Advantages and Disadvantages of Globalisation

The first part of this essay will be aimed towards understanding the concept of globalisation. We will analyse the various advantages and disadvantages that arise as a result of globalisation. The major part of the essay will concentrate on investigating the impact of global, regional and bilateral trade agreements can impact the global economy.

In order to devise an accurate and informative response to the essay question we must first understand the concept of globalisation. Globalisation is about what is happening to economies on a world scale. Although the idea is not often clear, everyone who talks about the concept recognises that the countries of the world tend to divide into two groups: those with developed economies and those that are sometimes referred to as developing countries. The economically developed countries have modern industries and technologies (the U.S, Japan and the countries of western Europe). The developing countries (most of Asia, Latin America, and Africa) have more lower incomes and large groups of impoverished people, especially peasants. However some countries are in between and have characteristics of both kinds of economies (for example, states of the former Soviet Union and Eastern Europe).

The economic interactions of globalisation are fundamentally about big capitals of the developed countries that operate around the world. These are sometimes called multinational corporations; these dominate the economies of the developing countries along with a handful of global agencies such as the International Monetary Fund, the World Trade Organisation and the G-7 central banks. The results affect the majority of the working population in the developed countries, as shown by issues like runaway factories, satellite-linked offices and the attack on social welfare programs in the name of the free market.

The term globalisation was originally started in the 1960’s to describe international capital flows. Today however, globalisation is not just
capital flow, but a revolution to make individual nations part of a global village, under one legislation. Basically, it’s to remove the distance between countries. As a result, it’s also the restructuring of everything, from politics, to the economy, to make it part of a global economy. The defining characteristic of globalisation is a free market capitalism and trade liberalisation. The consequences of these changed however, have not been discussed and are under heated debate. While some people think of globalisation as primarily a synonym for global business, it is much more than that. The same forces that allow businesses to operate as if national borders did not exist also allow social activists, labour organizers, journalists, academics, and many others to work on a global stage. With the technological revolution, it is now a lot easier to do so.

Advantages and Disadvantages of Globalisation

The existence of trade has always been present between people and between countries. However since the 2nd World War trade in goods and assets has gained a larger significance everywhere. There are various advantages related to globalisation ¡V first the foremost related to trade and investments spreading wealth and linking countries together, however simultaneously there are various negative consequences.

Some of the main advantages are:

“« Increased liquidity of capital allowing investors in developed nations to invest in developing countries.

“« Increased free trade between nations.

“« Corporations have greater flexibility to operate across borders.

“« Increases in environmental protection in developed nations.

“« There will be a reduction in the likelihood of war between developed nations.

“« Greater independence of nation-states.

“« Spread of democratic ideals to developed nations.

“« There will be a reduction of cultural barrier, increases the global village effect.

“« Faster and easier transportation of goods and people.

“« There will be increased flow of communication allowing vital information to be shared between individuals and corporations around the world.

“« The presence of global mass media will tie the world together.

Some of the main disadvantages are:

“« Corporations seek out for the cheapest labour, therefore there will be increased flow of skilled and non-skilled jobs from developed to developing nations.

“« There is increased risk of economic disruptions in one nation affecting all nations.

“« Corporate influence of nation-states far exceeds that of civil society organisations and average individuals.

“« There will be a threat that the control of world media by a handful of corporations will limit cultural expression.

“« Greater chance of reactions for globalisation being violent in an attempt to preserve cultural heritage.

“« Greater risk of disease being transported unintentionally between nations.

“« International bodies like the World Trade Organisation infringe on national and individual sovereignty.

“« Increase in the chances of civil war within developing countries and open war between developing countries as they compete for resources.

“« Spread of materialistic lifestyle and attitude that sees consumption as the path to prosperity.

What are some of the benefits of globalisation as put forward by the pro-globalisation movement?

At a global level, globalisation has many benefits. For some people, it has been seen as an alleviation of poverty. One such example is the use of labour in 3rd world countries. At world level, globalisation creates hundreds of millions of jobs, not unemployment. These are mainly in the developing countries, but they are only marginally at the expense of jobs in advanced countries. As a result, the extra income would go to food and an improved lifestyle for some of the people living in 3rd world countries. For an example, the Japanese motor industry, Honda is manufactured in Thailand, and the U.S. Nike sports wear clothing are manufactured in China and South East Asian countries. This can create more jobs in the poorer countries and it also helps the wealthier countries. Due to the lower labour costs, larger quantities can be produced at a lower price. According to the World Bank report, it has said that developing countries have experienced high income growth, longer life expectancy, better schooling, higher wages and fewer people living in poverty since becoming integrated in the global economy.

Environmental protection could also be pursued at a global level. Where international impacts, international cooperation and technology innovation, each of which is enhanced by the process of globalisation, can significantly accelerate efforts to find solutions. One such example is the whaling in Japan. With the population whales in the world declining, Japan was pressured into a Whaling Ban Treaty. Through this process, the amounts of whales around the world have gradually increased. More fundamentally, globalisation fosters economic growth, which in turn generates and distributes additional resources for environmental protection. Increased trade and investment also promote opportunities to exchange more environmentally efficient technologies, share good practices, and contribute to environmental capacity building, particularly in developing countries. Green house gasses are one example. Through the Kyoto Treaty, most of the world’s leading nations have signed a contract to reduce greenhouse emissions. Only America and Australia have not signed.

What are some of the disadvantages of globalisation as put forward by the anti globalisation movement?

In this utopian idea, there are still flaws and disadvantages; mainly concern the developing countries. Some countries are just not able to compete with the cheap labour costs of other nation. The reason why countries such as Russia remain not integrated with globalisation is because they would lose many jobs. They are not able to compete with the prices of foreign products and many of the local manufacturers would begin to close down. Employment, nationally, would decrease as the factories move to countries of cheaper labour costs. Also, Australia has suffered because of the lamb tariffs in the U.S. As a result of this, many Australian farms will become bankrupt. George Bush, though an avid supporter of free trade and trade liberalisation has puts tariffs on lamb to help the ailing U.S. farming industry. Such hypocrisy however, does not help promote the benefits of globalisation.

Despite claims from pro-globalisation companies the globalisation helps alleviate poverty, the Oxfam Community Aid Abroad estimates the 60 countries, a third of which are African, have become poorer since 1990. But why? Before some developing countries can join the globalisation market, they have to meet a certain criteria before entering. This might include dismantling trade protection policies and privatising public assets. This would allow rich and powerful multinational companies to buy up everything at a cheap cost, which would leave developing countries without many assets.

As globalization becomes increasingly more evident as countries become further integrated with one another, trade agreements have been formed in recent years to ensure trade opportunities can be gained from. These agreements and trading alliances can be large-scaled such as the global agreement World Trade Organisation (WTO), the smaller scale regional agreements such as the European Union (EU) as well as agreements between two specific countries such as CERTA – Closer Economic Relations Trade Agreement between Australia and New Zealand. They all have the aim of reducing barriers to trade between countries, a process described as trade liberalization.

Trading blocs aid the process of trade liberalization in that it promotes free trade between countries – examples of such groups are the Asia-Pacific Economic Co-operation (APEC) and European Union (EU). Although their arrangements may result in the exclusion of other countries that are not part of their trading bloc, the amount of trade within their groups is significantly a greater percentage than trade outside their bloc – in 2001, APEC’s percentage of trade between countries within themselves was 71% of total trade flows. The countries involved in trading blocs are subjected to signing formal free trade agreements that are designed to minimize protection barriers in the form of tariffs, subsidies and quotas.

A subject of debate is whether trading blocs assist or hinder trade liberalization – preferential trade agreements between countries within a particular block may obstruct our path to global free trade as they divide the global market into separate divisions. However economists agree that trading blocs act as a stepping stone to free global markets, as they remove protective barriers, encouraging countries to open themselves up to free trade – on a smaller scale at first, then later on a global level.

Whilst the European Union tend to have a closed trading bloc due to their protection policies, the Association of South East Asian Nations (ASEAN) have a much more open trade scheme, with the majority (78%) of their trade flows going outside their region rather than within. This illustrates the fact that their exports are going to larger, more industrialized countries which are not part of their own trading bloc – particularly the United States and European countries within the EU. Whilst APEC and the EU have decreased trade within their own groups in the past decade, ASEAN and North American Free Trade Agreement (NAFTA) have increased the percentage of trade within their own trading blocs – by 5% and 9% respectively. This further increases some economists’ views that trading blocs are becoming increasingly closed to the idea of global free trade, preferring to trade within their own region.

The European Union is undoubtedly the most important – that is, largest – trading bloc in the world, with 25 countries taking part in 2004. Its most recent establishment of the single euro currency amongst 12 of its members further promotes globalization and congruency and efficiency in exchanging goods, services and finances between countries. It has, however, raised tariffs and customs duties to imports of goods and services from non-member nations such as Australia’s agricultural products and thus encouraging the US to also develop similar protection policies. In 2000, it also developed quotas for its signatory members for 5% of domestic consumption for each product groups, thus further restricting imports from non-member nations.

The Asia-Pacific Economic Cooperation forums was developed in retaliation to trading blocs such as the EU and NAFTA, containing 21 countries such as China, United States, Chile, Canada, Mexico, Japan, Malaysia, Hong Kong and Australia. It accounts for 47% of world trade as it includes the United States and Japan which are two of the world’s major economies, as well as all of the major Asian economies. More than 75% of Australia’s exports go to member countries of the APEC forum, aiding Australia’s growth since 1989, so that it is now less dependent on exporting its goods to solely England as it had formerly been. The Industry Commission estimated APEC agreements would increase Australia’s output by 6.8% in 2010, creating half a million new jobs. APEC countries have agreed to achieve free trade between its nations by 2020 – the more developed nations to dismantle their trade barriers by 2010 and newly industrialized countries, by 2015.

They have agreed not to become a closed, secluded trading bloc as the EU has, but rather to reduce barriers to other countries as well, in promoting global free trade. To illustrate this target of free trade, their member nations have reduced tariffs by one third – 12% in 1995 down to 8% in 2000. China alone reduced its average tariffs from 37% in 1995 to 17% in 2000. This is also partly due to TWO agreements as well as some member countries taking part in NAFTA agreements as well. In 2000, to support the Information Technological boom, APEC leaders have agreed to “continue to work toward pro-competitive and market based policy frameworks for liberalization in trade in telecommunications and IT services,” Although APEC has set targets to be achieved, it has not created any noteworthy results in terms of free trade, due to the East Asian Financial Crisis in 1997 which has greatly reduced its momentum.

Established in 1994, the North American Free Trade Agreement was established, consisting of four countries – the US, Canada, Mexico and Chile. Within this trading bloc there is no agricultural protection, and tariffs are aimed to slowly phase out over the coming 15 years. This trade agreement has increased Canada, Mexico and Chile’s exports as they had access to US’s markets; however the US has greatly benefited from the cheap and cost-effective Mexican labour. The top imports going into the US from these countries are motor vehicles and parts, oil and natural gas, semiconductors and electronic parts; whilst the top exports going out of the US are aircraft and aircraft parts, electronic computing equipment and motor vehicles and parts. In this way, comparative advantage of efficient Mexican labour has balanced out the advantage that Canada, Mexico and Chile gains from having access to America’s vast markets. NAFTA also has plans to develop a Free Trade Area of the Americas (FTAA) for the entire American continent to counterbalance an expanding EU, to be implemented by 2005.

The last of the four main trading blocs is ASEAN – Association of South East Asian Nations – which originated in 1967 and comprised of five original members – Indonesia, Malaysia, Singapore, Philippines and Thailand, although trade back then was insignificant. With the introduction of the ASEAN Free Trade Agreement (AFTA) introduced in 1992, as well as large economies such as China and Japan joining ASEAN, their value of trade rose to US$720 billion in February 2000. AFTA aims to increase ASEAN’s competitive advantage per production unit, as well as eliminating tariff barriers amongst member countries in order to promote economic efficiency, productivity, and competitiveness. Mainly, ASEAN has traded to countries outside of their own region, with only 23% of goods being traded between their own member nations. However members within their group also benefit from this agreement – Indonesia is confident that their fish products will be competitive in the Chinese market. Australia has wanted to gain admittance into the ASEAN trading bloc, however has been denied access despite the fact it exports AU$19 billion a year to Australia, and importing only AU$14.5 billion of Australian goods. (SMH 11/10/03)

Trade agreements between two nations, rather than a regional group of countries, are called bilateral trade agreements. The Closer Economic Relations Trade Agreement (CERTA) between Australia and New Zealand had eliminated trade barriers between the two nations including harmonization of business regulations and encouraging trade flow growths. Another recent example is China’s agreement to purchase AU$25 billion dollars over the next 25 years from Australia in October 2003 is another example of the importance of bilateral agreements on the global economy, as it encourages larger trade negotiations which has an effect on the gross world product (GWP) as more goods are produced to meet the international demand.

Resurgence in bilateral trade agreements reflects the slower progress of WTO negotiations, as well as the fact that the US is using its economic power to negotiate trade relations on a country-by-country basis. Prior to 2000, Vietnam was one of six countries that the US was unable to have Normal Trade Relations with (NTR), meaning that imports coming from Vietnam are all subjected to higher tariff rates than other countries who have negotiated with the US. In 2000, Vietnam fulfilled the NTR status, signing a bilateral agreement which gives the US full open access to its markets of goods, services and investments as well as adopting WTO norms.

In order to regulate the above trade agreements and trading blocs, international organizations have been created so that problems created by the global markets and other disputes as a result of globalization can be resolved fairly. The major institutions of the global economy are the World Trade Organisation (WTO), the International Monetary Fund (IMF) and the World Bank. They are needed to maintain stability in global financial markets, providing assistance to developing countries or those experiencing economic crisis, standards for environmental protection, as well as global rules to free up world trade and reduce barriers and protection to imports.

As the most powerful economic global institutions, the WTO advances global trade agreements as well as resolve trade disputes between countries. It replaced GATT (General Agreement on Tariffs and Trade) which, prior to the introduction of the WTO, held rounds of negotiations which were up to member nations to implement those agreements. Its weakness was that there was no enforcement of these negotiations so only parts of agreements were implemented. The WTO agreement was then introduced in 1995 in the last round of agreements, known as the Uruguay Round so as to enforce implementation of agreements as well as to promote the trade of not only goods, but also services (insurance and banking) and intellectual property (copyright, patents and trademarks). This was important and services and intellectual property were the fastest-growing sectors at the time.

Another function of the WTO is to settle disputes between countries, where countries can lodge a complaint with the WTO if they feel another has failed to comply with WTO obligations. A dispute resolution is then created where the WTO panel will hear the complaint and issue a decision. Should a country not comply with the decision, then trade sanctions may be imposed including high tariffs on the offending nation’s exports. The WTO has not been effective in resolving disputes between the US and the EU, two of the largest global economic forces. Appeals have been lodged to decisions, which delay the efficiency of the WTO. However it is still a large organization with 146 nation members in 2003 with 30 more countries applying to join. To achieve faster trade liberalization results, some members have even voluntarily agreed to reduce trade barriers in the finance sector, IT and telecommunications and shipping.

The Doha Round was launched by the WTO in 2001, which focuses on trading concessions for developing nations – giving those countries flexibility in implementing WTO commitments, and relaxing patent rules on pharmaceutical drugs so that they are more affordable. They are also to reduce agricultural protection, lower tariffs on manufactured goods, and to impose more flexible environmental standards on trade. They aim to remove US$700 billion worth of tariffs and subsidies on food, goods and services, to increase global economic activity by an estimated US$2.8 trillion by 2015. The US and EU failed to agree on reductions on agricultural protection in 2003, so the effective of the WTO remains to be questioned.

The International Monetary Fund (IMF) is the most fundamental global institution, its role being to maintain international financial stability, especially to FOREX markets. The IMF minimizes crisis in individual countries, providing them with finances to stabilize that particular economy such as Indonesia in the East Asian Crisis in 1997. There are currently 184 members of the IMF in 2003. It supports free trade of goods and services, as well as movement of finance and capital investments throughout the global markets. In order to receive financial assistance, however, the IMF requires countries to implement structural adjustment policies – changing economic policies. In this way, it has ensured economies adopted similar economic strategies in recent years. Thus it reduces the size of governments and privatizes government businesses, deregulates markets and balances government budgets thus opening up to free global markets. Although this may be a positive affect, the IMF has attracted criticism in that it has forced countries such as Indonesia which were affected by the East Asia Crisis in 1997 to adopt contractionary monetary policies which worsened their position.

The World Bank’s role is to help poorer countries to develop economically, it loans funds for infrastructure investments, as well as reducing poverty and helps countries adjust to the demands of globalization, loaning US$10.5 billion in 2002 (3% of capita flows). It is funded by contributions from its member countries as well as its borrowings in the world financial markets. Its aim is to reduce those living on $1 a day from 29% to 14.5% in 2015, achieve universal education, reduce child mortality, improve health and health treatments, preserve the environment and improve the status of women globally. Its support of the Heavily Indebted Poor Countries Initiative aims to reduce by two thirds in 46 of the world’s poorest countries.

Conclusion

In today’s society, it is hard to see globalisation work in a beneficial way for everyone. If it were to work, many of the rich and powerful nations would have to help many of the poorer nations, and not just with “jobs (cheap labour)”, but use initiatives such as dept reduction or cancellation. Although some good has been done through globalisation more damage has also been caused. A global effort to improve and upkeep the cultural, living and economic standards of every country would be required. Also, powerful nations would have to follow the rules and guidelines set instead of bullying poorer countries to allow them not to follow it. Globalisation is advantageous for the globe, but the world has to think globally instead of nationally. This would be difficult as there are many “rogue” countries that disagree with the globalisation paradigm e.g. Iraq