Introduction: There are a few important questions that need to be asked when discussing globalization and the effects it has on the world. 1. How can the developing countries, especially the poorest, be helped to catch up? 2. Does globalization aggravate inequality or can it help to reduce poverty? 3. Are countries that integrate with the global economy inevitably vulnerable to instability? Let's first start off with a definition... What is globalization? The term 'globalization' has acquired considerable emotive force.
Some view it as a process that is beneficial, a key to future world economic development and also inevitable and irreversible. Others regard it with hostility, even fear, believing that it increases inequality within and between nations, threatens employment and living standards and prevents social progress. This presentation offers insight to some aspects of globalization and aims to identify ways in which countries can reap the benefits of this process, while remaining realistic about its potential and its risks. Globalization offers extensive opportunities for worldwide development but it is not progressing evenly. Some countries are becoming integrated into the global economy more quickly than others.
Countries that have been able to integrate are seeing faster growth and reduced poverty. Globalization is a historical process, the result of human innovation and technological progress. It refers to the increasing integration of economies around the world, particularly through trade and financial flows. The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders. The definition reflects technological advances that have made it easier and quicker to complete international transaction through trade and financial flows.
It refers to an extension beyond national borders of the same market forces that have operated for centuries at all levels of human economic activity from the smallest village markets, urban industries, or to the largest financial centers. Markets promote efficiency through competition and the division of labor which refers to the specialization that allows people and economies to focus on what they do best. Global markets offer greater opportunity for people to tap into more and larger markets around the world. It means that they can have access to more capital flows, technology, cheaper imports, and larger export markets. But markets do not necessarily ensure that the benefits of increased efficiency are shared by all. Countries must be prepared to embrace the policies needed, and in the case of the poorest countries may need the support of the international community as they do so.
A Brief History of Globalization: Globalization is not just a recent phenomenon. Some analysts have argued that the world economy was just as globalized 100 years ago as it is today. But today commerce and financial services are far more developed and deeply integrated than they were at that time. The most unusual aspect of this has been the integration of financial markets made possible by modern electronic communication. The 20 th century saw unparalleled economic growth, with global per capita GDP increasing almost five-fold. But this growth was not steady, the strongest expansion came during the second half of the century, a period of rapid trade expansion accompanied by trade and typically somewhat later, financial liberalization.
In the inter-war era, the world turned its back on internationalism-or globalization as we now call it-and countries retreated into closed economies, protectionism and pervasive capital controls. "This was a major factor in the devastation of this period, when per capita income growth fell to less than 1 percent during 1913-1950. For the rest of the century, even though population grew at an unprecedented pace, per capita income growth was over 2 percent, the fastest pace of all coming during the post-World War boom in the industrial countries." The story of the 20 th century was of remarkable average income growth, but it is also quite obvious that the progress was not evenly dispersed. The gaps between rich and poor countries, and rich and poor people within countries, have grown. "The richest quarter of the world's population saw its per capita GDP increase nearly six-fold during the century, while the poorest quarter experienced less than a three-fold increase." The Pros and Cons of Globalization: PROS -- Productivity grows more quickly when countries produce goods and services in which they have a comparative advantage. Living standards can go up faster.
-- Global competition and cheap imports keep a lid on prices, so inflation is less likely to derail economic growth. -- An open economy spurs innovation with fresh ideas from abroad. -- Export jobs often pay more than other jobs. -- Unfettered capital flows give the U.
S. access to foreign investment and keep interest rates low. CONS -- Millions of Americans have lost jobs due to imports or production shifts abroad. Most find new jobs -- that pay less. -- Millions of others fear losing their jobs, especially at those companies operating under competitive pressure.
-- Workers face pay-cut demands from employers, which often threaten to export jobs. -- Service and white-collar jobs are increasingly vulnerable to operations moving offshore. -- U. S. employees can lose their comparative advantage when companies build advanced factories in low-wage countries, making them as productive as those at home.
DATA: Taken from web (VISUAL AID) Americans are deeply divided about globalization and free-trade pacts. In the abstract, they like both concepts; 64% of those polled think globalization benefits the U. S. economy, and 68% think U. S. consumers gain.
But the public is split about whether the advancing global economy hurts the environment and jobs. And 69% believe that trade agreements with low-wage countries drive down U. S. wages. This may be one reason why 79% say China shouldn't be welcomed into the global trading system unless it adopts human rights and labor standards. Globalization: Good or Bad? Many of the goods and services produced in this country are exported and sold around the world.
Many of the goods and services we buy here are imported from other countries. Overall, do you think globalization is good or bad for: Good Bad Don't Know Refused Consumers like you 68% 23% 9% 1% American companies 63% 29% 7% 1% The U. S. economy 64% 28% 7% 1% Creating jobs in the U. S. 50% 42% 7% 1% The environment 45% 38% 16% 1% Providing jobs and 75% 16% 8% 1%strengthening the economy in poor countries What are you? Which of the following best describes your views about foreign trade? Do you consider yourself to be someone who believes in free trade or trade without any restrictions, someone who believes in fair trade or trade with some standards for labor and the environment, or someone who is protectionist, meaning that there should be rules to protect U.
S. markets and workers from imports? What are you? Free Trader 10%Fair Trader 51%Protectionist 37%Don't Know 3%Refused 0%Trade and Jobs Do you think that the expanded trade leads to an increase or decrease in the number of U. S. jobs? Trade and Jobs Increase in jobs 45% Don't Know 11%Decrease in jobs 44% Refused 1%Trade and Wages Do you think trade agreements with low-wage countries such as China and Mexico lead to higher or lower wages for Americans? Trade and Wages Higher Wages 19% Don't Know 10%Lower Wages 68% Refused 1%What Are Your Priorities? Do you think that the following should be a major priority of U.
S. trade agreements, a minor priority, or not a priority at all? Major Minor Not a Priority Don't Know Keeping foreign markets 56% 32% 6% 5%open to U. S. exports Keeping prices for U.
S. 58% 29% 9% 4%consumers low Encouraging competition 64% 26% 8% 3%in U. S. markets Preventing unfair com- 74% 15% 8% 3%petition by countries that violate workers rights Protecting the environment 80% 14% 4% 2% Preventing the loss of 77% 16% 5% 2%U.
S. jobs Four Aspects of Globalization: Consider four aspects of globalization: o Trade: Developing countries as a who have increased their share of world trade-from 19 percent in 1971 to 29 percent in 1999. But Chart 2 b shows great variation among the major regions. For instance, the newly industrialized economies (NIEs) of Asia have done well, while Africa as a whole has fared poorly. The composition of what countries export is also important.
The strongest rise by far has been in the export of manufactured goods. The share of primary commodities in world exports-such as food and raw materials-that are often produced by the poorest countries, has declined. o Capital movements: Direct foreign investment has become the most important category. Both portfolio investment and bank credit rose but they have been more volatile, falling sharply in the wake of the financial crises of the late 1990 s.
o Movement of people: Workers move from one country to another partly to find better employment opportunities. The numbers involved are still quite small, but in the period 1965-90, the proportion of labor forces around the world that was foreign born increased by about one half. Most migration occurs between developing countries. But the flow of migrants to advanced economies is likely to provide a means through which global wages converge.
There is also the potential for skills to be transferred back to the developing countries and for wages in those countries to rise. o Spread of knowledge (technology): Information exchange is an fundamental and an often overlooked, aspect of globalization. For instance, direct foreign investment brings not only an expansion of the physical capital stock, but also technical innovation. More generally, knowledge about production methods, management techniques, export markets and economic policies is available at very low cost, and it represents a highly valuable resource for the developing countries. The special case of the economies in transition from planned to market economies-they too are becoming more integrated with the global economy.
The term 'transition economy' is losing its usefulness. Some countries (e. g. Poland, Hungary) are converging quite rapidly toward the structure and performance of advanced economies. Others (such as most countries of the former Soviet Union) face long-term structural and institutional issues similar to those faced by developing countries. Does Globalization Increase Poverty and Inequality? During the 20 th century, global average per capita income rose strongly, but with considerable variation among countries.
It is clear that the income gap between rich and poor countries has been widening for many decades. The most recent World Economic Outlook studies 42 countries (representing almost 90 percent of world population) for which data are available for the entire 20 th century. It reaches the conclusion that output per capita has risen appreciably but that the distribution of income among countries has become more unequal than at the beginning of the century. But incomes do not tell the whole story; broader measures of welfare that take account of social conditions show that poorer countries have made considerable progress. For instance, some low-income countries, e.
g. Sri Lanka, have quite impressive social indicators. Countries are compared using the UN's Human Development Indicators (HDI), which take education and life expectancy into account, then the picture that emerges is quite different from that suggested by the income data alone. Indeed the gaps may have narrowed. A striking inference from the study is a contrast between what may be termed an 'income gap' and an 'HDI gap'. The (inflation-adjusted) income levels of today's poor countries are still well below those of the leading countries in 1870.
And the gap in incomes has increased. But judged by their Hdi, today's poor countries are well ahead of where the leading countries were in 1870. This is largely because medical advances and improved living standards have brought strong increases in life expectancy. But even if the HDI gap has narrowed in the long-term, far too many people are losing ground.
Life expectancy may have increased but the quality of life for many has not improved, with many still in abject poverty. And the spread of AIDS through Africa in the past decade is reducing life expectancy in many countries. This has brought new urgency to policies specifically designed to alleviate poverty. Countries with a strong growth record, pursuing the right policies, can expect to see a sustained reduction in poverty, since recent evidence suggests that there exists at least a one-to-one correspondence between growth and poverty reduction. How Can the Poorest Countries Catch Up? Growth in living standards springs from the accumulation of physical capital (investment) and human capital (labor), and through advances in technology (what economists call total factor productivity). Many factors can help or hinder these processes.
The experience of the countries that have increased output most rapidly shows the importance of creating conditions that are conducive to long-run per capita income growth. Economic stability, institution building, and structural reform are at least as important for long-term development as financial transfers, important as they are. What matters is the whole package of policies, financial and technical assistance, and debt relief if necessary. Components of such a package might include: o Macroeconomic stability to create the right conditions for investment and saving; o Outward oriented policies to promote efficiency through increased trade and investment; o Structural reform to encourage domestic competition; o Strong institutions and an effective government to foster good governance; o Education, training, and research and development to promote productivity; o External debt management to ensure adequate resources for sustainable development. All these policies should be focused on country-owned strategies to reduce poverty by promoting pro-poor policies that are properly budgeted-including health, education, and strong social safety nets. A participatory approach, including consultation with civil society, will add greatly to their chances of success.
Advanced economies can make a vital contribution to the low-income countries' efforts to integrate into the global economy: o By promoting trade. One proposal on the table is to provide unrestricted market access for all exports from the poorest countries. This should help them move beyond specialization on primary commodities to producing processed goods for export. o By encouraging flows of private capital to the lower-income countries, particularly foreign direct investment, with its twin benefits of steady financial flows and technology transfer. o By supplementing more rapid debt relief with an increased level of new financial support.
Conclusion As globalization has progressed, living conditions (particularly when measured by broader indicators of well being) have improved significantly in virtually all countries. However, the strongest gains have been made by the advanced countries and only some of the developing countries. The income gap between high-income and low-income countries has grown wider and is a matter for concern. And the number of the world's citizens in poverty is extremely disturbing.
But it is wrong to jump to the conclusion that globalization has caused the divergence, or that nothing can be done to improve the situation. On the other hand, low-income countries have not been able to integrate with the global economy as quickly as others, partly because of their chosen policies and partly because of factors outside their control. No country, least of all the poorest, can afford to remain isolated from the world economy. Every country should seek to reduce poverty. The international community should attempt by strengthening the international financial system, through trade, and through aid to help the poorest countries integrate into the world economy, grow more rapidly, and reduce poverty. That is the way to ensure all people in all countries have access to the benefits of globalization..