The Two Faces of Globalization - Term Paper Example

Globalization, as defined by rich people like us, is a very nice thing... you are talking about the Internet, you are talking about cell phones, you are talking about computers. This doesn't affect two-thirds of the people of the world." (Jimmy Carter) THE TWO FACES OF GLOBALIZATION Introduction Globalization is a two-headed hydra. On one hand, it is a miracle worker – the dynamic force that underlies many phenomenal economic, political and social advances in the world. On the other hand, however, it has also been blamed for the further marginalisation of underdeveloped countries and poor people. This paradoxical aspect of the concept validates former President Jimmy Carter when he referred to globalization as being a thing for the rich, but not affecting the poor. Carter’s words, however, are even milder compared to some of the observations suggested by other authors that globalization is adversely impacting the already marginalised countries and people in the world. Indeed, the paradoxical effect of globalization is evidenced by studies that not only came out with opposing results, but also gave conflicting pictures of the economic state of the world under globalization. A force that surfaced in the heels of the collapse of the cold war, globalization is defined as a process that is significantly manifested by increasing cross-bordering in the flow of goods, services, money, people, information and culture (Held, cited in Guillen 2001) resulting in what Fischer described as the greater economic interdependence among countries (cited in Dowrick & Golley 2004). The ease, facility and rapidity of cross-bordering brought about by advances in communication and transportation technologies results in space-time compression or the shrinkage of world (Guillen 2001). With globalization no place in the world remains remote or even sacrosanct. It has been suggested that historically globalization came in three waves: Williamson’s analysis of the flows of permanent immigration in 1870-1913; Fischer’s description of the greater economic interdependence of countries beginning in the 1950s, and; the present wave defined by the World Bank based on the advances in transportation and communication technologies starting in the 1980s (Dowrick and Golley 2004). At present, the term globalization is significantly associated to what Robert Gilpin’s (1987) description of an “increasing interdependence of national economies in trade, finance, and macroeconomic policy” (cited in Guillen 2001, p 236). This, in other words, signifies free trade and market openness, which are the primary vehicles of globalization. The Conflicting Pictures of Globalization Former President Carter’s description of globalization pictured a process that has a disparate impact on the rich and the poor: beneficial to the former whilst being useless to the latter. Such a disparate impact defies the underlying reason behind globalization, which is the convergence of all economies into a unified world economy and eliminate economic inequality of nations. This perspective of globalization is also reflected by studies that conflict with each other: on one hand, those that extol the virtues of globalization and those that point out its futility, on the other. Thus, some studies have associated market openness and free trade - tools of globalization - as factors of economic growth that promote income convergence. Open economies have experienced faster GDP growth – almost 2.5% per annum - in the period 1970-1989, according to a 1995 study by Sachs and Warner (cited in Dowrick and Golley 2004). The growth is even higher for poorer countries that have adopted trade liberalisation policies opening their economies to the world. This was supported by a 1999 study conducted by Frankel and Romer, which entailed a comparative analysis of 150 countries to determine differences in development levels. The authors concluded in that study that countries that increased their trade integration by 10% raised the real GDP per person by 20 percentage points (Frankel & Romer, cited in Dowrick and Golley 2004). Moreover, Wacziarg and Welch (2008) conducted a review for the World Bank on the impact of trade openness and liberalisation on economic development. The authors concluded that between 1958 and 1998, countries that changed their economic policies by adopting trade liberalisation and market openness experienced an increase of 1.5 percentage points compared to their pre-liberalisation state. The authors concluded that the increase in growth percentage was brought about by physical capital accumulation that occurred as a result of trade liberalisation policies. Nonetheless, in the appendix of the article, the authors listed six countries that did not experience growth even after trade liberalisation, although it listed a good number of countries that had positive experience after adopting liberal economic and trade policies. Some of the countries that experienced negative or zero growth were: Botswana, which although had the fastest economic growth since its independence in 1966, experience a -1.99% growth after liberalisation; Colombia, which continued to see negative growth even after liberalisation due to a persistent civil unrest; Hungary, which did not grow as expected even after implementation of IMF-guided structural reforms and other trade liberalisation policies due to high levels of debts and deficits in current account; Israel, which failed to live up to economic expectations even after relaxation of its tariff and currency barriers because of its heterodox stabilisation program or program that involved a coalition of government, labour and industry; Mexico, which failed to recover pre-crisis growth levels even after trade liberalisation because of macroeconomic instability and lack of extensive structural reforms; and the Philippines, whose economy failed to take off even after capital market liberalisation because of limited structural reforms and high government involvement in state enterprises (Wacziarg and Welch 2008). Despite the results of the aforementioned studies, however, Carter’s description of globalization seems to be spot on or at least truthful as world-income inequality is increasing. Rodrik (2011) wrote of a massive economic divergence on the global scale in the last two centuries. Yet, with the advent of globalization, free trade and open economies, economic integration has never been higher than in the recent decades, yet there is an evident expanding gap between and among nations. Lindert and Williamson (2003) made the following observations as to the impact of globalization: for countries that joined the economic integration bandwagon, the country-between-country income gaps have been diminished; labour-abundant countries that opened up their markers prior to 1914 and which experienced massive emigration, internal income inequality has decreased; in labour-scarce countries that saw massive immigration before 1914, which opened their markets experienced increased external economic inequality; more globalization resulted in decreased world inequality, and; even under a completely integrated world economy, economic inequality between nations would still exist (Lindert and Williamson 2003). Even as Lindert and Williamson (2003) seemed to positively view the effect of globalization, they still believed that it does not have a uniform or an economic converging effect, which means that some countries or some people are still bound to be either left behind or be adversely affected by it depending on their respective circumstances. Some studies dwelt on the causes behind what Carter suggested about the disparate impact of globalization. According to Rodrik et al (2004), economic integration is not the determinant of economic development, but the soundness/quality of a country’s institutions is. In a study they conducted in 2002, the authors delved into the reason for the differences in the income levels of the rich and the poor countries by comparing the factors of geography, market integration and institutions. Using measuring instruments established in earlier studies, the authors conclude that quality of institutions trumps both integration and geography as determinant of economic development. “Once institutions are controlled for, integration has no direct effect on incomes, while geography has at best weak effects” (Rodrik et al 2004, p. 6). The implication of this study is that integration works best when a country has quality institutions, which is usually present in rich nations, but not expected in poor countries because quality institutions are also dependent on economic stability and income. This may be one of the underlying reasons why under globalization, the rich nations are getting richer and the undeveloped countries hardly feel its impact. Dowrick and Golley (2004) also substantiated the aforesaid perspective. The authors hypothesised that the disparate impact of globalization on rich and poor countries could be due to the differences in human capital and physical infrastructure. The study conducted by the authors revealed that the results of market openness in the period 1960-1970 and the period 1980-1990 differed: in the first, openness spurred convergence and benefits accrued to poor countries more than they did in rich countries, and; in the second, trade openness became harmful to the poorest economies, but advantageous to rich economies. The authors assumed that the reason for this was that in the 1980s, globalization was underpinned by the transfer of highly complex processes from one country to others compared to the 1960s, which involved only the transfer of knowledge and capital goods. Since poor countries do not have the requisite human capital and infrastructure for the transfer of highly complex processes - which the rich countries have – the result is that the former were not only able to take advantage to exploit the transfer, but worse, they suffered because they were not able to keep up with the rich countries. Rodrik (2011) likewise suggested that globalization encourages the commodities trap leading to the disparate impact or why poor countries, according to Carter, do not benefit at all from it and may even be adversely affected by it. Poor countries do not have government support or have enough revenues to proactively support its entrepreneurs and manufacturers to industrialise. In a highly globalised world where a division of labour is implicit, a country may come to rely only on its specialised commodities and raw materials, which during good times may be alright because non-producing countries are expected to patronise them and, thus, sustain high demand for them. Once global economic misfortunes strikes, that country will become hostage to the economic tide and its fortunes likely reversed (Rodrik 2011). Conclusion Indeed, there is truth to former President Carter’s statement that globalization has a disparate impact on rich and poor countries. There are, of course, exceptions, but generally rich countries are better able to exploit globalization to their advantage because they have the necessary monetary and human capital as well as established and stable institution well suited to conditions in a world operating under free trade and market openness. Underdeveloped countries, on the other hand, do not have these luxuries and, therefore, cannot use these conditions to their advantage and may even be worse off than before because of their inability to level up with the rest of the world. Thus, the rich getting richer and poor getting poorer becomes, once again, the resulting scenario. It cannot be said with sweeping certainty however, that globalisation is bad. As a matter of fact, globalisation does enhance the potential for economic growth, according to Rodrik (2011). The thing to do is to study the weaknesses and strengths of the process and make adjustments so as to prevent the further marginalisation of underdeveloped countries and poor people. .References Dowrick, S and Golley, J 2004, ‘Trade openness and growth: Who benefits?’, Oxford Review of Economic Policy, vol. 20, no. 1, pp38-56. Guillen, M 2001, ‘Is globalization civilizing, destructive or feeble? A critique of five key debates in the social science literature’, Annual Review of Sociology, vol. 27, pp235-260. Lindert, P and Williamson, J 2003, ‘Does globalization make the world unequal?’ in Bordo, M, Taylor, A and Williamson, J (eds), Globalization in Historical Perspective, University of Chicago Press. Rodrik, D 2011, The globalization paradox: Democracy and the future of the world economy, New York-London: WW Norton & Company. Rodrik, D, Subramanian, A and Trebbi, F 2004, ‘Institutions rule: The primacy of institutions over integration and geography in economic development’, Journal of Economic Growth, vol 9, pp131-165. Wacziarg, R and Welch, KH 2008, ‘Trade liberalization and growth: New evidence’, The World Bank Economic Review, vol. 22, no. 2, pp187-231. Read More