Globalization Economics Essay
The notion of globalization has become a highly debated topic as its implications and consequences are becoming harder to ignore. Individuals, institutions and whole communities, local, national or transnational, are finding it more difficult to thrive without taking part in the global market system. Peters states, “The concept of globalization argues for the inter-dependence of nations, the shared nature of their economies, the mutuality of their interests, the shared benefits of their exchanges” (1).
Reminisce notes a distinction between global interdependence and liberation, “Often confused as one and the same, interdependence is actually an important precursor of globalization” (1). This precursor has evolved into what can be considered a global interdependence between nation states, whereby economies and markets are becoming increasingly integrated. Further explained, “The fact is that the world’s people and nations are more interdependent than ever before and becoming more so.
The evidence of interdependence is global flows of such things as trade, investment, and capital” (Lodge x’). The results of this integration do not Just have dual financial consequences but can extend to political, cultural, and social levels touching institutions and individuals in all countries and on all levels of society. An emerging global economy opens a new
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Evidence of this global interdependence is seen in the evolving markets and the relationships between its actors. Evolution of a new type of global market, current trends in international trade, international flow of capital, erosion of international borders, roles of Multi National Corporations, the increased role of international organizations, and the role of information technology, illustrate how global interdependence has been increasing and will continue to increase.
The most profound nature of this growing global marketplace is the inherent growth of the global interdependence that accompanies it. Evidence of an evolving global economy is seen by the new markets being created. Already established global markets in services such as banking, insurance and transport are growing rapidly. The ability and willingness of not only nation states, but corporations and small businesses across the globe, to take advantage of what globalization offers is increasing global interdependence.
Traditional balance between nation-states is still necessary for the maintenance of stability, however the evolution of global markets is affecting nation-states in new ways. Friedman examines the emerging relationship of nation-states and global markets; These global markets are made up of millions of investors moving money around the world with the click of a mouse. I call them the Electronic Herd’ and this herd gathers in global financial centers (that) I call ‘Supermarkets. The attitudes and actions of the Electronic Herd and the Supermarkets can have a huge impact on nation-states today, even to the point of triggering the downfall of governments. Who ousted Short in Indonesia in 1998? It wasn’t another state, it was the Supermarkets, by withdrawing their support for, and confidence in, the Indonesian economy (Lexus 13). Nation states are no longer contained within their own borders and walls as the ability to access, and more boundaries both real and imaginary and the resulting interdependence allow
Friedman to proclaim, “Individuals from every corner of the (world) are being empowered companies-large and small- have been newly empowered in this era as well… The world (is) no longer round-but flat” (World is Flat 11). As borders are shrinking and people, business, and nations are expanding their outreach, relationships are being formed where all parties are becoming increasingly intimate in their involvements. Interdependence between nation-states and individuals has emerged where small businesses as well as people have direct access to the global economy, strengthening hose relationships.
Between manufactures, wholesalers and other trade facilitators fully 94 % of all exporters in California alone are small and medium sized businesses (Strauss). This statistic is significant as it illustrates how opening new markets with fewer barriers, free trade and globalization, makes it easier for American small business to manufacture and sell their goods overseas. These practices apply to all business in any country as this is becoming increasingly practiced it will increasingly link and promote interdependence.
Examining Mexico, there are a growing number f small businesses that have cropped up to import American goods (Strauss). Strauss references a University of Miami study to illustrate the links between businesses and foreign countries: “More than 9 out of 10 exporters are small businesses. Why is that? By opening new markets with fewer barriers (it’s) easier for American small business to manufacture and sell their goods overseas… 99 percent of Mexico private sector is composed [of small businesses] that generate over 80 percent of employment in Mexico… ND that new, booming market awaits the small business savvy enough to tap it” (Strauss). In this way, new markets are created which foster small business growth at home and business growth abroad, and that in turn, “fuels … Demand within Mexico for U. S. -made goods and services. ” (Strauss) A win-win symbiotic relationship develops where the players become interdependent on each other for continued mutual success. These relationships affect the decisions of policy makers, shaping the domestic landscape and influencing relationships abroad.
The White House explains, Small businesses create two-thirds of new private sector Jobs in America, employ more than half of all workers, and account for more than half of the output of our economy… America is the world’s largest exporter, and America’s small businesses are a large part of that success (Fact Sheet). The United States example illustrates how, as business find and engage in opportunities in international markets forming interdependent relationships, The countries that rely on these business will follow suit ensuring these relationships are maintained as they find their economies increasingly linked.
In some cases these new financial markets which are deregulated and globally linked have the ability to work around the clock and be operated from a distance. Friedman provides insight on the interdependent relationship between businesses and how mutual benefits are likely to strengthen these relationships, “There are currently 245,000 Indians answering phones from all over the world or dialing out to solicit people for credit cards or cell phone bargains or overdue bills.
These call centers are low-wage, low-prestige Jobs in America, but when shifted to India they become high-wage, high-prestige relationships so will the countries to which they pay their taxable revenue, create jobs, markets, and linkages. This is why we see both businesses and their host countries continue to develop these interdependent relationships. Individual people are also transforming financial markets. Individual investors can now buy or sell stocks in any market, from anywhere in the world, in real time. Moreover, they have access to accurate up to date information and analytical tools to help make those trades.
As individuals continue to analyze different economies and companies, they will continue to easily and quickly move their money around, punishing poor performers and rewarding good ones (Friedman, Lexus 69). Companies are now accountable to a global following of fickle and empowered investors, where both must rely on the other for success. The result being companies all over the world forced into being accountable to individual investors on all sides of the globe and interdependent relationships between companies and their empowered individual investors.
The global interdependence of nation economies naturally leads to efforts among nations to cooperate in achieving economic goals. One of the most grounded examples of such cooperation is the International Monetary Fund (MIFF). The MIFF is an organization of 184 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty (“About the IMP’).
The MIFF is a vehicle that can focus efforts on macroeconomic stability, on fiscal and monetary policy, and capital markets issues, facilitating and monitoring the international monetary system which is impacting more people and relationships within the global economy. Regional countries have started coming together and forming deregulated trading groups such as the European Union (ELI) and the Asian Free Trade Agreement (AFT). The ten Asian countries that form the Association of South-East Asian Nations SEAN) trading bloc have conducted many trade agreements with each other.
Australia agreed to a nonaggression pact with SEAN and signed a document of intent to Join the treaty so it can be more solidly aboard efforts to create an Asian trade bloc to rival that of Europe and North America (Vientiane). This treaty, signed in July 2005 allows Australia to tap into a market of 520 million people. In December 2004 China conducted a $25 billion natural gas deal with Australia over the next 25 years, and is the biggest single Australian export contract to date. (“Economy of Australia”).
India and Japan have also increased negotiations to move towards free- trade relations with other countries, further illustrating the increasing interdependence of countries. These alliances are sought out and cultured, not ought of necessity but out of mutual desires for growth. Barriers will continue to breakdown more and more, linking essential aspects of economies as long as the perceived results produce mutually beneficial scenarios. In this way global interdependence will continue to manifest through different relationships as not only businesses but countries expose themselves and rely on new markets with each other.
One of the most ambitious examples of international economic cooperation is the European Union (ELI). A key activity of the EX. is the establishment and administration of a common single market, consisting of a customs union, a single currency (adopted by 12 of the 25 member states), a Common Agricultural Policy, a common trade policy, not only the increasing interdependence of nations but their willingness to remove barriers and establish dependent linkages. The Organization for Economic Cooperation and Development (COED) and the World Trade Organization (WTFO) are other examples of global economic alliances.
These alliances are becoming global institutions and further illustrate that dependent relationships are not only being sought out but there is a concerted effort from nations to see these relationships grow and maintained. The World Trade Organization (WTFO) and other international organizations have emerged on the global stage and function to enforce rules on national government. Gary Sampson explains the mandate of the WTFO as being, “remarkably successful at doing what they were mandated to do: liberalize trade and conduct international trade according to multilaterally agreed rules” (1).
As of December 2005 the WTFO comprised 149 sovereign governments acting on behalf of their constituents in accordance with multilaterally agreed rules that have been adopted by consensus. The WTFO has evolved from 23 countries to its number today (“The roots of the MO”), further illustrating the growing ambition for countries to seek and establish linkages. These types of international organizations are actors working to establish rules and norms that can be spread throughout the world.
Certainly, the merits and abilities of the WTFO are debatable, but the large and growing number of members illustrates increasing participation in an interdependent world. WTFO member nations are committed to permit greater foreign access to its markets by reducing tariff and non-tariff barriers to imports, eliminating trade-restrictive measures relating to foreign investment (such as export requirements, foreign-exchange balancing requirements, and local- content requirements), and permitting foreign participation in most services sectors (Weatherization).
These guidelines are in place and foster a deeper interdependence between nations. Advances in technology and communication have further lead to an outburst in the growth of world trade. Imports and exports have risen sharply over the last few years due to the deregulation of trade between countries. In the last 50 years the average industrial tariffs of developed countries have fallen from nearly 40% to less than 5% through eight rounds of multilateral trade liberalizing. This has gone hand-in-hand with a more than twenty-fold increase in world trade and a more than six-fold increase in world incomes (“EDIT”).
A more liberal investment environment has facilitated increased overseas investment. By 2003 the world stock of foreign direct investment was equivalent to 23% of world GAP compared with 6% n 1982 (“EDIT”). The growing scope of world trade is evident in the government’s December 2006 report on international trade, explained by Cooper: The full-year tally for the volume of U. S. Trade shown as the sum of foreign-made goods and services bought in the U. S. And American-made products purchased overseas stood at $3. 3 trillion for all of 2005. That volume has doubled in only 10 years…
Given the resilience of U. S. Demand, the continued strength in China and emerging Asia, and the gathering momentum in Japan and the Euro zone, trade volumes will swell further this year (Cooper). As world trade is increasing, it also runs the risk of becoming imbalanced. Cooper explains how this broadening gap is important in recognizing the interdependence of nations, “One alarming symbol of the new globalization is the The gap for goods and services hit a record $725. 8 billion in 2005… The gap has ballooned to 5. 8% of GAP in only the past eight years (Cooper).
This widening illustrates how economies are becoming interdependent as they depended on one another for rising living standards. Cooper offers an example: China looks to foreign markets, especially in the U. S. To generate funds to develop its economy. Cheap imports boost the purchasing power of U. S. Consumers, and emerging Asian nations benefit as China outsourcers some of its production of materials and parts. Most important, the U. S. And other nations get China’s surplus savings to help finance their investment and growth (Cooper).
More global trade and less regulation illustrate not only the growth of a new global marketplace but show the undercurrents of the interdependence that accompany that growth. International trade becomes an important indicator of interdependence and increasing trade Roth with decreasing regulation is evidence of an increasingly interdependent world. World trade and the opening of economies can be a mutually beneficial enterprise between both developed and less developed countries. The UK Department of Trade and Industry reminds that, “Developing countries also have much to gain.
The available evidence suggests that open economies have faster growth rates than closed economies” (“EDIT”). Foreign direct investment from multinational companies (Mans) is playing a significant role in enforcing global interdependence, as Mans are integrating their production and marketing wrought the world. “It has become increasingly commonplace for firms to attain their competitive advantages from foreign-based activities, with foreign direct investment (FED) being the preferred way of organizing such activities” (Dunning 570). International investment, or the longer term shift of money, is measured by FED.
As borders are eroding it is becoming easier to invest and conduct business on a global scale. Jordan explains, “Foreign direct investment (FED) has developed panacea status involving an increasing number of policy makers who attempt to improve policy for attracting larger quantities of FED” (88). Policymakers are doing what is necessary to encourage foreign investment and investment in and between countries is increasing: Foreign direct investment (FED) has been growing faster than international trade in recent years and has exceeded domestic investment in many development countries.
Improvements in transport and communications have made it far easier to sell goods and services around the world. Real transport costs today are one quarter of what they were in the sass. Until the 2001 economic downturn, global trade, at 12 percent, was growing at more than twice the rate of global output, at 4. Percent (Frost 24). FED creates and facilitates interdependence. It can present many opportunities for advancement to the country, in this way FED fosters dependency, as the more FED a developing country secures, the more it needs to service and keep the system going.
FED becomes attractive because it can generate exports of goods and services from the countries being invested in. Additionally, FED also leads to transfers of technology and skill. As countries use FED to develop they will be able to compete and contribute to the global economy, forging new interdependent relationships. The importance of FED and its role in fostering interdependence between countries cannot be overlooked. FED has grown in importance in the global economy as FED now press release from the United Nations Conference on Trade and Development tells us, “Foreign direct investment (FED) will continue to grow…
Half of the top 10 FED destinations will be in the developing world” (“New UNCLAD Surveys”). The prospect of FED allows new opportunities for growth in trade and can result in improvements in not only economic growth but living standards. Most importantly it offers the attention for countries to take an active or more active role in the world economy. Mans seek these markets for capital investment as a tool for profit minimization. The merits and pitfalls of FED are debatable but the role FED is playing in forging and strengthening global interdependence is not.
Multinational companies have proved a viable vehicle to through which countries are becoming increasingly interdependent. Multinational companies have affected the dynamics of trade, capital flow and sources of technology of countries, allowing markets and productions to not only become linked but interdependent. There is a great deal of incentive for both a company and foreign country to mutually participate in the same enterprise.
When today’s Mans, operating across borders with little emphasis on any single nation, such as Nikkei, Dabbers, Coca-Cola, Toyota, to name a few, integrate business operations they do so because it is more supportive of their bottom line. “Such companies now account for over 33 percent of world output and 66 percent of world trade” (Gray 62). Illustrated further, “In 1995, the sales of multinationals amounted to $7 trillion, with these companies’ sales outside their home countries growing 20-30 recent faster than exports (Street).
In this way Multinational corporations both work to reduce poverty, by connecting local business with world markets, and offer access to credit and technology. Interdependent relationships are formed as both the NC and host country stand to gain or lose based on the actions of the other. Countries are inviting these types of business, offering incentives as they recognize how the multinational corporation has developed into an important agent in transferring capital and technology to a host economy.
These corporations can create large improvements in the economy of foreign, often developing nations. Over the past decades, many nations have undertaken structural reforms to lower trade barriers, shore up property rights and free economic activity. International trade is surging. The poor nations that opened themselves up to trade, investment and (even) multinational corporations saw the sharpest poverty declines” (Brooks). There are arguably some negative affects of multinational companies in host economies, such as exploitation of labor, corruption, and pollution.
The positive and negative aspects of Mans are debatable, but their impact on global interdependence cannot be overlooked. As Mans become increasingly dependent on cheaper labor and shrinking production costs in the countries in which they operate, those countries become increasingly dependent on Mans for the capital and linkages they provide, and global interdependence continues to increase. Coca Cola’s relationship within China illustrates the relationship between a NC and host nation and how these relationships have broad applications in fostering global interdependence.
By the end of 2001, Coca Cola operated 30 bottling plants in China with a total investment of 1. 1 billion US dollars. In 2000 sales in China, were slightly over 20 billion Yuan 2. Billion USED) (Weatherization). Mans like Coca-Cola have several impacts on a host only to create significant tax revenue for the Chinese government, bottlers paid 387 million ARM in taxes in 2000, but capital works to stimulate intermediate goods and service industries, and generates a significant amount of labor income (Economic Summary).
Besides providing Jobs and income for Chinese citizens, as well as tax revenue for local and central governments, the system’s local linkages generate a large economy-wide ripple effect. “As the (NC) purchases inputs and hires workers, it creates additional income. The income is re-spent in other sectors, leading to further impacts on the local economy. The result is the economic multiplier effect” (Economic Summary). Mans can foster upstream and downstream linkages by purchasing goods and services from local suppliers and generating sales to local firms, leading to further benefits for the economy (Economic Summary).
For its part, the NC is able to develop an infrastructure that functions to most effectively suit its needs, limiting costs and creating and sustaining a marketplace to draw profits. Coca- Cola provides a viable example of how a NC can gain from investing in the velveteen of a host country, “The Coca-Cola system has invested more than one billion dollars in China over the past 20 years… Coca-Cola products are available to nearly 80 percent of China’s population” (Economic Summary). These interdependent relationships do not exist in a vacuum.
Not only the business, but the governments on all sides involved are impacted by these relationships through tax revenue, materials traded or purchased, and the number of other ripple affects caused and fostered to sustain, develop and recreate these types of arrangements, thus expanding the depth of global interdependence. Information technology (IT) is a strong driving force behind global interdependence. IT has reduced the cost of conducting international business. IT is now faster, runs deeper and is cheaper than ever before in history.
Hundreds of millions of people around the world can get connected and exchange information, news, knowledge, money, financial trades, in ways and to a degree never before thought, creating a more balanced world where there are no more islands. Supportive policy making and agreements have allowed economies of scale to occur which reduces the cost of production and increases output. With the increase in productivity of both labor and capital in production, businesses can now access and manipulate information much quicker and more efficiently than ever before, which helps expand their operations while reducing production costs.
Stated simply, “They (business) can take advantage of the freedom to place money wherever it produces the highest return” (Frost 25). A profound example of the role information technology is playing in accelerating this sort of interdependence is given by Friedman: …… In some small and medium size hospitals in the US, radiologists are outsourcing reading of CAT scans to doctors in India and Australia!!!… The advantage is that it is daytime in Australia or India when it is nighttime here-so after-hours coverage becomes more readily done by shipping the images across the globe” (Lexus 16).
Advances in communication technology have established an instantaneous 24 hour marketplace. As technology continues to advance and it becomes easier and unproblematic to reach around the globe, interdependent relationships will continue to be explored and established. As interdependence continues to be advantageous to the parties involved, it will not only linked but dependent on each other, “The main driving force of globalization ever the past 20 or 30 years has been the revolution in communications” (Skylark).
While advances in communication technology are the driving force behind the phenomenon of globalization, interdependent global economic implications are the sustaining forces. The world is becoming increasingly linked. As international barriers come down global flows of people and information are fostering further flows of capital and trade, leading to rapid growth of the world economy and creating interdependent relationships. Policy developments and international organizations are working to sustain a more integrated and interdependent world.