Globalisation has become a profound concept in social sciences; it is hard to discuss the current developmental issues without making any comment on globalization. Globalisation has accelerated rapid changes and the progression towards the development. Furthermore, globalisation connected people to one another. For example, in the previous era the world is connecting to each other through traditional method which is via mail, now, people can connect to each other via internet. Indeed, understanding of globalisation need to be viewed from the four analytical dimensions. Namely, economic, political, cultural and technological globalization (Kiefee and Steve, 2005).
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This essay is more concern with the economic globalization. Economic globalization is been expressed in what is known as neo-liberal policy supported by Washington Consensus. In fact, neo-liberal policy advocates liberalization of economic, privatization, trade liberalization and deregulation of national economy, which are all part of the factors that promote economic globalisation. Economic globalisation has been a major drive of current era of globalisation. Michael (2000) has claimed that trade and financial institution has been the major drive of economic globalisation (Michael, 2000). However, economic globalisation has been experience critiques which have been led to impediment in its growth in some quarters of the world.
The development of economic globalisation cannot be doubted anymore. This development has increasingly growing throughout the years and increases the levels of economic interdependence, besides sharpens struggle between countries. Various actors play an important role in economic globalisation growth, namely; International Monetary Fund (IMF), World Bank, and World Trade Organisation. These organisations perform certain functions to keep economic globalisation works, for example they provides long term loans to developing countries. The WTO act as the body that manage to reduce tax in trade relations that exist among country in the global economy relations.
This essay will give answers to the following identified questions below;
- What factors promote economic growth?
- What has been the challenge to the growth of economic globalisation?
- What factors impede it?
- How can we make economic globalisation workable for all nations?
To discuss this, the next section of the essay would be devoted to literature review and theoretical framework.
Research has been made previously that has discussed the reasons that led to economic globalisation and the reasons impede it as well.
Toffler (1980), avert that globalisation is principal an outcome of innovation in technology and that this emergence of technology have bring changes in ones lives, it has led to the more investment in capital and capital mobility .for example the multinational moves their capital to where they hope to reap more profits.
Stiglitz (2002) was of the opinion that to understand globalisation, one has to study the three main institutions that govern it. He gave the name of these institutions as the World Bank, International Monetary Fund (IMF), and World Trade Organizations (WTO). Thus, Stieglitz emphasized being playing by International Financial Institutions in the running of present economic globalisation process. Institutions, such as World Bank is acting as the independent body that provides loans to the developing countries for development process which in turn promote economic globalisation. Stiglitz (2002) said globalization is nor good neither bad thing either. He strongly considered it to be more of division of gains between North and South where global North gain, while South loses. However, the recent development of some newly industrialising countries, such as Taiwan and China is a critique to the above view.
One of the renounced pro –globalisation, and the professor of economics, in the person of Martin Wolf (2005) in his book; why globalisations works opined that globalisation is benefit for all. He cited the positive outcome of China, Brazil, India, and Singapore and now South Africa, in their openness to the world market (Wolf, 2005). He said those countries in global south that yet to reap the benefit of globalisation need to open their markets to the outside world and that they should invest in human capital skills.
This theory emphasized the privatisation and liberalisation of the economy with reduction of trade barrier for the economy development which would benefit to all human kind. The states should only provide enabling environment for the business to thrive. That is the multinational enterprise should be given free access to the investment and production without any government policies restriction. Harvey(2005) provides full illustration and explanation of neo liberalism theory of economic globalisation, according to Harvey(2005):
Neoliberalism is in the first instance a theory of political economic practices that proposes that human well-being can be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterises by strong private property rights, free markets and free trade. The role of the state is to create and preserve an institutional framework appropriate to such practices …The state has to guarantee, for example the quality and integrity of money…The state interventions in markets once created must keep to a bare minimum…
Applying this theory to the economic globalisation means that, the unrestricted free movement of goods and services, and most importantly in the present era of globalisation, is the movement of capital, will lead to economic growth and development which is benefit to the whole world. However, this theory have been criticised by Marxist school of thought that those who own the means of production all control the state, according to Marx and Engel (1848) every society is divided into two antagonistic class; the bourgeoisies and the working class, the haves and the haves-not, where the bourgeoisie control the means of production, they also control the state policies to continues exploit and subjugate proletariat who have no access to the means of production. The lesson that we can learn from this school of thought (Marxist) is that the position of neoliberal that state have no business in business is a pure political fallacy. But we have witness those who are well known business men and women who do not have interest politics in this present world. For example, Bill Gate, Carlos Slim, and many others. This is not to say that they do not indirect participate in politics. Despite the criticism of neoliberal theory, it’s still stand as major theory to explain economic globalisation growth and development.
There are certain factors that promote economic globalisation growth. Such as regional integration, trade liberalisation, privatisation and deregulation and foreign direct investment, etc. Francis Fukuyama (1992) argues that the breakdown of national barriers through the creation of a single, integrated world market have facilitated mobility of capital, growth in foreign direct investment, and increases important of transnational business corporation (TNCs) (Fukuyama, 1992). Thus the central role of multinational enterprises in the economic globalisation process cannot be rejected. These factors shall be discussed below.
A. Regional Integration
Regional integration could promote economic globalisation. Given the fact that states within the specific geographical region come together to trade between themselves and establish free trade zone such as North-America Free Trade Agreement (NAFTA). John McCormick (1999) supported this view when he said that, regional integration is the practice that two or more countries sit together and had a meeting to discuss about the problem. They trying to overcome the economic crisis and promote the development of it. In most cases, this coming together of region may led to establishment of free trade zone between the states and promote economic of particular region the regional integration in Europe immediately after the second world war have a profound influence on trade liberalisation and economic globalisation . This implies that imply that there is link between regional integration and economic globalization.
Trade liberalization is the free flow of trade between countries around the world. It emphasized the removal of the trade barriers such as tariffs and taxes on goods and services. Held and Mcgrew (2007) observed that the level of international trade have since increase significantly in relation to the national income. However they contend that this is more pronounced among the advanced industrialized country. Indeed the fallen of the trade barrier has led to the global nature of economics transaction (Held and Mcgrew 2007).
The activities of the transnational corporation owing to the trade liberalization has become more pronounced in the recent era of globalisation ,thus the power of the global finance has become central to economics globalisation(Held and Mcgrew 2007). This means that trade liberalization has been a positive development to the economic globalization. For example it is possible for multinationals to invest more in a country that have liberalised its economy. And thereby promote economic globalisation.
- Foreign Direct Investment
Foreign direct investment has become one of the factors that promote economic globalisation. Multinational Corporation has taken economic globalization to a new level.
According to UNCTAD (2001,as quoted in Held and Mcgrew 2007): ‘Multinational corporation account for about 25 percent of the world production and about 70 per cent of the world trade ,while their sales are equivalent to almost half of the world GDP’
The result of this is that investment by the multinational corporations in the form of FDI has increase over the years and this must have led to a more interconnectedness of the world economy, which invariably promote economic globalisation.
D. Privatization and Deregulation
These are the products of the Washington consensus, the capitalism ideology have led to the ideas of private ownership of means of production with the sole aims of profit maximization and capital accumulation, it was the belief of the capitalist economist that the private ownership of the means of production will lead to unlimited happiness in the society. The collapse of the Soviet Union in Eastern part of the Europe saw to the more achievement of the capitalism, thereby led to the adoption of the privatization and deregulation of most of the world leading economies. These ideas of privatization and government deregulation of the economy do have positive impact on economic globalization.
These four factors and many other one that were not discuss fully here, such as ,resources and market ,research and development, technologies and the state political wills promotes the growth of economic globalization, however because of the growing number of sceptic of the globalization ,for example Joseph Stieglitz (2002) in his popular books ‘Globalization and its discontents ‘have exposed some of the injustices and ugly face of the globalisation, he was particularly of the opinion that the economic globalization was never aims to help the people of the developing world, that the three institutions that runs it (IMF,WORLD BANK and WTO) were all instrument of the exploitation in the hands of the elite states of the advanced developed countries. The result of this is the growing number of the impediments to the growth of the economic globalization. I shall discuss this in the next section of this essay.
There are uncountable factors that may impede the growth of economic globalizations; the most critical aspect of it is the putting in place of the protectionism policies by state to protect her infant industries. Others include; tax, extremely regionalization, lack of technology, lack of political wills, lack of human and capital resources and many more. This essay shall discuses four of the above factors
- High tax
The imposition of high tax by national governments has been described as one of the factors that can impede the growth and process of economic globalization. When a particular national government put in place a high corporate tax on investment ,in this present era of capital mobility ,the investors would in turn move their capital to where they considerate comparative advantage, so wise government should not put high tax on investment .
Discussing on the hyper-globalisation thesis, Hay (2013) seems to agree that government should cut tax in order to attract foreign investor, according to Hay (2013):
‘’ Any failure on the part of a state to render its corporate taxation levels competitive in comparative terms through tax cuts will result in a punitive depreciation in net revenue as a capital exercises its mobility to exit.’’
What this means is that high tax is an anti-economic globalisation, it is against trade liberalisation policy.
- Extreme Regionalisation
Regionalisation and globalisation are two sides of the same coin, while regional integration could promote economic globalisation, it can as well impede it. Hirst and Thompson (1996, as quoted in Hay 2013) observed that there is tendency toward regionalisation in the present era than globalisation. They submitted that the process of tridization is currently going on between the North America, East Asia and Europe owing to the series of inter-regional integration that is going on between these three regions. The outcome of which have being excluding most part of the world from economic globalisation process. The lesson that we are learning from this is to check on the regional integration objectives so as not to hinder economic globalisation, indeed regionalisation could be formed as a defence to unequal and imbalance nature of economic globalisation.
Some states might device a means of protecting their local infants industries from been expose to the unfavourable competitions with foreign firms’ such states may consider certain goods and products that might want to come into her country as contra ban, or give a quota to such goods and products from the foreign firms. Although states might have their own reason for protecting their own national and local firms but it is generally belief that any strategy of protectionism employed by any states is anti-economic globalisation.
D. Lack of technological Sophistication
The importance of technological innovation is crucial to the development of economic globalisation , the internet make it easier to transact business on a global level within a second, so therefore lack of technology or lack improvement in technology would have severe impact on the economic globalisation. It is difficult to talk about economic globalisation without looking at the technology that have made global financial system more conveniently and reliable.
All these abovementioned key points may impede the growth and process of economic globalisation.
Haven explained what the globalisation is all about and especially haven been discussed those factors that may promote and impede economic globalisation. It is my opinion that those states whose action is being have been describe as a threat to economic globalisation have their own reasons for doing so. For instant, Stieglitz (2002) rightly observed that globalisation especially economic globalisation is characterised by unequal exchange in which the rich countries of global north gains at the expense of the global south. This could be reason why they are protecting their economy as a solution to the inhuman and exploitative nature of economic globalisation.
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However I will go with the position of Martin Wolf (2005) that if the developing world could invest in human capital, technology and open up their economy to outside world, they stand a chance of reaping the benefit of globalisation. Therefore, they should invest in human capital and technology, while open their economy to the outside world. Also the developed countries should carry them (global south) along in the process of economic globalisation. Otherwise, they continue to exact influence on those factors that impede it, became they think they have nothing to gain from it; consequently therefore, stopping it would not have any real impact on them since they are not benefiting from it.
Fukuyama, F. (1992), The End of History and The Last Man. New York: Free Press
Harvey, D. (2014). Neoliberalism, politics and society. Retrieved Nov 13, 2014, from: http://www.slideshare.net/suehair/neoliberalism-politics-and-society
Harvey,D.(2005) A Brief History Of Neoliberalism. Oxford: Oxford University Press.
Hay, C. (2005) ‘Globalisation Impact on State’, in R, John.(ed) Global Political Economy, Oxford: University Press.
Held,D and Mcgrew,A. (2007) (eds) Globalization Theory: Approaches and Controversies . Cambridge: Polity Press
Kiefer,L.,and Steve, C.(2005) Global Marketing Management :Challenges and New Strategies.London:Oxford University Press
Marx, K. and Engel.(1848)The Communist Manifesto. London: Communist League
McCormick, J. (1999) The European Union: Politics and Policies. New York: Westview Press
Stiglitz, J. (2002) Globalisation and Its Discontents. New York: ww Norton and Company.
Toffler A. (1980) Future Shock. London: Pan Book Ltd.
Wolf, M. (2005) Why Globalisation works? Yale: Yale University Press.
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