Globalization, a multidimensional set of social process that create, and intensify world wide social, economic and technological interdependencies and exchanges, is an historical phenomenon affecting every country directly or indirectly. This essay examines the 5-phase history of globalisation taking five crucial inventions of mankind namely fire, wheel, printing, steam, and internet respectively as the as the essence of that age as well as the driving force of globalisation. It then discusses the challenges it poses and how to respond to them. Lastly, it tries to answer the three crucial questions everyone is interested to know.
Firstly, is globalisation inevitable? Secondly, if inevitable, is it beneficial? Here I present arguments from both sides and conclude that it depends on the quality of the response to the challenges posed by globalisation and the way a country exploits the opportunities offered bi globalisation. Lastly, is it reversible? Well, despite all the occasional setbacks and resentment expressed against its different dimensions, I believe that globalisation is the march of history, which like the water flowing in a river, moves forward not backwards
Issue 2: Is Globalisation Beneficial?
Most of the debate on globalisation is on this issue. There are proponents who put forward the following positive points of globalisation to prove their point that globalisation is beneficial for the humanity
- Production/Productivity Gains: Foreign Direct Investment in the wake of globalisation is not only helping the countries to find and exploit the resources which could not be utilized due to shortage of resources or non-availability of technology but it is also resulting in increasing the productivity/efficiency of their utilisation. In this connection, the role of developing country firms in the value chain is becoming increasingly sophisticated as these firms expand beyond manufacturing into services. For example, it is now commonplace for businesses in industrialized countries to outsource functions such as data processing, customer service and reading x-rays to India and other less industrialized countries (Bhagwati et al, 2004). Advanced telecommunications and the Internet are facilitating the transfer of these service jobs from industrialized to less industrialized and making it easier and cheaper for less industrialized country firms to enter global markets. In addition to bringing in capital, outsourcing helps prevent “brain drain” because skilled workers may choose to remain in their home country rather than having to migrate to an industrialized country to find work.
- Market Expansion: One of the greatest benefits of globalisation is the scope of increasing the market of those countries which found it difficult to sell their products because of limited market for their products. Globalisation has made it possible for even the smallest country on earth to reach the biggest markets in the world if they are willing to accept the challenge. Globalization can create new opportunities, new ideas, and open new markets that an entrepreneur may have not had in their home country. Thus, there are several positives associated with globalization-more access to capital flows, technology, human capital, cheaper imports and larger export markets. It also allows businesses in less industrialized countries to become part of international production networks and supply chains that are the main conduits of trade
- Cultural Enrichment: We may agree or not, it is a fact that every culture is a beneficiary of the globalisation. If you disagree just compare the quantity, quality and diversity of present day food, shelter, clothing, entertainment, health etc., with 50 years ago. Cross flow of ideas and technology is affecting everyone directly or indirectly all over the world, making everyone a global citizen. Intensification and acceleration of social exchanges and activities through internet is affecting every family.
- Improved Quality of Life: Improving the quality of life of the citizens has been the traditional historical role and prime objective of every state as well as the natural desire of every human being. Quality of life, in turn, is a multidimensional phenomenon encompassing improved economic standard of living, greater public participation in decision making, sociocultural enhancement etc. And there is no denying the fact that globalisation has contributed a lot in this respect. Thus, whether it is increased life expectancy or better living conditions on the one hand or improved literacy or greater range of goods and services available to choose, it is rapid speed of globalisation which has made these things possible.
Arguments against Globalisation
However, there are those who oppose globalisation for the harm it is inflicting specifically
- De-industrialisation: As the world is becoming flat, low cost industries are dismantling the industrial structures of the high-cost developed countries forcing some to enter the de-industrialisation phase. Do not blame China only; it was a late entrant. This process started with the Japanese rise and got momentum in the 1970/80s when Asian Tigers entered the arena.
- Employment Reduction: Related to above is the rise of unemployment in the developed countries which are being affected in two ways. One is of course the tough competition given by the low cost industrial countries but the more lethal than the above is the rapid speed of technological transformation of the developed countries themselves. It is an Alice Trap. To increase the growth rate of the economy, you increase the productivity of your labour force by equipping them with new technology. But this new technology displaces a large chunk of the labour force for whom these were invented.
- Cultural Annihilation: Alas, the greatest negative effect of the globalisation is the wholesale and rapid extinction of the indigenous cultures of the individual countries. The world is becoming Westernised, rather Americanised as presciently predicted by Francis Fukuyama in his remarkable thesis End of History. Only those languages will survive which change their script to Romanised version of alphabets; all others are doomed
- Global Economic/Financial Crises: Financial and economic crises are not a new phenomenon. Countries in the immediate vicinity of a nation-state in turmoil were also affected even in olden days. However, globalisation has increased the reach, intensity and duration of the financial crises. Thus, one country’s woes are now transmitted in no time to far corners of the world due to mobility of the financial capital through electronic means-a gift of globalisation. The volume and volatility of capital flows increases the risks of banking and currency crises, especially in countries with weak financial institutions
- Growing Inequality: There is no doubt the economic disparity is increasing within the countries and among the countries. It does not mean that the poor are necessarily getting poorer; they are prospering also but the rate of prosperity of those on the upper part of the wealth and income pyramid is far greater than those at the lower rungs. And one of the reasons for this growing inequality is globalisation-it provides far more opportunities of expanding the wealth base of those who already have got more. There are now 10 people in the world whose combined wealth is more than the total GDP of 50 % of the total countries in the world-they earned abnormal profits by selling their products in these very countries.
- Environmental Degradation: Although it would be too much if we blame the globalisation for all the environmental degradation we are witnessing in the world, yet there is no escaping the fact that fast paced industrialisation in the wake of globalisation has contributed a lot in this phenomenon. Global commerce is increasingly dominated by the transnational corporations which seek to maximize profits with less regard for the development needs of individual countries. local populations or the environment.
Who wins this debate depends upon the angle you have in mind and how you tackle it. Globalisation poses challenges but also presents opportunities. It is the leadership test of the ruling elite of a country how they face these challenges and how effectively they respond. All these developments need careful assessment and an appropriate but timely response.
In this connection, the experience of the East Asian countries is very illuminating, demonstrating the positive effect of globalization on economic growth. By devising a proper policy framework, East Asian economies were successful to increase their GDP per capita by eightfold and raised millions of people out of poverty within two decades. It was based largely on globalization—export-led growth and closing the technology gap with industrialized countries (Stiglitz, 2003). Generally, economies that globalize have higher growth rates than non-globalizers (Bhagwati and Srinivasan, 2002).
Is Globalisation reversible? Can it be Rolled Back?
This issue has taken a lot of attention after the Brexit, the rise of far right in Europe and triumph of Trump in USA. To many people these are the are indications of de-globalisation.
Globalisation is internationalisation of western capitalism which is on the rise as predicted by Francis Fukuyama in his End of History thesis. Every country, even Russia and China have embraced capitalistic mode of production. In this inexorable march of history, odd events like Brexit do not matter. History moves forward but not in a linear mode; there are zig zags here and there but the trend is clear
Brexit was long overdue; it was a marriage of convenience brokered by the USA for achieving its own Cold War objectives. In fact, UK was an outsider in the EU. After its exit, EU looks like a more cohesive and well-integrated institution. Globalisation has benefitted every country in the world-some more, some less. No one is willing to become an island. UK after its exit from EU is not going to become a fortress; rather it will be getting itself more integrated with the world
Lastly, triumph of Donald Trump in the USA elections is a temporary phenomenon and in no way indicated the desire of the USA to roll back globalisation which has benefitted America the most. USA has lot of grievances with its trade relations with China but it does not mean American firms will exit from China and come back to USA-no way. The maximum they will do is to re-locate in India and other countries
Challenges of Globalisation
There is no denying the fact that globalisation poses a lot of challenges and as well offers countless opportunities. It is the leadership test of the ruling elite of a country how they respond to these challenges and gain maximum benefits from the opportunities by exploiting their strengths and creating new avenues to harness the energies unleashed by the globalisation process. Some of the challenges these will encounter are
- Challenge of Productivity: Increasing Exportable Surplus-How to accelerate the economic growth and create exportable surplus through productivity improvement to reap from globalisation? If you do not have sizeable quantity of goods and services to export, globalisation would be a one-way traffic
- Challenge of Equity-How every section of society benefits from globalisation-not necessarily equally but at least equitably
- Challenge of Competitiveness: End of the day, survival depends upon a country’s competitiveness in terms of price and quality
How to Respond to Challenges
Ruling elite in consultation with all stakeholders should formulate vision for the country where it would be in short to long period in the rapidly globalising world. Thus, it could be an active partner, without it, the country could be a silent spectator or at worst a passive recipient. However, articulating vision without formulating following attendant policies & strategies to achieve it is exercise in futility
- Policy Framework Needed: To fully exploit the opportunities of globalisation, first formulate business friendly national economic policies which encourage creation of exportable surplus of high quality goods and services. Reinforcing each other, these policies should indicate broad direction for the economy, create institutions and define their respective roles, make rules for coordination, set safety and quality standards and provide incentive and rewards for R&D and value addition. In this policy environment, Government’s role should be confined to legislation, policy development, regulation, capacity building and facilitation, while the private sector should take the lead in investment and value chain development on its own. Broad objectives of this policy could be
- Increase productivity by increasing efficiency in all processes and operations
- Increase profitability of all stakeholders by providing them appropriate incentives and rewards
- Making exports competitive in the rapidly globalizing world
- Ensuring sustainability by promoting environment friendly good manufacturing practices
- Ensuring equitable distribution of gains from enhanced productivity to all stakeholders
- Create Exportable Surplus: There is lot of capacity in every industrial unit which cannot be utilized for one reason or other-costly imported raw material, lack of finance, inadequate BMR, shortage of expertise etc.,Carry out comprehensive analysis of export oriented industrial units and find solutions for optimum utilization of their excess capacity. Industries which have lost their relevance or competitive edge, we should take bold steps and let them die their own death. Similarly, diversify the production base and select goods and services to be promoted for exports on the basis of their comparative advantage, global demand and growth potential-the sun rise industries.
- Accelerating Productivity Growth: Economic measure of output per unit of input, productivity gains are vital to economy as they allow us to accomplish more with less. Productivity growth not only increases production/exportable surplus but make products more competitive due to economies of scale and reduced costs of production through better utilisation of resources. Productivity growth comes from three major sources namely
- investment in physical capital and promoting innovation
- skills formation by increasing labour productivity through education, on the job training, skill up gradation and dissemination of new knowledge and techniques and
- competition which ensures that resources are allocated to most efficient firms and forces existing firms to organize work efficiently
- Improving Competitiveness: World Bank ranks countries in its Ease of Doing Business Index for guidance of potential global investors as well as states to take corrective measures. Improve this ranking by improving country’s physical infrastructure, removing administrative delays and enforcing strict accountability regime. This includes reliable and low-cost supplies of power, water, gas telecommunications, cutting down long delays in shipments, clearances, cargo space, handling at the ports and airports etc. Similarly, well developed and maintained, and appropriately connected infrastructure is prerequisite for global integration effort in a country.
- Meeting Social/Environmental Standards: Developed countries are progressively imposing stringent social conditionalities and environmental compliance rules. Even their citizens are becoming extremely conscious in this respect and would boycott the products which are not in accordance with the international standards.As such meeting these requirements, not only from a specific and technical perspective but also from regulatory, social, environmental performance and customer specific standpoints is essential in a rapidly globalizing world. Government must ensure their compliance through appropriate policy formulation, creating institutions and providing an attractive incentives and rewards framework for those who do meet these standards
- Research & Development: R%D is crucial as new technology, material, techniques etc., result in new products and their cost-effective production-essential for competing in rapidly globalising world. For this state has to be proactive as the private sector which is the ultimate beneficiary is not willing to invest in this risky field. However, there must be more focussed and need based research by encouraging greater collaboration among the universities, research institutes and the industry to keep the research on track.
- Globalisation Friendly Tariff Rationalisation: We can’t restrict imports under WTO rules but we should not go for massive import liberalisation; no country practices absolute free trade Follow a cautious liberalization of imports, restricting freer imports to the export sector via bonded warehouses and export processing zones. Similarly, reduce the level of protection to domestic industry and agriculture gradually after consulting the stakeholders
- Meeting Quality Standards: Promote culture of quality at every stage of value chain through awareness campaign, appropriate legislation, institutional mechanism. There should be strict quality control measures even for domestic sale of goods and services to make our producers quality conscious. At the same time compulsory quality certification along with subsidy to the manufacturers of high quality products is urgently needed. Establishment of facilitation centres by the state to reduce the costs of production and ensuring quality of finished products would be helpful
- Attracting Foreign Investment: Direct foreign investment accelerates growth rate and promotes exports by bringing in capital, technology and management practices. Attract foreign investors for export oriented joint ventures inside country and also establish joint ventures abroad by co-opting local industrialists. Target brand-name merchandisers and large retailers of standardized products who can provide marketing, design, logistics, financing while the production can be handled by domestic firms. However, it will require greater transparency and disclosure by domestic firms and a reliable dispute resolution mechanism to redress grievances.
Globalization is a multifaceted phenomenon that represents the increasing integration of economics, communications, and culture across national boundaries. It’s affecting, directly as well as indirectly, governance structures, processes and culture in every country. All these developments need careful assessment and action to keep us relevant in the comity of nations and should not be considered as an outcast because of lack of proper and timely response to these developments.
FDI, R&D, Tariff Rationalisation, Quality Standards, Environmental Degradation, Competitiveness, Productivity, Exportable Surplus, De-industrialisation, Quality of Life, Market Expansion,
From the e-book “20 Global Issues: A Handbook” by Shahid Hussain Raja
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