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Globalization: Is it a Positive Trend?

There is a distinctive challenge facing many of the countries that make up the international system, and it can have both a diabolical and paralyzing effect on a country, regardless of its economic development, if it doesnt successfully achieve financial stability, economic growth and higher standards of living. Many countries are plagued with such adverse economic conditions which consequently cause them to become an unambiguous, inferior player in the international system. What is the solution to such a complex and multifaceted dilemma that decision-makers from various forms of governments battle with on a consistent basis? Staff members of the International Monetary Fund believe that liberalized international economic interchange, the core principles of globalization, seem to underpin greater prosperity. However, advocates to globalization are accompanied with a rising populace of opposition. Nancy Birdsall, founding president of the Center for Global Development, argues that globalization is not benefitting all and that a major challenge of the twenty-first century will be to address persistent and unjust inequality, which global markets alone cannot resolve. In the following paragraphs, I am going to summarize each groups arguments and offer my own critique on globalization and the implications it has on both advanced economies and developing/emerging economies around the world. Sarah Burrow, General Secretary to the International Trade Union Confederation, once said that globalization was the solution to all of the worlds intractable problems. It is a presumptive view that is shared by many and vehemently by the staff members of the International Monetary Fund. The IMF staff argues that globalization is what facilitates high-growth within a country. It is a catalyst towards achieving efficiency through competition and division of labor. They believe that global markets offer the opportunity for consumers to tap into a wider more diverse market in the world. Consumers can have access to cutting-edge technology, capital, cheaper imports, and a larger export market. Through globalization, consumers can be exposed to a more diverse offering of goods and services and it can create a framework for cooperation among nations on non-economic issues that have cross-border implications, such as immigration, the environment and legal issues. However, it is warned that countries must be willing to embrace the policies needed to inhibit them from being a product of isolationism, and in the case of the poorest countries they may need the support of the international community.

According to the IMF, in order for domestic industries to remain competitive, globalization is heavily required because it facilitates greater levels of imports that provide a myriad of various goods at lower prices. A country can significantly boost its GDP through exports to other countries in the world which entail will stimulate job growth as the demand for workers multiplies as the markets expand. The lack of globalization and the restriction of international trade-that is engaging in protectionism-generate adverse consequences for a country that undertakes such a policy. Consequently, the tariffs imposed will increase the price of goods, ultimately hurting the consumer. It also reduces the variety of goods available and generates inefficiency by reducing competition and encouraging resources to flow into protected sectors. Some countries have embraced globalization, reaping the benefits of a rise in aggregate income levels; other countries have turned a cold shoulder to globalization or have embraced it hesitantly, and have fallen behind. According to the IMF, the per capita income of globalized countries has risen across all regions of population including the poorer segments. Such statistical data is indicative of the effect globalization has on dismantling the income inequality prevalent in both developed and emerging economies. Globalization has not only adjusted the disparity between income levels to be a not so significant divide but it has also reduced poverty through higher growth rates leading to higher incomes for the poor. Despite such progress, the IMF contends that inequality still exists due to advances in technology and financial globalization. The demand for skilled labor has increased the returns to skilled workers in developed and developing economies often leading to a digression in the wages of the unskilled labor force. To narrow this inequality, suggestions by members of the IMF include strengthening education and training amongst workers to prepare them for a global economy, implementing policies that broaden the access to finances amongst the poor and furthering trade liberalization to boost agricultural exports from developing countries. Globalization has helped to deliver extraordinary progress to people living in developing countries, and although there are inherent drawbacks the positive implications are greater than the negative. Nancy Birdsall offers a compelling argument on the injustice of globalization and how it creates an adverse political, social and economic situation for the people of a globalized country. The global markets are disequalizing, creating inequality in all corridors of a country. Birdsall doesnt fully denounce the system of globalization; in fact, she recognizes how globalization has resulted in the success of many countries that have experienced a GDP with exponential growth. The integration of the markets has caused the inequality across individuals to taper off. However, the global inequality amongst countries has widened and economic growth amongst lower-developed economies has been stymied by globalization. Developing countries that often times lack stable political systems, secure property rights, adequate banking supervision arent able to cope with market-driven

changes in world prices. Typically, well-established countries that have productive assets: financial assets, land, physical assets, and human capital, tend to be the countries that benefit from an expansive market. The inherent issue lies in the majority of the countries that arent equipped with such productive assets and are growing at a lower per capita rate. The rules that govern international trade and commerce tend to benefit richer countries that have more control and influence on the design and implementation of those rules. Nowadays, the global market consists of advanced economies that compete with each other in facilitating the immigration of the highly-skilled. This provides a significant strain on developing countries that already have an insufficient highly-skilled labor force because those with the most education and skills tend to emigrate from developing countries to advanced economies that can better reward them for their skills. This makes the task of poorer countries, trying to build productive institutions and policies, that much tougher. Nancy Birdsall argues in short that global markets increase inequality between rich and poor countries and individuals. She states that countries caught in an institutional poverty trap will not necessarily benefit from a healthy global market. Within and across countries, individuals who begin life with lesser endowments- by reason of poverty, discrimination, lack of education and other opportunities-tend to lose out relative to the better-endowed. Another reason Birdsall contends that globalization is an adverse phenomenon is the reality that markets fail and the ability for a poor country to adjust to such failures or finance mitigation costs is smaller for poorer countries. She cites the risks of global warming and global financial contagion as two examples of market failures that entail asymmetric costs and risks for poor countries and, within developing countries, for their poor. Finally, Birdsall argues that global markets tend to be disequalizing because trade, intellectual property, and migration regimes at the global level naturally reflect the greater market power of the rich. In my opinion, I believe that Globalization has both positive implications and negative consequences. Globalization can be beneficial to advanced economies and threatening to developing economies that refuse to make the crucial measures to make globalization work for them. Globalization is instrumental in spurring the economy, integrating financial markets which spur commodity trading and foreign direct investment, and facilitating global interconnectedness. This is an irrefutable argument, as we have seen global trade expand exponentially, increasing from $53 billion in 1948 to $14.5 trillion in 2006. Commerce as a percentage of Gross World Product has increased from 15% in 1986 to 27% in recent times. The stock of foreign direct investment resources has increased rapidly as a percentage of Gross World Product in the past twenty years. Worldwide telephone traffic has tripled since 1991. The number of mobile subscribers has elevated from almost zero to 1.8 billion indicating around 30% of the world population. Internet users will quickly touch 1 billion. Judging from such statistics, its easy to realize how beneficial globalization has been in boosting the world economy. India offers a very unique

example as to how globalization can revamp a dismal economy. India opened up the economy in the early nineties following a major crisis that led by a foreign exchange crunch that dragged the economy close to defaulting on loans. The response was a slew of Domestic and external sector policy measures partly prompted by the immediate needs and partly by the demand of the multilateral organizations. The new policy regime radically pushed forward in favour of a more open and market oriented economy. Major measures initiated as a part of the liberalization and globalization strategy in the early nineties included scrapping of the industrial licensing regime, reduction in the number of areas reserved for the public sector, amendment of the monopolies and the restrictive trade practices act, start of the privatization programme, reduction in tariff rates and change over to market determined exchange rates. The liberalization of the domestic economy and the increasing integration of India with the global economy helped step up GDP growth rates, which picked up from 5.6% in 1990-91 to a peak level of 77.8% in 1996-97. Consequently India's position in the global economy has improved from the 8th position in 1991 to 4th place in 2001. India is country that didnt have the natural resources, financial assets, the business climate, and infrastructure to become a world economic power but their economic transition to a pro-business global environment proved to be the elixir to their economic prosperity. The economic growth amongst lower-developed economies can be stymied by globalization. Nearly two centuries after the countries of Latin America gained their independence from Spain and Portugal, not one of them is truly developed. Countries in other regions, once far behind, managed to achieve relatively quickly results that Latin American countries have aspired to for so long. Many blame the Spanish Empire for making off with the regions riches in the past, or the American empire which supposedly continues to bleed it to this day. Latin America offers a very unique situation to be analyzed because here is a region that has experience adverse implications to globalization. Trade liberalization has led to growing wage gaps between the educated and the uneducated. Between 1991 and 1995 wage gaps increased for six of seven countries of Latin America. The combination of technology change with the globalization of markets is raising the demand for and the wage premium to skilled labor faster than the educational system is supplying skilled and trainable workers. The rate at which Latin American universities, in comparison to universities in the U.S. and China, are spewing out highly-skilled workers is deplorable and disproportionate to the demand for workers, which further broadens global inequality. However, I believe that Latin Americas reluctance to become fully globalized has attributed to its economic downfalls. Of course, Latin America isnt a product of isolationism or protectionism, numerous treaties (Central American Free Trade Agreement, Free Trade Area of the Americas) and associations(Latin American Integration

Association, Central American Common Market) have been pragmatic implementations made to solidify Latin Americas footprint on the global market. However, despite such efforts, Latin America has still been unable to compete with other global powers in the system but that wouldnt be the case if Latin America had sound macroeconomic and social policies. Latin America has vastly more controllers than entrepreneurs. The region is suspicious of new ideas and lacks effective mechanisms to support innovative projects. Waves of bureaucracy and arbitrary requirements tend to be more volatile to Latin America then the fierce competition they face due to globalization. Students in Latin American universities arent given the practical tools-such as technological and language skills- to help them succeed in a globalized world. Latin American countries dont reward innovators and creators and universities havent reformed their academic offerings to invest in science and technology. Green-field ventures and foreign direct investment in Latin America arent exactly ideal investment decisions by multinational corporations and individuals due to the history of some Latin American countries expropriating businesses without justification and revoking permits due to political pressure. I think its premature to non-empirically state that the reason to inequality amongst countries in the global system is due to lower-developed countries not being able to compete. Any country can establish their footprint on the global market, if the countries implement appropriate macroeconomic policies that are sustainable over time, complemented by a package of social measures aimed at making globalization work in the people's favor.