Complex process shaping all aspects of our day to day life. Defining globalisation is one of the most challenging tasks.
Why challenging?
Globalisation covers widest spectrum of disciplines, discourses and definitions are limited to one or two disciplinary , areas, thus all encompassing definition is difficult to provide.
Most Recognised Definitions
Anthony Giddens: Intensification of worldwide social relations.
Robert Keohane: Globalisation is described as a trend of increasing transnational flow and include thick network interdependence.
Elements of Globalisation
Multidimensional and multifaceted
Complex web of phenomena
Marked by complex interdependence
Globalisation is not a single process but a complex of processes, sometimes overlapping, interlocking at times contradictory and oppositional. It cannot be reduced to a single theme. It is expressed in various developments. However the underlying theme is “interdependence”. Globalisation is like a wave of oceans interacting with each other, affecting each other at the same time.
David Held described Globalisation as “widening, intensifying, speeding up and growing impact of worldwide interconnectedness
Impact of Globalisation on Nation-State
The Retreat Scholars:State lost authority
Marshall McLuhan: Global village
Global village describes the phenomenon of the entire world becoming more interconnected as the result of the propagation of media technologies throughout the world. The term was corned by Canadian media theorist Marshall McLuhan in his books The Gutenberg Galaxy: The Making of Typographic Man (1962) and Understanding Media (1964).
Kenichi Ohrnae: Borderless world
According to Ohmae (1994) political boarders are becoming less and less important, as countries increasingly form a giant, interlinked economy – this is especially true of the most developing countries, such as America, Europe and Japan, and these being joined by rapidly developing countries such as Taiwan, Singapore and Hong Kong.
Ohmae argues that in the Interlinked Economy, corporations and consumers are more closely connected across borders than ever, and politicians, bureaucrats and the military are declining in importance.
Susan Strange: Casino Capitalism (1986)
Susan Strange comments: “The Western financial system is rapidly coming to resemble nothing as much as a vast casino” Strange argues that, between about 1965 and 1985 considerable increases in risk and uncertainty in economic markets gave rise to substantiat social and political disruptions in the global system. She links these changes to five majors:
innovations in the way financial markets operate;
the increased scope of markets;
the shift from commercial to investment banking;
the rise of the Asian investment markets;
Removal of government regulation from banking,
State-Centric; State is a central actor
Linda Weiss
Weiss questions the converging effect associated with globalisation by pointing to the mediating role played by domestic nation-state institutions and capabilities and arguing that the effect non-state powers have upon a government can be enabling as well constraining: Furthermore, within this argument, Weiss sees the emergence of what she calls “governed interdependence.” This theory is forwarded in The Myth of the Powerless State (1998) and submitted to empirical testing in States in the Global Economy (2003).
Robert Gilpin
Gilpin maintains that global capitalism and economic globalization have rested and must continue to rest on a secure political foundation. However, this foundation has eroded since the end of the Soviet threat. To ensure survival of the global economy, Gilpin concludes that the United States and other major powers must recommit themselves to working together to rebuild its weakened political foundations. For Gilpin, a great power such as the ‘ United States is essential to fostering international cooperation. Exploring the relationship between politics and economics first highlighted by Adam Smith, Karl Marx, and other thinkers of the eighteenth and nineteenth centuries, Gilpin demonstrated the close ties between politics and economics in international relations, outlining the key role played by the creative use of power in the support of an institutional framework that created a world economy.
Transformationalists: No winning/loosing game
David Held
Held emphasised that democracy within states must always be understood in relation to wider issues in the international order — above all as the world become increasingly interconnected. As globalisation advances, democratic governance above the level of the nation-state is a crucial complement to the internal politics of states — even if its advance is fraught with problems and conflicts. Held was a pioneer of the idea of “cosmopolitan democracy” – the notion that the ideals of democratic government do not stop at the borders of nations but are crucial also for transnational institutions.
Anthony Me Grew
Globalization reconstructs the world as a shared social space. However it does so in a far from uniform manner: contemporary globalization is highly uneven—it varies in its intensity and extensity between different spheres of activity; it is highly asymmetrical; and it embodies a highly unequal geography of global inclusion and exclusion. In doing so it is as much a source of conflict and violence as of co-operation and harmony in world affairs. A post-Westphalian world order is in the making as sovereign statehood is transformed by the dynamics of globalization.
Globalisation through the lens of theoretical perspective
Liberal perspective
Modelski
Globalisation is not entirely new phenomena. It has many features in common with theory of modernisation. Industrialisation has altered the nature of state, widening responsibilities and weakens control over outcomes.
Francis Fukuyama
Power of market economy is resulting into liberal democracy replacing all other form of government. There is remarkable convergence between political aspects of globalisation and liberal ideas of progress. Liberal believes that globalisation brings peace and prosperity widens opportunities of personal development and vigorous growth of society.
Critical-Marxist perspective:
They have oppositional stand. They draw their essence from Marxist critique of capitalism. The essence of globalisation is establishment of global capitalist order. Like liberals, they also believe that globalisation weaken state. States are reduced to little more than instruments to restructure national economies in the interest of global capitalism. It is marked by uneven hierarchical process, characterised by growing polarisation between rich and poor, explained by “world systems “ theorists in terms of structural imbalance between core and peripheries, weakening democratic accountability and popular responsiveness due to burgeoning corporate power. According to Hirst and Thompson, it is buzzword for latest phase of capitalism.
Feminists
They link globalisation to growing gender inequalities. Disruption of small scale farming carried by the women in third world has resulted into Feminisation of poverty and Feminisation of migration.
The ‘feminization of poverty’ was first noted by Diana Pearce in the late 1970s. The feminization of poverty is a change in the levels of poverty biased against women or female headed households. More specifically, it is an increase in the difference in the levels of poverty among women and men or among female versus male and couple headed households. The underlying causes for women’s poverty vary across countries but generally fall into one of three main categories—demographic composition, economic conditions and government policy.
Social-Constructivists
Globalisation is a political act presented as a reality that allows them to duck responsibilities to external forces. Globalisation can be moulded in variety of ways. It offers very real chance to create cross national social movements.
Post- Colonial Perspective:
A new form of neo-colonialism increasing domination of subaltern, subverting Indigenous cultures and spreading soulless consumerism.
Realists
Sceptical view on globalisation; It has been made by the states for the states (dominant state). They question the stance that globalisation leads to peace. Heightened economic interdependence is likely to breed mutual vulnerability leading to conflict and wars. It may have altered socio, political and cultural domains but has not transcended the political domain.
Views of Prominent Scholars
Joseph Stiglitz
Stiglitz explains that globalization could be either success or failure, depending on its management. There is a success when it is managed by national government by embracing their characteristics of each individual country; however, there is a failure when it is managed by international institutions such as IMF.
Stiglitz argues that the policies pursued by the IMF are based on neoliberal assumptions that are fundamentally unsound. IMF policies contributed to bringing about the 1997 Asian financial crisis, as well as the Argentine economic crisis.
Amartya Sen
Sen in his 2002 article ‘How to judge globalism” argues that Globalization is not global westernization. Globalization is neither new, nor entirely western, nor a curse.
But its benefits are not shared fairly. That is the problem to be tackled i.e., the real issue is inequality both between and within countries.
There is an urgent need for both international and national reforms to improve the distribution of the benefits of globalization. At the national level, public policies are critical in areas like education, epidemiology, land reform, microcredit, legal protection etc.
Internationally, we need fair trade, medical initiatives, educational exchanges, technological dissemination, ecological and environmental restraints, and fair treatment of accumulated debts incurred by irresponsible military leaders of the past. Other issues include improving access to lifesaving drugs for diseases like AIDS, and the global trade in arms and weapons which feed local wars and military conflicts. The permanent members of the UN Security Council, whose job is to ensure world peace, are responsible for 80% of world arms exports!
Prof. Ramesh Thakur and Jorge Heine
Globalisation is not uncontrolled. The movement of people remains tightly restricted. The flow of capital is highly asymmetrical. The benefits and costs of linking and delinking are unequally distributed.
Industrialised countries are mutually interdependent; developing countries are largely independent in economic relations with one another and developing countries are highly dependent on industrialised countries. Brazil, China and India are starting to change this equation.
The growth in transnational flows has not been matched by an equivalent growth in global governance mechanisms to regulate them. And yet the very nature of the structure of globalised networks, which intertwine global actors and interests, ensures that no single power is able to maintain its position within the newly emerging global disorder without making compromises with other global players.
Globalization is seen by some as a desirable and irreversible engine of prosperity and progress and resisted by others as the soft underbelly of a corporate imperialism that plunders and profiteers in the global marketplace. Globalization has brought many benefits, including the reduction of poverty in several countries. But it also has a dark side: the unleashing of negative forces as a result of the compression of time and space made possible by modern technology. Examples include the transnational flows of terrorism, drug and human trafficking, organized crime, money laundering, and global pandemics.
Though geographically and topically diverse, the challenges and responses illustrate that the dark side of globalisation raises both domestic and international issues that are facilitated by transnational and global forces, the effects are most often felt by the citizens of sovereign states. There are ample ways in which civil society can fight the negative aspects of globalization and the emergence of uncivil society at the local level. Transnational governance reforms must go hand in hand with responses from civil society.
Jagdesh Bhagwati (In Defence of Globalisation)
Bhagwati argues that if properly regulated globalization is the most powerful force for social good in the world. He persuasively argues that globalization often leads to greater general prosperity in an underdeveloped nation: it can reduce child labour, increase literacy and enhance the – economic and social standing of women.
To counter charges that globalization leads to cultural hegemony, to a bland “McWorld,” Bhagwati points to several examples, from literature to movies, in which globalization has led to a spicy hybrid of cultures.
There are two ways to look at the effects of globalization, Bhagwati said. Either globalization has a benign effect, advancing certain social objectives like the reduction of poverty or increases in women’s rights, or it has a malign effect which sets these objectives back. If the effects are in fact malign he said, it may be necessary to slow down globalization and trade off any potential economic benefits. Meanwhile, if the effects are benign, that does not mean that we should be satisfied with them. The essence of the debate over globalization, Bhagwati believes, is not whether it can have benign effects, but how we should use such policy instruments of globalization to further our objectives.
Thomas L. Friedman
The World Is Flat: A Brief History of the Twenty-first Century is an international best-selling book by Thomas L. Friedman that analyzes globalization, primarily in the early 21st century. The title is a metaphor for viewing the world as a level playing field in terms of commerce, wherein all competitors, except for labour, have an equal opportunity. As the first edition cover illustration indicates, the title also alludes to the perceptual shift required for countries, companies, and individuals to remain competitive in a global market in which historical and geographic divisions are becoming increasingly irrelevant.
Globalisation imapct on Developed and Developing Countries
The Future of globalisation: Learning from History: Deepak Nayar, EPW NOVEMBER 2019
Benefits of globalisation have occurred essentially to small number of industrialised countries and few emerging economies. Development has been most uneven across geographical space. US and West Europe benefited whereas Southern Europe and transitional economies in East Europe have fared badly and fallen behind. Among developing countries, emerging economies have done well BRICS, South. Korea, Malaysia,Thailand, Singapore, Vietnam, China has been star performer. America remained where it was in 1980s. Brazil, Mexico, Chile derived benefit. Africa regressed increasing divergences in developing world are striking. Least developing countries (LDCs-48) have fallen behind rapidly in all spheres.
In all countries that are winner, benefits have been accrued to relatively small population, 1% of population, inequality in income and wealth became more pronounced, mounting inequalities not only potential source of conflict, ethically unacceptable, politically unsustainable.
Globalisation is facing mounting economic problem and political challenges this has begun to disrupt the smooth existence of globalisation. Problems and challenges that it face is largely attributed to itself. Learning from history suggests that earlier epochs came to an end because of the consequences embodied in the process itself.
Economic Challenges
Present phase of globalisation suffered first set back in 2008. It is attributed to domestic deregulation of financial system and capital account liberalisation. Globalisation of finance meant it became contagion. Its transmission to real sector was also rapid, leading to contraction in out and employment. International trade and investment contracted downturn moved quickly into recession worst since Great Depression.
Recovery has been slow, uneven fragile, prospects uncertain. Problem was compounded with the return to orthodox macroeconomic policies managing inflation and public debt at the expense of growth and employment. Real wages stagnated or declined.
In developed countries like US and Japan output increased but employment stagnated with monetary easing for longer duration, and fiscal stimulus given. However EU went for reducing fiscal deficits solution became worse and increased level of unemployment.
Economic Consequences on Developing Countries
Many emerging economies also experienced slowdown partly due to great recession also to their own faulty macroeconomic policy. High interest rales have shifted private investment, reduced fiscal deficits, stifled public investment and curbed domestic demand and dampened growth.
Such policy response in both developed and developing countries are shaped by government worries about credit rating and international financial markets.
High unemployment in industrialised countries and persistent poverty in developing countries is juxtaposed with rising share of profits and failing share of wages in national income everywhere.
Super rich have become richer as income inequalities, rising sharply and concentrated wealth unequally. Demonstration effect of consumption patterns of rich through social media, increases frustration among the excluded causing socio-cultural-polilical problems.
Political Consequences
Most common manifestation of a political backlash are resurgent nationalism. Economics might have become global, politics remains national and local.
Developed Countries
Referendum in Britain on Brexit, first sign of discontent.
Election of Trump campaigned against openness of trade and immigration reflect it casually.
France elected Macron as President but in the first round of elections he had slender lead over Marine Le Pen of North Front.
Political impasse in Germany as share of Christian Democrats and Social Democrats dropped and share of Nationalist Party (alternative for Germany) increased.
Far right gained prominence in Austria, Italy, Poland, Hungry, Denmark, Finland, Sweden, Netherlands are emerging.
Political mobilisation of economic discontent reinforced majoritarian nationalism seeking to “exclude the other”
Consequences in Developing Countries
Even in developing countries, there is a rise of right wing, Majoritarian nationalism.
In fact, globalisation always requires Hegemon. There is decline of US and rise of China, dominant powers are reluctant to cede political-economic space to the newcomer hence that doesn’t augur well for globalisation.
In short globalisation is under stress. Present is disrupted future is uncertain.
Globalisation Analysis
Catherine Mann
Gains of Globalisation have never been widely shared.
Fewer resources to address risk and inequalities.
The problem is not too much globalisation rather too less globalisation.
Needs to reinvigorate to promote widely shared gains and resilience to downside risk. Nonetheless, the theme of current age is de-globalisation and fracturing of integration.
Success of globalisation will hinge on how well national economic policies address the downside.
Unfortunately present approach is retreat from globalisation with regressive domestic politics rather than the other way.
Dani Rodrick
Globalisation took distinctive turn after 1990s. It was a model which placed MNCs in driver seat. It prioritises market integration at the cost of fundamental objectives such as shared prosperity and economic security.
Both economic theory and history suggest this model was unsustainable and it has proven so. Market integration was done at the cost of domestic disintegration, deepening of pre-existing economic special cultural divides between the winners and losers. It was predicted on unrealistic expectation that regulatory approach of countries with different model will converge over globalisation. A complete collapse-is unlikely yet we cannot go back to status quo ante. We will have to settle for thinner model of globalisation leaving scope for nations to rebuild domestic contracts.
Abhijeet Banerjee
We are at the point of inflection. We could globalise more. Political economy has peaked but not economy. In his book, co-authorised with Esther Duflo, “Good Economy for Hard Times”, he addressed the constraints on globalisation is the unwillingness to invest in really target compensation for loser. Banerjee and Duflo argue against the idea that immigrants lower wages and take jobs from native workers.
They also argue that people in poverty often make more sound financial decisions than is normally attributed to them.
Political Implications/Backlash/Responses
A backlash against globalisation has led to widespread hostility to both economic integration and political institution and political elites. Throughout advanced industrial societies, political backlash is seen as due to failures of compensation and failures of representation along with non-economic causes of cultural prejudices. There is a substantial change in politics in Europe and North America. Thus industrialised world is swept by wave of populist sentiment sceptical of integration and institution encouraged it along with rural prejudices. Far right nationalists~ populist parties are getting stronger. Paradoxically left is also becoming stronger. Discontents are similar though not identical.
Political backlash is less discernible because in emerging economies globalisation reduced absolute poverty.
Globalisation 4.0
It is a term coined by 2019 in World Economic Forum signalling the coming shit in globalised structures. It is characterised by major global changes brought on by technologies like robotics, internet of things, combined with rapidly fluctuating global economy leading to social inequalities and political tensions both within and between countries.
Many problems are attributed to globalisation, ignoring many positive development be it in technology, medicine, increasing environmental awareness which only globalisation could brought. It is important to understand and that cooperation and solitarily, not isolation is essential for survival of mankind.
Conclusion
Globalisation means different things to different people and entities. Its many facets, many narratives about those facets, complicate the discussion.
For optimistic humanists, it symbolise cooperation and suppress xenophobic tendencies. For environmentalists, it is marred by dangerous policies accelerating climate change, For technocrats, it is social media fuelled interconnectedness, data collection surveillance.
Globalisation poses ethical challenges that the benefits should extend to all, accountability, transparency coordination among advanced industrial societies, emerging economies and low developed countries. Media has created the magic of markets. Many developing countries are still authoritarian and where democracy exists, citizens are powerless.
The process of globalization provides a golden opportunity for mankind to contribute to a major reduction of poverty world-wide. While the potential for poverty reduction is great, the extent of it will depend on many factors including, in particular, the pattern of growth followed by the developed and developing countries and the overall global policy framework. A question that is often raised is whether the actual distribution of gains is fair and whether the poor benefit less than proportionately from globalization and could under some circumstances actually be hurt by it. The risks and costs brought about by globalization can be significant for fragile developing economies and the world’s poor. The downside of globalization is most vividly epitomized at times of periodical global financial and economic crises. The costs of the repeated crises associated with economic and financial globalization appear to have been borne overwhelmingly by the developing world, and often disproportionately so by the poor who are the most vulnerable. On the other hand, benefits from globalization in booming times are not necessarily shared widely and equally in the global community.
The fear that the poor have in some instances been by-passed or actually hurt by globalization was highlighted by recent studies which point towards limited—if not a lack of—convergence among participating national economies and across regions as globalization has proceeded. The observed trend towards greater inequality in the world income distribution between countries and regions (when the latter are not weighed by population size, and within many developing countries has a close bearing on conditions affecting the world’s poor, as inequality acts as a filter between growth and poverty. In particular, inequality may affect growth and thereby poverty alleviation in the future.
The most recent estimate suggests the share of the population of the developing countries living below US$1 per day declined from 40% in 1981 to 21% in 2001. Further, it is reported that the absolute number of the poor has fallen only in Asia and risen elsewhere and the total number of people living under US$2 per day actually increased worldwide. In particular, poverty has increased significantly in Africa in terms of poverty incidence as well as depth of poverty.
Though any trend in poverty and income inequality observed so far cannot be exclusively or even mainly attributed to the ‘globalization’ effect, as such, without rigorous analyses, these various estimates, even the most optimistic ones, cannot dismiss the concerns raised that the globalization process may have had at least some adverse effects on poverty and income distribution. These concerns, have generated a passionate debate worldwide as well as a powerful anti-globalization movement.
The globalization-poverty relationship is complex and heterogeneous, involving multifaceted channels. It is highly probable that globalization-poverty relationships may be non-linear in many aspects, involving several threshold effects. It may be futile to attempt to establish theoretically, on an a priori basis, the effects of globalization on poverty as universally observable conditions. Indeed, each subset of links embedded in the globalization (openness)-growth-income distribution-poverty nexus can be contentious and controversial. Besides, the ‘growth’ effects of globalization on poverty (i.e. the effects of globalization on poverty-filtered directly through economic growth), the globalization/ integration process operating through various other channels is known to create winners and losers, affecting both vertical and horizontal inequalities. These channels include changes in relative factor and good prices, factor movements, the nature of technological change and diffusion, the impact of globalization on volatility and vulnerability, the world-wide flow of information, and global disinflation.
Policies of openness, through liberalisation of trade and investment regimes and capital movements have been advocated worldwide for their growth-enhancing effects. However, the direction of causality between Openness-and growth is still debated and the positive openness-growth link is neither spontaneously achieved nor universally observable.
Moreover, there are two contradictory theoretical strands relating income—and wealth inequality to growth, which, constitutes the second, link in the causal chain from openness to poverty through the ‘growth’ effect. The conventional view is to emphasise the growth enhancing effect of inequality through higher aggregate savings and capital accumulation as well as on the basis of existence of investment indivisibilities and incentive effects. The contrasting new political economy literature links greater inequality to reduced growth operating through a number of subchannels, such as: unproductive rentseeking activities that reduce the security of property; the diffusion of political and social instability leading to greater uncertainty and lower investment; redistributive policies encouraged by income inequality that impose disincentives on the rich to invest and accumulate resources; imperfect credit markets resulting in underinvestment by the poor— particularly in human capital, and the lower fertility rates that are associated with a larger share of total income accruing to the middle class.
The proponents of this new political economy approach argue that growth patterns yielding more inequality in the income distribution would, in turn, engender lower future growth paths. This would then also affect the potential for poverty alleviation. Thus, according to this school of thought successful poverty alleviation depends not only on favourable changes in average GDP per capita growth but also on favorable changes in income inequality. As the pattern of economic growth and development, rather than the rate of growth per se, would have significant effects on a country’s future income distribution and poverty profile, a search for pro-poor growth or distribution—neutral growth is essential.
Indeed, in a world of interdependent evolution, openness is a necessary but not a sufficient condition for successful development. All countries have to undergo a structural transformation throughout the process of development. The key issue in starting the cumulative growth process at an early phase of development is how to generate the resources required reaching the take-off point. At the outset of the development process a country is predominantly agrarian and the economy is relatively closed.
A continuing gross flow of resources should be provided to agriculture in the form of such elements as irrigation, inputs, research and credit, combined with appropriate institutions and price policies to increase this sector’s productivity and potential capacity of contributing an even larger flow to the rest of the economy and hence a net surplus later on to finance the incipient industrialisation process. The experience of East Asia has demonstrated that after reaching the take-off point, a careful structural transformation generates a ‘growth process that is pro-poor, whilst taking advantage of the potential benefits of openness.
The income distribution effects induced by a shift in relative product, prices in the process of opening up of trade are well brown as postulated in the Samuels on Stolper theorem of international trade theory. The losers (especially, the poor residing in either urban or rural area) may be vulnerable to these induced effects in addition to changes in absolute and relative prices of wage goods. While developing countries, well endowed with unskilled labour should experience a decline in income inequality through an increased demand for unskilled labour, the postulated narrowing wage gaps between skilled and unskilled labour have not been observed in many developing countries, particularly in Latin America and Africa. This could be explained by many factors, including:
the nature of new technology heavily biased in favour of skilled and educated labour; and
the entry into the world markets of low income Asian economies with abundant reserves of unskilled labour such as China and India.
The highly differentiated degree of cross-border factor (labour and capital) mobility observed today may be identified as another channel of producing winners and losers as a result of globalization. In particular, the extent of cross-border mobility differs significantly between skilled and unskilled labour. In consequence, the ‘wage equalization’ process is less likely to take place through labour migration. More generally, there are some distinctive features of factor movements:
capital and skilled labour do not migrate to poor countries as much as among developed countries;
there is a tendency for skilled labour to migrate from developing countries to developed countries; and
with capital market liberalization, there is a propensity for capital flight to developed countries, particularly during periods of crisis or instability. With such ‘perverse‘ movements, as globalization proceeds, developed countries would see inequality fall, while developing countries would experience rising inequality.
While the mobility of unskilled labour is severely restricted and regulated, de facto labour mobility has taken place through the increasingly free cross-border capital mobility and the ability of Multi-National Corporations (MNCs) to re-locate production sites in response to changes in relative labour costs. In fear of driving away MNCs, governments of developing countries are less likely to enact regulations to protect and enhance labour rights. Thus, the differential factor mobility as observed over the recent decades may profoundly affect the functional income distribution between labour and capital.
The nature of technical progress and of the technological diffusion process can be a further channel through which globalisation could affect income distribution and poverty. Technical change emanates predominantly from R&D activities in the developed countries in response to conditions typical of their own resource endowment. Hence, technical change tends to be labour-saving, capital-intensive and skill-biased, and would tend to increase inequalities in both developed and developing countries by creating a wider wage-gap. There is a high degree of substitutability between unskilled labour and capital, in contrast to the high degree of complementarity between skilled labour and capital. Furthermore, technological diffusion and access to new technology is not universal and spontaneous. Hence, productivity differences may widen globally over time, which may increase income inequality. In particular, globalization has accelerated the process of privatization, including the privatization of research, which could make it harder and, in some instances, costlier for developing countries to access the new technology. A possible case in point might be in the domain of agricultural technology where the new bio-technological revolution is developed by large private corporations in contrast with the earlier Green Revolution which was in the public domain.
Greater openness also tends to be associated with greater volatility and economic shocks, which affect the vulnerable and the poor households harder and deepens poverty and income inequality at least temporarily. There is some evidence that the poor are hurt proportionately more during contractionary periods than they benefit from expansionary periods. For example, the Asian Financial Crisis hit hardest the poor households in the urban areas — lacking safety nets.
The poor are often not well positioned to take advantage of new opportunities opened up by the enormous increase in the flow of information world-wide. Finally, while global disinflation brought benefits in terms of macroeconomic and monetary stability, the latter may have been achieved, in some instances, at the expense of some additional growth. The common condition of fiscal retrenchment observed worldwide may have contributed to the erosion of governments’ capacity to raise revenues for re-distributional purposes.
The observed ‘between-country’ income divergence trend tends to bring into question the validity of the income convergence thesis. Indeed, a mere adoption of open trade and investment regimes does not guarantee developing countries’ entry into the convergence club. Many poor countries, which have opened their economies since 1980s, have fallen behind not just relatively but absolutely in terms of both income levels and structural development. Whether global market forces establish a virtuous circle or vicious circle will depend on the initial conditions at the time of exposure and the effective design and implementation of policies at the national and international level to manage the integration-process.
A strategic position towards globalisation cannot be equated with a simple fine-tuning of the pace and sequence of liberalization measures. Clearly, it is a question concerning the pattern or forms of integration. In particular, national development policies should be strategically designed in the light of the potentially skewed nature of the on-going process of globalization discussed above.
Given the observed trends towards greater inequality in per capita income levels between countries and within many countries, developing countries have to take strategic steps to protect themselves in order to derive benefits from the dynamic forces of globalization, with a long-term vision for upgrading their comparative advantages towards high-value added activities. Governments of developing countries to succeed in this endeavour should consciously engage in building institutional capacities for integration, including a capable nation-state that is ready to take on the enormous challenges posed by globalization.
This calls for effective complementary policies and safety nets to be in place at both national and global levels. Policymakers need to design and implement an active development strategy not only to benefit from, but also to help counteract the negative effects of the immutable forces of globalization. It is not enough for governments to assume an active role in liberalizing trade and capital movements and deregulating- their economies, while passively waiting for the fruits of the Washington consensus ’ and the market forces of globalization to pull them on a fast development track. Instead, governments need to pursue both active liberalization and active domestic development policies. Those who argue that we need more equitable forms and processes of globalization to start with need to confront the fact that any contemplated changes in the nature of the present forces of globalization require a much better grasp of the concept of ‘pro-poor globalization ’ than we presently hold. It is only through rigorous and well focussed studies that many of the questions raised above relative to the impact of globalization on poverty can be apprehended and, hopefully, answered within a specific context.
Globalization is the connection of different parts of the world. In economics, globalization can be defined as the process in which businesses, organizations, and countries begin operating on an international scale.
Globalization is most often used in an economic context, but it also affects and is affected by politics and culture. In general, globalization has been shown to increase the standard of living in developing countries, but some analysts warn that globalization can have a negative effect on local or emerging economies and individual workers.
Globalization is not new. Since the start of civilization, people have traded goods with their neighbours. As cultures advanced, they were able to travel farther afield to trade their own goods for desirable products found elsewhere. The Silk Road, an ancient network of trade routes used between Europe; North Africa, East Africa, Central Asia, South Asia, and the Far East, is an example of early globalization. For more than 1,500 years, Europeans traded glass and manufactured goods for Chinese silk and spices, contributing to a global economy in which both Europe and Asia became accustomed to goods from far away. Following the European exploration of the New World, globalization occurred on a grand scale; the widespread transfer of plants, animals, foods, cultures and ideas became known as the Columbian Exchange. The Triangular Trade network in which ships carried manufactured goods from Europe to Africa, enslaved Africans to the Americas, and sent raw materials back to Europe is another example of globalization. The resulting spread of slavery demonstrates that globalization can hurt people just as easily as it can connect people.
The rate of globalization has increased in recent years, a result of rapid advancements in communication and transportation. Advances in communication enable businesses to identify opportunities for investment. At the same time, innovations in information technology enable immediate communication and the rapid transfer of financial assets across national borders. Improved fiscal policies within countries and international trade agreements between them also facilitate globalization. Political and economic stability facilitate globalization as well. The relative instability of many African nations is cited by experts as one of the reasons why Africa has not benefited from globalization as much as countries in Asia and Latin America.
Globalization provides businesses with a competitive advantage by allowing them to source raw materials where they are inexpensive. Globalization also gives organizations the opportunity to take advantage of lower labour costs in developing countries, while leveraging the technical expertise and experience of more developed economies.
With globalization, different parts of a product may be made in different regions of the world. Globalization has long been used by the automotive industry, for instance, where different parts of a car may be manufactured in different countries. Businesses in several different countries may be involved in producing even seemingly simple products such as cotton T-shirts.
Globalization affects services too. Many businesses located in the United States have outsourced their call centers or information technology services to companies in India. As part of the North American Free Trade Agreement (NAFTA), U.S. automobile companies relocated their operations to Mexico, where labor costs are lower. The result is more jobs in countries where jobs are needed, which can have a positive effect on the national economy and result in a higher standard of living. China is a prime example of a country that has benefited immensely from globalization. Another example is Vietnam, where globalization has contributed to an increase in the prices for rice, lifting many poor rice farmers out of poverty. As the standard of living increased, more children of poor families left work and attended school.
Consumers benefit too. In general, globalization decreases the cost of manufacturing. This means that companies can offer goods at a lower price to consumers. The average cost of goods is a key aspect that contributes to increases in the standard of living. Consumers also have access to a wider variety of goods. In some cases, this may contribute to improved health by enabling a more varied and healthier diet; in others, it is blamed for increases in unhealthy food consumption and diabetes.
Not everything about, globalization is beneficial. Any change has winners and losers, and the people living in communities that had been dependent on jobs outsourced elsewhere often suffer. Effectively, this means that, workers in the developed world must compete with lower-cost markets for jobs; unions and workers may be unable to defend against the threat of corporations that offer the alternative between lower pay or ‘losing jobs to a supplier in-a less-expensive labor market.
The situation is more complex in the developing world, where economies are undergoing rapid change. Indeed, the working conditions of people at some points in the supply chain are deplorable. The garment industry in Bangladesh, for instance, employs an estimated four million people, but the average worker earns less in a month than a U.S. worker earns in a day. In 2013, a textile factory building collapsed, killing more than 1,100 workers. Critics also suggest that employment opportunities for children in poor countries may increase the negative impacts of child labor and lure children of poor families away from school. In general, critics blame the pressures of globalization for encouraging an environment that exploits workers in countries that do not offer sufficient protections.
Studies also suggest that globalization may contribute to income disparity and inequality between the more-educated and less-educated members of a society. This means that unskilled workers may be affected by decIining wages, which are under constant pressure from globalization.
Regardless of the downsides, globalization is here to stay. The result is a smaller, more connected world. Socially, globalization has facilitated the exchange of ideas and cultures, contributing to a world view in which people are more open and tolerant of one another.
Aditional Article: Globalisation and its impact on the third world economy: Download PDF
