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Globalization: A step towards or against economic progress?
Globalization refers to the integration of national economies, trade, technology and power. Globalization has resulted and progressed due to the number of factors. The expansion of the internet has played a very vital role in stretching the trade boundaries across nations through websites as common as amazon.com and ebay.com. It also, of course, is contingent upon the imposition of import and export taxes. Through the support of the IMF (International Monetary Fund), and the (WTO) World Trade Organization, most counties are taking steps towards facilitation of global trade most commonly through decrease in tariffs. Globalization could be attributed to a reduction in transportation and communication costs and advancement of Information technology. The most common form that globalization has taken the form of different brands. Brands like KFC, McDonald and many others have been successful in conquering the cross nation boundaries for quite some time. Globalization has also resulted from a decrease in the contingent costs.
The ocean shipping cost today can be estimated as approximately the half of the cost that had to be incurred during the year 1930, the airfreight reduced to 1/6 while the telecommunication cost decreased to 1% in comparison to the cost in 1930. On the other hand, the price of computers in 1990 was only 1/125 of the cost in 1960. This price further decreased by 80% in 1998.
Reduction in all of the above costs has made it feasible to exchange commodities, information and technology across long distances. When comparing to the other markets, the greatest trend of globalization was witness in the Capital market. Globalization could also be attributed to increasing in the number of Multi-national companies over the span of the past few decades.
The process of globalization has been progressing continuously since the past few centuries. People have travelled across borders for trading since the middle ages.
The Silk Road served as the main route between China and the Mediterranean Sea, for the purpose of exchange of ideas, knowledge, tradable goods and foods, which mainly comprised of silk, spices, porcelain, and other merchandise.
The industrial Revolution thereafter sped up the process of Globalization. As the requirements of raw material increased, industrialists expanded their search across boundaries in search of cheaper and better quality raw material. The first world war however saw a great halt in globalization as national borders were shut down first due to war, and afterwards, as a result of post-war protection policies. Many economists however argue that the world war was not a contributing factor to declining in globalization after 1914 (WWI). Globalization was at its peak post world war II, as international trade hit the roof. Following the end of the WWII, international trade had expanded immensely with merchandise exports rising by more than 8 percent every year during the 1950-73 periods .
Globalization progressed upwards during the 1990’s with the advent of information technology, improved communication and reduction in the costs of transportation. The Globalization process has brought a number of advantages to the international economy. Access to the international market has provided industries with increased demands for their product. The increased demand in turn has led to economies of scale which have enabled the industrialists to minimize their costs, and maximize their profits. Also, increased competition has led to decrease in prices as consumers could gain access to the cheapest product in the market. Additionally, globalization has led to breaking down of monopolies. It has also made the producer more focused on the demands of the consumer (created an output based economy), as the consumer of a globalized economy has access to a variety of different products to choose from. Due to globalization, particularly in terms of the capital market, countries are benefiting from the inflow of investments, which sequentially is creating more employment opportunities for the locals. Lastly, globalization has greatly enabled and encouraged the sharing of information as well as technology across countries.
Many economists, despite all the advantages brought about by globalization, are concerned about the negative impacts of it. Economic globalization has expanded the gap between developed and developing countries rather that reducing it. The gap between the per capita income of the richest and the poorest country was 30 times in 1960, and it has now increased to 70 times. In addition, the value of trade of the poorest 46 countries aggregated to 1.4% of the world total. During the 1990’s, this proportion had reduced to 0.6% and further to 0.4% in 1995.
Another drawback is that while nations could control the flow of wealth by implementing different policies like the monetary and fiscal policies, flow of cash in the global market is not as easy to regulate. Also, the free flow of capital in the international economy may lead to increased volatilities of the currency exchange rates, thereby affecting international trade. International trade leads to the supply of a standardized product, inhibiting innovation. International monopolies have also been known to become stronger as a result of a free market trading, and they are known to exploit the rights of the consumer. Another side effect of international trade is the strengthening of the multi-national companies due to their free movement of capital and other commodities across boundaries, which may create monsters that cannot be controlled. Too much competition may also crush newer, and unstable businesses, and new people may not get the opportunity to rise. The greatest risk of interconnected economies is that they may become too much dependent on each other, and shock in one country’s economy may affect the economies of all. Recent growth in trade and industrialization has led to environmental problems including pollution from carbon dioxide emissions and the depletion of non- renewable resources. Globalization has also increased inequalities, except on a bigger and national scale. The stronger nations are likely to exploit the weaker and less powerful ones and have been known to do so too.
In conclusion, globalization may bring a number of advantages to the international market, but it is not an ideal solution. Even though, globalization needs to be promoted, there should be no such thing as a free market economic system. On the other hand, closing country borders to outside trade could prove as a dangerous tactic and may adversely affect the economic situation of a nation. International trade should be carried out, but steps should be taken to safeguard the rights of the developing countries. Because if on one hand, International trade provides benefits like investments and cheap raw material to them, they could quite easily be forced to live under the pressure of the developed countries. That is, globalization should not only benefit the developed countries, but should also provide incentives to third world countries. Attempts should be made in implementing macro-economic policies like the monetary and fiscal policies to control the economic situations of the global market. Tariffs import duties and customs duties should use to control and regulate the extent of globalization to an ideal level within a country.
Work Cited
Geographic, N. (n.d.). The National Geographic education. Retrieved from http://education.nationalgeographic.com/education/encyclopedia/globalization/?ar_a=1#page=1
Organization, W. T. (2008). Globalization and trade. Retrieved from http://www.wto.org/english/res_e/booksp_e/anrep_e/wtr08-2b_e.pdf
Shangquan, G. (2000). Economic Globalization: Trends, Risks and Risk Prevention. Retrieved from http://www.un.org/en/development/desa/policy/cdp/cdp_background_papers/bp2000_1.pdf
