Globalization
Globalization
Globalization
Free
flowing of goods had increased dramatically in the second half of the 21st century. Opening
the market worldwide through free trade, technological advancement in transportation and
communication facilitated the volume of goods and services much easier. International trade
has created new opportunities for firms and individuals to sell their products and expertise
worldwide.
This was made possible due to rapid technological transformation in the 1990s, which
brought paradigm shift in all aspects of globalization. This growth was fueled by the new
order of creating wealth through massive economies of scale production and knowledge-
based technologies. "Sophisticated manufacturing methods, heavily dependent on computers
and information...that could not be easily matched in world markets (Toffler, 1991:9). Big
global market players such as transnational corporations, powerful international economic
institutions, and large regional trading networks have played a controversial role in the global
economic order in the twenty-first century (Steger, 2009).
The study of globalization needs a multidimensional approach for its processes involve a
complex phenomenon. Its processes operate in various dimensions such as economic,
political, cultural, and scientific simultaneously and in different degree on several levels. Of
all the global dimensions the major driving force of the process of globalization is economic
(Benczes, 2010).
IMF defined economic globalization as a historical process, the result of human innovation
and technological progress. It refers to the increasing integration of economies around the
world, particularly through the movement of goods, services, and capital across borders. The
term sometimes also refers to the movement of people (labor) and knowledge (technology)
across international borders (IMF, 2008).
Is globalization the answer to end, if not minimize, inequality and dehumanizing poverty in
the peripheries? Or would it only make the poor worse off and benefit more the rich? With
notable exceptions of China, India, South Korea, and Taiwan, why most poor countries failed
to catch up with developed ones? Why most countries are poor, except China, India, South
Korea, and Taiwan failed to catch up with developed ones? The answer probably is viewed by
standard economic theories such as structural change models. Chenery (1979) observed that
development has identifiable pattern in all countries. A country's size of raw materials or
economic resources, government policies and objectives, available technology and external
capital, and international trade environment constitute influencing factors to the process of
development. Though its pace and pattern depends on the myriad of events taking place in the
domestic and foreign environment
Global south economic impediments can be viewed from domestic and external factors
"Problems of poverty, inequality, low productivity, population growth, unemployment,
primary product export dependence, and international vulnerability have both domestic and
global origins and potential solutions" (Todaro & Smith, 2011:91). Binary approach to tackle
poverty problems faced by the developing countries is the logical solution. Efforts from
developing countrie to improve human capital, technological, social, and institutional changes
would not matter unless there is some major structural, attitudinal, and institutional reform in
world economy
Indeed, every country has characteristics inherent only to that country. Policies adopted by
other countries coupled with mandates from international finanicial institutions would not
give a guarantee tot effect once it is replicated to another country/
Early Wave
Due to the problem of scarcity of resources man since time immemorial had resorted engage
trade for survival. Boudreaux (2008) aptly described the primary reason people engage in
trade so that "each party expects to be made better off by that trade.” Through trade the
exchange is not limited merely to goods and services there is also more important and that is
ideas and knowledge. This trade do not only transpire from its close neighbors but
encompasses for thousands of miles. Famous of which that lasted for 2,000 years, from
ancient times into the 16th century was known as The Silk Road. The coverage of this trade
was so vast connecting by land and sea from Asia to the far end of Europe, Middle East as
well as Africa. During this period traded goods were predominantly artisan goods, silk,
spices, ceramics, textile, compasses, gun powder from India and China (Frank, 1998).
By middle ages trade increased and expanded due to more treaties signed by nations for a safe
passage and secure trade However, this growing trade was hampered because the feudal
economic system was self-sustaining. Manorial structure promoted economic self-sustenance
by producing their own needs thereby negating any chances for trade outside the manor.
When feudal system weakened and capitalism increased, this gave an impetus to spur
economic globalization.
The Age of Exploration, from early 15th to 17th century was the pivotal era that changed the
shape of the world and the course of history (Roberta, 1992). European made an
unprecedented levels of exploration because of the growing numbers of professional explorer
and navigaters. European ships travelled around the world in search for trading routes and
new lands to colonize. New age of global commercial capitalism was laid during this period.
In anticipation of the inevitable end of the Second World War, 44 countries headed by the
United States of America and Great Britain gathered in Bretton Woods, New England to
frame new international economic policies that will regulate trade and financial agreement.
Economic setbacks in the inter-war years from 1918-1938 such as The Great Depression in
1929 and 1930s motivated political and financial leaders to set the institutional foundations
for the establishment of three international economic organizations. The International
Monetary Fund (IMF) was established to administer responsibility to coordinate and regulate
international monetary transaction as well as to promote global economic prosperity and
political stability. Unfair trade practices that might harm worldwide stability are discouraged.
The International Bank for Reconstruction and Development (IBRD) became known as
World Bank, primarily designed for the Marshall Plan to extend financial loans to reconstruct
the devastated economies in Europe. By 1960s loans were expanded to the developing
countries in the world to provide funds to finance various industrial projects (Steger, 2002).
The General Agreement on Tariffs and Trade (GATT) was established in 1947 charged in
crafting and policing multilateral trade agreements. Then it became World Trade
Organization in 1995. Since the 1990s WTO became the subject of great controversy over the
policies imposed that have made more developing countries worse off. The Bretton Woods
goals and strategies were macroeconomic stability, import substitution, and governance
reform. The main architects of this Bretton Woods agreement wern John Maynard Keynes
and Harry Dexter White
Macroeconomic Stability
To maintain macroeconomic stability, the US dollar was the only international standard
currency of choice peg at 336 per ounce of gold. Each country set a value for its currency and
pledged to maintain the value within a range of variations to eliminate extreme volatility. The
IMF was expected to maintain an equilibrium functioning of the gold standard that if a certain
country get short of its balance of payments, financial assistance is provided.
By the 1950s and 1960s, European countries and Japan regained their economies and that
undermined the economic competitiveness of the United States. The monopolization of US
dollars led to the over valuation relative to other currencies to the extent that some countries
doubted the supply of gold in the United States treasury. As a response, foreign countries
converted their US dollars into gold thereby depleting US gold reserves. With the pressure
mounting President Nixon of United States announced on August, 15 1971 to abandon the
gold-exchange standard
A new order was introduced in December 1971 under the Smithsonian Agreement headed by
G-10 nations that US dollar was pegged with major currencies (currencies from highly
industrialized nations) at central rates, allowed to adjust by 2.25%. The forces of the market
were too strong to resist that by 1976 exchange rate policy shifted to floating exchange rate
system. Under this floating , a country's currency is determined the market mechanis, that is
based on demand and supply of dollars and the soundness of the central bank position.
The Philippine peso for example, was adjusted to fluctuate in response to the volume of
dollars that enters our economy. If more dollar inflow goes to our economy due to positive net
experts, more foreign direct investments, increase of OFW remittances, and greater volume of
tourist arrivals, then the currency will appreciate. Conversely, if net exports become negative,
foreign direct investments remains poor, and OFWs remittances declines, the peso will also
slide or depreciate its value.
These devaluations led to high inflation and a host of problems ensued. Foreign banks and
creditors refused to lend money to the countries badly hit by the crisis considering the high
risk involved. A combination of international bailout from IMF and the immediate sale of
Southeast Asian commercial assets to foreign commercial investors at a bargain price was the
remedy. By the last quarter of 1997 the entire region was into crisis and escalated to other
parts of the world. The 1997 Asian financial crisis threatening the entire world was the worst
such crisis since 1973 OPEC price hike (Ha Joon et al., 2001).
Import Substitution
Domestic industries were built in the 50s and 60s to replace imported products and promote
domestic industrial development and eventually achieve industrialization. This will move
people from primary industry into manufacturing and better jobs. Improvement of jobs create
substantial demand for goods and services. Some developing nations recovered rapid growth,
such as Brasil, Mexico, Argentina, and some in Africa and the Middle East (Rodrik 2000,5;
Tabb 2009, 117,270). Availability of financial capital was a defining factor. Countries that
adopted a combination of import substitution industrialization and export promotion perform
better than those who did not. This was the case of our Asian Tiger neighbors when they
aggressively built their local industries and unceasingly promoted exportation
Governance Reform
Article IV of the Bretton Woods agreement stipulates "members" exchange rate policies,
avoid pursuing policies that are designed to either interfere with the adjustment process or
gain an unfair competitive advantage over other members. In particular, a specific obligation
under Article IV, Section 1 is the requirement that members "avoid manipulating exchange
rates or the international monetary system in order to prevent ineffective balance of payments
adjustment or to gain an unfair competitive advantage." Most developing countries failed to
implement such policies. Loans extended to poor countries from IMF often comes with a
conditions such as they should adopt market oriented economic models and open up their
economies to the foreign competition and gradual opening of markets (Westad, 2005). This
would put them into disadvantage because developing countries infant industries needed.
protection. They have no match with the scale of production of foreign firms.
After the dissolution of the Bretton Woods a new set of palicies were introduced
Neoliberalism and the Washington Consensus. Neoliberalism economic policies were
grounded under the laissez-faire principle that market is the fundamental dominant decision
maker. Joseph Stiglita aptly described neo-liberal doctrine is more on freedom from the
government in terms of taxation, freedom from regulation, free flow of capital, freedom of
tariffs and quotas-the more prosperity there will be, and prosperity will trickle down from
elite to lower classes. The term Washington Consensus was named after the key players in
Washington headed by President Ronald Rengan of US and Prime Minister Margaret
Thatcher of England. This set of policies unleashed for the developing countries with large
unpaid debts from the 1970s and 80%.
Washington Consensus as defined by John Williamson, president of World Bank in the
1970s, required governments to implement the following structural adjustments in order to
qualify for loans (Stoger, 2009
Heavily debtor countries rarely made signifienot improvements from above mentioned
requirements, because mandated eat on public spending would decrease social programs such
as education, health care, infrastructures, security, environment preservation, and that
constitute greater poverty (Steger 2009, p. 851
POWER OF TRANSNATIONALCORPORATION
International companies are importers and exporters, typically without investment outside
of their home country.
Multinational companies have investments in other countries, but do not have coordinated
product offerings in each country. They are more focused on adapting their products and
services to each individual local market
Global companies have invested in and are present in many countries. They typically market
their producta and services to each individual local market
Transnational companies are more complex orgunizations which have a central corporate
facility but give decision making, research and development (R&D) and marketing powers to
each individual foreign markets
There are three fundamental innovations that have substantially changed the character of
global corporation. First was the advent and impact of digitalization in instantaneous global
communication. Production of goods and services can now be forecasted with greater
accuracy because orders from other countries can be booked through the use of digital
multimedia.
Second, the structural transformation of global commerce from producer driven commodity
chains to buyer-driven. A commodity chain refers to the whole range of activities involved in
the design, product and of a product. Whlle producer-driven commodity chains are those in
which large, usually transnational, manufacturers play the centrul roles in coordinating
production networks (including their backward and forward linkager) This is characteristic of
capital- and technology intensive industries such as automobiles, aircraft, computers,
semiconductors, and heavy machinery. Manufacturing plants would operate in economies of
scale not only confined in their home countries but to different parts of the world in which
comparative advantage warrants(Gereffi, 1999)
Third, the increasing role performed through the global system by financial elements and
emergence of the global financial firm (Neubauer, SAGE Handbook).Transactions done
within and abroad are facilitated with ease and assured securely due to the coordination of
international banking system. Transfer of funds is smooth sailing regardless of the volume of
amount
Divergence:
Definition: Divergence, on the other hand, refers to the act of moving or extending in
different directions or the state of being different.
Global Economy Context: In the global economy, divergence may indicate increasing
disparities or differences among various economic entities or regions.
Examples:
Income Inequality: Widening gaps in income levels between different countries or within
individual nations can be viewed as a divergence in economic prosperity.
Development Paths: Not all regions or countries follow the same economic development path,
leading to divergence in economic outcomes.
Trade Imbalances: Persistent trade imbalances among nations may result in economic
divergence, affecting global economic stability.
Countries with abundant natural resources might have a comparative advantage in certain
industries.
The exploitation and management of raw materials play a crucial role in a nation's economic
development.
Available Technology:
External Capital:
Access to external capital, such as foreign investment or aid, can provide resources for
development projects.
However, the terms of capital inflows and their effective utilization are essential
considerations.
Global economic conditions and international trade policies influence a country's economic
development.
Access to global markets, terms of trade, and participation in international economic
institutions all play a role.