Endeavouring to find a specific definition of globalisation can be onerous. In its simplest sense, globalisation can be defined as increasing global interdependence. Many see it as a primarily economic phenomenon, involving the increasing interaction, or integration, of national economic systems through the growth in international trade, investment and capital flows. However, one can also point to a rapid increase in cross-border social, cultural and technological exchange as part of the phenomenon of globalisation. The sociologist, Anthony Giddens, defines globalisation as a decoupling of space and time, emphasising that with instantaneous communications, knowledge and culture shared around the world simultaneously.
There are a multiplicity of both advantages and disadvantages to developing countries.
1) GDP Increase: If the statistics are any indication, GDP of the developing countries have increased twice as much as before.
2) Percapita Income Increase: The wealth has had a trickling effect on the poor. The average income has increased to thrice as much.
3) Unemployment is reduced: This fact is quite evident when you look at countries like India and China.
4) Education has increased: Globalization has been a catalyst to the jobs that require higher skill set. This demand allowed people to gain higher education.
5) Competition on Even Platform: The companies all around the world are competing on a single global platform. This allows better options to consumers.
6) Globalization has created the concept of outsourcing. Work such as software development, customer support, marketing, accounting and insurance is outsourced to developing countries like India. Therefore, the company that outsourced the work enjoys the benefit of lower costs because the wages in developing countries is far lower than that of developed countries. The workers in the developing countries get employment. Developing countries get access to the latest technology.
7) Increased competition forces companies to lower prices. This benefits the end consumers.
8) Increased media coverage draws the attention of the world to human right violations. This leads to improvement in human rights.
Problems of Globalization
1) Developing Countries May Struggle to compete. If a developing country wishes to develop a new manufacturing industry, it may face higher costs than advanced industries in the west, which will benefit from years of experience and economies of scale. To develop an industry it may be necessary to have protection from cheap imports; this gives the firm chance to develop and gain economies of scale.
2. Globalization keeps Developing countries producing primary products. Developing countries may have a comparative advantage in primary products; however, this offers little scope for economic growth. Primary products have a low income elasticity of demand. Therefore, with economic growth demand for products increases only slowly. Primary products often have volatile prices; this can cause the economy to be subject to fluctuations in income
3. Multinational Companies may be able to force out local retailers, leading to less choice for consumers and less cultural diversity.
4. Movement of Labor. Globalization enables workers to move easily around. However, this may cause the highest skilled workers of developing countries to leave for better-paid jobs in developed countries.
Economic inequality: is globalisation the culprit
The Seattle protests raised another crucial question: is globalisation the cause of increasing inequalities through the world Most of the protesters would say “yes.” However, when you look at the phenomenon, one may disagree.
Many people say that inequality is increasing through the world. If you look only at the bluntest measures of economic inequality, this is true. The poorer countries are falling behind the richer countries every day of every year. However, you can also take a richer notion of inequality, the kind of notion introduced by the economist and Nobel Prize winner Amartya Sen from Trinity College, Cambridge. Sen says a proper measure of poverty should include education, access to health care, and access to basic non-material features of life that make life worth living. These factors are crucial to economic development.
If you look at those measures, inequality has actually been declining rather than increasing across the world. The poorer countries have improved in respect to the broader conception of inequality. However, the inequalities are nevertheless very big.
Globalisation is not the prime cause of increasing inequality. Income inequality in the US increased for a period of some 30 years until a few years ago. The best study seems to indicate that trade liberalization accounts for only about five percent of that. Maybe 15 percent of it is accounted for by new technologies, especially the growth of the knowledge economy. The impact of information technology essentially makes large numbers of unskilled workers redundant, as demand is not high for unskilled workers in a knowledge economy.
A very big structural force in the US is actually changes in the sphere of the family, especially the emergence of large numbers of one-parent families in a society that does not have a developed welfare state. Therefore, one cannot really blame globalisation for expanding inequality in the US. Economic inequality in the US has also dropped. Blacks and Hispanics are doing much better in the economy than they have done for some 30 or 40 years. The lowest? 20 percent have shifted up their share of income quite substantially. . For developing countries, any risk of increasing inequality associated with active participation in the global economy is even greater, if only because of the greater inherent institutional weaknesses associated with being poor. Latin America has a special disadvantage: its historical legacy of already high inequality. Inequality that is already high complicates the task of effective conflict management, which is a critical input to managing open economies.
Developing countries and the global marketplace
Is it true that globalisation is the cause of the impoverishment of the poor countries of the world When you expand free trade, there is no doubt that it can have disruptive consequences for some poorer countries, when those countries are not prepared to engage with the economic forces that are released.
However if you look at the statistics, you can show that engagement with the global economy is actually the condition of the economic development of poorer countries. No country, which has sought to disengage from the global economy, has prospered: countries like Burma or North Korea, which try to isolate themselves from the world system, are among the poorest countries in the world.
Poor countries, which have kept fairly closed economies, have only had a .04 growth rate that is virtually no growth rate, over the past fifteen years. Poor economies that have been more open have had an average 4.5 percent growth rate over that period. Therefore, you cannot blame globalisation for these inequalities.
The key question concerning economic development is really under what conditions poorer countries can engage with globalizing forces. The most successful example of countries leveraging themselves out of poverty ever known is the East Asian economies. In spite of the crisis of 1997-98, there has never been an example in history of millions of people leveraged out of poverty so quickly. In 1970, for example, Korea was poorer than Portugal. Now Korea is richer than Portugal per head of GDP. There is a massive transformation, and these countries achieved it by engaging with the global economy, not by disengaging from it.
Recent evidence shows that trade liberalization leads to growing wage gaps between the educated and uneducated, not only in the OECD countries but in the developing countries. Between 1991 and 1995, wage gaps increased for six of seven countries of Latin America. The exception was Costa Rica, where education levels are relatively high. Apparently, the combination of technology change with the globalization of markets is raising the demand for and the wage premium to skilled labour faster than the educational system is supplying skilled and trainable workers. In Latin America, education levels have been increasing, but painfully slowly ??“ with for example only 1.5 years of additional education added to the average education of the labour force in three decades (in contrast to twice that increase in Southeast Asia). The distribution of education, though improving slowly, is still highly unequal, meaning that many of today??™s workers have even less than the current average of about 4.8 years of completed schooling.
In short, the effect of trade liberalization on inequality depends, including on the extent to which a country??™s comparative advantage lies in job-using agriculture or manufactured exports, and on the extent to which education has been increasing. In Costa Rica, with good education and a high proportion of the relatively poor engaged in smallholder coffee production, trade liberalization has had equalizing effects. But in Mexico, where the rural poor are concentrated in food production and education levels are still low and unequally shared, income declined between 1986 and 1996 for every decile of the income distribution except the richest, where it increased by 15 percent. Unfortunately, Mexico is probably more typical than Costa Rica. For the region as a whole, though trade liberalization is likely to increase average incomes, it is also likely to increase inequality, at least in the near future, because education efforts have lagged and because the region??™s comparative advantage other than in Costa Rica and Uruguay is in capital-intensive rather than job-creating natural resource-based production.
While expansion of exports of labor-intensive manufacturing lifted many people out of poverty in China during the last decade but not in India, where exports are still mainly skill- and capital-intensive, the more important reason for the dramatic decline of poverty over the last three decades may actually lie elsewhere.
Estimates made at the World Bank suggest that two-thirds of the total decline in the numbers of poor people ??“ below the admittedly crude poverty line of $1 a day per capita ??“ in China between 1981 and 2004 already happened by the mid-1980s, before the big strides in foreign trade and investment in China during the 1990s and later. Much of the extreme poverty was concentrated in rural areas, and its large decline in the first half of the 1980s is perhaps mainly a result of the spurt in agricultural growth following de-collectivization, egalitarian land reform, and readjustment of farm procurement prices ??“ mostly internal factors that had little to do with global integration.
Governments still have a role to play
In order to produce a more egalitarian world and help the poorer countries to become richer, you cannot simply leave everything to the global marketplace. Market forces often tend to accentuate inequalities, rather than reduce them.
That means what you are looking for is a new kind of relationship between governments and markets. Some of the best writing on this is by Joe Stiglitz, who was a famous economist at The World Bank.Stiglitz argues that you need a certain measure of government involvement in order to facilitate economic development. He says that there is no known example of successful economic development where a government has not been involved, including the United States in its early years, the UK in its early years, European countries, Japan, the Asian economies, and so on.
Managing the forces of globalisation
In conclusion, each country needs the role for effective government. It must combine with the selective use of markets. Globalisation has costs and benefits. There have been examples of poorly managed globalisation e.g. when countries opened their economic borders before they had the capacity to respond well, but there are also examples of well-managed engagement with the international community. Until the governments of third world countries that are seen as being preyed upon and being impoverished by the Western world get stable governments with solid infrastructure, poverty will continue. Globalization is not a main cause of poverty. Globalization will cause the loss of some jobs for the unskilled, but will leave openings for those willing to try new things in new areas. In many cases, the foreign money that is invested or paid to citizens can relieve some of the strain of poverty, but it will remain a subject of debate as long as anyone perceives any inequality in the system.
Like it or not, globalisation is a reality and more effective management of the result is required. The IMF and the World Bank have long been promoting economic globalization as the solution to the global poverty problem. In a 2000 report, IMF said, ???As globalization has progressed, living conditions have improved significantly in virtually all countries, although it conceded that the strongest gains were made by the developed nations. The World Bank in a 2001 report on Globalization, Growth and Poverty said globalization referring specifically to trade integration is a very powerful force for poverty reduction. They also had to admit that billions of people globally are left out of the process.
The two institutions also stated that globalization itself was not to blame for global poverty, but rather the failure of many developing countries to fully integrate into the global economy.