The world economy has been completely transformed in the last three decades through the globalization process. Globalization is a process of integration and interaction of governments, companies and people from different countries across the world (Anne 1990, p. 15). International trade and investment drive the globalization process. It is also important to point out that information technology has also helped a great deal in promoting globalization. The process allows cross-border transfer of goods, services, and even capital. The world has become very interdependent and interconnected and this makes nations to have a global outlook instead of focusing on local and nationalistic perspectives (Weimer & Aidan 2004, p. 79). Apart from economic globalization, other forms of globalization include political, social and cultural globalization. Globalization is not actually a new concept but has been around for thousands of years, but the only difference is that modern globalization is controlled by policies.
There has been an increase in cross-border trade and investment in the past few decades because of technological advancements and policy (Bond & Ana 2014, p. 5). According to many economic observers, there is a new phase of economic development. Today’s globalization is much deeper, cheaper, faster and farther compared to earlier globalization and this why there has been rapid economic growth in most countries. Between 1997 and 1999, there was a 90% increase in flows of foreign investment. Bowles (2004, p.111) observes that most economies have now opened up both domestically and internationally because the current wave of globalization is policy driven. Most countries have now created many opportunities for international trade and investment by increasing their production potential and adopting free-market economic systems. In order to promote trade in investment, services and goods, most governments have established international agreements and are always involved in negotiations for dramatic reduction of trade barriers (Bowles 2004, p. 111).
In coordination with foreign partners, most corporations have been able to establish production and marketing arrangements in order to take advantage of new opportunities in the global market (Brautigam 2009, p. 97). An international financial and industrial structure is therefore the defining feature of globalization. The other principle diver of economic globalization is technology. There has been a dramatic transformation of the world economy because of the many advances in information technology. Individual economic actors like businesses, investors and consumers have been provided with new and more efficient tools to identify and pursue global economic activities because of the readily available information technologies (Brautigam 2009, p. 97). These technologies have also enabled collaboration with far-lung partners, easy transfer of assets and easy access to more informed analyses of global economic trends.
A country like China has been a major beneficiary of globalization since it joined the World Trade Organization in 2001 (Brautigam 2009, p. 97). The country has risen to become a global giant in a span of two decades and this is largely attributed to globalization. It is important for all nations to understand the policy choices that face them and at the same time make an effort to understand how globalization works. It is always important to find the right balance between the costs and benefits of economic globalization in order to enjoy its benefits (Brautigam 2009, p. 97). This paper will highlight the positive and negative effects of globalization and at the same time provide an accurate analysis of all the ideological biases and controversies concerning the globalization processes. The paper will also look at the concept of market failure and government failure and what a state must do that the private sector will not do to avoid these failures.
Positive effects of globalization
The world has actually become a global village as a result of globalization (Carmody 2001, p. 67). The world will continue to shrink if these trends continue to develop at this rate. Globalization has become a staple for world commerce as a result of faster turnaround times, higher demands for markets and advanced technology. According to Cramody (2013, p. 88), globalization has become a major catalyst for the transformation of the world economy. The following are the major positive effects of globalization.
More efficient markets
Every economy strives for efficient markets and that is what globalization provides. There should be market equilibrium for businesses to thrive and this means that buyers should be able to afford goods and services at the price the sellers are willing to sell (Cheru & Cyril 2008, p. 134). Increased demand and affordability are the major features of an efficient market. Companies can offer better prices by buying from an overseas supplier that offers discounts or by outsourcing certain processes. Business can use their additional profits to create more expansions, take on more investments and at the same time increase wages. Interconnected economies grow together because as one economy grows, the impact is also felt in other economies. Economic success may be profound in one area, but the reverberations are normally felt across the world (Cheru & Cyril 2008, p. 134).
Consumers always enjoy when multiple producers are competing for the market share. Competition becomes even stiffer when a country joins the global market (Ferguson 2006, p. 44). The quality of goods and services also improves when there is increased competition because every company tries its level best to attract more customers by offering the best products and services. A new standard was introduced into the global market when new businesses started to venture across international borders. There are more options to choose from when it comes to goods and services because consumers have to select products and services from both local and international companies (Ferguson 2006, p. 44). Each company is always trying its level best to create more value for its customers because there are more competitors that are willing to fight for the market share. Buyers therefore have the advantage of lower prices and quality as a result of globalization.
It is difficult for countries that depend on each other economically to go into war and this has helped a great deal in improving world security (Giddens 1991, p. 91). Although there is still some violence in the world, no one can dispute the fact that globalization and creation of regional trading blocs has improved global security. This is an indirect benefit of globalization because it has nothing to do with the economy. Moreover, countries that are economically stable are less likely to invade another country to fight for resources (Giddens 1991, p. 92). The fact that some country’s financial health depends on the other has halted many conflicts that could have turned ugly if this kind of relationship did not exist.
Partnerships between companies and countries have been developed as a result of globalization (Joshi 2009, p. 103). The process has created friends with benefits that have helped to sustain world-cooperation. Countries that remain loyal to agreements enjoy economic success and peaceful co-existence. Nations that wish to remain prosperous and peaceful look for friends with economic benefits because such relationships guarantee security and stability. Criminals and terror groups have been broken through international communication. There are collective efforts to fight global threats like terrorism and therefore most criminals and terror groups have no safe haven for hiding (Larsson 2001, p. 24).
More wealth equality throughout the world
Millions of people around the world can now provide comfortable for their families, have started a business and even gotten jobs as a result of globalization (Manji & Stephen, 2007, p. 92). Economic stability and better lives for citizens is no longer a preserve for traditional economic powers. Mankiw (2009, p. 12) agrees that globalization has led to an equal wealth distribution of wealth because less developed countries are now reaping the benefits of doing business with developed countries. Poor families in developing countries can now live a decent life as a result of globalization. Those unnecessary luxuries in developed countries can now be transferred to developing countries to meet basic needs (Maudsley 2012, p. 122).
Important ideas have actually become a reality because of globalization. Most companies have been able to efficiently carry out important processes because of the collective efforts (Orbach 2013, p. 67). Environmental degradation to a large extend has been caused by globalization, but the irony of the matter is that the world can work together through globalization to tackle environmental degradation. The necessity of the human species should never be underestimated and globalization has always allowed the human race to push forward. Paul (2005, p. 198) observes that globalization has enabled the human race to accomplish amazing things because progress is one of the major reasons for the existence of human beings. One of the most far-reaching innovations is the international global situation. Multinationals are always trying their level best to come up with new solutions that can solve the existing global problems (Perkins 2004, p. 162). Countries that have advanced technologically have been able to share their technologies with the rest of the world through globalization.
Accessible international investing
With just a click of the mouse, it is now possible for one to invest internationally. You can just press a button to purchase international bonds, stocks and currencies (Power & Giles 2010, p. 487). The opportunities that have been brought by globalization can grow your risks as well as financial opportunities. According to most financial advisers, diversification of investments is the best way to deal with the challenges of investing in the global market. Investors have an opportunity to buy an international real estate because globalization allows easy access to international investment markets (Power & Giles 2010, p. 487).
The negative effects of globalization
It is sometimes difficult to know if the disadvantages of globalization are outweighed by the benefits, but this varies from one country to another (Ritzer 2011, p. 76). The fact of the matter is that globalization is an inevitable process, especially in the modern world and it is important for countries to learn how to live with it (Ritzer 2011, p. 76). You can only get a broader perspective on globalization when you also look at its negative effects. The following are some of the major disadvantages of globalization:
Someone has to lose
The issue of competition has led to a reduction of prices and production of quality goods, but the most unfortunate thing is that someone has to lose in the process (Roy 1980, p. 401). Competition has its sour side despite the fact that it is generally thought to be a good thing for the world economy. Globalization has made some companies to completely close down. Some people may argue that the companies that survive in a competitive environment are always the best, but that is not always the case. Large companies like Google, Exxon and Apple still continue to enjoy borderline monopoly. They are no longer innovative but rely on politics and strategy to continue dominating the global market.
The fact that the companies are some of the biggest brands in the global market means that smaller and upcoming companies that have the capacity to also offer quality and innovative products and services cannot survive (Roy 1980, p. 401). It is always difficult for smaller companies to compete with multinational companies that have been in the market for long. A country like China is able to produce products that are relatively cheap and this means that other countries that produce similar products will practically be out of business especially if their prices are slightly higher (Sachs 2005, p. 72). Such countries are more likely to suffer economically through job losses and lack of inadequate foreign exchange.
China has been able to dominate the international market because of cheap labour and the abundance of raw materials. Sachs (2005, p. 72) observes that developed countries have also been on the receiving end when it comes to globalization because most companies outsource cheap labour from developing countries like India and China and in the process rendering local people jobless. There is a lot of resentment in developed countries like the US because the local people feel that globalization is taking away their jobs. According to Schroeder (2012, p. 234), multinational companies are trying their level best to reduce their cost of production in order to offer competitive prices and are therefore forced to outsource for cheap labour. On the other hand, developing countries have a shortage of skilled labour because most of their professionals are rushing to work abroad.
The need for energy industry has largely been increased by globalization, but this has led to serious environmental degradation. The welfare of future generations has completely been ignored in an attempt to meet these needs (Southall & Henning 2009, p. 34). Global warming is a reality and the conversation surrounding this occurrence cannot be ignored. Some people may not believe in global warming, but the fact that the whole world is having a conversation on the issue means that there is a problem somewhere. Enormous destruction is being caused to the planet and yet some people continue to bury their heads in the side arguing that the damage is negligible. The earth’s surface is just a mere 60 miles away from the atmosphere, but the most devastating news is that almost 50% of tropical forests in the world have been logged (Southall & Henning 2009, p. 34). The atmosphere is no longer voluminous as it used to be not to mention the fact that its composition cannot be changed easily. Globalization has led to an increase in the number of industries in both developed and developing countries. Environmental pollution is now at high levels because of accumulation of industrial waste.
Increased spread of infectious diseases
Increased tourism and world trade means that more people are now travelling across the world and this has led to an increase in the spread of infectious diseases like Ebola, SARS and HIV/AIDS (Stiglitz 2006, p. 14). Globalization has also accelerated the spread of invasive species. It is sometimes difficult to trace the origin of certain viral diseases because people from different continents always meet as a result of globalization.
The concerns of globalization critics
There are some critics that want a better globalization while others are completely against the entire process (Steger 2009, p. 150). Those that are completely against globalization are commonly referred to as the isolationists. Protectionists advocate for better globalization through better environmental standards and stronger labour standards. The fiercest critics of globalization claim that the process has led to increased injustice, exploitation and oppression due to the emergence of international capitalism (Steger 2009, p. 150).
They claim that globalization is the greatest cause of poverty and is the major reason why many terror groups have come up to protest against international capitalism (Steger 2009, p. 16). Anti-globalists hold very extreme positions and still enjoy the support of such groups. The support of trade liberation in developing countries has been dwindling over the years. Global institutions like the World Trade Organization, the World Bank and the IMF are known to represent the global economy in most people’s eyes but are not doing enough to change the negative perception that has been created by globalization critics (Steger 2009, p. 16). These institutions have a grudging acceptance in most countries and yet they are supposed to be a source of refuge for struggling countries.
Critics of international financial institutions argue that these institutions isolate developing countries when it comes to decision making. The IFIs are said to be slow when it comes to debt relief and also not very transparent when it comes to its operations. Protectionists believe that there can be a better globalization if developing countries were to have a large say in the decisions of the IFIs. There is also a need for the institutions to move rapidly when it comes to debt relief and at the same time be more transparent. The distribution of wealth and power in the world economy should be done fairly without dismissing the concerns of developing country leaders. The effect of international trade on the environment and jobs has been another area of concern for globalization critics (Steger 2009, p. 16). This thought is in most cases amplified in developed economies compared to developing countries. It is also important to acknowledge the fact there are some people that are not against globalization and yet they are critics of the IFIs.
According to most leaders from developing countries, the economic trend towards globalization will lead to further marginalization of developing countries. These leaders argue that developed nations are only interested in globalization to secure access to the developing countries for their goods and services (Vogel 1991, p.156). According to them, developing countries have nothing to gain from globalization. In fact, President Yoweri Museveni of Uganda argues that globalization is a new means of marginalization, oppression and control. Globalization critics from developing countries claim developed countries blame the negative consequences of globalization in developing countries on cronyism, corruption and bad governance without looking at the broader perspective (Watts 1987, p.294). Some of the globalization but criticisms is meant to promote better globalization. However, it is also important to acknowledge that some of the criticisms are self-serving.
All countries should come to terms with the reality and recognize the fact that trade integration can create short term losers and winners and also comes with a relative change of prices. It is important for the world to address all the labour concerns by emphasizing observance of labour standards and equalization of wages around the world. The financial crises in the 1990s led to the volatility of international capital flows and this has been another major concern for globalization critics.
Although much is being done to strengthen the international financial system, most critics are still not impressed with the current international financial architecture. Barriers to trade in textiles and agricultural products have also been another area of concern for critics of globalizations in developing countries. The fact that some developing countries are not allowed to export their agricultural products means that globalization does not help them in any way (Vogel 1991, p. 45).
The concept of market failure and government failure
A market failure is said to occur when private sector industries fail to perform effectively and efficiently. Some of the major causes of market failure include public goods, negative externalities and monopoly (Williams & Ian 2004, p. 94). On the other hand, government failure is normally said to have occurred when its economic interventions lead to a decline in the economic welfare of the country as well as inefficient allocation of resources. Some of the major causes of government failure include government bureaucracy, political interference, poor information and lack of incentives (Williams & Ian 2004, p. 94).
According to Weimer and Adan (2004, p. 56), government should deal with this type of failure by putting the necessary measures in place like pollution reduction and tax cuts. The call for government in market failure may be inappropriate and naive regardless of whether the diagnosis of market failure is accurate or not. It is always important to determine whether government policies will improve the private sector before recommending government action. It is therefore important to acknowledge the fact that government action may not necessarily help when it comes to overcoming market failures (Weimer & Adan 2004, p. 56).
For over two decades, multinational companies like Microsoft and IBM enjoyed a monopoly in the global market and this has been a reason for market failure when it comes to operating systems and computer markets respectively. Most American companies like Intel, General Electric, Google and Microsoft are always criticized by European regulators for their anti-competitive policies that have always led to market failures. In the era of globalization, the state in less developed and emerging economies has a relatively bigger role to play in the era of globalization (Southall & Henning 2009, p. 34). There are certain things that the state should do that the private sector cannot do in order to successfully deal with both market and government failure and some of them include:
Provision of incentives
Lack of incentives is one of the major causes of market failure and therefore governments in developing economies should try their level best to improve the private sector. Incentives help managers and workers in both public and private sectors to cut costs and at the same time become more efficient (Southall & Henning 2009, p. 34). Performance targets and profit incentives should be introduced by governments in order to avoid public sector failure.
The private sector gets most of its tenders from the government and it is therefore important for governments to ensure that the tendering process is free and fair (Ritzer 2011, p.76). In the past, most government tenders have always been awarded tenders even if there are private companies that have the capacity to do a better job. This trend is very common in most developing countries and should be stopped in order to avoid both market and government failures. The public sector is forced to act like a company because of the incentives that are created by the threat of competition (Ritzer 2011, p.76). It is sometimes difficult for governments to introduce competition in the tendering process because most public sector organizations are a monopoly.
Public private partnerships
The other strategy that governments can use to overcome both government and market failure is to encourage public private partnerships (Manji & Sptephen2007, p. 92). This can only be done through the enactment of government policies that encourage such partnerships. The private sector is more likely to bring incentives and expertise to any joint project with the government apart from the fact that it also pays part of the cost.
It is often difficult for both the private and public sectors to thrive in a hostile political environment and it is the responsibility of a government to guarantee political stability. Foreign investors are always willing to invest in countries that are politically stable, transparent and promote respect for human rights (Manji & Sptephen2007, p. 92). A recent survey has shown that governments that are politically stable are more likely to experience rapid economic growth compared to countries that are politically unstable. It is the responsibility of governments in developing economies to create the right environment for both public and private sectors (Manji & Sptephen2007, p. 93).
The globalization process has helped a great deal in improving international trade and growth of multinational companies, but it also has its fair share of shortcomings. Globalization critics claim that it has led to economic capitalism and exploitation of developing countries by developed economies. It is the responsibility of governments in developing economies to create the right business environment for both private and public sectors and in the process help in overcoming market and government failures. Transformation of the world economy depends on how well the globalization process will be managed.
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