Globalization is a historical process, the result of human innovation and technological progress. It refers to the integration of economies around the world through movement of goods, services, knowledge and capital across borders. Trade across the famous silk route that contributed to the development of China, the Indian subcontinent, Persia, Europe and Arabia is a fine example of historical globalization during the 5th-8th century.
Key Benefits of Globalization
A perennial challenge for all the countries, regardless of their economic development is achieving financial stability, economic growth and high standard of living for their people. Globalization offers this opportunity for nations by participating and integrating with the global economy.
The basic advantages of globalization are access to wider variety of goods and services to the consumers at lower prices, more and better paying jobs across industry sectors and most importantly there is an alleviation of poverty in the nations participating in integration of trade in goods and services. The idea of globalization is supported by many economists including the Nobel Prize winner Professor Amartya Sen who suggests that “It has enriched the world scientifically and culturally and benefited many people economically as well”.
Also, globalization enables countries to exploit their strength. One country may be resourceful in technology, while the other may be excellent in human resource and the third in the natural resource. When all these combine and break barriers of movement of capital, people and technology they all emerge winners.
Moreover, access to international market for goods and services is imperative for economic transition of developing and underdeveloped countries. Participation in the global economy enables the countries to seize new opportunities economically, technologically. They can then take to reforms in terms of privatization, price liberalization, competition policies and banking and increase opportunities for their own people.
Today, businesses transcend national borders and the companies have footprints across several countries. Multi-national companies need not all be coming from the western countries. Today, we have Korean, Japanese, Chinese, and Indian firms are either becoming or aspiring to become multi-nationals.
Disadvantages of Globalization
Globalization is not a panacea for all the ills of the economies and societies. There is a flip side to it, especially if it is not implemented with great care to ensure that the benefits flow to the people at large.
While on one hand an integrated world promotes the movement of human resources across borders, on the other hand it decreases the absorption of domestic workers. The domestic market can be hit badly in lieu of making space for the international market.
During downfalls, the pains are shared by all and poorest of the poor in under-developed and developing countries suffer the most in that eventuality. Global crisis triggered by collapse of Lehman Brothers was a great pointer of the cascading effect of globalisation. The cascading effect was so much that it engulfed the rest of the world. The degree varied but the impact was all pervasive. Even the developed European Union with a common currency was hit and is still battling the debt crisis.
Sudden jerks in one nation, particularly the big ones, can affect lives of ordinary citizens in smaller economies. The case in point is a sudden pressure on the local currencies of the emerging economies like India from just about a hint by the US Federal Reserve that it may wind down its stimulus in the form of easy money. Depreciation of currency results in inflation. Thus one move by the US Federal Reserve can affect lives of poor woman in Bangladesh or a labourer in a remote village in India.
Similarly, the imposition of the concept of laissez-faire by the International Monetary Fund (IMF), the World Bank and governments can lead to over exposure to free market to churn out more profits for some while other may lose out in the absence of transparent and fair regulators.
It has also been contended that globalization leads to regional disparities. According to the IMF reports while poverty fell in East and South Asia, it rose severely in the Sub-Saharan Asian region. Countries such as Somalia which have little to offer for international trade are conveniently kept out of the integrated global economy. This writes off the entire concept of globalization.
Then, there are issues of sustainable development. Over-exploitation of natural resources is resulting in unsustainable development. The results are being seen all over the world in the form of flash floods, global warming, rising sea level etc. The greed of global trade should not and cannot blindfold us to ill-effects of immense carbon production.
What can governments do to enjoy the benefits whilst avoiding the problems?
It is for the government to ensure that the benefits of the larger world integration flow to all, particularly the poor. Besides, each country has its own model. The globalisation cannot be in the form of one-size-fits all. The best example of being part of the global economy in a controlled way is the BRICS (Brazil, Russia, India, China and South Africa) nations. During the recession of 2008, these nations continued to experience a positive growth even when large economies like the United States and the UK were facing tough times.
While countries like India and China participated in globalisation and generated employment and banishing of poverty, they retained currency controls which proved helpful during the recent global financial turmoil. While India exploited the global services market, China became an engine for world manufacturing.
Though it is not advisable to do away with laissez-faire, the governments must ensure that the vulnerable sections of the society must get protected. Otherwise, people in distress would be the bad carriers of globalisation. On the other hand, the same people if looked after well can be the brand ambassadors for an integrated world. Governments must ensure well-regulated but free markets non-discriminatory rules of market play.