Economic globalization

Economic globalization 

Economic globalization is the increasing economic interdependence of national economies across the world through a rapid increase incross-border movement of goods, service, technology, and capital.[Whereas globalization is centered on the rapid development of science and technology and increasing cross-border division of labor, economic globalization is propelled by the rapid growing significance of information in all types of productive activities and marketization, and the advance of science and technologies. Depending on the paradigm, economic globalization can be viewed as either a positive or a negative phenomenon.

Economic globalization comprises the globalization of production, markets, competition, technology, and corporations and industries.  While economic globalization has been occurring for the last several hundred years (since the emergence of trans-national trade), it has begun to occur at an increased rate over the last 20–30 years under the framework of General Agreement on Tariffs and Trade and World Trade Organization which made countries to gradually cut down trade barriers and open up their current accounts and capital accounts. This recent boom has been largely accounted by developed economies integrating with less developed economies, by means of foreign direct investment, the reduction of trade barriers, and in many cases cross border immigration.

It can be argued that economic globalization may or may not be an irreversible trend. There are several significant effects of economic globalization. There is statistical evidence for positive financial effects as well as proposals that there is a power imbalance between developing and developed countries in the global economy. Furthermore, economic globalization has an impact on world cultures.

History

International commodity markets, labor markets, and capital markets make up the economy and define economic globalization. Beginning as early as 4000 BC, people were trading livestock, tools, and other items as a means of money. People residing in Sumer, an early civilization inMesopotamia, came up with a token system that was seen as one of the first forms of commodity money. Labor markets consist of workers, employers, wages, income, supply, and demand. Labor markets have been around as long as commodity markets. Labor markets grew out of commodity markets because labor was needed to grow the crops and tend to the livestock. The growth of commodity and labor markets grew into a capital market where companies and governments handle longstanding funds. The process of this blending of markets in the economy took thousands of years to become what it is today.

By the early 1900s, it was rare to come across a town that was not influenced by foreign markets—whether it be in labor, prices, or any other policy of business. With advances in ship building technology and the inventions of the railroad and telephone, communication with other parts of the country and world was readily available. Towns were no longer limited to what they alone could produce and what the next two towns over would trade with them. People everywhere had the accessibility and resources to obtain goods from the other side of the world. However, these great advances in economic globalization were disrupted by World War I. Most of the global economic powers constructed protectionist economic policies and introduced trade barriers that slowed economic growth to the eventual point of stagnation which can be seen as a precursor to the Great Depression in the late 1920s. This caused a slowing of world-wide trade and even led to other countries introducing immigration caps. Globalization of the economy didn’t fully resume until the 1970s. Today, advances in technology and computer networks, both as a way of sending and receiving information, have led to a worldwide globalization of the economy.

There are three suggested factors that accelerated economic globalization, and they are advancement of science and technology, market oriented economic reforms and finally contributions by multinational corporations.

A reduction of transportation and communication costs is what initiated globalization economies around the world, and this was possible mainly due to the advancement of science and technology. Ocean shipping costs half, airfreight costs 1/6th, and telecommunications costs 1% of what it did cost in the 1930s. This improvement has facilitated and encouraged international trade and investment. Under the GATT and WTO framework, many countries have cut down their tariff and non-tariff barriers. Along with this external influence, governments within its borders have shifted its economies from central planned economies to market economies. These internal reforms have provided commonalities among different world economies and thus helped integrate as a whole. Multinational corporations that expand their businesses worldwide organize production and allocate resources all over the world. Not only are multinational corporations responsible for international financial transactions, but also for workforce distributions. By setting up branch offices, factories, and even outsourcing its services, MNCs are contributing to economic globalization.

The invention of shipping containers in 1956 helped advance the globalization of commerce. 
Economic globalization refers to the increasing interdependence of world economies as a result of the growing scale of cross-border trade of commodities and services, flow of international capital and wide and rapid spread of technologies. It reflects the continuing expansion and mutual integration of market frontiers, and is an irreversible trend for the economic development in the whole world at the turn of the millennium. The rapid growing significance of information in all types of productive activities and marketization are the two major driving forces for economic globalization. In other words, the fast globalization of the world’s economies in recent years is largely based on the rapid development of science and technologies, has resulted from the environment in which market economic system has been fast spreading throughout the world, and has developed on the basis of increasing cross-border division of labor that has been penetrating down to the level of production chains within enterprises of different countries.

The advancement of science and technologies has greatly reduced the cost of transportation and communication, making economic globalization possible. Today’s ocean shipping cost is only a half of that in the year 1930, the current airfreight 1/6, and telecommunication cost 1%. The price level of computers in 1990 was only about 1/125 of that in 1960, and this price level in 1998 reduced again by about 80%. This kind of ‘time and space compression effect’ of technological advancement greatly reduced the cost of international trade and investment, thus making it possible to organize and coordinate global production. For example, Ford’s Lyman car is designed in Germany, its gearing system produced in Korea, pump in USA, and engine in Australia. It is exactly the technological advancement that has made this type of global production possible. Moreover the development of the networking-based economy has given birth to a large group of shadow enterprises, making the concept of national boundaries and distance for certain economic activities meaningless. If technological advancement and IT development were assumed as the technological driving force for economic globalization, then the market-oriented reform carried out throughout the world should be regarded as the institutional driving force for this trend. Under the framework of GATT and WTO, many countries have gradually cut down their tariff and non-tariff barriers, more and more countries open up their current accounts and capital accounts. All of these have greatly stimulated the development of trade and investment. Moreover the transition of the former centralized planned economies to market economies has made it truly possible to for the world’s economies to integrate into a whole. Multinational corporations (MNCs) have become the main carriers of economic globalization. They are globally organizing production and allocating resources according to the principle of profit maximization. And their global expansions are reshaping macroeconomic mechanisms of the operation of the world economies. In 1996, there were altogether only more than 44,000 MNCs in the whole world, which had 280,000 overseas subsidiaries and branch offices. In 1997, the volume of the trade of only the top 100 MNCs already came up to 1/3 of the world’s total and that between their parent companies and their subsidiaries took up another 1/3. In the US$ 3,000 billion balance of foreign direct investment at the end of 1996, MNCs owned over 80%. Furthermore, about 70% of international technological transfers were conducted among MNCs. This type of cross-border economic activities within same enterprises has posed a challenge for the traditional international trade and investment theories.

Globalization of the financial sector has become the most rapidly developing and most influential aspect of economic globalization. International finance came into being to serve the needs of international trade and investment activities. However, along with the development of economic globalization, it has become more and more independent. Compared with commodity and labor markets, the financial market is the only one that has realized globalization in the true sense of ‘globalization’. Since 1970’s, cross-border flow of capital has been rapidly expanding. In 1980, the total volume of cross-border transactions of stocks and bonds of major developed countries was still less than 10% of their GDP. However, this figure had far surpassed 100% in 1995. The value of the average daily transactions of foreign exchanges has grown from US$ 200 billion in the middle of 1980’s to the present US$ 1,200 billion, which is 85% of the foreign exchange reserves of all the countries in the world and 70 times as large as the value of the daily export of commodities and services. Developed countries have been playing a dominant role in the process of economic globalization. In 1996, the total volume of exports of developed countries was US$ 4,057 billion, accounting for 81.7% of the world’s total value of international trade. In 1995, the foreign direct investment by 10 major developed countries including the G7, Switzerland, Sweden and the Netherlands took up 85.1% of the total value of foreign direct investment in the whole world. The dominant role of developed countries in the process of economic globalization is also reflected in the fact that it is they that determine the rules for international economic exchanges. Although current rules of game for international economic activities have the good aspect of being in keeping with socialized mass production, they are generally laid down under the dominance of developed countries. International economic and financial organizations are under the control of the United States and other western countries. They have been using these advantages to promote and dominate the development of globalization. At the same time, they are the largest beneficiaries of economic globalization. In November of last year, China and the United States reached an agreement on the China’s accession to WTO. With this, China made a decisive step forward on its way to becoming a member country of WTO. The signing of this agreement shows the determination of the Chinese government to firmly speed up the reform of its economic system and further integrate itself into the process of economic globalization  (Narula,1999:109-114).It is a win-win agreement. On one hand, the United States can increase its exports of goods and services to China, thus creating more employment opportunities. While on the other hand, China can boost its economic growth by increasing its share of the US market. In addition, more advanced technologies, management experience and capital can be introduced from developed countries. And the pressure international competition will become a driving force for the reform and opening toward the outside world.

Conclusions

Economic globalization, broadly understood, is the growing global integration not only of markets but also of systems of finance, commerce, communication, technology, and law that bypass traditional national, cultural, ethnic, and social boundaries.

Proponents of economic globalization argue that it leads to more efficient division of labor, greater specialization, increased productivity, higher standards of living and wealth, and ultimately the end of poverty. Proponents also argue that recent economic growth has greatly contributed to the high standard of living enjoyed by many within the developed world and raised living standards of many people formerly living in abject poverty. Many others have not made such gains.

Opponents argue that economic globalization detaches markets from essential regulations meant to protect national sovereignty, the democratic process, human rights, labor rights, and the environment. Opponents also argue that the policies and practices of industrialized countries and transnational corporations drive the market forces of economic globalization. There is no effective global regulatory system controlling economic globalization.

The rules governing economic globalization have been created through trade agreements, international law, and institutions dominated by industrialized countries. These rules favor those with access to capital, legitimizing measures such as dropping tariffs, eliminating capital controls, enforcing intellectual property rights, privatizing public services, and weakening regulations that protect labor, health and safety, and the environment. Economic globalization is increasingly perceived by the rest of the world as American economic imperialism. Many Americans, accustomed to an individualistic and competitive culture, are insensitive to the realities of abject poverty, cultural erosion, and environmental degradation. As a result, systematic exploitation of labor and the environment goes unnoticed as do coercive monopolistic pricing of goods and services, criminal evasion of local legal controls, growing debt among developing countries, widening economic disparities, and devastation of traditional cultures. Unitarian Universalists are concerned about the concentration of power and wealth in the hands of a corporate elite who are dictating the terms of major economic and social parameters throughout the world. Together these factors generate profound anger and despair that fuel ideological and religious fundamentalism, increasing violence, and international terror.

We are challenged by the reality that many of us work for the very institutions driving economic globalization. We acknowledge our fears and resistance to change as we benefit from the global economic processes that foster inequity. The transformation we experience as we move from ignorance to knowledge and from speech to action is not easy. Nonetheless, we are called to become competent advocates. Seeing the world as an interconnected web challenges us to turn from self-serving individualism toward a relational sense of ourselves in a global community, and toward practices that help create economic structures designed to serve the common good.