Crisis in the Global Economy: Chances of Ending Globalization - Literature review Example

Introduction Globalization, as we know it, is a term that was coined only in second half of the 20th century (Scholte, 2000, p.50). According to Scholte, Globalization can be termed as liberalization, universalization, westernization or internalization. The term global economy may also refer to the existing economic relations between nations of the world, wherein the markets of all nations expanded beyond their national boundaries in order to establish coordination with other nations (QFinance, 2011). As, Hirst & Grahame (1999, p.1) believe, a truly global economy makes the economies of different countries and the financial principles they have irrelevant. This is because globalization has brought internalized principles on the scene and it also comes with some key actors who have autonomy from any national influence (EconomyWatch 2010).They can setup office anywhere on the globe as long as they get a favorable market. Depending on how you look at it, globalization has already emerged or is still in the process of emerging. This is because we have examples of firms and countries that are doing business without any boundaries limiting them. On the flip side, we still have some economies that are grappling with poverty and have not attained globalization (Hirst & Grahame, 1999, p.1). Historical perspective The global economy encountered an enormous transformation after the year 1980. Transportation, communication, and information-processing were changed by technological advancements that removed the "traditional barriers of time and distance" (Eckes, 2011, p.viii). Four to five billion people joined the global market economy when the Soviet Union fell apart, and China merged with the global trading system (Eckes, 2011, p.viii). This turn of events in history led to the epoch of deregulated capitalism spearheaded by one powerful nation, and that is the United States. The global economy of the 21st century has turned into an interconnected chain of nations actively engaging in international trade (Bermejo, 2002, p.1). In fact, the borders amongst nations are dissolving each new day (Hirst & Grahame, 1999, p.1) As a matter of fact, during this point, it seems unlikely to assume that a nation does not have a connection with the world economy (Bermejo, 2002, p.1). Hence, the variation between the global economy in the past and in the 21st century is in terms of its extent, complexity, and rush of change (Bermejo, 2002, p.1). The idea of a global economy is not easily apprehended in isolation. In fact, some argue that globalization is just but a myth. Those that argue this way believe that an interconnected economy became inevitable as soon as the onset of technological advancement in the 1980s (Hirst & Grahame, 1999, p.2). Hence, the term globalization has to be understood beforehand, so that a full understanding of the global economy can be done (Hirst & Grahame, 1999, p.269) .However, in contrary to that notion, evidences are pointing that the global economy is actually being ruled by large, interconnected multinational corporations. These evidences were obtained from the observations of three Swiss experts in the field of complex network analysis. According to their assessment on the architecture of international ownership, financial institutions are controlling a large portion of the global economy (Folbre, 2011). The present state of the global economy It is said that "when the American economy sneezes, the rest of the world catches a cold" (Ritzer, 2011, p.95). It means that whatever happens to the US will have an effect to the rest of the world, and that is because of how nations see the US as one powerful nation. Countries often engage in trade because of their inability to satisfy the wants and needs of people. In fact, globalization has led to a greater interdependence among nations (Scholte, 2000, p.70). The world has shifted from a strongly separated international economy to a more interconnected global capitalist economy that is mobilized by the developments in politics, economics, and technology (Scholte, 2000, p.56). Particularly, during the 1980s and 1990s, the speedy industrialization of markets in East Asia, Latin America, and in the many other regions of the world provoked changes to global economic power and stimulated competition in the international market (Gilpin, 2000, p.7). When the political environment changed to a more democratic environment in places like South Korea, there was more growth (Dicken, 2007, p.183) Companies have entered into strategic partnerships with like minded companies overseas. This is in a bid to achieve greater volumes in sales in new markets. Sometimes, this is done via franchising. This can be said to be one of the best indicators of a global economy (Scholte, 2000, p.71). This has made it possible for consumers to get products of other countries conveniently. A good example is the banking sector. A consumer can conveniently withdraw cash from his account in Netherlands in US dollars even though he is not in the US (Scholte, 2000, p.70). The national initiatives among third world economies to achieve globalization have largely proved futile. Nonetheless, there are a few exceptions like Korea (Hirst & Grahame, 1999, p.268). The developed economies often offer financial aid to the developing countries. The World Bank as well as the International Monetary Fund is directly responsible for many economic projects in the underdeveloped as well as the developing countries. Money is give to the poor nations sometimes as grants and other times as loans. In the year 2005, the G8 countries agreed to cancel the debts of the poor countries since most of them were unable to pay back the loans they had been awarded. Most of these countries come from Africa (Peet, 2007, p. 104). Ever since the year 1996 the six nations came together in an economic alliance. They were France, US, Germany, Britain, Japan, and Italy. These countries met on an annual basis to discuss various economic principles aimed at spurring economic growth. They were referred to as the G6. In the year, 1976 Canada joined the bandwagon and the name changed to G7. Today, they are referred to as the G8 after Russia joined the alliance as well in 1998 (Peet, 2007, p. 104). The importance of the World Bank in globalization, especially in developing Nations, can not be bargained. In fact, it is widely accepted that the economic principles of World Bank are generally what inform the political and social decisions in most of the developing nations of the world (Peet, 2007, p. 104). The powerful nations like USA often issue economic sanctions on poor nations in a bid to make them reform. For instance, corrupt governments are often denied economic aid. Eventually, due to this significant shift, the number of nations engaging in international trade rises, financial flow smoothens, and the undertakings of multinational organizations lead to the integration of several economies into one global economic system, which is commonly known as the process of globalization (Gilpin, 2000, p.7). Thus, nowadays, international trade is deemed the heart of the global economy, which is also culpable for the various developments "of the modern industrialized world (Higson, 2011, p.8). Globalization refers to the "integration of consumption and production in all markets across the world" (EconomyWatch, 2010). Harris (1993 cited in Ali, 2000, p.5) also defined globalization as the "internationalization of production, distribution, and marketing of goods and services." The globalization of the world economy is referring to a process that is dependent to the establishment of a single market for the goods and services, as well as the other factors of production like capital, labour, and natural resources involving all economic regions and nations (Bozyk, 2006, p.1). In this process, national and international markets merge to form one complex whole. Nowadays, individuals view economic globalization as something that is beneficial for a nation, especially in terms of improving the economy (EconomyWatch, 2010). In its theoretical aspect, globalization is associated with the unlimited access to markets in different countries or economic region. Despite the free characteristic that it poses, globalization also has its conditions. The flow of globalization is being governed by a uniform economic mechanism, and this mechanism allows the smooth flow interaction between nations (Bozyk, 2006, p.1). Although individuals view the development of a global economy or globalization as beneficial, it may still have a harmful effect to the growth of inequality in some nations (Hirst & Grahame, 1999, p.268). These negative impacts are seen in the economy of nations such as India, China, and Brazil, where the supposedly positive impact of globalization was not spread to those individuals in the lower level (EconomyWatch, 2010). What is worst, at this point, is the wide gap that globalization has created between the well-off people and the less fortunate ones (EconomyWatch, 2010). Because of the ability of globalization in strengthening the integration of national economies, and due to the immense influence that it conveys to people, communities, and nations, the concept of globalization has turned into one intriguing subject of debate amongst the many academes, private organizations, and governments (Oatley, 2005, p.4). These debates are being separated in three categories, and these are in the aspects of the global economy, the foreign economic policy, and governance (Oatley, 2005, p.4). The debates in globalization, which pertain to its impact on the global economy, usually tackle questions that concern the path travelled by globalization, which has led it to the spot of progress. More so, critiques of globalization ask for an elaboration of the consequences that it brings to individuals, communities, and nations. They have argued whether the governments capability to manage economies is weakened by globalization, or if it is enhanced to reach the aims that it hopes to achieve out of this process (Oatley, 2005, p.4). The consequences brought by globalization have prompted historians and economists to share their thoughts regarding this serious matter. Gray (n.d., cited in Held & McGrew, 2007, p.1) has mentioned that the age of globalization is about to end, and according to Saul (cited in Held & McGrew 2007, p.1) this situation manifests "the end of globalism." The present happenings in the world that have provoked these people to commend about the soon ending of globalization are only a portion of the bigger picture. In the earlier years, John Bright and Richard Cobden (n.d. cited in James, 2009, p.12) have made an assumption that the enhancement of commerce may have an impact to peace and stability. This is only one point of the many arguments posed by authors in the past who have been in opposition to globalization referring to it as a version of imperialism (James, 2009, p.12). One saddening event took take place on September 11, 2001, when America encountered terrorist attacks that spur tension leading to the death of many individuals. This tragic event in American history, according to some economists, is considered the turning point towards the ending of globalization. It has then led economic critics of the 21st century to speculate about the near ending of globalization (Kennedy et al., n.d cited in Held & McGrew, 2007, p.1). The security threats have also led to globalization of military activities. For instance, the use of spy satellites that span a radius of a number of countries on the globe is now in use by the military to avert any terrorist attacks. Other examples are the long range bombers, intercontinental ballistic missiles as well as various surveillance aircrafts. When the US went to war in Iraq, the battle was in Iraq but the command center was in America. This is only possible due to globalization (Scholte, 2000, p.71). . Consequences of the Current Economic Crisis To understand the impact of the current crisis, we will need to consider the crisis that was in what has been called the post 1945 era (mainly 1972-1973). Before that, the developed countries were in a financial boom where employment was in plenty and economies were growing steadily. There were a couple of things that resulted in an economic crisis. The failure of Breton wood system coupled with the OPEC oil crisis led to a global economic crisis (Hirst & Grahame, 1999, p.5). The high oil prices led to inflation not only in the US but in all other major world economies of the time. As a result of the bad business environment, businesses started looking for other places that were more favorable to invest. This largely contributed to the growth of the Eurodollar in subsequent years. (Hirst & Grahame, 1999, p.5). In other words, we have losers and gainers during a recession. For example, the demand for the presence of global charities is likely to soar in the midst of an economic crisis because of those people who seek for their assistance (Naim, 2010). Chinas economy has boomed rapidly, which has led to its wide penetration of the international market. No other country, in the world, moved up the ladder so quickly like the way China did. Hence, other than European countries, and the US, Chinas decline is also an enormous danger to globalization (Cowen, 2009). When the Chinese economy falters, Asian economies will weaken, which can have a large impact to the global economy (Cowen, 2009). To Naim (2010), these instances prove the incapacity of governments to protect their own economy as well as its society from foreign influences that can threaten them. The reason for such is the exceptional characteristic of globalization. Issues in climate change, illegal migration, transnational crimes, pandemic, and etc. even further stimulate the need for globalization because a single nation alone cannot solve these dilemmas. Whether people or countries like it or not, globalization will remain as it is (Naim, 2010), and no force can derail its existence, not even the current financial crisis. In recent years, the American economy took a plunge which catapulted a ripple effect in other world economies (Ritzer, 2011, p.95). Without doubt, this has far reaching impacts on globalization. However, there is still the possibility of such a crisis causing a rise of other economies like it happened in the crisis of the 70s (Hirst & Grahame, 1999, p.5). One of the greatest significances of the economic crunch is that most countries are now unable to service their debts. The only way out is if IMF and world bank as well as other lenders are kind enough to cancel the debts. As of 2005, the G8 countries agreed unanimously to write off all debts for poor countries especially those from Africa. Nonetheless, that was before the recession that began in 2009 and there are presently other nations struggling with debt (Peet, 2007, p. 104). A case in point is the European sovereign debt crisis. This is a financial crisis that is affecting a number of European nations and it is now clear that unless they are assisted with third parties, they are no longer in a position to service public debt. Some economic analysts and researchers have also questioned the effects of state intervention to solving the present economic crisis (Masca et al., 2011, p.156). There are two obvious implications to an increased state interventionism, and those are failure and sustainability. Whether governments will succeeding in curbing unethical practices depends on how the state will intervene in this situation because all things happening in the global economy affect nations; state intervention will always remain an immediate response of any state in times of complexity just like in an economic crisis. However, this intervention may become a hindrance to the supposed stabilization of a struggling economy. Because the global economy circulates through the movement of capital, it poses a difficulty to a nation’s capability to adapt as well as to corporations and financial institutions (James, 2010). Nations establish policies that will somehow control the entry of other nations, just like what the US did when it imposed tariffs on Chinese tires to protect their own economy (Lee, 2010). For instance, when a nations government intervenes by making use of its political prowess in imposing financial regulations, the financial sectors role in solving the dilemma is impeded by certain government restrictions delaying the process of economic recovery. The absolute bottom line of all these things is the nations obligation to protect its economy from the crisis. Countries resort to intervention, and then to financial regulations to protect what is left of the government to protect (Peet, 2007, p.85) Protectionism is like the aftershock of an economic crisis. A nation prioritizes the setting of policies in favor of its domestic industry sacrificing global trade by way of imposing tariffs, import quotas, and other trade restrictions that will limit the entrance of foreign products in the country (21st Century Challenges, 2011). As a consequence, international trade slows down, and if this happens, the nations participation in the global economy will stop, therefore, contributing to the possible end of globalization Why globalization will survive the economic crisis Some people hold the view that some unexpected events might cause globalization to sink (Ferguson, 2005, p.65). Just like the unexpected earthquake and tsunami that hit Japan earlier in the year 2011, unforeseeable events can take place that trigger a more worst global financial crisis. When the recent global economic crisis hit the global economy, both developed and less developed nations suffered the consequences. However, much of these sufferings are being felt by poor countries. The truth is that, financial authorities of leading economies are now suffering from the difficulty in managing banking and financial crisis (Giron & Correa, 1999, p.2). In fact many national economies resort to financial policies that might not necessarily be at per with the international financial policies (Hirst & Grahame, 1999, p.4). According to Saul (n.d. cited in Walljasper, 2004), grand economic theories usually take effect within a span of a few decades. In the case of globalization, thirty years have proven how this process has dominated the way nations, as a whole, deal with business. Saul (n.d. cited in Walljasper, 2004) believes that globalization is not entirely advantageous to most people. Although the standards of living rose to a higher level, it pushed the poor individuals’ way of living to a lower level. Thus, globalization did not fulfill its promise to spread wealth and decrease poverty (Walljasper, 2004). In 2003, Saul (Walljasper, 2004) has further argued that globalization will not stop unless there remain those powerful people who continue to take advantage of globalization as a means to satisfy their wants. If that is the case, then globalization will continue existing for as long as the world leading economies are stable and running freely in the global market. According to Cowen (2009), there are still many evidences of globalizations presence in the food that people eat, the clothes that people wear, and in the stamps of their own passport. Signs of globalizations end are seen all around the world (Dicken, 2007, p.249). Fluctuations in the dollar value take place now and then, as well as the value of international trade. Though the world is experiencing all of these, at the moment, the possibility of the near ending of globalization can still be hindered, unless there will occur another world war or pandemic (Cowen, 2009). The setting up of EPZs in poor countries has largely been influenced by globalization. The EPZs are usually set up near developed areas like cities, airports, railway stations and other such places in order to be a catalyst for economic growth. However, in the case of Mexico as well as India, EPZs have been set up in undeveloped areas in order to jumpstart the process (Dicken, 2007, p.180). It will make the situation more complicated if one is to conclude that the current economic crisis has either increased or decreased globalization tendencies. At the bottom of everything, the proper thing to do is to consider the economic crisis as one incident in history, which is being fueled by a nations need to attain a strong and stable economy for the welfare of the people (Dicken, 2007, p.207). As mere human beings, prediction of future events is improbable; the only thing that people in nations can do is to become prepared when the worst comes to the worst. References Ali, A., 2000. Globalization of business: practice and theory. Binghamton, NY: International Business Press. Bermejo, L.R., 2002. Trading services in the global economy. Cheltenham, UK: Edward Elgar Publishing Limited. Bozyk, P., 2006. Globalization and the transformation of foreign economic policy. Hampshire, England: Ashgate Publishing Limited. Cowen, T., 2009. Globalization slowed but not stopped. [Online] Available at: http://whatmatters.mckinseydigital.com/globalization/ globalization-slowed-but-not-stopped [Accessed 10 March 2012]. Dicken, P.2007. Global Shift: Mapping the Changing Contours of the World Economy. London: Sage publications Eckes, A.E., 2011. The contemporary global economy: a history since 1980. West Sussex, UK: Blackwell Publishing. EconomyWatch, 2010. Define global economy. [Online] (Updated 30 June 2010) Available at: http://www.economywatch.com/world_economy/world-economic- indicators/global-economy/define-global-economy.html [Accessed 9 February 2010]. Ferguson, N., 2005. Sinking globalization. Foreign Affairs, March/April, pp.64-77. Folbre, N., 2011. Who rules the global economy. The New York Times, [internet] 7 Nov. Available at: http://economix.blogs.nytimes.com/2011/11/07/ who-rules-the-global-economy/ [Accessed 8 February 2012]. Held, D. & McGrew, A.G., 2007. Globalization theory: approaches and controversies. Cambridge, UK: Polity Press. Higson, G., 2011. Global economics. UK: Economics Online, Ltd. Hirst, Q. & Grahame, T. 1999. Globalization in Question. Cambridge, UK: John Wiley and sons Gilpin, R., 2000. The challenge of global capitalism. Princeton, NJ: Princeton University Press. Giron, A. & Correa, E., 1999. Emergent market and fragility (Latin America and Mexico). International Social Science Journal, 160, pp.1-21. James, H., 2009. The creation and destruction of value: the globalization cycle. Cambridge, MA: Harvard University Press. James, H., 2010. Yes: globalization comes and goes, right now, it’s going. [Online] Available at: http://whatmatters.mckinseydigital.com/the_debate_zone/ will-globalization-be-derailed-by-the-world-financial-crisis [Accessed 10 February 2012]. Lee, P., 2010. US drivers pay steep price for China tire tariff. [Online] Available at: http://www.atimes.com/atimes/China_Business/MI10Cb01.html [Accessed 10 February 2012]. Masca. S.G. Vaiden, V.L. & Golgut, A., 2011. Determinants of state intervention: evidence for the eu. Transylvanian Review of Administrative Sciences, 33, pp. 150-169. Naim, M., 2010. No: theres a lot more than finance and trade binding the world together.[Online] Available at: http://whatmatters.mckinseydigital.com/the_debate_zone/ will-globalization- be- derailed-by-the-world-financial-crisis [Accessed 10 February 2012]. Oatley, T., 2005. The global economy: contemporary debates. [Online] Available at: http://www.ablongman.com/html/productinfo/oatley/OATLEY_intro.pdf [Accessed 9 February 2012]. Peet, R. 2007.Geography of Power: The making of Global economic policy, London: Zed books QFinance, 2011. Definition of global economy. [Online] Available at: http://www.qfinance.com/dictionary/global-economy [Accessed 9 February 2012]. Ritzer, G., 2011. Globalization: the essentials. West Sussex, UK: John Wiley & Sons, Inc. Scholte, J. 2000. Globalization a critical introduction. New York: Palgrave Macmillan Walljasper, J., 2004. Is this the end of globalization? [Online] Available at: http://odewire.com/48141/is-this-the-end-of-globalization.html [Accessed 9 February 2012]. 21st Century Challenges, 2011. What is protectionism? [Online] (Updated 10 February 2011) Available at: http://www.21stcenturychallenges.org/60-seconds/ what-is-protectionism/ [Accessed 14 February 2012]. Read More