August 7, 2012
”Globalisation has joined imperialism, colonialism, capitalism and communism in becoming an all purpose tag, which can be wielded like a club in almost any ideological direction. It is the defining political, economic and social phenomenon of the new millennium” Discuss.
The world is shrinking. Not physically, of course, but socially, culturally and economically. The nations of the world are coming closer together in terms of cultural contacts and economic transactions (Taylor, Richardson, Yeo, Marsh, Trobe, & Pilkington 1995). Globalisation can be interpreted differently by theorists. Anne Kruger (2000), deputy managing director of the International Monetary Fund, defines it as ‘a phenomenon by which economic agents in any given part of the world are much more affected by events elsewhere in the world’. David Henderson (1999), former chief economist of the Organisation for Economic Co-operation and Development, defines globalisation as ‘free movement of goods, services, labour and capital , thereby creating a single market in inputs and outputs; and full national treatment for foreign investors (and nationals working abroad) so that, economically speaking, there are no foreigners’. This defines globalisation but how does it compare to imperialism, colonialism, capitalism and communism?
Imperialism is a policy of extending control or authority over foreign entities as a means of acquisition and/or maintenance of empires, either through direct territorial conquest or through indirect methods of exerting control on the politics and/or economy of other countries. Colonialism refers to the extension of a nation’s sovereignty over territory and people outside its own boundaries, often to facilitate economic domination over their resources, labour, and markets. Capitalism has been defined in various ways. In common usage, it means an economic system in which the means of production are overwhelmingly privately owned and operated for profit, decisions regarding investment of capital are made privately, and where production, distribution, and the prices of goods, services, and labour are affected by the forces of supply and demand in a largely free market. Communism refers to a conjectured future classless, stateless social organisation based upon common ownership of the means of production, and can be classified as a branch of the broader socialist movement (Wikipedia 2006).
These are classed as ideologies as they are a unifying system of beliefs, attitudes, and values (Harris 2006) which form a comprehensive set of political, economic, and social views or ideas (IMUNA 2006). It is the differing of opinions which makes them move in different directions. There are right wing and left wing views on each, each with their own merits and downfalls.
So does globalisation deserve an all purpose ‘tag’? Are there differing views on its sociological, economic and political aspect?
It is difficult to separate the effects of globalisation into each aspect, as many overlap. The consequences of globalisation affect equality, labour, government, culture and community and the environment, so each will be considered as inter-related factors of a global effect. This essay will serve to introduce both transnationals companies and foreign direct investment as they form the basis of globalisation.
Transnational Companies and Foreign Direct Investment
A transnational company (TNC) is a firm which sells its products to world markets. They have subsidiaries in two or more countries, and are currently owned entirely by the West (Taylor, Richardson, Yeo, Marsh, Trobe, & Pilkington 1995). Foreign direct investment occurs when a TNC invests directly in facilities to produce a product in a foreign country and when a firm buys an existing enterprise in a foreign country (Hill 2005). The motivation of this FDI is the desire to disperse production activities to optimal locations and to build a direct presence in major foreign markets (Hill 2005).
Figure 6 shows how the volume of FDI has grown more rapidly than the volume of world trade in recent years.
There has been an increase in the amount of FDI undertaken by firms based in developing nations (Hill 2005) but 2001 saw the first shrinkage in volume of international trade and FDI since 1982 due to a slowdown in the world economy (Wolf 2003). Over 90 per cent of FDI is sourced in ten developed countries, and about two thirds originated in only four; USA, UK, Japan and Germany (Waters 1998).
Modernisation theorists focus on the benefits from the growth of TNCs; the introduction of foreign capital and advanced technologies, the training of local workers, the boost to local markets of more disposable income and the access to world markets. They also note their role in helping integrate the nation states of the world in a general process of globalisation (Taylor, Richardson, Yeo, Marsh, Trobe, & Pilkington 1995).
Underdevelopment theorists on the other hand, argue that the disadvantages of globalisation outweigh the benefits. Industrialisation, which TNCs introduce into Third World countries, is typically only a specialised part of a whole process, different parts of which are spread internationally, each of which is vulnerable to the strategic planning decisions of the parent company. TNCs draw more money from the Third World than they put in by the widespread practise of ‘transfer pricing’. This allows TNCs to send back profits to their own city (Taylor, Richardson, Yeo, Marsh, Trobe, & Pilkington 1995).
Neo-populism is a theory taken up by countries such as Tanzania and Nicaragua. It rejects large scale capital intensive industrialisation on the grounds that it is inappropriate for the Third World. It is in favour of small-scale agricultural, manufacturing and servicing enterprises claiming that they can be more productive as well as less dehumanising and environmentally damaging than large scale ones. Neo-populists disagree with the build up of large scale cities, which are seen as destructive to their agriculture (Taylor, Richardson, Yeo, Marsh, Trobe, & Pilkington 1995).
Equality and Poverty
There have been four main trends in World equality and poverty since 1980, when the expansion of globalisation began. These are briefly stated below.
1. Growth rates in poor economies have accelerated and are higher than growth rates in developed countries for the first time in modern History. From the Table 1 in the appendix, we can see that in the 1990′s developing economies income per capita grew by more than 3.5 per cent per year (Dollar 2005).
2. The number of people living in extreme poverty in East Asia and the Pacific has decreased by 41 percent from 1990 to 1998 (Manzella 2006). Table 2 in the appendix shows that the share of people living on less than 1 USD per day has been cut by half since 1981.
3. Global inequality declined, thus reversing a 200 year trend toward higher inequality (Dollar 2005). The Gini coefficient and the mean log deviation are shown in Tables 3 and 4 respectively. They both show a decline starting around 1980, mainly because of the faster growth of developing economies. The mean log deviation prediction shows inequality may continue to decline up until around 2015, when global inequalities will once more become more pronounced. The rapidly growing countries will have caught up with the rest of the economically advantaged world, leaving behind only the poorest countries in places like Africa.
4. Two billion people live in countries which have become less globalised including Pakistan and African nations. Income per head actually decreased by about 1% in the 1990s (The Economist 2002).
Open developing economies grew by 4.5 percent per year in the 70s and 80s, whereas closed developing economies grew by only 0.7 per cent per year. Open developing economies double in size every 16 years, whereas close developing economies double in size every 100 years (National Bureau of Economic Research). It would appear that openness to trade distinguishes growth (Manzella 2006). The Progressive Policy Institute (2005) state “no country has managed to lift itself out of poverty without integrating into the global economy” (Manzella 2006). The International Monetary Fund and World Bank estimate that if the remaining world merchandise trade barriers are eliminated, potential gains are estimated at 250 billion to 650 billion dollars annually, with one third to half going to developing countries (Manzella 2006).
Globalisation encourages the growth of technological change. Better technology increases the need for more skilled labour, leading to higher wages and better working conditions. TNC’s offer higher wages and better training programmes than domestic firms (Wolf 2003).
At first glance globalisation appears to be mutually beneficial to all parties, but unfortunately a TNC may act like a Trojan. Globalisation is responsible for job losses and wage cuts. Globalisation brings about technological change and it follows that the introduction of new labour saving technology makes labour demand more inelastic which will increase the likelihood of job losses. Trade liberalisation tends to increase the demand for more highly skilled workers, while the mass of less skilled workers are forced into less attractive jobs in the non-traded goods sector (Huberman 2005). This adds further support to the notion of escalating intra-national inequality.
Trade unions have picked up on this and often oppose the move towards new technology. They were able to stop the introduction of new printers in the UK in the 60s (Lommerud, Meland & Straume 2006), which was a similar case to the original Luddites, who campaigned against the mechanisation of the textile industry in 1811 (Ryder, 2006).
In relation to wage, Figure 5 in the appendix shows how inequalities within countries are growing. It was obtained from a study by Freeman et al in 2001. It demonstrates that wages have generally been rising most rapidly in more globalised developing economies, followed by rich countries, and then less globalised developing economies (Dollar 2005).
Wages are increasing more rapidly for skilled workers than for the lesser skilled due to the introduction of TNCs and expansions of technology. Mechanisation has made the utility of many unskilled workers redundant and thus greater financial reimbursement can be reserved for skilled workers.
It has been known for TNCs to take advantage of the third world cheap labour and for exploitation to occur. Companies such as Nike, H&M and Nestle have reached headlines due to maltreatment of employees and appalling wage atrocities in developing countries such as Pakistan and Bangladesh. Employees have been subjected to gruelling long shifts without breaks, in cramped and unhealthy factories. It has been highly publicised that these workers earn only a tiny fraction of the product’s retail value in return for these inexcusable practices.
Culture and Communities
Globalisation can also affect the foundations of communities. Erosion of local culture is a main social concern with the increase of globalisation. The term ‘Hollywoodisation’ brought about by mass media is used by many critics. The global media networks transmit their programmes across many countries and regions and there is a risk that these networks might impose their own cultural values on the worldwide audience. When Euro Disney was built near Paris, many French people complained that this would undermine the distinctiveness of French cultural life (Taylor, Richardson, Yeo, Marsh, Trobe, & Pilkington 1995).
Some critics argue that openness to trade is purely destructive on culture but this may be confusing globalisation with Americanisation. In Cowen’s book, ‘Creative Destruction: How Globalization is Changing the World’s Cultures’ (2005) he deems the process of cultural exchange to be positive. It can create opportunities and diverse options so consumers can enjoy niche and differentiated products (Bianchi 2005). It makes countries richer in culture through the free exchange of ideas. It supports and promotes innovation and creativity through the trading of concepts and knowledge and therefore may be thought of as positive cultural evolution.
The technology brought about by globalisation can help people grow. It provides artists with new tools for expressing themselves and allows the formation of networks of artists and consumers, thereby spurring demand for local artistic endeavours such as Caribbean music (Clardy 2005).
Governments and politics
Globalisation transcends national borders and involves governments from different countries, sometimes leading to conflicts of interest. Problems can be caused by disputes between TNCs and governments or between governments themselves.
The sizes of TNCs allow them to have a certain power over governments. They are often larger and more powerful than many governments (Waters 1998). As they become more numerous and grow in size they potentially become more of a threat. By increasing economic and cultural connections governments can become ineffective by having no control over the flow of ideas and economic items at their borders.
There is now need for global governance. Without it, there may be war and conflict. States can become part of a large political organisation, join multilateral treaties and international organisations.
The United Nations (UN) is an international organization established in 1945. The UN describes itself as a “global association of governments facilitating cooperation in international law, international security, economic development, and social equality.” The founders of the UN had high hopes that it would serve to prevent conflicts between nations and make future wars impossible (Wikipedia 2006). However, the large number of nations protected under the umbrella of the UN makes reaching consensuses extremely difficult. Even when agreements are reached, they can sway towards the opinions of countries which have more leverage within the organisation.
The World Trade Organization (WTO) is an international, multilateral organisation which sets the rules for the global trading system and aims to resolve disputes between its member states, all of whom are signatories to its 30 agreements (Wikipedia 2006). Its aims are to promote trade and stimulate economic growth. Many believe that free trade is not the right way to make people’s lives more prosperous but only grants the rich the means to become richer through the loss of the general population. Argentina realises this from experience of opening its trade barriers.
During the 1990s Argentina abolished their trade barriers, opened capital markets to international money and sold everything and anything. By December 2001, Argentina was 155 billion dollars in debt and collapsed into political and economic chaos (The Economist 2002). The country had relied upon a fixed exchange rate and massive foreign borrowing to fund reckless high government spending.
The European Union was formed in 1993 and is an intergovernmental and supranational union of 25 European countries. A key activity of the EU is the establishment and administration of a single common market, consisting of a customs union and a single currency (adopted by 12 of the 25 member states). As highlighted by the Euro currency, agreements between governments remain difficult to reach as each member state seeks what is best for its populace.
NATO (North Atlantic Treaty Organisation) is an international organisation for defence collaboration established in 1949, in support of the North Atlantic Treaty (Wikipedia 2006). The parties agree that an armed attack against one or more of them in Europe or North America shall be considered an attack against them all. Since America’s invasion of Iraq, concerns have mounted about the relative utility of NATO amongst fears that it may have become obsolete. The fall of communism in the former USSR may appear beneficial, but it now allows the USA a monopolistic superpower role, either to intervene in the case of Iraq, or to leave poorer, strategically less important countries to fester or stew.
Environmentalists are concerned about whether globalisation will make the world greener or will degrade to a state worse than the current state. The Northern countries may be pulled down by the poor South or the poor South could become more like the rich North. These theories are called environmental protectionism and ecological modernisation respectively.
If globalisation leads to Ecological Modernisation, the developing economies could benefit from the developed economies greener environmental attitudes. They are likely to be more environmentally friendly due to stricter regulations and greater media pressures. They will have derived superior technological know-how to adhere to the regulations and avoid negative press (Boyce 2004).
The developing countries could benefit from the developed countries by foreign direct investment. The increase of inflows would increase income per capita which will lead to a knock on effect of being able to afford a cleaner environment.
Environmental protectionism could be seen as convergence of the lowest common denominator. Globalisation increases competition. Firms may wish to drive down costs so they can reduce their price against their competitors. There are two ways to drive down costs, either increase efficiency or lower standards. Firms may lower their standards by decreasing wages, safety and health care or increase pollution. Free trade encourages industries to shift their production activities to the countries that have the lowest standards of cost which is the opposite of global efficiency. There is little evidence of this, however, as high pollution industries have moved to developing countries (Boyce 2004).
Developing countries could however be seen as cleaner than the developed countries. Places such as India make more use of renewable energy resources such as solar power. Bicycles are often used as a substitute for cars. Less synthetic material is used and disposed of in developing countries, although more and more developing countries are beginning to adopt the use of plastic bags. The production of maize is greener in Mexico, but it is cheaper to produce in the US due to subsidies, pesticides and conditions.
The areas discussed only scratch the surface of globalisation. There are many more factors, aspects and ideas which hinge on the title ‘globalisation’. This essay has outlined a cross section of ideas and evidence on transnational companies, labour, equity, poverty, governments, culture and environment. Each of these elements holds social, economic and political aspects.
The main economic issues fall into the labour, equality and TNC groups. We see benefits of foreign direct investment and openness to trade bringing benefits of increased income per head, increases in wages which in turn lead to a reduction in the poverty gap and accelerated growth rates for developing countries.
However, gains to a given party are simply redistributions resulting from losses to someone else (Jareell, Brickly and Netter 1988). Labour in the developed nations has suffered. Many workers have been forced out of work by technology and the moving of unskilled labour to developing countries where labour is cheaper.
The growth in technology has been helped with the integration of cultures. Being able to understand and gain concepts from other cultures can only lead to more knowledge.
The treatment of labour and the culture aspect cross over with sociological aspects. Trade union opposition to globalisation has been strong due to the decrease in employment opportunities. Many feel that culture is being eroded away and that globalisation is, in fact, Americanisation.
Sociology and political issues focuses on the trade organisations to protect the developing countries from being out done from trade. Organisations such as the WTO and the UN have been formed to try and protect nations. The EU and NATO are agreements which integrate nations. There has been controversy as to how successful these really are.
These organisations have been setup to help the environment. Economic pressures increase the need to reduce costs to compete in the new global market which may lead to cutting corners. However, the south could gain from spread of environmentally friendly technology designed by the north.
Although globalisation has undoubtedly tasted much success, there have been many examples of failure. The problem lies in continued progression whilst respecting the rights of man, and not in demonizing an unstoppable phenomenon (Anon 2002). If globalisation is to continue, it must diminish financial instability, manage migration, help failing states and secure a working balance between national sovereignty and international regulation (Wolf 2003).
We have seen that globalisation does cover a range of social, political and economic aspects. But enough so to be the new defining phenomenon of millennium?
Maybe yes, but maybe not global. We are still not fully globally integrated. There are some countries such as Pakistan which choose to opt out for fear of Americanisation and other countries in states in Africa which are not suitable for foreign direct investment and have little to trade. Globalisation is not and never was global (The Economist 2002), it is internationalisation. As Wolf (2005) observes “If we want a better world, we need not different economies, but better politics.”