Globalisation vs. Global Economy

Globalisation vs. Global Economy

The term globalisation has received much publicity due to its powerful representation of the most influential forces which are continuously shaping the future course of the world. This concept focuses on various components, namely the political, economic, environmental, social, security, cultural, health, among other dimensions. Although the idea of globalisation was in use by the 1980s by the Chinese scholars,it has deep roots in ancient times, with groups of authors and government leaders interpreting it differently. These varied explanations have resulted in many reactions from scholars, activists, and policymakers, regarding the applicability and objective of globalisation. Whereas some have described it as the force for global economic advancement, others have viewed globalisation as the most dangerous phenomenon which could ruin the economies of the world (You, 2002). One could also argue thatglobalisation may cause numerous global conflicts. However, supporters of this issue asserts that it can manage challenges via the beneficial effects of competition and the likely global collaboration. The global cooperation or the creation of new international institutions could help to offset the positive and negative aspects of globalisationwhich originate fromthe competition and the associated conflicts.

Research Questions

How is globalisation applied to the global economy? What are the potential benefits and costs emerging from globalisation?

The globalisation of the World Economy: An Interpretation

This research explores globalisation in the form of global economic patterns and trading activities.Literature has shown that the term globalisation associates with a significant increase in the worldwide business and the transactions in an increasingly open, borderless, and integrated international economy (Stiglitz, 2004). In this regard, the world has, in recent decades, witnessed a remarkable growth in trade and exchanges both in the traditional global trade in goods and services as well as in currency transactions and technology transfer. Moreover, this pattern has also not spared the capital movements, the migration of people via international travel, and the global transmission of ideas and information (Sachs, 2000). The most critical evaluation of globalisation impact is the volumes of global financial transactions. Indeed, the New York currency markets transact more than $1.2 trillion daily as the amount of the daily global stock market transactions superseding the above figure in all measures.

Factors Influencing Globalisation

The concept of globalisation seems to have involved significant transparency in the global economy, primarily through its ability to integrate the global markets. Either, this seemingly unstoppable phenomenon it moving towards a borderless world with the focus on increasing global flows. Many evidence depicts that the last few decades have presented the world with robust globalisation patterns courtesy of specific factors.Firstly, technological innovations have contributed to the lowering of the communication and transportation costs (Obstfeld, & Taylor, 2004).These new technologies have led to a decline in the price of data processing as it also ensures that one source helps to store and retrieve information. The data processing and storage has been successful courtesy of the innovations and development of the microchip and computer revolutions. The regular electronic mail, the World Wide Web, and the internet are among the manifestations of the new technological innovations (Boyer, 1998). Whereas the world operated on a $10 million worth of the mainframe computers in the last two and half decades, it currently thrives on a $2,000 million worth of laptop computers..

Secondly, trade and other forms of economic liberalisations have also contributed to the decline of trade protections hence introducing the world to a more liberal world trading system. The said pattern commenced in the previous century only for World War I and II as well as the Great Depression to briefly stop its manifestation. However, this concept resurfaced after World War II in a nationally accepted language of trade liberalisation through the 1946 initiative dubbed GATT or the General Agreement on Tariffs and Trade. Years later, this concept transformed into the global trade institution called WTO, whose impact prevails in the form of reduced tariffs and elimination or softening of business barriers in goods and services (You, 2002). Liberalisation has also contributed to the increased flow of capital and other production-based factors.

Thirdly, the world has also witnessed institutional changes whereby organizations attract huge followings courtesy of the new technological platforms. Managers in many contemporary businesses have benefited from the significant communication-based technologies hence can influence their followers with ease (Morrissey & Nelson, 1998). Today, business firms have changed their structures from the local, national, international, and now operate globally with ease. As a result, companies are reaping huge profits from their massive production abilities and dominance in the market shares among global enterprises. This situation has caused the evolution of conflicts from the territorial on the national level to market shares in the worldwide arena. Although some scholars have perceived global companies as a threat to the scope and independence of countries, the latter remains more influential in the global economy and political system (You, 2002). Still, on this point, non-governmental institutionslike the U.N, World Bank, WTO, and IMF have also become ambassadors of globalisation in that they are continually championing the implementation of its principles globally.

Fourthly, the world agreement on ideology seems to create believes in the value of the market economy and a free trading system. China implemented this globalization-based concept in 1978, thereby introducing its three critical pillars. These are macroeconomy stabilisation, price liberalisation, and the individualisation of state-owned companies (Bhagwati & Srinivasan, 2002). This objective seems to hit the rock because it ignored the significance of establishing market institutions, creating competitiveness, and giving an appropriate role for government in the modern mixed economy.

Cultural developments have also contributed to globalisation, mainly through the global and homogenised media, popular culture, arts, and the dominance of the English language as the medium of global communication. These patterns have constructed the notion, especially among countries such as France and others in Continental Europe, to perceive that the United States is attempting to cause a political, cultural, and economic hegemony (You, 2002). They, therefore, see globalisation as the re-emergence of imperialism or capitalism through electronic. Besides, scholars such as Clavin (2000) have perceived globalisation as the new form of colonialism whereby America wants to colonise the whole world.

Although these explanations speak loudly about globalisation, this concept seems to transform the world significantly. In the process of its transformative activities, it also exposes the world to both advantages and disadvantages. At the same time, it must prevail that factors pushing for globalisation such as technology, institutional ideology, cultural development, and policy, are still robust and active (Clavin, 2000). This situation, therefore, means that the world is likely to continue experiencing rapid changes with every passing year.

Impact of Globalisation on National Economies

Global economies have witnessed the significant impact of globalisation with manifold consequences. This phenomenon causes a strong influence on the productivity of goods and services, employment of labour force, and additional inputs into the production procedures (Sachs, 2000). At the same time, globalisation impacts both physical and human capital investment. This ideology affects technology and leads to the diffusion of the same from establishing countries to others. Globalisation also has a significant impact on efficiency, productivity, and competitiveness.

The most widespread impact of globalisation includes the immense growth of foreign direct investment, commonly called FDI, which is larger than the magnitude of world trade development. This type of investment influences the transfer of technology in the restructuring of industries and the development of global businesses (Fischer, 2003). The mentioned effects have collective effects on the national economic situation. Next, new technologies have contributed immensely to globalisation as the latter, and increased competition create room for more technological advances and sound diffusion of the same across the nations and in foreign investment.  In the similar situation, increased trade in services such as legal, financial, information, and managerial functions, and all types of intangibles have also dominated the international business platforms (Obstfeld & Taylor, 2004). For example, foreign direct investment in the form of service exports has increased from a third to a third as they also signal promising future trends.This commodity has elevated the status of intellectual capital in the global market.

Competition-based Benefits of Globalisation

Having noted earlier that globalisation associates with both positive impacts, it is worth stating that global competition is one of such gains. Although competition attracts fear, this factor plays a critical role in enhancing not only the production but also efficiency. Business competitiveness and widening market contribute to specialisation, labour division, which increases the productivity in the global platform (Stiglitz, 2004). Additional positive gains from globalisation include the trade-based gains which embody a mutual benefit via exchange among parties such as organisations, nations among others. Also, globalisation leads to increased productivity due to rationalisation of production on the global scale as the transmission of technology and competitiveness for global continuity in innovation (You, 2002). Generally, the positive impact of competition, which originates from globalisation indicates its expected value in promoting the levels of all parties with the likelihood of increasing the output and higher real wage levels and living standards. The outcome of this happening is that it pushes for the wellness of humanity in the world.

The Expenditure and Expected Risks for Globalisation

The development of globalisation to its current status has attracted huge costs, which associates with additional challenges regardless of the affected jurisdiction. For instance, there could be equity challenges in distributing the gains obtained from globalisation among the involved parties (Morrissey & Nelson, 1998). Evidence from You (2002), has proven that the majority of these gains go to the wealthy and influential nations and people, thus risking to cause global conflicts.Besides, Fischer (2003) recommended that the world embraces a convergence approach towards global gains because the emerging economies are recording rapid development than the wealthy ones. However, this notion stands no waters before what is on the ground (Sachs, 2000). The many developing nations are facing marginalisation in the distribution of globalisation gains hence derailing behind the wealthy countries.

Another cost from globalisation is that the fluctuation of the local economies, many present regional or international effects. This impact prevailed between 1997 and 1998 when the exchange rate and financial challenges affected Thailand, then Southern Asia, South Korea, before moving to Russia (You, 2002). This episode presents the vulnerabilities that come with an interconnected economy. Here, the emergence of another great depression could breakthese networked economies and cause a severe global crisis, which may lead to military conflicts and global wars (Bordo, 2003). Other challenges from the globalisation are the fact that the national economies are changing from sovereign administrations and other forms of controls, including the most powerful economies in the world (Fischer, 2003). Globalisation could undermine these national sovereignties because it creates the impression of being in control. Many global leaders often think that they are controlling global forces as well as the perception of disaffection among the voters (You, 2002). This scenario could lead to extreme xenophobia and nationalism accompanies with the calls for protection and development of fundamentalist or extremist political organisations whose result would be disagreements.

Conclusion

The issue of globalisation has received mush publicity among the multi-generational scholars who have presented varying definitions of the same. However, the most vital explanation of this concept provides an in-depth understanding that globalisation aims at interconnecting global economies to operate as one. Various factors have contributed to the development of globalisation from its genesis to date, as exemplified by technology, world agreement and ideology, cultural development, and others. More so, this concept has many benefits and setbacks. Besides fostering productivity and robust foreign investments, this concept also threatens the independence and economic situations of the underdeveloped nations through the unequal distribution of globalisation gains.With such information in prevalence, there is a need to understand the impact of globalisation on trade and economy towards developing structures that could convert the potential risks of this phenomenon towards curbing the same.

References

Bhagwati, J., & T.N, Srinivasan (2002). Trade and poverty in developing countries. The American economic review, May 2. Retrieved from:DOI: 10.1257/000282802320189212

Bordo, D., Michael, D. (2003). The Concise Encyclopedia of Economics: Gold Standard.Library of Economics and Liberty, April 4. Retrieved from: at http://www.econlib.org/library/Enc/GoldStandard.html

Boyer, George, R. (1998). The Historical Background of the Communist Manifesto. Journal of Economic Perspectives 12 (4): 151–7 4.https://www.aeaweb.org/articles?id=10.1257/jep.12.4.151

Clavin, P. (2000). The Great Depression in Europe, 1929-1939.Basingstoke: MacMillan, September 12.https://searchworks.stanford.edu/view/4463331

Fischer, S. (2003). Globalisation and its Challenges. The American Economic Review, May, 2. 93(2): 1-30.https://www.aeaweb.org/articles?id=10.1257/000282803321946750

Morrissey, O. & Nelson, D. (1998). East Asian Economic Performance: Miracle or Just a Pleasant Surprise?The World Economy, December 17.https://onlinelibrary.wiley.com/doi/abs/10.1111/1467-9701.00169

Obstfeld, M. & Taylor, A.M. (2004). Global Capital Markets: Integration, Crisis, and Growth. Cambridge University Press, January, 5.https://assets.cambridge.org/97805216/33178/frontmatter/9780521633178_frontmatter.pdf.

Sachs, Jeffrey. (2000). International Economics: Unlocking the Mysteries of Globalization. In Globalization and the Challenges of a New Century. Edited by P. O’Meara, H.D. Mehlinger, and M. Krain. Bloomington: Indiana University Press.http://online.sfsu.edu/jgmoss/PDF/635_pdf/No_03_Sachs.pdf

Stiglitz, J.E. (2004). Capital Market Liberalization, Globalization, and the IMF. Oxford Review of Economic Policy 20 (1):57-71.https://pdfs.semanticscholar.org/8c2d/e276736fec1465426ca362f0d751b6f4491f.pdf

You, J., I. (2002). The Bretton Woods Institutions: Evolution, Reform, and Change. In Working Papers – Issue 2. Edited by School of Public Policy and Global Management. Korea: Korea Development Institute.https://www.oxfordscholarship.com/view/10.1093/acprof:oso/9780199254033.001.0001/acprof-9780199254033-chapter-8