Monthly Archives: September 2013

Debate of Globalization

Introduction

According to Schaefer, ‘The losers in the age of globalization are the countries that refuse to embrace economic liberalization and the global market’ (Cited in Gerdes, 2006, pp. 101). On other hand, Lobeda argued that ‘Globalization… endangers the lives of many who are poor’ (Gerdes, 2006, pp.25). Two statements indicate the current debate of globalization. In this essay, it will be shown how globalization increases economic inequality. In the essay, globalization is defined and its origin is discussed. Moreover, globalization will be assessed on the level of impact among countries and within the country. Besides that, some advantages and disadvantages of globalization are argued. Lastly, the essay points out that globalization increases economic inequality.

Definition

Globalization is a buzz word in today’s increasingly interconnected world. However, there is no agreed definition for globalization and globalization is not only restricted to economic sense, but to political and cultural landscapes. Globalization is ‘a transplanetary process or set of process involving increasing liquidity and the growing multidirectional flows of people, objects, places, and information as well as the structures they encounter and create that are barriers to, or expedite those flows’ (Ritzer cited by Ritzer & Atalay, 2010, pp.1). Spatial distance and time no longer represent constraints on communication as instantaneous communication emerged in the world.  Globalization is not new as many people perceive to be and its roots are based on foreign trade. Globalization may have started a millennium ago when the mathematical knowledge, inventions and other technologies began to diffuse into Europe from the East (Lechner & Boli, 2004). This diffusion created technological revolution in Europe. Next stage of globalization was the beginning of European conquest of the world. Most of the European conquest meant decimation of natives and thus gives early globalization bad image. With the onset of the industrial revolution, there were great advancements in transportation technologies (e.g. railways, steam shipping). This introduced more interconnectedness in the world and global economy began to emerge. After World War 2, much of the world economy was shielded with protectionism and tariffs. Current stage of globalization was emerged with the advancements of information communication technologies (ICT) and neoliberal policies governments have introduced. Globalisation is very much related to free trade in which the markets freely operate without constraints (VEA, 2004). Mills (2009) stated there are 4 shifts occurred in globalisation:

(i)                  Markets becoming internationalized as national borders began to decline in the relevance for economic dealings. This includes privatisations of government institutions, change of legislations and rise international monetary bodies.

(ii)                An increase in tax competitions among the nations. This includes reforms on the tax structure, deregulation of the markets, liberalization of prices and privatizations.

(iii)               World is getting connected through ICT. ICT made economic transactions possible anywhere and anytime and this also shifted the demand from low-skilled to high-skilled workers.

(iv)              Increased volatility in the markets. Global prices tend to fluctuate; more vulnerable to sudden shifts in the world and increased competition between firms do contribute market instability.

Globalization affects people differently among and within countries

It is very much clear that the first world countries (i.e. North America, Europe, Australia and Japan) have greater economic output and per capita income in comparison with the third world (i.e. Latin America, Africa and Asia). However, the gap between these two worlds has increased as globalization start spreading to the world and shown below:

Year Ratio of First World Total GNI to Third World Total GNI
1970     2:1
1993 3.6:1
2004 3.1:1

(Sheppard, Nagar, P.W., 2009)

Globalization affecting different nations

The developing world is divided into two groups by level of globalization: globalizing group (i.e. China and India) which saw rapid per capita income growth, and non-globalizing group where their own economies hardly grow (Gerdes, 2006). China’s economic opening policy of 70s of reduction of tariffs and barriers, being more involved in foreign trade and receiving investment has witnessed one of the biggest reductions of poverty rates in history (Gerdes, 2006). Differences of economic growth also lead to different levels of poverty reductions. on other hand, states Latin American countries (highly unequal societies in 90s) have witnessed slight reductions of poverty (2%  economic growth) while East Asia (less unequal societies) saw bigger reduction of poverty (6% economic growth) (Lechner & Boli, 2004). Wages have grown twice more in globalized developing world in comparison to less globalized countries (Gerdes, 2006). Birdsall (2007) argued that those countries that have strong education system, existing lower inequality system, stability of political institutions and decent public services fare better in globalization than those who don’t have these aspects. Norberg (2005) stated in his research, it is found countries who have more free trade and economic freedom contribute to greater growth and prosperity. In more globalized countries, as markets integrate further, inequality among countries happens as emigration of high-skilled workers to better countries (Birdsall, 2007).

On other hand, policies (e.g. liberalization, deregulation, and privatization) instituted by International Monetary Fund (IMF), World Bank and World Trade Organization have eroded social equity, increased inequality within and among countries and poverty (Gerdes, 2006). Another issue of globalization is multilateral debt in which a country owes money to IMF and World Bank which increase dramatically from 1972 to 1998 (Gerdes, 2006). These countries especially in Latin America find difficult to refinance these debts and risk defaulting them. IMF and World Bank issues them new loans in Structural Adjustment Programmes (SAP) where neoliberal policies are imposed on recipient countries (Gerdes, 2006). Through this, recipient nations service the debt at expense of other sectors, increase poverty & unemployment and worst still, debt crisis becomes larger (Gerdes, 2006). One of the aspects of SAPs is privatization of public assets.  IMF and World Bank convinced Bolivian government to private national assets and open their markets in 1985 (Gerdes, 2006). Unsatisfied, World Bank pressured Bolivia to privatise the water supply in Cochabamba (Third largest city in Bolivia) and by 1999, it was privatized under Bechtel owned company (Gerdes, 2006). The consequence was immediate as water prices shot up by three times and massive protests led to the cancellation of the Bechtel contract (Gerdes, 2006).

Examples of variance of economic globalization impact on nations

Let’s examine the impact of globalization on Turkey. Around 1980s, Turkey began to replace import substitution program with export-oriented economy and capital flows and foreign currency usage were liberalized (Ovyat, 2010). The results of the policy were high inflation in 1980s, wage shares in decline and economy which became volatile (economic crisis of 1994, 2001 & 2008 was attributed to capital outflow) (Ovyat, 2010). During economic crisis, unemployment in Turkey shot up above 10%, demands for higher wages are reduced and GDP have contracted (Ovyat, 2010). Ovyat (2010) even argued after bank reforms (according to some, it help the nation to benefit from liberalisation) post 2001 crisis, the average growth rate from 2002 to 2009 is lower than during import substitution on 1960s. Chile, on other hand benefited somehow from globalization. Under the dictatorship of Augusto Pinochet (1973-1990), he liberalized Chilean economy and embraced free economy around 1975 (Norberg, 2005). The outcome was an increase of life expectancy, reduction of infant mortality and attaining the living standards of Southern Europe (Norberg, 2005). Chilean export led growth largely rest on wood, seafood, copper and fruits and its annual income growth between 2000 and 2004 was 3.7%.

Variation of globalization impact in a nation

With globalization, not everyone is benefitting from the advantages of it and clearly shown inequality within the nations. According to IMF (2007), inequality increase or decrease among nations (i.e. China and India had their inequalities increasing while Brazil, Mexico and Russia witness a decline).

Let’s take some examples of variation of inequalities in developing world. Globalization policies such as free trade and economic liberalization have created spatial variation in incomes.

Mexico

In Mexico, its economy was opened up combined with capital inflow from 1985 to 1994 (IMF, 2007). Researchers at that time argued that trade liberalization of the period contributed to widening the income gap between high-skilled and low-skilled workers (IMF, 2007). Ovyat (2010) in his paper stated the gap between these two labour forces is attributed to technological changes (in favour of high-skilled force) and the decline of bargaining power of low-skilled force. Onaran cited Ovyat (2010), said the increased trade flows have reduced wages in manufacturing industries in Mexico and Turkey. Birdsall (2007) have stated there is relative high return for those have been educated at tertiary a level (which creates the high-skill labour force). The liberalization has also lifted the incomes of richer and poorer households unequally (though there was poverty reduction) (IMF, 2007). The income gap between the Southern poor states and northern states of Mexico linked to American economy has widened (edited by Lechner & Boli, 2004). Maquilodoras are Mexican assembly plants which are close proximity to United States border and employ 1.3 million people (Rowntree et al 2008). It accounted 3 out 10 Mexican jobs between 1994 and 2003 (accounting nearly half of Mexican exports) but Mexicans are equally concerned of its failure to integrate with the national economy (Rowntree et al, 2008). American bordering states of Mexico such as Sonora and Nuevo Leon had GDP per capita greater than US $ 4000 (1998) while poor states in the South had  GDP per capita below US$ 2000 (Rowntree et al 2008).

 

China

Contrary to the popular opinion, large reductions of poverty happened in China happened before economic openness policy was implemented in 1980s (Bardhan, 2006). After the liberalization of the economy, China witnessed rise of inequality (0.28 in 1981 to 0.42 in 2004 in GINI coefficient index) according to the IMF (2007) and between 1997 and 1998, 2 million people were added to poverty (edited by Lechner & Boli, 2004). Rowntree et al (2008) mentioned that coastal states of China (i.e. Guangdong & Fujian) have greatly reaped from economic transformation due to close proximity to Hong Kong and investments from overseas Chinese communities (mostly from aforementioned states).

Advantages and Disadvantages of Globalization

Peace and Global Stability

Advantages

Proponents of Globalization argue that through economic liberalization and free trade will usher more peace and less wars. Two researchers from two American Universities found that countries that trade more are less likely to wage war and hold back conflicts from spiralling out (edited by Gerdes, 2006). The ends of Cold War and onset full-blown globalization have both reduced civil and interstate wars dramatically from the 90s (NG Concise Atlas of the World, 2008). A World Bank report stated that 2 billion peoples ‘live in countries (Africa, Middle East and former USSR) that are being left behind’ and these countries did not develop into modern economies due economic integration failure (Gerdes, 2006, pp.82). These countries have been more present in wars due to lack of solid trade relationships amongst neighbours (Gerdes, 2006).  Lee & Pyun (2009) stated for an increase 10% of bilateral trade between two neighbours, the probability of military conflict is reduced by 1.9%. They too argued that protectionism implemented by nations during interwar (1918-1939) contributed to Great Depression and eventually World War II. Researchers have also stated that trade integration (e.g. former enemies France & Germany) in Europe contributed five decades of peace (Gerdes, 2006).

Disadvantages

‘… the hidden hand of the market will never work without a hidden fist. McDonald’s cannot flourish without McDonnell Douglas, the builder of the F-15. And the hidden fist that keeps the world safe for Silicon Valley’s technologies is called the United States Army, Air Force, Navy and Marine Corps.’

Thomas Friedman (cited in eds Gerdes, 2006)

Steven Staples (2000) argued globalization and militarism are intertwined in two folds: 1) globalization fuels inequality and conflict 2) Globalization promote and protect profitable industries. Third World government weakens regulations on environment and labour rights and impose little taxations on corporations, fuels greater economic inequality and unrest within (Gerdes, 2006). The financial crisis of 1997 destroyed most of the globalisation success in Thailand, Korea and Indonesia (Staples, 2000). This precipitated political collapse, economic ruin and opened way to more IMF exploitation. In 2008, global military spending exceeded USD 1.4 trillion (U.S. constituted around 41% of spending) and war sometimes is perceived as good for business (Resistance, 2009). Finally, nation-state concepts are weakened with arms industries has more power to dictate the government defence policies (Staples, 2000).

Privatization and Economic liberalisation impacts

Advantages

The Index of Economic Freedom (created by conservative Heritage Foundation and Wall Street Journal) indicated that economically free countries have incomes twice as much of repressed countries (Gerdes, 2006). Pew survey in 2003 indicated that population in Sub-Saharan Africa and Developing Asia has more positive view on globalization as it helps their countries (edited by Gerdes, 2006).  The IMF programme of privatization, public accountability and bureaucratic simplification attacks the source of many economic problems in Africa (Ritzer & Atalay, 2010).  Some African government argued the failure of private sector in provision of goods and services and they have an obligation to step in (Ritzer & Atalay, 2010). Governments, stated by Ritzer & Atalay (2010), stated that, are ineffective altogether and IMF insisting turning public some enterprises into private sectors for efficiency. Abolishing trade barriers would allow developing countries to reap gains twice more than the aid they receive (IMF, 2001). If agricultural liberalization occurs in the industrial world, many high agricultural dependent countries will receive tremendous gain (IMF, 2001).

Disadvantages

One of the hallmarks of globalization is international financial institutions (IFIs) advocate privatization as private sectors work more efficient compared to government. IFIs offer countries of economic countries with loans on the condition of privatizations and reduction of subsidies (Gerdes, 2006). However, the World Bank did admit privatization did not increase growth and the efficiency of the service is not depended on ownership type (Gerdes, 2006). Another argument for privatizations is it will reduce government deficit and increase revenues (Ritzer & Atalay, 2010). Since government happens to biggest employer in majority cases, government cuts induce greater unemployment and reduce bargaining power of workers. Patents have known to hurt countries in terms of health sector (Ritzer & Atalay, 2010). Due to increasing and large section of population affected by AIDS, South Africa passed a legislation that would legalized the ‘parallel imports’ cheaper antiretroviral drugs as patented drugs are sold at different prices (Gerdes, 2006). This considered legal in terms of TRIPS (Trade-Related Aspects of Intellectual Property) but considered as a dangerous threat to American pharmaceutical industry (Gerdes, 2006). In 1998, 39 companies filed a lawsuit against South Africa on patent issue but withdrawn in 2001 due to potential PR disaster (Gerdes, 2006).

Conclusion

The essay had discussed the definition of globalization, impact of globalization in developing world and advantages and disadvantages of globalization. It has found that globalization increase economic inequality in the Third World. Even though countries adopted globalization (reducing poverty in process), the inequality among income groups is going up. Secondly, neoliberal policies introduced more unemployment while creating huge spatial variations of income in countries (i.e. Mexico). Globalized countries such as Chile have one of the worst economic inequalities in the world. It is critical for the world community to shift the economic structures of neoliberal capitalism to an economy that benefits all mankind and nature. This hopefully will remedy the economic inequalities that persist in globalized world.

References

Bardhan, P April 2006, ‘Does Globalization Help or Hurt the World’s poor?’ , Scientific American Magazine, vol.294, no.4, pp. 84-91,

Birdsall, N. 2007, Inequality Matter, Boston Review, viewed on 10th September 2011, http://www.bostonreview.net/BR32.2/birdsall.php

Canadian Centre of Teaching Peace (Staple, S.) 2000, Globalization and militarism: The need for human security trade agenda, viewed on 28th September 2011, http://www.peace.ca/globalizationandmilitarism.htm

Gerdes, L I (eds) 2006, Globalization: Opposing Viewpoints, Thomson Gale, Farmington Hills, United States of America

International Monetary Fund (IMF) 2001, Global Trade Liberalization and the Developing Countries, Issue Briefs, viewed on 27th September 2011, http://www.imf.org/external/np/exr/ib/2001/110801.htm#ii

International Monetary Fund (IMF) 2007, Globalization and Inequality, World Economic Outlook, viewed on 11th September 2011, http://www.imf.org/external/pubs/ft/weo/2007/02/pdf/c4.pdf

Lechner, F J & Boli, J. (eds) 2004, The Globalization Reader, 2nd Edition, Blackwell Publishing, Cornwall, United Kingdom

Mills, M, 2009, ‘Globalization and Inequality’, European Sociological Review, vol 25, no.1, pp.1-8, viewed on 2nd September 2011, Scopus

National Geographic Book Division 2008, National Geographic Concise Atlas of the World, 2nd Edition, National Geographic Society, Washington D.C., United States of America.

Norberg, J 2005, In Defence of Global Capitalism, The Centre for Independent Studies, St Leonards, Australia

Oyvat, C. 2011, ‘Globalization, wage shares and income distribution in Turkey’, Cambridge Journal of Regions, Economy and Society, vol. 4, pp.123-128 viewed on 9th September 2011, Scopus

Resistance activist, 2009, ‘What Resistance Stands For’, Resistance Books, Australia

Ritzer, G & Atalay, Z (eds) 2010, Globalization: Readings in Globalization, Wiley-Blackwell Publishing, United Kingdom

Rowntree, L, Lewis, M, Price, M, Wyckoff, W 2008, Globalization and Diversity: Geography of a Changing World, 2nd Edition, Pearson Prentice Hall, New Jersey, United States of America

Sheppard, S, Porter, P W & Nagar, R. 2009, A world of difference: encountering and contesting development, 2nd edition, The Guilford Press, New York, United States of America

VOX (Lee W H & Pyun, J H) 2009, Globalisation Promotes Peace, VOX, viewed on 27th September 2011, http://www.voxeu.org/index.php?q=node/3316

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