Common Stereotype of Globalisation - Essay Example

A common stereotype of globalisation 2008 Outline: A) What is globalisation? Vehement debate over globalisation issues. B) Globalisation and global inequality: a. Globalization processes and capital accumulation vs. neo-classical globalization; b. globalisation-inequality research. The evidence from China; c. globalisation and labour market. Race to the bottom phenomenon; C) Conclusion Globalization has become the most greatly disputed subject during recent decades. More disputes are caused by the effects which globalization has on economy of different countries and life of people around the world. Globalization, used to describe changes in international economy and world politics, is defined as ‘free movement of goods, services, capital and labour across borders.’ (Heshmati, 2004) From economic point of view gobalisation is frequently presented as ‘broad trend towards national free-market economies, each with perfect competition, embedded in a global economy which is itself being liberalised through the agency of the IFIS and the WTO.’ (Thomas, 2007 p.48) Due to technological innovations, communications and transportations which compress the space and time dimensions, lower trade barriers and other factors globalisation spreads with incredible speed. Cultural diversity, which may also be a barrier to international business, receded its positions due to global media, development institutions and TNCs which brought their business models to host countries. (Jones 2002, p.330) Proponents of globalization process view this phenomenon as inevitable result of the modern world development where people share common economic and social space. Some protest globalisation as the world of American and western culture domination, imperialism, colonialism and neo-colonialism. Globalists see a new world order which erodes regionalism predicting the emergence of single global economy in the future, while sceptics view globalisation as an aggregation of existing nation-states, doubting state participation in global market. Vehement debate over globalisation effects is fuelled by its impact on income distribution. The anti-globalization movement proves that globalisation widens the gap between well-to-do and have-nots. The opposing view is that since the 1980s globalisation ‘actually promoted economic equality and reduced poverty.’ (Dollar and Kraay 2002 in Zhang and Zhang, 2003, p.110). Economic growth, which is opposed to poverty, is caused by many factors in both rich and poor countries (labour, human capital, research, development and technology investments, policies which address welfare issues etc). (Heshmati, 2004) There’s a grounded view that globalisation raising welfare is likely to raise inequality. Globalization, viewed as inequality plague, urged the global movements of social justice or global justice movement, opposing global corporations, the World Bank, the International Monetary Fund, and the World Trade Organization. The current global justice movement started in 1999 with a demonstration in Seattle at a meeting of the WTO. Why do people protest globalisation which is accompanied by economic growth and spread of universal benefits worldwide? This paper addresses these issues from the point of view of different parties and the result to be achieved is a deeper understanding of globalisation processes and effects they have on our lives. Some authors regard human desire for a better life as the principle globalisation drive and globalisation being the result of finance, technology, and information democratization. The benefits which globalisation offers are free movement of ideas, people and values all over the world destroying barriers in economic, political, social, and cultural life of the country. (Marquardt, 2007, p.286) More materialistic view is that international business activity is based on the profit-seeking behaviour. Globalisation increases trade and capital movements, which leads to ‘special­ization in production and the dispersion of specialized production processes to geographically distant locations.’ (Zhang and Zhang, 2003, p.110). Schmidt (2007, p.131) views globalisation processes as initiatives for the promotion of capital accumulation and globalisation as ‘an integral part of capitalist development.’ Harvey (2000, p. 20) asserts that ‘capitalism would long ago have ceased to function as a political-economic system if it were not for possibilities inherent in geographical expansion, spatial reorganization, and uneven geographical development So the reasons of why businesses move to across national border are simple: they can produce cheap good of a given quality, penetrate new markets and thus improve their revenues. On the other hand, developing countries with their ‘abundant low-income unskilled labour’ acquire a ‘comparative advantage in producing unskilled labor-intensive goods and services.’ (Deardorff and Stern 1994 in Zhang and Zhang, 2003, p.110). From neo-classical vantage point globalization is viewed as a beneficial process of economic liberalization and deregulation void of conflicts and contradictions, where the firm separated from the state and society is extremely mobile, owning equal bargaining power. Capital accumulation and institutional rationalization which lowers the costs of international business are two dynamic processes which foster foreign trade and investments. (Jones 2002, p.328) However, the returns of the investments in host economy are reinvested into this very economy only in small portion and more importantly foreign capital does not benefit small local businesses, retailers and suppliers who fuel local middle class entrepreneurship. (Beer and Boswell, 2002 p.32) Globalisation also fostered higher level of competition in different industries. To describe these current conditions new term of ‘hypercompetition’ appeared to assist companies in mapping environmental opportunities and threats. Foreign competition forces companies on domestic market to become more competitive and increases domestic productivity by eliminating marginal firms out the market. (Jones 2002, p.328) On the other hand global competition means better goods, services and prices for them. Before closed economies open the doors and people have more opportunities to have access to knowledge and better-paying jobs. Proponents of globalisation claim that it is not only about economic gains but general improvement of the life of millions of women and children. People of developing countries have opportunity to develop and participate in public life. The literacy rate increases and access to knowledge and developed countries experience contributes greatly to the country development. It is true for Korea which improved its literary rates from 30 percent in the mid-1950s to over 95 percent today. (Marquardt, 2007, p.287) On the other hand there’re misgivings that multinational corporations increase inequality in host countries by altering their developmental patterns. The impact of FDI as a primary resource flow to developing nations is more significant for the economy of developing countries. Supported and promoted by different development agencies foreign capital was regarded as an efficient way to boost national economy. However, only recently these agencies started to realize that FDI creates disadvantages for certain groups. (Beer and Boswell, 2002 p.32) The relation of globalisation to world inequality has been widely researched. Lindert and Williamson (2001 in Heshmati, 2004) in their study of this link came to the conclusion that it’s between countries rather than within country inequality which contributes to overall world inequality. Their conclusion may be summarized in the following points: within country inequality is produced by poor government and non-democracy, but not globalisation; reduction of the widening income gap of integrated into world economy countries; immigration and opening up to international trade had different impact of the level of inequality- in labour-scarce countries it was raised, in labour-abundant it was lowered; inequality is lower when countries are integrated but not segmented. However, the views on globalisation-inequality link diverge. Bata and Bergesen (2002 in Heshmati, 2004) consider increasing inequality of the 20th century as a result of globalisation. Babones (2002), Beer and Boswell (2002) report of world inequality increase since mid twentieth century which is explained by great dependency on foreign investment (concerning within country inequality). (Heshmati, 2004) The growth of income inequality during the last two decades in many countries may be explained as the healthy development of a market economy. However, severe deterioration in return to unskilled labour in the 1980s and early 1990s almost in all developed countries suggest of the functioning of globalisation components. (Dreher and Gaston, 2007) The relation of globalisation and poverty has been also extensively researched. The World Bank Development Research Group (2002) has been investigating the impact of economic integration on poor class of developing countries. The results of the research show that developing countries like China and Indian managed to reduced their poverty. Overall the study shows that economic integration helped to reduce poverty. (Heshmati, 2004) Extensive literature on effects of globalisation highlights the facts that globalisation is the source of within country inequality. Regional inequality limits globalisation opportunities. The IT service sector growth impacts productivity growth and between-country and within- country inequality. (Heshmati, 2004) Mayer (2001 in Heshmati, 2004) finds that despite all grave consequences of globalisation, poor countries have access to advanced technologies and have opportunities to improve their economic situation and raise the income of people. China as quickly integrating developing country impresses with its economic achievements. China suddenly emerged as a a trading nation and a leading FDI recipient (Lardy 2002 in Zhang and Zhang, 2003 p.112). The role of globalisation in Chinese economy since its integration into world economy in 1978 cannot be overestimated. Economic reforms and open-door policy attracted FDI inflows and contributed to the growth of trade. Since 1984 till 1998 the value of exports grew 19 percent annually, manufactured exports grew 24 percent per year with share of world exports growing from 0.75 percent in 1978 to nearly 4 percent in 1998. It has become the largest recipient of FDI among the developing countries and second after the US. (Zhang and Zhang, 2003, p.114). Such high performance economic gains boosted the growth of the Chinese economy which facilitated its transition to a market-oriented system. It contributed to the income growth and ‘stimulated domestic market expansion, contributed to reforms of state-owned enterprises and privat­ization, and promoted competition.’ (Zhang 1999). How did Chinese people contribute from these changes? The research of Zhang and Zhang (2003) exhibits the evidence that globalization processes increased the gap between the level of income across regions, thus contributing to regional inequality. However, the reason of why the gains of economic growth were not equally distributed across regions, is in ‘the uneven distribution of production factors and variations in openness among regions.’ (Zhang and Zhang, 2003 p.125) That means that if less developed inland regions attracted domestic and foreign capital invest­ments, the benefits of globalisation would be evenly distributed. The economy in the inland region should be liberalized to reduce regional inequality and distortions in factor markets to be removed to lessen the negative factors of globalisation process. The opposing view of globalisation as equality threat is that globalization contributes to political democracies and good governance in countries where these spheres experience a huge gap. From the economic point of view globalising countries exhibit growing performance levels while the least globalized countries like North Korea, Myanmar, Cuba, and Sudan are the poorest and least democratic. (Marquardt, 2007, p.287) Do developing countries which direct their investments in poor economies pursue the goal of making these countries thriving and developed? Schmidt (2007) believed that possibilities which globalisation creates contribute to private profit maximization strategies which are widely exploited by economic actors. As the 1980s and 1990s developing countries witnessed positive effects of FDI they used to relate FDI along with international trade to economic growth realization. Those researches who emphasize the positive effect of FDI on economic growth of the country do not account for labor market adjustments and negative effects associated with it. The expensive time-consuming regulations for social protection cease to exist and existing inequalities are reinforced. Globalisation changes ‘politically and collectively decided regulations’, creating new ones which correspond to specific economic interests. Thus international labour competition becomes more intensive and direct, occurring through actual job substitution, and more extreme as the workers facing competition have ‘greater disparities in their wages, employment standards and political rights.’ (Winthers 1996 in Schmidt 2007, p.132) Labor in developing-country labor markets is likely to be exploited and under-payment of wages had negative impact on both industrialized countries and developing courtiers labour. The contrast of lower-cost foreign locations with the lack of collective bargaining and other labor rights and social security of the developed countries produces RTB which means cost minimization strategies, decline in the level of wages and conditions of employment. (Mehmet, 2007p.152) During 1980s labour earnings inequality varied across the countries. The United States and the United Kingdom experienced the largest increases which continued to grow in 1990s; Canada and Australia - moderate increases and insignificant increases were evident in the Netherlands and Germany. (Dreher and Gaston, 2007) Schmidt (2007, p.132) also supports with evidence the view that globalization impacts greatly the level of unemployment and the de-regulation of labour markets resulting in ‘removal of worker protection, lowering of social protection and weakening of labour unions.’ This means degradation of the system of social security and decay of social structures and traditional institutions. Flexibility rewarded to transnational corporations and international financial institutions results in spread of casual work in the South, the loss of bargaining power by trade unions and reduced protective regulation leading to the army of unemployed. Thus recent globalization ‘produces a race to the bottom for wages, working conditions and organizing capacities.’ (Schmidt 2007, p.132) Many policy-makers and researchers relate race to the bottom (RTB) phenomenon to the effect of foreign direct investment which move low-wage jobs from developed countries to to labor-abundant economies resulting in overall downward decline in wages all over the world. In labor-abundant developing countries with a shortage of productive jobs, FDI inflows increase labor market imbalance by pushing wages down in developing countries and if job losses in home-country labor market occur, the RTB emerges. (Mehmet, 2007p.148) From the current evidence free trade and capital mobility is no longer viewed as beneficial processes fostering growth and creating workplaces but becomes more worrisome about negative consequences of these developments. Trade and development economists converge in the opinion that developed countries now experience deteriorating of low-skilled relative to high-skilled workers position. During recent years low-skilled workers greatly lost due to a decline in their wages relative to the most skilled workers. (Mehmet, 2007 p.150) Thus deterioration of labour market happens both in home countries with wages being lowered and the host country where subsistence wages become a rule. FDI causes global impoverization operating negatively in the home and host countries. (Mehmet, 2007p.152) The researches of labour markets and related to globalization processes universally agree on negative relationship between the labor market and social protection. This was proven by the Asian financial crisis which showed the need for effective social protection regimes in the globalizing world. Developing countries which are interested in foreign capital lower taxes to attack investments, which means lowing of social standards. That’s how globalisation produces income inequality. Thecounterweigh to this economic globalisation may be political globalisation which can actually reduce negative effects on the economy. (Dreher and Gaston, 2007) The leading pro-globalisation organizations such as World bank and WTO support the view that globalisation benefits overweight its negative consequences when developing-country economies improve their social protection regimes. It helps to reduce poverty and transit to a market economy smoothly. China is the best example to support this view. This quickly globally integrating country early understood the importance of social stability and construction of social protection institutions on the way to the global economy. China’s leaders realized that social protection difficulties in the globalization processes are not merely produced by transition process and should be confronted to build a strong welfare regime. (Zhu and Nyland, 2005) Should China which is successfully industrializing abandon its globalizing attempts to secure its social protection? The matter is that the welfare system cannot be built in a day and the steps which it currently made are a strong base to serve for future developments. (Zhu and Nyland, 2005) It is also true that the current welfare issue in China is mixed. The achievements in this respect are positive effect on work incentives, freedom of job change, setting a floor to resist exploitation, encouragement of the trade union movement. On the other hand, new social security regulations are underenforced which contributes to negative impacts on job security and labor market equality, resulting in job loss, undermined wages, increased cost of social protection. However, the current regulations allow vulnerable categories of population such as pregnant women, elderly or injured avoid poverty. (Zhu and Nyland, 2005) The phenomenon of globalization as free movement of commodities across borders has been vehemently argued as to its effects on the life of different social groups all over the world. The majority of the arguments is connected with income distribution within a country and between countries or raising of income inequality. Globalisation is promoted by the developed nations which are concerned with their market expansion, new markets penetration and the use of the cheap foreign labour. It’s also evident that MNC are interested in their profit maximization and they employ every opportunity which globalisation offers. On the other hand, developing economies are interested in foreign investments which are believed to boost national economy. However, the negative consequences of such cooperation seem to outweigh temporal positives globalizing outcomes. It’s true that developing economies experience growth but the price they pay is deterioration of labour markets. The income misbalance is felt both in home and host countries. It seems that the only party which benefits from this situation is capital owners who successfully maximize their incomes through labour exploiting and using resources of other countries. Host countries get temporal gains and cannot predict what price they will get to pay later. References Beer, L. and Boswell, T., 2002. The resilience of dependency effects in explaining income inequality in the Global Economy: cross- National analysis 1975-1995. Journal ff World Systems Research viii (1), pp. 30-59 Dreher, A. and Gaston, N., 2006. Has Globalisation Increased Inequality? [Online] SSRN database. Available at http://ssrn.com/abstract=928403[ accessed 30 Jan 2008]. Harvey, D. 2000. Globalization in Question. in J. D. Schmidt and J. Hersh, eds. Globalization and Social Change, London: Routledge. Heshmati, A. 2004. The relationship between income inequality, poverty and globalisation. Discussion paper #1277 SSRN database. Available at http://ssrn.com/abstract=586066 [ accessed 30 Jan 2008]. Jones, M. T., 2002. Globalisation and Organizational Restructuring: S strategic perspective. International Business Review,.44 (3), p.. 325-351 Marquardt, M. J. 2007. Globalization: Fight It, or Embrace and Purify It? Human Resource Development Quarterly, 18 (3), pp. 285-291 Mehmet, O., 2006. Race to the Bottom: the Impact of Globalization on Labor Markets - a Review of Empirical and Theoretical Evidence. in B.N. Ghosh and Halil M. Guven, eds. Globalization and The Third World: A Study of Negative Consequences. New York: Palgrave Macmillan. Ch.8 Schmidt J. D. 2006. Flexicurity, Casualization and Informalization of Global Labour Markets. in B.N. Ghosh and Halil M. Guven, eds. Globalization and The Third World: A Study of Negative Consequences. New York: Palgrave Macmillan. Ch.7 Thomas, N. 2007. Global capitalism, the antiglobalisation movement and the Third World. Capital & Class, 92, pp. 45-78 Zhang, X. and Zhang K. H., 2006. Does Globalization Affect Regional Inequality within a Developing Country? Evidence from China,” in B.N. Ghosh and Halil M. Guven, eds. Globalization and The Third World: A Study of Negative Consequences. New York: Palgrave Macmillan. Ch.6 Zhang, K. H. 1999, How does FDI interact with economic growth in a large developing country? The case of China. Economic Systems, 23(4), pp.291-303 Zhu, C. J. and Nyland C., 2005. Marketization, Globalization, and Social Protection Reform in China: Implications for the Global Social Protection Debate and for Foreign Investors. Thunderbird International Business Review, 47(1), pp. 49–73 Read More