Changes in economic ideology as well as progress in technology have perpetuated increases in capital mobility between nations. The North now takes advantage of cheap labor and a favorable investment climate in the South. With the help of global financial institutions, it has been possible for elite nations to compel poor ones to assimilate into the global arena. These developing nations have altered the environment, foreign policy, and labor laws to meet such obligations. As a consequence, profits have grown for investors while poverty continues to increase. Economic dimensions of globalization are creating criticisms in certain countries and raising questions about their sustainability.
Drivers for economic aspects of globalization and their potential repercussions
Globalization has grown as a result of advances in technology. Transportation and communication have improved tremendously over the past few decades. This has made it relatively easy to move goods and people between borders (Micklethwait &Wooldridge 72). Investors do not need to spend a lot of money to transport their merchandise to global markets. Additionally, developments in information storage and processing have also revolutionized global trade. Business is now taking place at the speed of thought owing to advancements in information technology. The internet makes it relatively easy to locate suppliers, purchasers, distributors, and other global business partners. Furthermore, access to trading information is uncomplicated for those who want to target certain countries. This has leveled the playing field for new and old players in the global economy.
Regardless of these developments in technology, it may still be argued that the playing field is the only level for certain entities. Advocates of globalization claim that it may lead to the convergence of revenue in the international scene because poor nations will grow faster than rich ones if they tap into this phenomenon. However, it is no secret that economic globalization has brought about serious equity issues. Only a handful of emerging economies in East Asia are growing faster than rich ones.
The vast majority of poor nations in Central and South America, Asia and Africa are not reporting economic growth. Income disparities between wealthy and poor nations are growing at alarming rates because mostly the rich can tap into the technological developments that facilitate globalization. If poor wealth distribution continues, then the problem could perpetuate tensions between these nations; it may even lead to conflict.
Most countries in the global economy have embraced similar economic ideologies. The trend in the current global market is towards neoliberalism. This means that countries have reduced tariff barriers, deregulated their markets and minimized obstacles to the flow of capital (World Bank 148). This has opened borders and facilitated the flow of information, people and goods. Prior to the 1980s, the global trading region was divided into market economies and communist countries. Some countries like China saw the benefits of trade liberalization and instated economic and political changes to enjoy these gains. Central and European countries ended their support for communism after the collapse of the Soviet. Now the world is converging towards similar market ideologies. Nonetheless, Neoliberalism or the general liberalization of trade did not come as a unanimous decision among all world players. To a certain extent, it was forced upon poorer countries through global financial institutions.
The convergence of economic ideologies has not come without a price in the global economy. When most countries adhere to the same ideology, then this may expose other global markets to instability. Investors may assume that all the forces needed to perpetuate neoliberal economies are in place and may flood a market. This could cause financial crises in those host nations as well as in the global economy. A case in point was the Asian crisis of 1997 (Steger 51).
South East nations wanted to draw foreign investments, but they did not work on all the macroeconomic conditions that were needed to make neoliberalism work. Foreign investors were not aware of these flaws, so they quickly moved into those nations. The result was an economic crash that devastated the members of these nations. The crisis could have spread to other countries had an international bailout not been put in place. It may be argued that the global economic crisis is also another casualty of this convergence of economic ideologies. Trading patterns in the global North revolve around hedge funds and other futures stocks. This came from an excessive belief in the validity of the market. The 2008 global crisis was a result of these crashes, and thus demonstrates the vulnerability of nations to market changes.
Global financial institutions have played a large role in facilitating economic globalization. The International Monetary Fund, as well as the World Trade Organization, has been at the forefront of the neoliberal movement. The IMF and the World Bank were initially created in order to restrain communism. However, after this goal was achieved, the body soon became a creditor nation to developing nations. It provides them with loans that are supposed to perpetuate growth in the global economies.
Sadly, the latter goal has not been achieved. Instead of growing the developing nations, loans from global financial institutions have perpetuated dependency of poor nations on rich ones. Many of them can only access loans after abiding by structural adjustment programs. These rules have opened up borders in developing nations without leaving room for protective, state-led interventions (Hertz 109). Furthermore, since loan recipients are obligated to reduce public expenditure, many of them cannot invest in poverty alleviation programs.
The grants they receive are often misused by political leaders. If this is not the case, then many of them must deal with huge debt repayments. In fact, several African, Asian and South American countries that rely on the World Bank or IMF must forego developmental plans to service these loans. They are trapped by a system that has now come to be known as neocolonialism. This aspect of economic globalization puts into question the favorability of the phenomenon for poor nations.
Transnational corporations also explain why economic dimensions of globalization are evident today. Companies that initially dwelt on local markets have now expanded their contacts to the international environment. Multinational firms now enjoy greater productivity, control, and profits due to globalization. It was the ease of availability of resources in global markets, availability of larger markets, and the capacity to respond to changing market conditions that led to these changes. Some of these organizations have entered into strategic alliances with other firms throughout the world. Multinationals have also found ways of surpassing national economic barriers to meet their own interests (Stiglitz 38).
The latter approach brings into question the viability of globalization for the masses. Multinationals have become so powerful that they now play a significant role in the economic and political landscapes of targeted countries. Some of them have mastered production networks such that they can circumvent nationally-based worker organizations. These tactics have shown how transnational firms are not committed to ethical production.
Consumer lobbyists have launched attacks against multinationals on the basis of these inclinations. Several North American buyers of Nike shoes have boycotted the purchase of their commodities owing to their abuse of laborers as well as their employment of unfavorable employee conditions. In addition to challenges in production, some individuals feel that transnational firms are now holding their countries at ransom. If a multinational is so big, it can use this as leverage to arm-twist its production base. A case in point was the association between Nokia and its key production site- Finland. The country heavily depends on Nokia to support its economy. In fact, almost 67% of the stock market value in the country comes from Nokia. Furthermore, 20% of all exports in the nation are Nokia products (Steger 43).
This has given the multinational a lot of clout in the country. The cell phone maker witnessed a decline in revenue at some point and criticized the company’s corporate taxes for that result. The Finish government, in turn, responded by meeting the demands of Nokia’s managers. This came at the expense of the nation’s welfare system. Such domination by a transnational organization indicates that sometimes favorable economic policies for citizens will be sacrificed for the needs of these groups.
Globalization has created opportunities where few existed. However, this has come at the expense of inequity in resource distribution among nations. It has given transnational corporations too much clout, such that some of these bodies are misusing it. Furthermore, it has led to the economic vulnerability of global nations and failures in a few markets.
Hertz, Noreena. The Silent Takeover: Global Capitalism and the Death of Democracy. London: Heinemann, 2001. Print.
Micklethwait, John and Adrian Wooldridge. A Future Perfect: The Challenge and Hidden Promise of Globalization. New York: Random House, 2000. Print.
Steger, Manfred. Globalization: A very short introduction. Oxford: OUP, 2003. Print.
Stiglitz, Joseph. Globalization and Its Discontents. New York: W.W. Norton, 2002. Print.
World Bank. Globalization, Growth, and Poverty: Building an Inclusive World Economy. Washington DC: World Bank and New York: Oxford University Press, 2002. Print.