The Assimilation of the World Economy - Essay Example

?Globalization Introduction Globalization is the process of assimilation of the world economy; it is the process of increasing communications among the people of different countries and different nations’ governments. Globalization is the name of progressing interdependence among the markets of different countries and multinational companies. The word evolved from a four hundred years old word ‘Global’. However, the use of the words like globalization started not before 1960s and it gained its importance approximately from the mid eighties. The national systems became interdependent by means of trade relations, alliances formed by the Defence sectors of different countries and through the imperialism of culture of different countries. However, interrelations and dependence among the different economies of the world was present from the historical period but what appears to be new with the concept of globalization is the intensification of the awareness of people. Local transformations as well as extensions of social relations laterally through time and space are parts of the process of globalization. Thus, with globalization the society will be without borders and boundaries with no specified cultural territories. This often results in dominance of the developed countries of the world over the poor economies in their efforts of decision making which often leads to the exploitation of the dominant economy leading to their degradation of the environment and human rights suppression. Thus, the objectives of the global economists are to suppress the negative impacts of the globalization process so that the positivities of the phenomenon could dominate. (Globalization101, n.d.: Waters, 2001, pp. 2-4) Background of globalization There have been constant debates among economist regarding whether globalization is a unique phenomenon of the recent modern period. However, history reveals that trade relations existed among economies from historical age. There were also cultural interactions among countries, and work relations as people migrated to different countries of the world for better living from the time immemorial. From the years before the First World War capital flows from one country to the other, trade relations between countries and immigration of workers existed. The change that ultimately occurred with globalization is the increase in the volume of unrestricted trade, doubling of the capital flows amongst economies and rise in the number of the migrants. For over the past twenty years the features of globalization also took a change of course. Globalization that was previously restricted to the developed economies of the world spread among the developing economies with the opening of the markets of these nations through liberalization. Thus, the economic relations among the nations underwent a huge change with the spread of globalization across the borders of the rich countries. With globalization, the trade pattern experienced considerable change. The developing economies of the world that previously exports raw materials to the developed world emerged as serious competitors of manufacturing products of the industrialized nations. Thus with the increasing trade relations the developing economies mainly India and China experienced continuous economic growth. With globalization and increased trade relations world production increased by about 30% which further increases international trade by almost 80%. This resulted in reducing the cost of production through specialization of products and thus helped in increasing the living standards of people. The increase in the trade of service sector implies that nations are becoming richer. With the advancement of technology and communication trade in services has been popularized in recent years. The developing countries that opened up market through policies like trade liberalization, deregulation of the capital markets and privatization of state owned industries experience huge capital inflows and stands as the emerging economies of the world. The form of the flow of the capital changed from the period before the First World War and its volume increased considerably. Prior to the First World War capital flows were mainly in the form of loans to the private producers of the developing economies from the developed ones. However, it considerably changed to foreign direct investments or equity investment rather than loans that helped in increasing integration of the capital markets of the world. (Weinstein, 2005, pp.1-16) With the increase in the direct investment in the developing countries, there occurred inflow of modern technology and skilled human capital from the developed countries. However, there are huge risks of currency depreciation associated with capital loans. With the depreciation of the local currency occurring due to the intention of the domestic lenders to convert the local currencies into dollars huge pressure on the exchange rate of the domestic country occurs that may result in bankruptcy. According to economists, borrowing for a short time period often results in financial problems. However, it cannot be concluded from this that capital inflow in economies always results in financial crisis for the domestic economy. The third component of globalization that existed from years beyond was the immigration of human resource. The economic roles played by immigration of labors and international trade are almost similar. A country may either import the finished product from a host country or it may import the human capital for producing it in the homeland. However, the difference between the two forms of import lies in the political cultural issues of a country that may encourage import but restricts immigration of labors. The nature and the skill of the immigrants changed considerably with globalization. (Weinstein, 2005, pp.1-16) Positive impacts Thus, due to the increasing effect of globalization there had been three considerable changes in the economies of both the developed and the developing countries. Firstly, the poverty level of the world experienced an unprecedented reduction. Secondly, the inequalities among the countries were modestly reduced. Thirdly unlike the past the workers with less skill were getting lower wages even in the developed countries of the world. Globalization brought an interesting change in the per capita income of the countries of the world. Over the last 17 years, the per capita income of the 25 richest nations of the world increased by about 2% whereas that of the poor nations increased by about 4% for the same period of time. Therefore, it can be concluded that the poor nations of the world are growing faster than the rich countries. (Weinstein, 2005, pp1-16) Economists argue that globalization may cause environmental degradation. Increase in trade results in increased economic growth that increases the production of a country and with increased production, the environmental pollution of the country also increases. Thus, increased trade results in increased environmental degradation. The economic growth of a country cannot be compromised with for reducing environmental pollution. However other restrictive and preliminary measures should be taken to protect the environment of the country. Government should take the initiative to identify the environment-friendly goods and restrict the use of the others through proper regulations. The corporations of the country should be pressurized by the environment friendly consumers of the country for adopting codes of conduct for the environment. The multinational corporations also took initiatives to adopt multilateral rules that are environment friendly. With globalization and increased standard of living of the citizens, the demand for a clean environment from the government has increased considerably. Thus, it can be concluded that globalization along with incorporating technological innovations and innovations at the managerial front also induces protection of the environment through openness of the market. (Weinstein, 2005 pp1-16) Negative impacts There are severe negative impacts of globalization. Globalization resulted in reducing the cost of production for concentrating on cheaper products. Therefore, it led to huge exploitation of the labor force, since they are forced to work in unsafe environment for reducing the cost and no safety measures are maintained. Secondly, due to increased competition because of globalization the workers live with job insecurity. Moreover, job competition reduces the wage rate of workers. Countries with poorly regulated environmental conditions suffer more as the multinational corporations set up their industries ignoring the environmental rules. The small industries being unable to compete with the giant industries forced to surrender themselves and thus lost their sole entity. The Globalization had worst effect on the culture of the countries due to the integration of the foreign culture with the domestic environment. The worst impact of globalization is that it results in the rich countries to be richer and the poor countries undergoing worse conditions. Moreover the small economies are increasingly becoming the puppet in the hands of the economically developed ones as they even interfere in the political decisions of the small economies along with the decisions regarding their economy. (Balakrishnan, 2004) Impact of Globalization on countries The Indian economy till the late nineties has restricted itself from the process of globalization though trade relations and financial investment were parts of the economy to some extent. Then with the opening of the market through liberalization of investment, barriers and removing trade restrictions initiated the pace of globalization in the domestic economy. (Balakrishnan, 2004) The economy of China converted itself from the greatest opponent of the concept of globalization to a committed member of the institutions that advocate globalization. The civilization of the country has been transformed with the opening of the economy and updating the domestic institutions of the country according to the changing global laws. The Chinese economy created history by improving the living standard of the domestic people very rapidly and gaining a huge rate of economic progress through the process of liberalization and globalization. (Overholt, 2005) In the major cities of the South East Asian countries globalization has been able to form new urban forms. It helped in reorganizing some cities of the developing world that played important roles in the communication amongst sub regions to the world. Globalization helped in the improvement of the manufacturing sectors of the poor countries and thus helped in strengthening the countries’ industrial base that helped in the economic development of the country further. (Ho, 2005) Conclusion Thus to conclude it can be said that though trade relations, flow of financial capital, immigration of labor and cultural interactions among countries existed from time beyond but globalization has increased the pace and the volume with easing up the process through further integration of the world economy. Globalization implies increase in the interdependency of the world economies. There are both optimistic and unconstructive effects of globalization. It is desirable up to certain extent for the domestic economy especially for the developing or the emerging economies. With the break up of the Soviet Union after the end of the cold war, the trend of globalization gained importance and has continued to be significant till date. (Balakrishnan, 2004) In order to gain from the integration and interdependence of the world economies the developing countries need to follow certain restrictions in their interaction with the developed industrial world so that their interest from the interactions re also maintained properly. The government of the developing economies should be united in taking the initiative to protect themselves and their economy from the ill effects and gain from the global integration of economies. They should learn from the experience of the developed nations to gain from the investments in the domestic economy and to encourage more of the sort if it proved to be profitable. References Globalization101 (n.d), The Levin institute, available at http://www.globalization101.org/, (accessed on 17 March 2011) Waters M, (2001), Globalization, Routledge Weinstein, M,M, (2005), Globalization, Columbia University Balakrishnan, C, (2004), Impact of Globalization on developing countries and India, About.com Economics, available at http://economics.about.com/od/globalizationtrade/l/aaglobalization.htm, (accessed on 17 March 2011) Overholt, W, H (2005) Before the U.S.-China Economic, and Security Review Commission, the RAND Corporation, available at http://www.rand.org/pubs/testimonies/2005/RAND_CT244.pdf, (accessed on 21 March 2011) Ho, K.C. (2005), Globalization and south East Asian capital cities, Pacific Affairs, available at http://www.jstor.org/pss/40022966, (accessed on 21 March 2011) Read More