationalized educational institutions were privatized in the US following the wave of globalization (Stromquist and Monkman, 2000) Saudi Arabia is also one country, which has learned to harvest the changes globalization brings to its advantage. Reportedly, during the 1980’s, this country was facing a stagnation in the country and low oil prices, due to many reasons. One of these was the inefficiency caused by the large number of state-owned enterprises in the economy. The remedial strategy the country adopted was to welcome globalization and its effects in the 1990s, as advised by the IMF. This included a reduction in the government subsidies, in order to encourage international trade, and to expand the privatization of government-owned firms. The Saudi government expected that globalization and privatization would help boost the economy and thus end the recession. It should be mentioned, however, that the desired effect was not accomplished. This was not due to incorrect expectations, but because the implementation of the strategies was not effective. The subsidies were not decreased as per need, and the attempt to privatize the state-owned industries was but a feeble one (Geon, 2004). Nonetheless, their use of the globalization strategy proves the usefulness of globalization and resultant privatization to economies of different size and nature. References Brown, Phillip and Lauder, Hugh. (1996). “Education, globalization and economic development.” Journal of Education Policy, Volume 11, Issue 1 January, pages 1 – 25. Geon, Jang. (2004). “An Evaluation of the Economic Globalization in Saudi Arabia.” Institute for the Middle Eastern studies at HUFS. Research Paper, pages 1-35. Sohail, Mohammed Sadiq and Obaid, Saad Al-Abdali, (2005). "The usage of third party logistics in Saudi Arabia: Current position and future prospects". International Journal of Physical Distribution & Logistics Management. Vol. 35 Iss: 9, pp.637 – 653 Rao, C.P. (1998). Globalization, Privatization and Free Market Economy. Praeger Publishers. Stallings, Barbera. (2001). Globalization and Liberalization: the impact on developing countries. United Nations Publications. Statistics Related to Offshore Outsourcing. (2010). Real-Time Technology Solutions. www.rttsweb.com Stromquist, Nelly P. and Monkman, Karen. (2000). Globalization and education: integration and contestation across cultures. Rowman and Littlefield. Tang, P. (1998). “Globalization and Liberalization.” Chartering Choices: Exploring Five Election Platforms – cpb.nl. Volume 38, pages 39 to 42. Read More