Exploring the Dual Facets of Globalization

Introduction

Globalization, as a term, can be used in two fronts. The first of which could refer to the reduction of the world to one ‘small village’ as a result of the developments in technology and communication. These developments have resulted in a temporal and spatial shrinkage of the world (Steger, 2009), making the world a smaller space as opposed to what it was earlier on. When looked at from this angle, globalization has led to the actions of people in one part of the globe impacting more quickly and strongly on humanity in the other parts. It has also caused the world to have a deeper, more-detailed knowledge of the activities of everyone. The other aspect of globalization views it as the integration of the governments, people, and various economies of the world (Rothenberg, 2003) or linkage of the politics, societies, technologies, and economies of different countries (Hamilton & Webster, 2009). The other definition terms globalization as de-escalation or elimination of barriers imposed by states on exchanges across their borders that have led to current integrated production and trade systems (Palmer, 2002).

Globalization and Politics

It is a fact that the developed countries play a significant role in the globalization process, as shown by their determination of international trade and economy rules and their politics. The US and other developed countries have used politics to control major international organizations- both economic and financial- (Farrell, 2003) and to influence international policies and decisions. Consequently, they have dominated the development of globalization and have used this to their advantage and at the expense of developing countries. Globalization has been used by different power players, locally and internationally. For example, several power players have come together to enlarge local politics to achieve local-level political outcomes. In contrast, local power players have used local politics and issues to achieve international-level outcomes and goals (Frieden and Rogowski, 1996). Globalization has brought with it certain political consequences worldwide, and some authors view globalization as anchored on economic and capital mobility (threat to exit), which favours capital over labour (Kwon, Yong, and Pontusson, 2010). As a result, the political policies of developed countries which have great influence and strengths have been able to sail through in developing countries that are dependent on them, making them secure their economic interests in those countries. The interests of the developing countries, on the other hand, have not been secured and their voices are unheard. That makes them feel like strangers in the globalization process and unable to fully enjoy the benefits or avoid the dangers it brings. This situation has caused developing countries to lag behind in development and reduced them to mere annexes of the developed ones. Developed countries have used their power and influence to reap big from the world economy, leaving so little for the developing countries.

The Effects of Globalization

On World Economies and Economic Development

A change in the capacity of a country’s local economy to create wealth (Kane & Sand, 1988) signals economic development. To achieve economic development, the country must be able to increase its capital or production sizes. Major indicators used to assess the development of a country’s economy include Gross Domestic Product (GDP), Gross National Product (GNP), and Per Capita Income. Because of globalization, however, world economies have been affected in different ways.

Globalization has led to the development of global markets- a merging (or integration) of previously separate markets of different nations into one big market place (Hill, 2009). That has been facilitated by the removal of trade and cross-border restrictions by countries that have eased the transfer of funds and commodities. Globalization has also led to the formation of international institutions such as the United Nations, International Monetary Fund, and World Bank, which control international relationships, world peace, politics, human liberties, justice, and monetary issues. The World Trade Organization has also been formed to unionize the trading systems of the globe. The world trade situation has also changed with the advent of globalization: various countries have increased their shares of various global outputs, disrupting the dominance selected countries once had.

Foreign Direct Investments (FDIs) have also increased as a result of globalization. More countries cutting or eliminating their restrictions (tariff and non-tariff) has encouraged the development of trade and investment through FDIs (Owen and Johnston, 2017), as companies open up subsidiaries in other countries. That has led to the rise of multinational companies (MNCs), which are profitable, skilfully use technology to innovate, and have contributed to around 75% of global technological exchanges. FDIs and the resultant MNCs can take up a share of a foreign market and also attract new customers in the overseas markets. MNCs give local companies import competition, making them lose a share of their market and profits. The race of MNCs has also been accelerated by globalization and attracted many countries. That has seen, for example, America, which had nearly 50% global share of MNCs in the 1970s experience a drop in its share to just about 30% in the 2000s.

The globalization of economies has led to the coming up of an international financial sector owing to the increased flow of bonds, shares, and stocks across borders and growth of daily foreign exchange transactions, which have come to be multiple times larger than the value of imports and exports.

Globalization has also caused industries to adjust and restructure their operations. The development of technology has seen most developed countries upgrade their industries and shift to a knowledge economy and transferring the less competitive labour-intensive industries to developing countries (Todaro and Smith, 2001). As industries produce more, competition for the international market intensifies, leading to industrial restructuring (as a consequence of acquisitions and mergers, for instance) in a bid to increase their competitiveness and solidify their market position. This restructuring as significantly influenced industries’ competitiveness as the bigger productive ones thrive while the smaller or unproductive ones that cannot survive global competition are forced out of business.

The economies of developing countries have also (to an extent) been boosted by globalization because they are enabled to capitalize on their comparative advantages, access improved technology to advance their industries, and utilize foreign capital and expertise. As these countries open up to international trade and investments, their poverty levels are seen to reduce. That can be attributed to the increasing numbers of FDIs which create employment, alleviate the problem of macroeconomics, and contribute to a fall of prices (Harrison, 2006).

On Environment

Globalization has contributed to an increase in man’s interest in his planet and, consequently, ecology. The advancement in technology has helped him explore and find ways to utilize the environment to his benefit. There is, however, a trade-off. Man cannot fully exploit the potential of his environment without compromising its quality. For instance, the growth of transport and industries has resulted in the emission of hazardous waste gases and affluent wastes and materials that affect the quality of water, air, and marine resources and accelerate the depletion of the ozone layer. But since globalization is considered to be a necessity for all aspects of global development and these advancements are deemed important in improving the living standards and conditions of man (Nigam, 2009), the degradation of the environment that occurs as a consequence is viewed as an unavoidable evil.

The Risks of Globalization

Risks to Developing Countries

Although most people view globalization as important and powerful, it is generally accepted that it is not all-pervasive and does not solve all the problems of the world. Globalization and its development pose tremendous risks, especially for developing countries. It is seen that instead of catching up, poor or developing countries are drawn further apart from the developed ones. A 1999 report by the UN showed that globalization had benefited less than 20 developing countries, while the per capita income differences between rich and developing countries increased. Most developed countries have over 80% of capital flowing within them (International Monetary Fund, 2007). In contrast, developing countries still find it hard to attract capital and are left to rely on financial aid, donations, and grants from the richer countries.

Globalization has also exposed developing countries to various external conditions that are not in their favour. With open economies, developing countries are unable to realize external and internal economic balance, which constrains their policies on and regulation of macroeconomics (Geoff Riley, 2006). FDIs, privatization, and expansion of assets have affected these developing countries’ economic stability due to huge floating international capitals that create ‘false economies.’ That may, in turn, haphazardly fluctuate the foreign exchange rate and weaken their monetary value, sovereignty, and policies.

Globalization Labour Market Risks in Tradable Industries

Globalization has also been discovered to pose various labour market risks. Globalization does not hurt or benefit the same-industry firms in a similar manner. Liberalization of trade through cross-border trade, investments, and economic activities have been seen to immensely benefit some firms, while also significantly hurting others in the same sector (Melitz, 2003). This disruption of the traditional models of investment and trade has caused the closure of small businesses and industries since it favours and the larger ones more. Trade liberalization due to globalization has also been linked to inequality in wages and unemployment as a result of the different skills, abilities, and performance levels of workers and firms, as analysed by Helpman et al. (2010). Bigger firms and MNCs, compared to smaller firms, can invest in highly skilled human resources and technologies that have been found to impact their output and productivity positively. Since they are hard to replace, highly-skilled workers have an advantage and more power when negotiating their remuneration, and the more profitable firms will tend to pay them better wages. In the case of smaller and less productive firms, the workers usually tend to have low or average skills and are lowly remunerated. Consequently, when markets and economies open up as a result of globalization, smaller firms which are less productive will be edged out by competition forcing them out of the market (Dancygie and Walter, 2015), leaving the bigger productive firms to trade locally and abroad thereby take up the smaller firms’ market share. That leaves them with high profits, enough to adequately compensate their employees. Smaller firms, however, face stiff competition and low returns, leaving their workers to earn low wages and at the risk of job loss.

Who Wins and Who Loses?

With globalization came trade liberalization and international trade/ open economies, which replaced autarky. In the tradable industries, open economies, as seen above has been found to favour highly skilled workers (Jensen and Kletzer, 2010), most of who can get employment in productive firms and MNCs, receive higher wages and have job security or lower risks of losing their jobs. In contrast, open economies imply low and reducing wages, high job loss risks, and unemployment among low-ability employees in smaller firms. In this instance, high-ability workers and more productive firms are the winners, and the low-skill workers and the smaller, less productive firms, the losers. For the non-tradable industry, which includes professionals such as doctors, teachers, bus drivers, among others, globalization has little to no impact since they serve just the domestic market and are therefore not exposed to global competition. As a result, wage inequality and unemployment risks are lower for the non-tradable industry than for the tradable industry.

Developed countries are also seen as the biggest globalization winners given their massive influence and the numerous benefits they enjoy, while the developing countries remain to be the losers.

Summary

This paper has defined globalization in the two common aspects in which it is usually used, and has demonstrated that globalization is a phenomenon that has significant impacts that are distributed globally- albeit unevenly. The paper contributes by demonstrating how globalization affects economic activities, world economies, politics, and the environment. It also gives insight on the various risks that globalization poses to developing countries and labour markets and highlights the likely winners and losers of globalization.

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