It is observed nowadays that every economic status of each country has been tried by times. It is phenomenal too that most of the nations nowadays are facing ups and downs regarding their economic status. It is also known to us how each country tries to overcome its economic dilemma. Even the most technologically advanced nations such as the United States of America and the European countries are not exempted for such crises and continuously looking for new strategies and approaches on how to cope with these phenomenal crises. Moreover, several industries around the globe are totally affected with this so called-economic failure and some of these industries are declaring bankruptcy and presently closed because they are not able to cope up with the low demands in the local market. The supply and demand in the market depends on the economy of each country. The first one to be affected with the economic stability or instability is the consumers, then the industries. When there is economic stability, the flow of the supply and demand in the market is very high because consumers can afford to purchase products because of the affordable and reasonable prices stated but when there is economic instability and fluctuations, the industries will increase their product’s prices so that they can cope with their losses and accumulate profits. And because of these scenarios, the selling of the industries has been affected because their valued consumers are unable to manage the high-selling-prices and prefer not to purchase it anymore. And if the industries are starting to have difficulty in accumulating back their losses, there will be retrenchments amongst employees to pull back its profits. Because of this depressing scenario, the economists had arrived into a conclusion, after with so many deliberations, that they definitely believed that this strategy will surely help the economic status of each country and this strategy is called “globalization”.
This paper intent to: (1) understand what globalization is and what causes it; (2) know how globalization hurt poor countries in terms of economic, religious, cultural, and political and; (3) be aware of its challenges.
A. What is globalization?
Globalization can be defined as the increasing flow of products, people, money, and ideas across the globe. National economies are being swept into the global economy.
One can thus think of globalization as rushing through four channels:
· Freer trade goods;
· Freer mobility of labor;
· Freer investment; and
· Freer communication, thanks to telecommunications and the Internet.
B. What causes globalization?
Free enterprise is now the dominant economic system in the world. China is very much capitalist and her late Communist Party leader Deng Xiaoping coined the slogan, “To get rich is glorious.” Only Cuba and North Korea are holding on to the central planning system of running the economy.
Capitalism brings along free trade and the free flow of money across the earth. Countries belonging to the World Trade Organization are trying to bring down tariff barriers. Today, immense portfolio investments zip in and out of countries at the click of a mouse (Baylis & Smith, 2001).
With free trade comes economic integration. It is possible to download an album of songs in the United States of America, turn it into CDs in Europe, print the cover and lyric sheet in France, and sell it in Asia.
The greatest story of economic integration is the European Union, with its common currency, the euro (Brecher & Costello, 2004).
2. Information economy
Another driving force is the knowledge economy. Land, labor and capital are bowing in importance to brain creativity. In the United Kingdom, over a three-year span, manual jobs dropped by 750,000, while professional jobs shot up by 1.5 million (Brecher & Costello, 2004).
3. Mass Media
The invention of the printing press helped scattered people become a national community. In the same way, the evening news is nurturing world’s community. The suffering in India and Indonesia are brought home through CNN.
There is a global boom in telecommunications. A fourth of all Europeans, have mobile phones. The people in Finland gave the greatest access to cell phones at 417 for every 1,000 people (Brecher & Costello, 2004).
5. Worldwide Web
The telecommunications surge in turn fuels the explosive growth of the Internet; it took radio 38 years to reach 50 million users. It took the Internet only four years; Iceland already has 45 percent of its population online (Brecher & Costello, 2004).
C. Benefits of globalization
As management of guru Peter Drucker has said, “The one unambiguous lesson of the last 40 years is that increased participation in the world economy has become the key to domestic economic growth and prosperity” (Friedman, 1999).
· Greater production
The global expansion of trade and enterprise has brought vast benefits. Think of a firm manufacturing T-shirts for a market of two million people, say, a small city. Then the company decides to export to China. It then faces a potential market of one billion Chinese.
Expanding the market not only bloats profit. It also allows the firm to produce in much greater volumes. That drives down the cost for each T-shirt. In the end, even the original local city benefits from the lower prices (Held, 1999).
· More Competition
Competition serves the consumer. Following the insights of economist Joseph Schumpeter, the global market promotes creative destruction: the fit cross-fertilize as the lousy are weeded out.
· Wider work choices
An Asian college graduate can find himself employed in Hanoi, London, and United States.
· Access to world culture
Products and ideas from abroad provide Americans a richer cultural menu. We taste Japanese sushi, Chinese cuisine and many others.
Globalization even inspires solidarity. Because nations are more interconnected through globalize media, we get to feel each other’s pain. A CNN broadcast draws sympathy for India’s earthquake victims (Hirst & Thompson, 1999).
D. Dangers in globalization
· Economic vulnerability
Local companies feel threatened by cheaper imports and behemoth foreign firms. Some will exit the playing game.
There lurks the fear of displacement. Mega-forces twist nations into adjusting their economies. As such, hordes of workers have to change jobs, factories, cities and countries (Nerderveen Pieterse, 2000).
The market has become most volatile. Capital flows in and out of nations at lightning speed. As Russia well knows, a country can bleed millions of dollars with the click of a mouse.
Amid the fury of market change, individuals may find themselves powerless. A professor wakes up to see her salary cut sharply by devaluations across United States.
This disempowerment extends to national sovereignty. Where is independence when technocrats dictate your economy’s behavior from across the ocean? (Peterson & Runyan, 1999).
· Undesirable Culture
Local culture gets polluted. Grade school kids surf the Internet for pornographic websites. MTV can spawn a generation of youth that will not dream of serving.
A. Global hurting poor countries
The global expansion of trade and investment is proceeding at breakneck speed—but largely for the benefit of the more dynamic and powerful countries in the North and the South. Unless globalization is carefully managed, according to a report, poor countries and poor people will become increasingly marginalized. Already, annual losses to developing countries from unequal access to trade, labor and finance have been estimated at $500 billion, 10 times what they receive in foreign aid. All countries and all major financial and international agencies must do more than just stand cheering on the sidelines about the virtues of globalization. Globalization needs more management—to open opportunities for the poorest countries, not close or restrict them in order to create employment and avoid greater economic disparities—both among and within countries (Robertson, 2002).
Though the ratio of trade to gross domestic product for the world has been rising over the past decade, it has been falling for 44 developing countries whose populations total more than 1 billion people. The least developed countries, with 10 percent of the world’s people, have only 0.3 percent of world trade—half their share of two decades ago.
While globalization has helped reduce poverty in some of the largest and strongest economies, like India’s, the developing world has been a widening gap between “winners” and “losers.” The share of the poorest 20 percent of the world’s population has shrunk from 2.3 percent of world income in 1960 to 1.1 percent today—and it is still falling. Globalization is hurting poor countries (Sklair, 2001).
Liberalization has in some cases been accompanied by greater inequality, as in several Latin America countries including Argentina, Chile, the Dominican Republic, Ecuador, Mexico and Uruguay. In industrialized countries, some say globalization is putting pressure on wages and employment.
Meanwhile, liberalization and globalization has been a bonanza for some countries. China, for example, is now the largest recipient of foreign direct investment in the developing world and it has increased exports more than tenfold over the past 15 years. This has helped reduce the share of its people in income poverty from a third to a tenth, with major improvements in health and education (Waters, 2005).
More than half of all developing countries have been bypassed by foreign direct investment, two-thirds of which has gone to only eight developing countries. With many of the poorest countries depending on commodity exports, real commodity prices in the 2000 were 45 percent below the level of the 1990s and 10 percent below the level reached in 1932 during the Great Depression.
The terms of trade for the least developed counties have declined a cumulative 50 percent over the past 25 years. Tariffs on imports to industrialized countries from the least-developed countries are 30 percent higher than the global average. Developing countries lose more than $60 billion a year from agricultural subsidies and barriers to textile exports in the industrialized nations (Woods, 2000).
· What doesn’t work?
Poor macroeconomic policy, particularly large social deficits, created instability that discourages investors. When deficits are financed by external borrowing, this can be overvaluing the currency, again deterring foreign investors and exporters.
Poor countries often lose out because the rules of the game are biased against them—particularly those relating to international trade. The Uruguay Round of GATT trade talks hardly changed this picture. Developing countries, with three0quarters of the world’s people, will get only one-quarter to one-third of the income gains generated—and most of that will go to a few powerful exporters in Asia and Latin America (Waters, 2005).
· What works?
There are six policies that can help governments minimize the damage of globalization and maximize the opportunities:
1) Manage trade and capital flows more carefully. A selective approach to the global market would follow the example of most East Asian countries, which have some import protection, some industrial intervention and some limit on foreign direct investment.
Invest in poor people. If poor people are not be further marginalized, they need better education and higher skills. Globalization adds extra urgency to this requirement. The diffusion of new technology increases the payoff to higher levels of human capital and to more flexible sets of skills. There is clear evidence that earning gaps are widening between the well educated and the poorly educated (Waters, 2005).
2) Stimulate exports from small enterprises. Poverty can be significantly reduced by developing small—and medium—sized businesses and micro enterprises. These are more labor-intensive than large firms and are providing the bulk of new jobs for the poor.
Manage new technology. In industrialized countries, new technology often gets the blame for higher unemployment and poverty. And in developing countries, largely the receivers of labor-saving technologies that are developed elsewhere and require workers with special skills, there is concern about technology’s appropriateness. Though vital, technological change and its relationship with poverty reduction are complicated and poorly understand. The dangers can be minimized if investment in technology is accompanied by strong policies to build up human capital and foster small enterprises (Woods, 2000).
Poverty reduction and safety nets. Globalization usually weakens the state’s influence. But in many ways, it demands a stronger and more active state to suppress social chaos and organized crime. Better governance is vital not just to ensure the rule of law and the enforcement of contracts but also to maintain and expand physical and human infrastructure (Woods, 2000).
B. Leveling the playing field
Serious international action is needed to level the global playing field and create a robust safety net for the world’s poorest people. Poverty is still off the radar screen when international trade and finances are discussed and negotiated. People, corporations and countries are happy to contribute to international public goods, such as an open trading system or smoothly running financial markets, but less interested in combating public ills such as pollution and poverty.
A system of global policies is needed to “make markets work for people, not people for markets.” These include:
An international policy environment for poverty eradication. The world clearly needs much more effective macroeconomic policy management at the global level. Without this, there is greater potential for international economics crises—such as collapse in value of the Mexican peso at the end of 1999, when national and international capital fled in huge quantities (Held, 1999).
· A fairer global trade system. There is an urgent need to treat the products of developing countries at par with those of industrialized countries. In particular, there is a need to accelerate the liberalization of markets to enable poor countries to export goods, such as textiles. Agricultural export dumping should be banned.
· A partnership with multinational corporations to promote growth for poverty reduction. Of the world’s 100 largest economics, 50 are countries and 50 are mega corporations. An incentive system should be put in place to encourage multinational corporations to contribute poverty reduction and to be publicly accountable and socially responsible.
Action to stop the race to the bottom. International action is needed to stop countries from exploiting labor and offering low wages to attract foreign investment. A more efficient and equitable approach would be to strengthen such institutions as the International labor Organization support respect for workers’ rights—and develop similar institutions for international environmental protection (Held, 1999).
· Selective support for global technology priorities. Global research and development have been biased toward the needs of rich countries. For example, research by pharmaceutical companies deals more with the ailments of people from rich countries than with those of the developing world. In addition, the poor are left with little access to information superhighways, lacking both the vehicles—personal computers and telephones—and the education and skills to drive them.
· Debt relief. The highly indebted poor countries need debt relief now. Relief—defined in terms of debt stock and debt service—to the 20 worst-affected countries would cost between $5.5 billion and $7.7 billion, less than the cost of one stealth bomber (Robertson, 2002).
· Easier access to private capital. Private capital is bypassing areas of desperate need, especially Africa. And funds delivered through bilateral and multinational assistance are failing to fill the gap. Bilateral aid has fallen to 0.28 percent of industrialized countries, overall gross domestic product—the lowest level since aid targets were set in 1970. This trend must be reversed and aid must focus more on poverty eradication.
We need to abandon the illusion that, sooner or later, development will ‘trickle down’. At the international level, poorer nations must have equitable access to expanding global opportunities in trade, technology, investment and information flows. The time has come to redefine our notion of international cooperation and ‘aid’ and move toward a new ideal of genuine partnership among all sectors a global scale (Robertson, 2002).
Globalization has been in the scene throughout the years; thus, globalization, outsourcing, industrialization, improved transportation, and multinational corporations have great impact. Global trading may serve as a tool to make one’s economy more stable or not. And because of our advanced and enhanced technology, we can easily do business internationally. The internet is one of the effective means of advertising globally; where we can have the chance to endorse our local products internationally and gain more profits if we have this access. But globalization always goes hand in hand with the local economy where products come from. Globalization may have positive or negative impacts to our local economy depends on the scenarios occurring. If we export our goods more frequently to other countries, surely our economy will boost up and increase. And because of this, job opportunities and hiring rates for jobs will also increase because of the in demand products exported; thus, it will lessen the poverty rates. But if the citizens of our country are fond of imported goods and products and choose to purchase them instead of ours, it will cause a great negative impact to our economy. It will make our economy unstable and there are companies that will struggle to survive. Excessive support in imported goods, products or services may “kill” our own economy.
Baylis, John, and Smith, Steve, eds. The Globalization of World Politics. 2nd ed., 2001. Oxford: Oxford University Press.
Brecher, Jeremy, and Costello, Tim. Global Village or Global Pillage: Economic Reconstruction from the Bottom Up. Boston, MA: South End Press, 2004. Radical critique of recent patterns of economic globalization.
Friedman, Thomas. The Lexus and the Olive Tree. London: Harper Collins, 1999. A journalist’s introduction to globalization.
Held, David and others. Global Transformations: Politics, Economics and Culture. Cambridge: Polity Press, 1999. Comprehensive account, rich in empirical evidence.
Hirst, Paul, and Thompson, Grahame. Globalization in Question: The International Economy and the Possibilities of Governance. 2nd ed., 1999. Cambridge: Polity Press . Skeptical on the “myths” of globalization.
Nerderveen Pieterse, Jan, ed. Global Futures: Shaping Globalization. London: Zed Books, 2000. Suggestions for global reform.
Peterson, V. Spike, and Runyan, Anne Sisson. Global Gender Issues. 2nd ed, 1999. Boulder, CO: Westview Press. Excellent feminist account.
Robertson, Roland. Globalization: Social Theory and Global Culture. London: Sage, 2002. Collected essays of one of the first serious scholars of globalization.
Sklair, Leslie. The Transnational Capitalist Class. Oxford: Blackwell, 2001. Excellent on global corporations.
Waters, Malcolm. Globalization. London: Routledge, 2005. Compact sociology of globalization.
Woods, Ngaire, ed. The Political Economy of Globalization. Basingstoke: Palgrave, 2000. Accesible on global investment, trade, money, and governance.