Understanding economic globalization - Essay Example

?Understanding the Globalisation Introduction Economic journals define globalisation as a process by which national economies and cultures are integrated into an international economy so as to enhance international trade, direct foreign investment, migration, and technology sharing. It is generally argued that the concept of globalisation greatly contributes to effective and rapid circulation of ideas, languages, and cultural ideologies since nations have liberalised cross border trade regulations with intent to enhance foreign investment and cross-border trade for international business expansion. On the contrary, Deepak Nayyar strongly claims that globalisation has not led to a rapid growth and economic convergence in the world. He adds that this process greatly slowed down economic growth, caused the divergence of income levels, and widened the gap between industrialised nations and developing countries. Nayyar’s framework mainly compares the globalisation process of late nineteenth century with that of the twentieth century. Nayyar’s framework Nayyar tells that the term globalisation is used both in a positive and a normative sense, and hence it is a cause for confusion. According to Nayyar (2006), the word globalisation is used in a positive sense to express a process of integration into the global economy whereas it is used in a normative sense to describe a developmental strategy in the context of a rapid integration with the world economy. In the opinion of Nayyar, globalisation can be simply referred to a spread of economic activities across national boundaries. He clearly explains that the phenomenon of globalisation has three economic manifestations including “international trade, international investment, and international finance” (Nayyar, 2006). More precisely, this process increases economic openness, promotes economic interdependence, and strengthens economic integration in the world; and in order to get more clear ideas about the globalisation process, Nayyar describes the terms economic openness, economic interdependence, and economic integration. Although globalisation and resulted economic openness facilitates flows of investment, services, technology, information, and ideas beyond national boundaries; this process cannot liberalise cross-border movement of people (ibid). In addition, Nayyar strongly argues that economic interdependence as a result of globalisation is asymmetrical. He opines that countries in the industrialised world are more interdependent while developing countries are highly dependent on industrialised countries. It also seems that countries in the developing world are less interdependent. A situation of interdependence emerges when the benefits involved in linking and costs involved in delinking are almost same for both partners. In contrast, when the derived benefits and incurred costs are notably different for both partners, it contributes to a situation of interdependence (ibid). By referring to these ideas, he states that globalisation has not much contributed to the economic prosperity of developing and underdeveloped countries. In the view of Nayyar, economic integration straddles national boundaries because importance of borders in economic transactions has been decreased as a result of globalisation related cross border liberalisation. To justify the argument that the globalisation has reduced the pace of economic growth and also caused some adverse effects on the economies, Nayyar points out a sequence of evidences. In order to strengthen his arguments, Nayyar refers to the point that global economy in the late 20th century and early 21st century (globalisation era) was very much similar to that in the late 19th (pre-globalisation era) century in many ways. He asserts that there were no restrictions on the movement of goods, capital, and labour across national boundaries during the early 20th century and hence governmental interventions seldom constrained economic activities. He tells that the popularisation of steamship, the railway, and the telegraph had brought tremendous changes in transport and communications sector by the last quarter of the 19th century. To illustrate this, he points that the substitution of steam for sails and iron for wooden hulls caused to fall ocean freights noticeably between 1870 and 1900. He also says that pound sterling served as a reserve currency in this period that and it was equivalent to international money. By saying these, Nayyar establishes the fact that there was no need for dismantling barriers or liberalising cross border trade laws for encouraging international transactions. Similarly, Nayyar tells that mobility of people across national boundaries was allowed in the late 19th century without any restriction. During this period, passports were not necessary and immigrants were easily granted citizenship. He points out that between the late 1940s and the early 1970s labour migration from developing countries to industrialised economies has been considerably limited. According to him, since then, international migration has fallen gradually as a result of “draconian immigration laws or restrictive consular practices” which in turn can be attributed to the evils of globalisation. He strongly claims that “in some important respects, the world economy fared better in the ‘golden age of capitalism’, from the late 1940s to the early 1970s, than it has in the age of globalisation” (Nayyar, 2002). By referring to different statistical information, Deepak Nayyar also establishes that globalisation caused great income disparities between rich and poor people as well as countries. Deglobalisation after the 2008 global crisis and recession The 2008 global crisis and recession raised potential challenges to the global economy and it stunted economic growth worldwide. Many economists are of the view that the global financial crisis 2008-09 is the worst financial crisis since the Great Depression in 1930s. Soifer (2010) points out how the crisis led to the collapse of a series of large financial institutions, the bailout of major banks by national governments, and downward movements in stock markets around the world (p.163). This worse situation negatively affected housing market and which in turn resulted in evictions, foreclosures, and prolonged vacancies. Furthermore, it added fuel to the failure of key businesses, consumer wealth declines, and economic activity downturns; and these conditions were gradually developed to severe global economic recession in 2008 (ibid). The collapses of major banks and global economic downturns resulted from the 2008 global economic crisis and recession questioned the significance or need of the concept globalisation. Consequently, it seems that global economies tend toward a process of deglobalisation. According to International Labour Organization (ILO), the crisis and related effects greatly hit the global employment sector and the ILO also forecasted continued labour market deterioration in the subsequent years (ILO). Nayyar identifies a direct linkage between unemployment and globalisation. He clearly points out that unemployment rate in the industrialised countries rose steeply since the early 1970s. During the last quarter of the 20th century, the European Union struggled with an unfavourable employment rate of 10% while it has been in the range of 7% in the OECD countries (ibid). This statistical data and the higher unemployment rate due to the 2008 global financial crisis strengthened the argument that globalisation increases unemployment (ibid). A report of ILO reflects that the global financial crisis has caused a cut in global wage growth by half in 2008 and 2009 (ILO 1). Like the unemployment rate increases, Nayyar also linked downturns in global wage growth to the effects of globalisation. Hence, it can be concluded that the process of globalisation is not potential enough to rise in employment or wage rates. In this context, proponents of globalisation face heavy criticism from developing countries. Lin (2010) reports that the Ugandan president Yoweri Museveni, who is most famous for integrating Uganda into global markets, commented that globalisation is “the same old order with new means of control, new means of oppression, new means of marginalisation” by industrialised countries seeking ease access to developing country markets. While analysing the root causes of global financial crisis, it is evident that weaker financial regulations due to globalisation have worsened the issue (The second failure of globalisation). Subsequent to the liberalisation of cross border trade transactions, governments had restrictions in regulating financial affairs of organisations. This situation offered more operational freedom to firms and often they followed thoughtless business strategies. Therefore, governments are now planning to ensure more involvement in the financial affairs of business concerns as they believe that this practice would be essential to promote a sustainable economic growth. For instance, China has already formed a set of strict regulations towards foreign marketers with intent to ensure the survival of the country’s traditional merchants. Admittedly, globalisation has led to a series of macroeconomic imbalances. The United States has followed the immigration approach to pressure the native workers’ wages, and eventually this thoughtless strategy forced the government to support a massive indebtedness to compensate the stagnation of wages. Many of the economists hold the view that these policies were the root causes of financial crisis. According to Regnault, the global financial crisis and resulted recession are believed to be the death knell for current globalisation. The author adds that “certain analysts have hastily deduced that we are moving towards a process of de-globalisation, which they applaud, in order to organise less open regional zones” (Regnault, 2010). Some of the partisans of the Euro-Mediterranean Partnership express the strong desire for de-globalisation. According to Cooper (2009), the 2008 global recession leads to a new phase of historical development by “turning de-globalisation into a reality”. While scrutinising the global financial crisis and recession, it is obvious that many arguments of Deepak Nayyar are factual. Nayyar has pointed out that the four dimensions of financial market internationalisation such as foreign exchange, bank lending, financial assets, and government bonds significantly fuelled explosive growth in international finance. However, they had a range of adverse impacts on the global economic growth. Nayyar (2006) tells that increased international banking activities caused the gradual rise in cross border interbank liabilities by the last quarter of the 20th century. He also asserts that financial assets experienced a tremendous growth in the international market by the end of the 20th century and beginning of 21st century. By referring to statistical data, Nayyar (2006) says that the value of cross border mergers and acquisitions was rose from 0.5% of world GDP during the late 1980s to 3.6% of world GDP in 2000. As a result of those increased global market transactions, the ratio of government debt held by foreigners increased in industrialised countries like UK, France, and Germany. Similarly, there was a rise in the value of outstanding international bonds between 1993 and 2000. In short, Nayyar emphasises the point that large scale financial operations in global market caused a significant increase in public sector debt that was the root cause of 2008 global financial crisis and recession and therefore all such global market difficulties could be attributable to the process of globalisation. In sum, the pitfalls of globalisation identified by Deepak Nayyar came true in the emergence of 2008 global financial crisis and related recession. Although Nayyar’s concepts had not obtained remarkable concentration in the beginning of the early 21st century, the global economic crisis over the last few years influenced economists to review the globalisation concept. As a result, a changing trend towards de-globalisation can be observed globally. By this process, nations try to bring a new phase of capitalist imperialism characterised with the return of state intervention and protectionism. Through the move towards the process of de-globalisation, governments also plan to minimise their dependence on trade and to delink themselves from the beleaguered global financial system to a certain extent. According to Jovanovic (2011), evidently many countries have already moved towards a de-globalisation process in order to achieve a sustainable economic growth (p.249). For instance, Malaysia has planned Buy Malaysian campaign, Philippines has its own Buy Filipino campaign, whereas the US has recently designed a Buy America campaign. Conclusion In total, the Nayyar’s framework is of great help to understand the globalisation in different perspectives. He strongly argues that globalisation has not greatly contributed to global economic development; instead, it created a range of impediments to economic uplift of different countries, especially developing countries. In other words, globalisation widened the gap between industrialised nations and developing nations and it also caused income inequalities across different sectors of nations. The Nayyar’s framework can be linked to the 2008 global financial crisis and related recession since economists believe that globalisation fuelled this global financial upheaval. Hence, many nations are moving towards a process of de-globalisation to eliminate the evils of globalisation and thereby to maintain a stable economy. Reference Cooper, L 03 October, 2009, ‘The crisis of globalization’, League for the Fifth International, Viewed 20 October, 2011, ‘ILO says global financial crisis to increase unemployment by 20 million’, 20 October, 2010, International Labour Organization, Viewed 20 October, 2011, ‘ILO says economic crisis cut global wage growth by half’, 15 December, 2010, International Labour Organization, Viewed 20 October, 2011, Javonovic, MN 2011, International Handbook on the Economics of Integration, General Issues and Regional Groups, Edward Elgar Publishing, UK. Lin, J 6 January, 2010, ‘Globalization: After the recession’, Yale Global Online, Viewed 20 October, 2011, Nayyar, D 2006, ‘Globalization, history and development: A tale of two centuries’, Cambridge Journal of Economics, vol.30, pp. 137-159. Nayyar, D 2002, ‘Nationalism: Globalization once more’, Biblio Special Issues 2002: Cosmopolitanism and the Nation-State, pp. 18-20. Regnault, H 2010, ‘The Mediterranean: Between globalization, de-globalization and re-globalization’, Euro-Mediterranean Integration Policies: The 2010 Free trade Area, Viewed 20 October, 2010, “The second failure of globalization?: Competing civilizations’, n.d, CPDS, Viewed 20 October, 2011, Soifer, P 2010, Cliffs Notes: AP U. S. Government and Politics, Wiley Publishing, USA. Read More