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Globalisation

Author: NGO Viet Phuong Date completed: 27-4-2008 Person written for: Ian McLeod

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Abstract:
I decided to research about globalisation because I’m very interested in this topic. Globalisation is a process that existed for hundreds of years ago. With the advances of technology and communication, the process of globalisation has accelerated in the last few decades and is currently strongly influencing the world. There are many different views about the impacts of globalisation on people, communities and countries around the world. The operation of globalisation was also obscure for me. My aim is to understand more about globalisation, its impacts and its operation. The understanding of globalisation is very important to me as an international student studying overseas and going to compete in a globalised world. My thesis statement is “Globalisation has negative effects on developing countries’ economies, while developed countries’ economies get all benefits from it”. I used search engines like yahoo and google to find information in the internet with keywords relating directly to my thesis statement such as: “globalisation”, “effect of globalisation on developing countries”, etc. I also read magazines and newspapers to understand more about globalisation, although I didn’t use any information from those sources. However, my main source of information is from books and journals. I went to Auckland Central Library to find books relating to my research topic. In contrast to what I thought initially, globalisation has both advantages and disadvantages for developing countries and developed countries’ economies. Developing countries are not only badly affected by globalisation, but also get benefits from globalisation. However, it seems that only globalising developing countries do really get benefits from globalisation. On the other hand, all developed countries get benefits from globalisation. The only drawback that developed countries need to face because of globalisation is inequality inside the countries. Therefore, my thesis statement has been partly disproved because many developing countries also get benefits from globalisation and there is bad effect that globalisation has on developed countries.

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Table of contents:
I. II. III.

Introduction Procedures Findings A. Bad effects of globalisation on 6 developing countries’ economies B. Good impacts of globalisation on developed countries’ economies C. Good effects of globalisation on developing countries’ economies D. Bad impacts of globalisation on developed countries’ economies

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Page 8 Page 9 Page 10 Page 11 Page 14 Page 15

IV. V. VI.

Discussion Conclusion Reference list

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Introduction:
Background: The term “Globalisation” was coined in the 1960s and came into popular in the 1990s. However, earlier forms of globalisation existed hundreds of years ago. There are many different definitions of globalisation, but most acknowledge the greater movement of people, goods, capital and ideas due to increased economic integration. In my opinion, globalisation is a process that enables any entrepreneur to do business and make money anywhere in the world. This ability is supported by the advances of modern technology. The development of new technologies- advances in transportation and communications- has stimulated the globalisation process. With the spread of colonialism of European empires from the 17th century, globalisation started its effect on the world. The Great Depression in America in 1930s was a good example of early existence and influence of globalisation on the world. America was the leading economy, the wealthiest country of the world at that time. The Great Depression started in America and then spread out quickly to other countries in Europe, Asia and Africa. This happened because all countries are economically inter-dependable. Especially in the recent few decades, with the invention of transportation, computers, internet, telephone and satellites, globalisation has reached a new level as there is no more communication barrier between countries. Globalisation provides opportunities and challenges. Bigger markets can mean bigger profits which leads to greater wealth for investing in development and reducing poverty in many countries. Weak domestic policies, institutions and infrastructure and trade barriers can restrict a country's ability to take advantages of the changes. Each country makes decisions and policies that position them to maximise the benefits and minimise the challenges presented by globalisation. (Commonwealth of Australia, 2008) Rationale: This topic has attracted me most because of its significance. As an international student in New Zealand, I’m currently affected by globalisation more than most people in the world. The understanding of globalisation is very important for me in order to compete in a globalised world once I graduate from university and start my career. Reading about economics and politics is also one of my greatest interests. All of those reasons have contributed to my decision of choosing “Globalisation” as my research topic. Thesis Statement: Globalisation has negative effects on developing countries’ economies, while developed countries’ economies get all benefits from it. 4

Procedures:
My sources of information were from internet, books, journals, newspapers and magazines. I also used reports from international institutions (World Bank, IMF, etc.). I searched information from the internet by search engines (yahoo.com, google.com, ask.com, etc.). I used many search engines because each search engine has its distinct data searching method, therefore the results could be very different with the same keyword. The keywords that I used to search in the internet are related to my topic, such as: globalisation, effects of globalisation on developing countries. I also used internet to access to some international institutions’ websites to collect their reports about the world’s development and regions’ development reports). These reports are very important as they gave me valuable information to assess the effects of globalisation on countries’ wealth, poverty and development. However, my main source of information came from libraries. I used Auckland Central Library and Taylors College Library to find books and journals relating to my topic. I found many books that were written about globalisation and global economy. Those books provided essential information for my research. I also watched TV and read newspapers to have more understandings about globalisation. Although I don’t include any of that information here, they provided me a great background and specialized knowledge about globalisation. Initially, I intended to use questionnaires to support my research. However, after I finished my questionnaires, I found out that it’s very difficult to find the sample. Most of people don’t understand much about globalisation. All they know about that it’s just about general things on television and newspapers. Therefore, they could provide the survey biased and useless information. That was the reason for the questionnaires’ exclusion from my survey.

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Findings:
A. Bad effects of globalisation on developing countries’ economies:
Information: + Distribution of world GDP, 1989 Quintile of Population Richest 20% Second 20% Third 20% Fourth 20% Poorest 20% (Wikipedia) Interpretation: The chart gives the inequality a very visible and comprehensible form, which shows the distribution of global income to be very uneven, with the richest 20% of the world's population controlling 82.7% of the world's income. Information: The richest countries, like the United States, Japan, and Germany, have 86 percent of the world’s income, 91 percent of the Internet users, 82 percent of the exports, and 71 percent of the telephone lines. The three founders of MicrosoftBill Gates, Paul Allen, and Steve Ballmer- have more assets, about $140 billion, than the combined gross national products of the 43 least-developed countries. (Edwards, 2001) Of the world’s six billion, 1.2 billion live in extreme poverty, or on an income of roughly US $1 a day or less. Just under 3 billion people live on $2 a day or less.” Industrialized countries, with 19 percent of the world’s population, account for 71% of global trade in goods and services, 58 percent of foreign direct investment, and 91% of all Internet users. The world’s 200 richest people more than doubled their net worth in the four years before 1998, to more than $1 trillion. The assets of the top three billionaires total more than the combined GNP of all the least developed countries with their 600 million people.” (United Nations Cyberschoolbus, 2008) Interpretation: Income 82.7% 11.7% 2.3% 1.4% 1.2%

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The information above gives many statistics to indicate huge inequalities amongst countries around the world. The chart provides information on the proportion of income that earned by proportion of population. It is easily noticed that there are huge inequalities between and within countries. Those inequalities were worsened by globalisation because rich people have more chances to make greater wealth in the globalised world, while poor people cannot get rid of the poverty circle. Globalisation has negative impact on developing countries as it is making many poor people worse off, while making rich people better off. Information:

Interpretation: The graph shows information on the number of people living on less than 1 US$ per day between 1990 and 2000 in different countries and regions. There are 2 trends that occurred during this period. An increased trend shows that poverty actually increased in some regions. Another decreased trend shows decreasing poverty in other regions and countries. These 2 trends are made up because of each region has its level of involvement in globalisation. As for China, Pacific Asia, those regions that involved strongly in globalisation, their poverty levels have decreased a lot. For South Asia, which is mainly consists of India, their involvement in globalisation just began. This explained why the decrease in their poverty was not so big, although we cannot forget the effect of increasing 7

population in this region. With regions that do not open their economies to free trade and integrate with the globalised world such as: East Europe, Latin America, Middle East, Sub-Saharan Africa, their poverty increased a lot. It is clear that countries that do not actively involved in the process of globalisation was actually hurt by globalisation.

B. Good impacts of globalisation on developed countries’ economies:
Information:

Interpretation: The graph shows information on the changes of GDP per capita in the poorest and richest countries between 1960-62 and 2000-02. GDP per capita has increased by nearly three-fold in the richest 20 countries. Developed countries took advantage of globalisation to expand their economies as well as invest and make greater wealt. With huge capital and new regulations in many developing countries, businesses in developed countries now can easily expand their businesses, invest and open new branches in developing countries. They can rival and eliminate local businesses with low prices product and well-experienced management. They can also exploit the cheap labour in developing countries to reduce the costs of producing goods and services.

C. Good effects of globalisation on developing countries’ economies:

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According to the World Bank, between 1993 and 1998, the number of people in absolute poverty in globalizing developing economies has declined by 14 percent. That amounts to approximately 107 million people no longer living in poverty (Commonwealth of Australia, 2004). In its 1999 Human Development Report, the United Nations conceded that not all was doom and gloom in the Third World. Between 1975 and 1997, life expectance in developing countries rose from 53 to 62 years, adult literacy rates jumped from 48 percent to 76 percent, and child mortality rates went down from 149 to 85 per 1000 live births. Some countries, like Costa Rica, Jordan, and Uruguay, overcame serious level of human poverty. Globalisation played an important part in all these advances. (Edwards, 2001)

Interpretation: The information above proves that developing countries also benefit from globalisation. Poverty has decreased; quality of life has also increased. However, only globalising countries are getting benefits from globalisation, they are China, countries in Pacific Asia, South Asia. Those countries have taken advantage of globalisation. This has partly disproved my thesis statement as globalisation do not only has bad effects on developing countries, but also has good impacts on them.

D. Bad impacts of globalisation on developed countries’ economies:

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Information:

Interpretation: The graph gives information on ratio of the 10% highest paid over the 10% lowest paid workers in 9 developed countries between mid-1980s and mid1990s. Apart from Germany, there was an increase of the ratio in all countries, indicating increased income inequality in developed countries because of globalisation. Information: In United Kingdom, the income share of the richest 20% of the population is ten times as much as the poorest 20%. In Australia, the richest 10% of the population is 12.5 times better off than the poorest 10%. In the United States of America, the richest 10% is 16.6 times better off than the poorest 10%. In 1999, an estimated 12 million children were hungry in the USA. (Peace Child International, 2002) Between the mid-1980s and 1990s, 20 out of 21 members of the OECD have a rise in inequality. In the US, over the period 1973-1998, lower-skilled workers had had no gain and probably a slight loss in real pay. (Wolf, 2004) Interpretation: The information proves the bad effects of globalisation on many developed countries. Inequality has increased in those countries, as well as poverty. It has partly disproved my thesis statement, showing that developed countries do not only benefit from globalisation, but also be affected badly from it.

Discussion:

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It is obvious that globalisation has bad impacts on developing countries’ economies. The first major problem is an increase in poverty in non- globalised countries, those countries in South America, Eastern Europe and Central Asia, Sub-Saharan Africa. Other major problem is increased inequalities both between and within countries. There are many evidences that poverty has actually increased in many developing countries. According to the World Bank, in the Global Economic Prospects 2004, between 1990 and 2000, the number of people living on less than 1 US$ a day has increased in many regions. The most significant increase occurred in Sub- Saharan Africa, where most countries are non-globalising. The fall of Soviet Union and communism also led to an increase in poverty in many Eastern Europe and Central Asia countries. Increased poverty also happened in Latin America, Caribbean, Middle East and North Africa. While it is true that globalization encourages free trade among countries internationally and gives the poorest countries a fairer chance, it can also make them vulnerable to changes in the world economy. In many of the poorest countries, unskilled workers end up working long hours in appalling conditions for very little pay. Where poor countries have something to trade, it is often a primary commodity- product originating from nature, such as agricultural products (coffee, tea, sugar, cocoa, rice etc.) or minerals. Many poor countries are extremely dependent on these commodities. However, problems arise because these countries have very little ability to control the price they receive for their products, as prices are controlled by the world supply and demand. If there is high demand for a limited product then people will pay more, but if the product becomes more plentiful then the price falls. The earnings that these countries receive from those products therefore vary dramatically, making it very hard for them to plan their development. Furthermore, it is difficult for these countries to compete with stronger countries that subsidise the farmers. Because farmers in poor countries cannot compete in the international market, they are forced to sell their crops at much lower prices. In the last two decades of 20th century, the prices of primary commodities such as grains and minerals have fallen. Prices were at their lowest level since 1850 (Bowden, 2002). This decrease has made it very difficult for developing countries to fight with poverty because at the same time, the prices of manufactured goods, such as tractors and cars, have risen or remained the same. Therefore, if developing countries want to buy the same number of cars or tractors to support their businesses or farming, they must sell a greater amount of grain or minerals. However, if they produce too much grain, the price they can charge for it falls further. So, poor countries can be trapped in a cycle of producing more goods, but getting less money for the products. Many developing countries are now producing high-value commoditiesproducts that have high value for international trading- to overcome the problem. However, the initial capital for producing those kinds of products is enormous. This financial problem can be tackled by developing countries’ governments in two ways: getting investment from foreign companies, or borrowing a loan from overseas. If the governments invite foreign investors to invest or own local

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businesses, this means the profits of new trades will go overseas. Otherwise, if the governments borrow a loan from international institutions or banks to invest the new businesses, they are likely to get into the debt crisis. The debt crisis started when developing countries borrow money from overseas. They used this money to invest in local businesses to produce more goods. However, the more goods they produced, the cheaper the goods were. This made them very difficult to pay back debts and repayments. Many indebted countries then borrowed more money to help them pay off their debs, which increased their interest payments and pushed them deeper into debt. In most cases, if developing countries want to borrow money, they need to agree to earn more money to repay the debts by reducing their imports and government spending and increasing their exports. The combined effect of this agreement hit the poorest countries harder and shoved them even deeper into debt. Furthermore, money borrowing from overseas was usually spent ineffectively because of wrong economic development policies and corrupt governments. Those above factors have not only caused increased poverty in developing countries, but also increased inequality both between and within countries. The gap between rich and poor countries has grown more than ever. This proves that globalisation has bad impacts on developing countries, while it has positive effects on developed countries. Developed countries are getting richer by investing in developing countries. Their common method to invest effectively is to exploit foreign impoverished labourers. Companies from industrialized nations were able to exploit poor countries’ workers due to the lack of protections. The abundance of cheap labour gave the developed countries an incentive to make more profits from developing countries, therefore increased inequality. The richest countries, like the United States, Japan and Germany, have 86 per cent of the world’s income, 91% of the Internet users and 71% of the telephone lines. Those countries, with only 19% of the world’s population, account for 71% of global trade in goods and services, 58% of foreign direct investment. According to the 1992 United Nations Development Program Report, the distribution of global income has been very uneven. While the richest 20% of the world’s population control 82.7& of the world’s income, the poorest 60% of the world’s population control only 4.9%. The most shocking figure is that the world’s three richest people have greater wealth than the population of the 43 least developed countries combined! Between 1960-62 and 2000-02, GDP per capita in the poorest and richest countries had enormously different changes. In terms of the 20 poorest countries, their GDP per capita increased by $55 or a 26% increase in percentage scale. Those figures for the 20 richest countries were $20922 and 183% respectively. In other words, the poorest countries hardly increased their GDP per capita, while that in the richest countries improved by nearly three-fold. All the above information matches my thesis statement that globalisation has negative effects on developing countries and positive effects on developed countries.

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Nevertheless, during my research, I’ve found out that globalisation also has negative effects on developed countries, while many globalising developing countries benefit from it. Inequality has risen in most developed countries. Between the mid-1980s and mid-1990s, among 11 developed countries- Australia, Canada, Finland, Germany, Ireland, Italy, Sweden, United Kingdom and United States, the ratio of the 10% highest paid over the 10% lowest paid workers has only decreased in Germany. Widening of gaps in relative pay between the skilled and unskilled was substantial in the US and UK in the 1980s and early 1990s. The figures for UK and US were respectively 35.1% and 36.8%. In the US, in particular, lower-skilled groups had no gain and probably a slight loss, in real pay, between 1973 and 1998, despite a healthy growth of real earnings for the whole labour force. In the UK, the income share of the richest 20% of the population was ten times as much as the poorest 20%. This figure was 12.5, 16.6 in Australia and United States of America respectively. Unskilled workers were more likely to be unemployed or to work part-time. From mid-1980s to the mid-1990s, 20 out of 21 members of the Organisation for Economic Co-operation and Development (OECD) experienced a rise in inequality, largely because of rising inequality of labour earnings. This inequality was caused by many factors: laws and other social and economic changes have weakened the positions of trade unions, innovations that raised the relative demand for skilled labour, a failure of the education to improve the supply of skilled labour with sufficient speed. However, the two very important reasons that caused unemployment in developed countries are the growing of outsourcing by multinational companies and immigration of unskilled labour. These, however, are the reasons for development of developing countries. With the advance of technology in recent years, now many businesses use global communication links, for example telephones, computers, internet etc. for many jobs, there is no reason why these jobs have to be done by people in one particular country. Outsourcing in India is a very good example. Many welleducated people in India are employed in outsourcing. The computer system that controls the water supply in London, UK, is managed by a team in Hyderabad, India. Indian workers also work in call centres for distant companies. Englishspeaking Indian employees deal with customer enquiries from all over the world. The wages paid to people who work in these jobs in India are much lower than in developed countries is an incentive that attracts businesses from rich countries. Indian employees that worked in outsourcing have increased from 26,000 in 2001 to 100,000 in 2003. Because of globalisation, poverty has decreased significantly in globalising developing countries like China. The number of people living on less than 1 US$ per day- the line that indicates people living on absolute poverty in China- has decreased substantially from 361 million in 1990 to 204 million in 2000. The positive impacts of globalisation might not be possible without the participation of the developing countries into the process of globalisation. If one compares the China of today with the China of Mao Zedong or the India of today with the India of Indira Gandhi, the contrasts are enormous. Just about a quarter

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of a century ago, economic freedom has been eliminated. Taking participate into the process of globalisation, open their economies for international trade has made these countries the fastest growing economies in the world. Unemployment was solved, as well as risen literate rate and life expectancy. Globalisation obviously has positive effects on globalising developing countries.

Conclusion:
Globalisation has many different impacts on the economies of developing and developed countries. On one hand, it has improved quality of life and reduced poverty in globalising developing countries; increased wealth and life quality in developed countries. On the other hand, it slightly increased poverty in nonglobalising countries and some developed countries, widened the gap between rich and poor people in all countries. The research has partly disproved my thesis statement because globalisation actually has negative effects on developed countries and good impacts on developing countries.

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Reference list:
Bowden, R. (2002). World Povery. Great Britain: Heinemann Library, part of Harcourt Education Ltd. Commonwealth of Australia (2008). Globalisation. Retrieved February 28th, 2008, from : http://www.globaleducation.edna.edu.au/globaled/go/cache/offonce/pid/178;jsess ionid=078560C2C526AA68012B8FCAA0A8FD07 Commonwealth of Australia (2004). Globalisation: keeping the gains, The globalization debate. 202, 13. Edwards, L. (2001).The global economy: changing politics, society and family. United States of America : Professors World Peace Academy. Peace Child International. (2002). Sustainable Human Development. United Kingdom: Evans Brothers Limited. United Nations Cyberschoolbus. Globalisation. Retrieved February 25th,2008. From: http://www.un.org/cyberschoolbus/briefing/globalization/ Wikipedia. Globalisation. Retrieved March 9th, 2008, from: http://en.wikipedia.org/wiki/Globalization Wolf, M. (2004). Why globalization works. United States of America: Yale University Press.

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