Globalization Is Used to Define the Increasing Economic Integration - Essay Example

Part Annotations on Globalization and Development Globalization is used to define the increasing economic integration between the different nations of the world. This increased economic integration is visible through the dramatic growth in the flow of goods, services and capital across national borders (Swift,Clarke ,Czerny, 2003). One important aspect of the process of globalization is the increased share of the national output devoted to exports and imports. The continuous drop in transportation and communication costs, along with technological developments, has greatly facilitated the process of globalizations (Swift,J.M,.Clarke,.R.G.,&Czerny,M.,2003).. As a result of globalization, competition has greatly increased. Domestic producers now compete with producers from across the globe in both their pricing and products. The impact of globalization can be realized from the fact that share of trade in US national GDP has more than doubled over the past two decades. Globalization has also led to increased outsourcing and specialization at different stages of the production process itself. A typical example is the production of Barbie dolls: The plastic and hair of the Barbie dolls come from Japan and Taiwan. The assembly of the dolls is done in low cost manufacturing countries like Indonesia, Malaysia and China. The molds of the dolls come from United States, and also the paints used in decorating. China supplies the labor and the cotton cloth used for the dresses. The dolls sell for around $ 10, of which around 35 cents covers Chinese labor, 65 cents covers foreign materials, $ 1 covers Hong Kong profits and transportation , and the rest goes as marketing and transportation expenses and the profit of Mattel in United States ( Samuelson, Nordhaus, 2003). The slicing up of the production through increased outsourcing is one of the most prominent aspects of globalization. A second major aspect of globalization is the increased integration of the financial markets of the different countries (Samuelson, Nordhaus, 2000). This financial integration is apparent from the increased speed of lending and borrowing among different countries of the world. These increased financial flows among different nations have been caused by dismantling of restrictions on capital flows among nations, cost reductions and innovations in the financial markets of the world ( Samuelson, Nordhaus, 2000). This financial integration has greatly contributed to development because nations with more productive uses of capital can borrow from nations with excess savings. For instance, during the last two decades, Japan with its excess capital has lent to nations around the world who have more productive uses of capital. The freer movement of goods and services entailed by globalization has also increased development of billions across the globe. Impressive gains have resulted in the form of lower prices, increased innovation and more rapid economic growth ( Samuelson, Nordhaus, 2000). The biggest benefit of globalization has been the technology transfer from the developed countries to the developing nations of the world. This technology transfer is the main reason behind the growth of emerging economies like India and China. The technology transfer and innovation have increased the total factor productivity of the emerging economies like India and China. The increased productivity has brought social progress through increased per capita income. This increased per capita income increased the purchasing power of millions that were living below the poverty line in Asia and Africa. The increased social consumption has been accompanied by higher government investment in social infrastructure like health services and education. The human development index is one of the most accurate measures of social development. It measures social development on the following four parameters: i) Life expectancy at birth. ii) Per capita real GDP. iii) School enrollment. iv) Adult literacy rate. The performance of all the major developed, developing and least developed countries (LDCs) has improved on the human developed index after the pace of globalization peaked up. Social development is difficult without sustained economic development. The experience of Cuba and erstwhile communist countries bears empirical testimony to this. Globalization brings increased economic development which transforms into increased social development in the form of higher standards of living, higher life expectancy rates and better opportunities for education. Many sociologists and social scientists have argued that globalization benefits only the rich and increases the gap between the rich and the poor and the more. Empirical evidence, however, does not support this argument. One social consequence of the increased economic integration caused by globalization is the unemployment that occurs when production is shifted to low-cost countries or when foreign products displace domestic products because of better pricing or technology (Thomas Friedman, 2005). Those unemployed by globalization have become advocates of increase protectionism through more tariffs and non-tariff barriers. Empirical evidence shows that the unemployment caused by globalization in some sectors has been more than offset by increased employment in other sectors of the economy (Thomas Friedman, 2005). Thus those unemployed find opportunities to move to better paying sectors. However this process of transition can be painful if it is not accompanied by state support in the form of training opportunities and temporary unemployment benefits during the process of transition (Swift,Clarke,.R.G,Czerny, M, 2003). Globalization has decreased the gap in the living standards between the developed and developed countries of the world (Swift,J.M, Clarke, R.G, Czerny,M, 2003). And not only have the developing countries, the developed countries too benefitted from globalization. During the early years of this decade of the new millennium, protectionist sentiments were high in the Canadian society against the impending tide of globalization (Naiman , Joanne, 2008). A decade later most of those fears have turned out to be wrong. There has been no perceptible drop in the social standards of living in Canada. It continues to score at the top of the human development index of the UNDP’s Human development program. In 2009 it was placed at 4th position and in 2010 it was placed at 8th position. There has also been no major social upheaval or changes in the Canadian society as was envisioned by the critics of globalization. Therefore, I would not support the position that globalization has become one of the major forces driving social development and progress. Part 2: Critical commentary “In capitalist societies, the economic and political spheres come to be separated. The appropriating class gains enormous control over the productive process, while the state is assigned the social or public activities formerly carried out directly by the owning class. "(Naiman, 2008, p. 199).” I generally disagree with the content and the spirit of this statement of Naiman (2008 ). The definition of capitalism is an economic system where most property like land and capital are privately owned. In a capitalist society, the markets are the primary vehicles of allocation of resources ( Samuelson, Nordhaus, 2000). The state in such a capitalist society provides public goods, social infrastructure and social services like health and education. The construction of road and highway networks, support of science and research and provision of public health are the public goods that the state provides in a capitalist economy. Besides providing these public goods the state in a capitalist economy is also responsible for internal security (policing) and external security ( the armed forces). In most capitalist economies today, the state has also assumed the role of regulator to eliminate and control market inefficiencies. Socially useful ventures like research & development and extra terrestrial exploration also get support by the state. The government in capitalist societies also levies taxes and collects them. These taxes are then used to finance the expenditure of the state as well as the construction of the infrastructure and public goods. These social and public activities that the state carries out were not formerly carried out by the owning class. In a capitalist economy the state performs the following three very important functions: i) Increasing efficiency. ii) Promotion of social equity. iii) Fostering and nurturing of macroeconomic stability and growth. The state increases efficiency by promoting competition in the free markets, controlling negative externalities like pollution and creating and providing public infrastructure and public goods like roads. The state promotes social equity through taxation of the owning class and those earning income. Social equity is also promoted by the state through various redistribution programs like transfer payments. The state in a market and capitalist society is responsible for macroeconomic stability and growth. It does so through the tools of fiscal policy and monetary policy. The main objectives of this macroeconomic management by the state are to reduce unemployment and inflation. The fact that the state has mandate over the fiscal policy and the monetary policy means that the state in a capitalist society has a great control over the productive processes in spite of the fact that their ownership rests with the private owners. It is to be noted here that capitalism came first and state (in the form of democracy) came later on. Therefore it would be wrong to assume that the role of state went through any kind of transformation because of capitalism ( Gurcharan Das, 2011). The state, in the form of democracy, originally came into existence to serve the public and social functions while leaving production processes in the hands of private ownership. The original role of state was actually distorted in communist states when the state got involved in the production process and running into businesses. Communism as an economic system failed because the state started having control over the production process. When private ownership of production processes was curbed it killed competition (Oliver Blanchard, 2000). The state in a communist system took monopoly over the production process. This caused great inefficiencies and wastage. Another consequence of this was that the state neglected its central function of providing public goods and social infrastructure. The social capital and the standards of living in these communist countries started to deteriorate. The inefficient public sector ate up all the resources leaving little for investment in public and social goods. This ultimately caused the collapse of communism (Naiman , Joanne, 2008). It will also be wrong to say that in capitalist societies the economic and political spheres come to be separated, as has been asserted by Naiman (2008) in his statement. The political leadership of the state, through its control on the fiscal policy, wields a major influence on the economy of the state. Actually economic issues have been one of the most significant factors in deciding the fate of political elections in major capitalist and mixed market societies like that of United States of America (Sears, Alan, Cairns, James, 2008). The monetary policy in these capitalist societies is left to another autonomous institution of the state, the central bank. The central bank has the most major influence on the economic sphere through the monetary policy and the exchange rate mechanism. The monetary policy sets the interest rate while the exchange rate determines the competitiveness of the exports of the economy. The more competitive are the exports of a state, the more will they be beneficial for social development of the state (Oliver Blanchard, 2000). The state in a capitalist society also takes major policy decisions which decide the economic fate of the citizens and the owners of the factors of production. In a capitalist society the entrepreneurs own the production process. They provide the two most important factors of production which are capital and entrepreneurship (the risk taking and management). The state in such a capitalist state is mainly responsible for regulating the markets for enhancing competition, provisioning of public goods and infrastructure and provisioning of social services like health, education, law and order and policing. Through the monetary and fiscal policy the state provides direction to the economy. Therefore I cannot support the statement of Naiman ( 2008) that in capitalist societies the economic and political spheres are separated and the state is only left with the social or public activities formerly carried out by the owning class. References: Paul Samuelson, William Nordhaus, 2000, Economics, Prentice-Hall. Swift,J.M,.Clarke,.R.G.,&Czerny,M.,(2003).Globalization and development. In Getting started on social analysis in Canada( 4th ed.,pp 108-124).Toronto,ON:between the lines. Naiman , Joanne, 2008, How Societies Work: Class , power and change in a Canadian context, Brunswick books. Sears, Alan, Cairns, James, 2008, A Good Book, In Theory Making sense through enquiry, University of Toronto Press. Oliver Blanchard, 2000, Macro Economics, Prentice Hall. Thomas Friedman, 2005, The World is Flat: A brief history of 21st century, Farrar, Straus and Giroux. Gurcharan Das, 2011, Democracy and Capitalism in India, Penguin. Read More