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The Globalization Of The World Economy

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Published: Thu, 04 May 2017

The globalization of the world economy – is the conversion of international space into one whole, where there are no set boundaries for informational technologies, merchandise and sales, and capital. People would travel with no limitations transporting their goods and ideas, stimulating the development of international organizations and mastering its efficiency and interactions. Globalization implies on the formation of universal international economy; in other words, this phenomenon falls in the framework of the politics, ideology and culture. Without any doubt it will play a determining role in the world economy of the 21st century, giving a powerful force to the formation of the new system of international economy and political relations.

First of all, globalization is caused by the objective factors of world development: by the advancing international division of labor, by the scientific and technical progress in the fields of transportation and means of connections, which reduces so-called economic distance between the countries. By making it possible to obtain all the necessary information from any point of Earth in the real time and making rapid decisions, current telecommunication systems make it easy to coordinate international capital investments, cooperate the production and marketing. With the informational integrations there is an increasing progress of technology share and adoption. There are many more other processes that promote globalization, which used to be only local within its state, like – obtaining a higher education on the distance from the institute facilities themselves.

The second source of globalization – is a liberalization of the trade markets and other forms of economic liberalization, which caused limitations to the policy of protectionism and removed restrains on international trade. As a result, tariffs were substantially lowered, and many other barriers in trades of goods and services were removed. Additional measures of liberalizations lead to strengthening of the capital movement and other factors of production.

The third source of internationalization process, and one of the main sources of globalization, is the phenomenon of trans-nationalism. Within its frame, a certain portion of production, consumption, export and import, and gross domestic income depends on the decisions of international organizations beyond the limits of the state. Multinational corporations (MNC) are the leading forces and the protagonists of the internalization, and are simultaneously the result of it.

Globalization affects the economy of all the countries. It influences the production of goods and delivery of services, the labor utilization, investments, technology and its propagation from one country to another. All of this is reflected in the efficiency of production, productivity of labor and competitive ability. Specifically, globalization caused the aggravation of international competition.

The process of the globalization of the economy was accelerated within the recent decades, when different aspects, like, capital, technology, goods and labor, became even more interconnected and integrated into the multilayer network of MNC. Even though most of MNC operate in the traditional commercial territories, in general, international organizations participate in restructuring of many developing countries by creating the new industries like automobile, petrochemical, engineering, electronic, and in the modernization of the usual fields, textile and food.

Today’s Multinational Corporations in contrast to previous production type MNC’s act predominantly on the informational and financial markets. There is a universal integration of these markets occurring, uniting the world financial-informational space. The role of MNC grows and so do supranational economic structures and the organizations, respectively (such as the International Monetary Fund, International Bank for Reconstruction and Development, the International Finance Corporation and other).

At the present time 80% of newest technologies are created by MNC, whose income in a number of cases exceed the gross national income of some rather large countries. It is enough to say that in the list of 100 largest world economies 51 of them are the actually MNC. Moreover the substantial part of their activities is connected with the development of hyper-technologies, to which we can attribute net computers, the newest computer programs and software, organizational technologies, the technology of the formation of public opinion and mass consciousness. Specifically, developers and owners of such technologies control today’s financial markets and determine the appearance of the world economy.

Approximately 1/5 of income of the industrially developed countries and 1/3 of developing countries directly depend on export. According to the estimations, the world’s 40-45% of those occupied in the processing industry and approximately 10-12% in the sphere of services are directly or indirectly connected with foreign trade, which remains the basic means of the redistribution of world’s income. Some aspects of the influence of globalization on the national economy deserve special attention.

First of all let us note the extremely accelerating rates of the direct foreign investments, which considerably exceed the rates of the increase in the world trade. These capital investments play the key role in the transfer of technologies, industrial restructuring, the formation of global enterprises, which renders direct effect on the national economy.

The second aspect concerns the influence on the technological innovations. New technologies, as already mentioned, are one of the motive power of globalization, but it, in turn strengthening competition, stimulates their further development and propagation among the countries.

Finally, as a result globalization an increase in the trade in services occurs, including financial, juridical, administrative, informational and all forms of “invisible” services, which become the basic factor of international commercial relations. If in 1970 less than 1/3 of direct foreign investments were connected with the export of services, then at present this portion grew up to 50%, with intellectual capital becoming vital commodity on the world market.

The result of the development of the internationalization process are interdependences and interactions of the national economies. This can be interpreted as the integration of states into the structure, close to the united international economic system. Although the major portion of the global product is consumed in the producing countries, national development is more than ever connected with the global structures and it becomes more multilateral and more diverse than it was in the past.

The process of globalization proceeds under the influence of the strongly polarized world system in terms of economic power and possibilities. This position is the potential source of risks, problems and conflicts. Several leading countries control the substantial part of the production and consumption, even without resorting to political or economic pressure. Their internal priorities and values affect all the largest spheres of internationalization. Overwhelming majority (85-90%) of all MNC is based in the developed countries, but during the past few years such corporations began to form in the developing states as well. Towards the end of the 1990’s there were about 4200 Latin American and East Asian MNC’s, several hundred in the European countries of the transitional economy. Among the largest fifty Multinational Corporations of the developing countries eight of them belong to South Korea, same – to China, seven – to Mexico, six – Brazil, and four – to Taiwan, to Hong Kong and to Singapore, three – Malaysia, also, one to Thailand, to the Philippines and Chile. The young transnational corporations of these countries, such, as South Korean “Daewoo” and “Samsung”, Chinese “China Chemicals”, Taiwan “Ta-Tung”, Mexican “Kemet”, Brazilian “Petroleo Brasileiro” and others, energetically fighting for the place on the world market.

More and more the national states have to consider MNC as the powerful partners, and sometimes even rivals in the fight for the influence on the national economy. As far as for the conditions for this collaboration, the agreement between MNC and the national governments became a rule.

There are wider prospects of the non-government organizations, which just as in the case of the global firms, stepped onto the multinational or world level. Such international organizations as United Nations, International Monetary Fund, and World Bank began to play a new global role. Thus, multinational enterprises and other organizations, both private and state, became the basic characters of the global economy.

As the fourth source of globalization we will note the achievement of the global similarity of ideas in the estimation of the market economy and the system of free trade. The beginning to this was established by the reform in China declared in 1978, which was followed by the political and economic conversions in the states of central and East Europe and the collapse of the USSR. This process led to the ideological convergence – instead of recent conflicts between the market economy of the West and the socialist economy of the east we now practically have a complete identity of views on the market system of economy.

The fifth source lies in the cultural development. We are talking about the tendency of the formation of the universal international mass media, art, pop-cultures, and general use of an English language as the universal means of contact.

Thus, we can see that the process of globalization is directly influenced by the financial means, and concentrated first of all, in three basic centers of the world: USA, to Western Europe and Japan. However, financial speculation leaves far beyond the boundaries of this triad. Global turnover on the market for currencies every day reaches 0,9-1,1 trillion dollars. The inflow of speculative capital can not only exceed the needs a country, but also destabilize its position. The rapid globalization of finances still remains the most important reason for the vulnerability of the world economy. The integration of financial markets increases the risk of system failures.

As a result we can note a number of possible advantages of the globalization process, that will tie up the countries together:

1) globalization caused the exacerbation of international competition. Competition and expansion of market lead to the deepening of specialization and international division of labor, that in turn stimulate an increase in the production not only on the national, but also at the world level;

2) another advantage of globalization – savings on the amount of production, which potentially can lead to the reduction of expenses and reduction in the prices, and consequently, to the steady economic increase;

3) the advantages of globalization are connected also with the gain from the trade on the mutually beneficial basis, which satisfies all sides, starting from the individual persons, firms and other organizations, countries, commercial unions and even finishing with entire continents;

4) globalization can lead to an increase in productivity of labor as a result of the rationalization of production on the global level and propagation of advanced technology, and also competitor pressure in favor of the continuous introduction of innovations on a world scale.

Overall the advantages of globalization will improve the position of all countries and international relations, which gives an opportunity for increasing global production, stabilizing world economy and improving everyone’s standards of living.


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