The concept of globalization is deceptively simple. Like most academic concepts, there is no monolithic definition of globalization. Concisely put, globalization is the extension of a simple, country-bound market. Broadly speaking, it can be considered the expansion of linkages across geo-political boundaries, leading to a re-organization of social and economic life in an unprecedented scale, and by extension global consciousness. Despite the broadness of this definition, its parsimony in capturing the true scope of the term is confessed. While generally globalization is construed in positive light due to the perceived benefits of increased communication, free trade, economic growth, greater trans-national exchange of people, ideas, culture, and technology, empirical claims suggest its pros may have been overstated (Kiser and Laing, 2001). Strictly from an economic perspective, the widening wealth gap, the contagious nature of inter-dependent financial markets brought about by globalized economic integration, over-dependence on debt to sustain the economic pyramid, irrational expansion of markets have not only garnered the attention of economists but also pundits from all disciplines; so much so that many socialists consider the term globalization a pejorative (Gupta, 2006), with some believing it a pre-cursor to revolution (Tally, 2013). In the course of this paper, the economic pros, cons and dichotomies of this phenomenon will be addressed, and potential areas for future research will be adumbrated.
What does globalization entail?
Admitting upfront the ambit of this paper is on the economic aspects of globalization, it would be remiss to overlook the multi-disciplinary tentacles of globalization. As such, the definitions propounded by experts are rich in the diversity of their disciplinary spectrum. For example, McMichael (2000), from his Economics vantage point, considers globalization integration on the basis of a project that pursues market rule on a global scale. T L Friedman offered an influential view, calling it the inexorable integration of markets, nation-states, and technologies that enable reaching the world farther, faster, deeper, and cheaper (Satyavrata, 2004). The most eloquent and holistic definition, in the survey of this writer, lies in Mittelman’s (2000) understanding of globalization:
“As experienced from below, the dominant form of globalization means a historical transformation: in the economy, of livelihoods and modes of existence; in politics, a loss in the degree of control exercised locally . . . . and in culture, a devaluation of a collectivity’s achievements . . . . Globalization is emerging as a political response to the expansion of market power . . . . [It] is a domain of knowledge.”
In light of the definitions presented above, the practical scope of globalization is fairly clear.
Debate on Globalization
The controversy surrounding globalization is not new. The question of whether its pros outweigh its cons has been debated by many experts from many disciplines. While many economists are concerned with the empirical challenges of quantifying the performance of globalization, experts in other fields offer alternate viewpoints of apprising globalization. For example, Cooper (2001) analyzes globalization from a historical perspective, given Africa’s colonial and slavery-ridden past. A study sanctioned by WHO investigates the question of how globalization impacts the healthcare of global citizens (Dollar, 2001). From a risk and management angle, Schwartz and Gibbs (1999) conduct a unique study chronicling risky and irresponsible behavior of trans-national corporations impelled by the age of globalization. Without digging deeper, it’s safe to say the debate surrounding the efficacies and justification of globalization has is old, extensive, and far from settled. In the proceeding paragraphs some backdrop will be provided for this debate as a prelude for the writer’s subsequent economic analyses.
Globalization generally positively impacts a nation specializing in a particular good or service, provided that country is able to find a consenting partner for exchange; i.e., generate trade. The torrent of regional and global economic integration, coupled with free trade campaigns have resulted in an unstoppable push for economic globalization. While many experts laud the trend (Irwin, 2015; Behren and Murata, 2012), citing the abundance brought forth by modernization, growing wealth, and living standards, a sizeable number of nations haven’t forgotten the ills of globalization. The evidences range from colossal inequality and underdevelopment of previous colonial countries of Africa and Asia to present day American imperialism (Kwame-Sundaram, 2014), modern financial aggression (Borio, 2014), proliferating culture of profit-maximization (Young and Akhija, 2014; Gandolfo, 2014; Dolgui, Kovalev, Pesch, 2015), etc.
Longitudinal and cross-sectional studies have shown ameliorated living conditions based on broad indicators of well-being across the decades contemporaneous with globalization (Zhang and Herring, 2012; Shaikh, 2007; Yusuf, Everett, and Wu, 2001). While this rings true for most countries, the highest beneficiaries have been advanced economies; in fact, most developing economies significantly lag behind (Askari, Iqbal, and Mirakhor, 2010).
So far, the main spur behind globalization is international trade. The exponential rise in trade is linked with higher economic activity, and thereby growth. This is not universal, however. For instance, at a time when yearly growth rates in ASEAN countries ranged between 6% to 8%, most African countries scored below 0.5% (Urata, 2002). This growth is also touted to have created more jobs and thus reducing unemployment. A closer look, however, shows us that despite creating more overall new jobs, the effect hasn’t been across the board. Indeed, many economies witnessed massive laying-off of workers to cut costs to remain competitive due to higher international competition, boost efficiency, and simply improve profit (Margalit, 2011; Tripathi, 2014). Case in point: China in recent years has been grappling with urban unemployment, which is beginning to affect rural economic clusters too (Zhang and Rasiah, 2015).
Thus, it is understandable why the debate rages on regarding the acceptability of globalization’s virtues. In the following sections, the good, bad, and the objective dichotomy of economic well-being of nations brought on by globalization will be presented.
Globalization: The Good
The positive economic impacts of globalization can be distilled into several distinct aspects. First, despite what detractors of globalization claim, the economic growth and development of most nations in 20th century was astounding (Crafts and O’Rourke, 2013). This accelerated ascension to economic well-being is exemplified by the Asian Tiger economies of the 1990s, who leap-frogged the West’s 200 years of economic growth in just over 200 years (Rodrik, 2012). Secondly, technology has further catalyzed this phenomenon. Case in point: Norwegian telecom giant Telenor, while justifying their foray into South Asian market, noted the accelerated effect of globalization in helping poor nations like Bangladesh and Pakistan bypass a proper land-line telephonic network and to embrace 2G GSM/WCDMA network right away. Furthermore, the dissemination of knowledge brought about by globalization led to increased awareness, transfer of technology, and ideas, all of which in turn accelerated both globalization and its capacity to generate wealth (McMillan and Rodrik, 2011). So in a way globalization has achieved a self-perpetuating growth phenomenon.
One of the most vaunted products of globalization has been the explosion of free trade. In theory, it reduces barriers like import tariffs, VAT, government subsidies and other non-tariff barriers (Costinot and Rodriguez-Clare, 2013). Enhanced global trade leads to economic growth of participant economies and creation of jobs. It also makes businesses more competitive and offers more variety and options for consumers, who also benefit from lower prices. In addition, countries reliant on semi-skilled and menial labor, who typically are also economically laggards (Jensen and Lindstadt, 2013), benefit from influx of direct foreign investment, transfer of technology and stand to gain from economic and technical development, higher standard of living, lower unemployment—all of which that are linked to fostering a democracy-friendly environment; this is supposed to make a country socially and politically more stable.
Since most businesses now have a global market to tap, the potential to grow is theoretically unlimited. Cultural intermingling facilitated by technology means two economies which have historically nothing in common and/or are geographically apart can now benefit from mutual trade and exchange of information, ideas, etc. (Narula, 2014). This has also led to higher level of tolerance and mutual understanding heterogeneous peoples. Labor and capital also have the option of finding the most rewarding destinations. The proliferation of multinational companies enabled installation of plants, highways and infrastructure facilities in poorer countries that resulted in employment and basic benefits for their citizens—helping alleviate poverty (Rodrik, 2012). And lastly, as the recent TPPA is a reminder, globalization has led to forging of many regional alliances and economic integration (Kaplinsky, 2013).
Globalization: The Bad
The greatest bane of globalization has been creation of wealth disparity. Simply put, the rich got richer, and the non-rich poorer. During the most prolific period of international trade (1960 to 2000), inequality of income grew heavily between nations, as well as within. UNDP reports suggest that 86% of the world’s resources are hogged by the richest 20%, and the remainder 14% is accessible to poorest 80% (von Braun, 2012, Van de Vliert, and Postmes, 2014).
Despite theoretical slogans of free trade with no barriers, in practice nearly 170 countries still impose VAT on imports (Leviner, 2014). In many European countries, taxes of nearly 25% are imposed (De-Hu, 2012). For the rich countries, loss of jobs is a big economic as well as social concern. As capital and labor seek the most optimal, economically proficient destination (usually poor economies), jobs are lost in the developed nations (Margalit, 2012; Geishecker, Riedl, and Frijters, 2012). China’s emergence as the export superpower has contributed to de-industrialization and manufacturing job loss of many millions in the USA and Europe. It also resulted in widening trade deficit.
The loss of jobs in developed nations is aggravated by the derivative trend of demanding pay cuts from their employees, who would otherwise lose their jobs for non-compliance (Margalit, 2012). This fosters a culture of fear for many blue collar and white collar workers.
Lack of uniformity in tax laws enables transnational enterprises to exploit tax havens (Leviner, 2014) like Cayman Islands, Bermuda, etc. Spurred by an obsessive motive of profit, these companies also carry the blame of imposing unjust and unfair working conditions, indentured slavery, exploitation of poor workers and economic migrants, child labor, unsafe working conditions, environmental mismanagement, and causing permanent ecological damage to many natural resources (von Braun, 2012). Although not strictly economic effects per se, when translated to monetary units, these losses grow staggering.
The instability witnessed in financial markets worldwide comes with massive socio-economic costs and human resource costs (Asongu, 2012, Bekaert, Ehrmann, and Fratzscher, 2014). There’s also a mismatch between the economic and financial system, as well as historic institutions that were originally designed to govern the economic and financial system (Chai, Liu, Zhang, and Xu, 2013). The propensity of funds to flee one market at the earliest sign of discomfort has had a cascade effect on capital flight (Briere, Chapelle, and Szafarz, 2012), increasing volatility of equity and derivatives market. The currency crises of 1997 and fall of Euro in the 2010s have been precipitated by the inter-connectedness brought about by globalized economic integration (Beck, Claessens, and Schmukler, 2013).
Globalization: The Dichotomy
As globalization envelops the world, the economic well-being and social welfare of economies are inextricably intertwined. Such interdependence has evolved over the past 20th century, culminating in today’s impasse where the richer nations are now rich but with the caveat that their richness is dependent on the performance of poorer countries. The proportion of world population today living in indigence is an alarming figure, and it’s growing. The irony is this growth of poverty is concomitant with unprecedented human capacity to generate wealth. As cited by Frenk and Moon (2013), the Commission on Global Governance succinctly prophesied in 1996, “a sophisticated, globalized, increasingly affluent world currently co-exists with a marginalized global underclass.” Lower travel and transportation cost has spurred a slew of economic migrants seeking better fortune for themselves and their families, leading to a migrant crisis in many countries. The result has been unsatisfactory for all—a lose-lose situation as global governance has failed to cope with newly rising challenges of migratory crises.
Another interesting aspect of globalization is, as Roine and Waldenstrom (2008) find out, the rich countries are now beginning to get poorer together. An image generated from their study is attached in the next page to demonstrate the trend.
The cultural aspect of globalization has economic implications as well. More communication induced by globalization allows for higher exchange of ideas and a broader vision. The interchange of ideas and culture allows one nation to shape its products and services to fill the void in another and thusly benefitting both nations. Obviously, the poorer economies, having poorer technological infrastructure, are surely lagging in this regard.
Globalization: A Tale of Two Hemispheres
Most topical in recent years, especially around the landmark TPPA signing has been the disproportionate distribution of income. While some studies find that the rising volume of trading between Northern nations and Southern nations can be linked to reduction in income disparity amidst skilled workers (Sheppard, 2012), the intra-North income inequality rose in the
Northern countries. Since manufactured exports of Southern origins increased the wages and demand for low-skill jobs in the South, in the North the service sector usually offers the highest paid jobs. As such, workers of semi-skilled or menial persuasion faced lay-off (Glen, 2012).
Topics Ripe for Globalization Research
From an economic research perspective, the jury is still out on whether the world itself is fully better off due to globalization, or at least most parts. The disagreement among scholars ensues from disputing interpretations of various economic impacts of globalization, irregularity of empirical evidence, uneven nature of economic costs and gains for various countries with very few conspicuous trends emerging, difficulty in quantifying trans-generational effects, politicized nature of a nation’s capacity to maneuver economic levers, geo-political vulnerability, etc. All the factors mentioned are notoriously difficult to quantify in a monetary unit. In spite of such challenges, extensive studies have looked at settling the question of whether globalization has paid off or not.
Most literature suggests that the extent and scope of wealth inequality has deteriorated in multiple dimensions since the 80s in both rich and non-rich economies. This phenomenon has been pitted against parameters of globalization and global trade in many empirical studies. Most findings report an affirmative link of higher international trade and globalization indices with income inequality—some within economies, some among economies. Atkinson, Pietty, and Saez (2011) categorize such changes by tabulating a database where they examine it through economic factors (capital gains, incomes, labor wages, taxation systems, financial crises, macro-economic variables), political changes, and global-social themes.
Recent works have recognized considerable heterogeneity in various performance measures across firms within narrowly defined industries in richer and non-rich economies (Tybout, 2003). This carries significant consequence on participatory trends of firms in global markets. When the cost of exports become fixed, firms choose to export more and expand beyond their traditional and local markets. Naturally, less proficient firms shrink their business operations (Mayer, Melitz, and Ottaviano, 2011). The former phenomenon also adds to upgradation of product line and quality through technological research and innovation as the productive firm actively seeks out newer export frontiers (Kugler and Verhoogen, 2008; Bustos, 2011).
The pervasive trade of merchandises between rich and poor countries has led to studies investigating skill premiums, which create disparity of wages and job loss in certain countries. Some studied examined this to verify existence of Stolper-Samuelson Effect and found that most exploited countries demonstrated elements of the workhorse sub-model of trade, part of the Hecksher-Ohlin framework (Goldberg and Pavcnik, 2007; Hanson, 2007; Harrison, 2006). Interestingly, majority of such studies stem from American and European narrative. It is hardly a secret that the majority that bear the brunt of globalization’s ills stem from the Eastern nations—particularly Africa and Asia. Thus a huge opportunity exists in investigating where Stolper-Samuelson Effect applies in intra-Asian or intra-African or trans-AfroAsian trades.
Some areas still not heavily explored include factors that have a considerable bearing on the quantification of costs and benefits, including scopes of gain from trading, free mobility of capital, income disparity, unemployment patterns, etc. In particular, interpersonal and inter-generational comparisons of economic pros and cons are worthy of scrutiny, especially considering the implications for eradicating dynastic poverty in many marginalized communities of poorest countries. Other interesting areas of research surrounding globalization include the premonition of Madison (1998), who believes globalization has run its course and is now in a transitional stage; as such, the economic system is evolving into a new form of capitalism—one that is distinct from 19th century laissez-faire capitalism, and 20th century ‘managed’ capitalism.
The reality of globalization is undeniable. Despite its drawbacks, arguments for reversing it are as inane as putting toothpaste back in the tube, or arguing for reverting to typewriter because computers have drawbacks. In the economic history of mankind, it was an inevitable period. However, as many studies cited in this paper have shown, the spate of globalization in its current form is simply untenable. Its economic defects and the resultant widespread income inequality, financial contagion, exploitation of resources, etc. render it unsustainable due to a lack of self-correcting disciplinary mechanism. The proliferation of technology, transportation, communication, and cultural amalgamation has only magnified its effects—good or bad. The rising income inequality among high income and low income economies is a cause for great concern. Additionally, the sheer number of people living below poverty line worldwide is on the rise, despite a reduction percentage-wise. This divergence is worrisome too. Besides, the failure of many developing economies in benefitting from the fruits of globalization isn’t entirely their fault either. The challenges of integration for a low-income economy are substantial, and it isn’t merely because of their chosen policies. A lot of factors are beyond these countries’ control. Although some experts believe despite the current fervor for globalization, the phenomenon itself is not irreversible; it’s safe to assume globalization is here to stay—at least for a few more decades. Accepting this reality, the international community ought to aid the poorest economies by strengthening the global financial system via trade, aid, and inclusive approach. The end result will be stimulated growth and hopefully eradicated poverty. Thus the benefits of globalization can be actualized truly globally.
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