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Tuesday, January 20, 2015

Globalisation : Advantages And Disadvantages

This post is actually from a Microsoft Power Point Presentation I had to submit as an Economics Project at school a few days ago.The topic was interesting,very relative to the present day economic,political and philosophical issues.The presentation is quite lengthy,I could not stop very quickly once I started reading and I actually finished up 38 slides. 
The point of view I posted it from is that students who are going to have to work on this topic can get some help while working on their projects and at the same time and perhaps most importantly understand the consequences of globalisation on the human civilization and especially,the economically vulnerable population.I have definitely not kept a 'political affiliation' in the presentation,as this is a school project but you will still find a voice against the inhuman side of globalisation.After all,as Amartya Sen has put it in his bok 'On Ethics And Economics' in context of Aristotle's 'Politics',"There is no scope for dissociating the study of economics from that of ethics or political philosophy."

What is Globalisation?

¢Globalisation is the process of international integration arising from the interchange of world views, products, ideas and other aspects of culture.
¢Globalisation has been taking place for hundreds of years, but has speeded up enormously over the last half-century.
¢Although globalisation is probably helping to create more wealth in developing countries - it is not helping to close the gap between the world's poorest countries and the world's richest.

Globalisation (A Popular Logo)

What Caused Globalisation : A Brief History

¢Though scholars place the origins of globalization in modern times, others trace its history long before the European age of discovery and voyages to the New World. Some even trace the origins to the third millennium BCE.In the late 19th century and early 20th century, the connectedness of the world's economies and cultures grew very quickly.
¢The term globalization has been increasingly used since the mid-1980s and especially since the mid-1990s. In 2000, the International Monetary Fund (IMF) identified four basic aspects of globalization: trade and transactions, capital and investment movements, migration and movement of people, and the dissemination of knowledge.

Airline personnel from the "Jet set" age, circa 1960

Impacts of Globalisation

Globalisation has resulted in:
  • Increased international trade
  • A company operating in more than one country
  • Greater dependence on the global economy
  • Freer movement of capital, goods, and services
  • Recognition of companies such as McDonalds and Starbucks in LEDCs

  •     With improvements in transportation and communication, international business grew rapidly after the beginning of the 20th century. International business includes all commercial transactions (private sales, investments, logistics, and transportation) that take place between two or more regions, countries and nations beyond their political boundaries. Such international diversification is tied with firm performance and innovation, positively in the case of the former and often negatively in the case of the latter. Usually, private companies undertake such transactions for profit.

An Interesting Example : International Trade – A Troubling Trajectory? 

¢ When Apple launched the iPhone in 2007, it deployed a state-of-the-art global supply chain. Although the pioneering smartphone was designed in America, and sold first to consumers there, it arrived in stores from Shenzhen, China. It had been assembled there by Foxconn International from parts made by two firms in Singapore, six in Taiwan and two in America. Since then, competition in smartphones has intensified thanks to lower-cost rivals such as China’s Xiaomi. It uses a similar supply chain, but slightly fewer parts are imported: the growing sophistication of Chinese manufacturers means that more components are being made at home.

  •     As a result, the notion of “peak trade” is being taken increasingly seriously. Cristina Constantinescu and Michele Ruta of the International Monetary Fund and Aaditya Mattoo of the World Bank argue that the slowdown in trade relative to GDP reflects the end of a rapid evolution of supply chains that yielded big gains in productivity. This innovation was made possible by the removal of trade barriers that followed the completion of the Uruguay Round in 1994 and the creation of the World Trade Organisation (WTO), plus the integration into the world economy of China and the former Soviet bloc. In the absence of further trade deals or more big countries opening up, the evolution has slowed, causing a lasting slowdown in trade.
  •     Another factor, say the economists at Citigroup, may be a shift in the composition of global demand away from traded goods and services. In 1995-2007 59% of global economic growth came from advanced economies, which during that period had an average ratio of import growth to GDP growth of 2.5, compared with 1.6 for emerging economies. In 2010-13, emerging markets, with their lower trade intensity, had become the world’s economic engine, accounting for 70% of global GDP growth. (Nonetheless, the share of total global trade that takes place between emerging-market economies has grown to 25% from 12% in 2000.)

  •     Not everyone agrees that, if trade has indeed peaked, it is worth worrying about. Paul Krugman, who won a Nobel prize in part for his work on trade theory, maintains that “ever-growing trade relative to GDP is not a natural law” and “we should neither be amazed nor disturbed if it stops happening.” Others question whether trade has peaked at all: they put the apparent decline down to mismeasurement. For instance, James Manyika of the McKinsey Global Institute argues that there has been a sharp rise in trade in software and other digital goods that statisticians struggle to track, not least because it is often unclear where transactions are taking place.
  •  Whether trade is declining relative to GDP and why may not be clear for years. Yet one thing is: were more barriers to be lifted, especially in areas like services and farming where many still remain, it would probably lead to a new spurt in the evolution of supply chains that would lift trade far above today’s “peak”.

Statistical Graph Depicting World Average Annual Growth by Decade (%)

Advantages Of Globalisation

¢ International trade is the exchange of capital, goods, and services across international borders or territories.

¢  In most countries, such trade represents a significant share of gross domestic product (GDP). Industrialization, advanced transportation, multinational corporations, offshoring and outsourcing all have a major impact on world trade. The growth of international trade is a fundamental component of globalization.
¢ Establishment of free trade areas has become an essential feature of modern governments to handle preferential trading arrangements with foreign and multinational entities.
¢ A Special Economic Zone (SEZ) is a geographical region that has economic and other laws that are more free-market-oriented than a country's typical or national laws. "Nationwide" laws may be suspended inside these special zones. The category 'SEZ' covers many areas, including Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial parks or Industrial Estates (IE), Free Ports, Urban Enterprise Zones and others. 
¢ Usually the goal of a structure is to increase foreign direct investment by foreign investors, typically an international business or a multinational corporation (MNC). These are designated areas in which companies are taxed very lightly or not at all in order to encourage economic activity. Free ports have historically been endowed with favorable customs regulations, e.g., the free port of Trieste. Very often free ports constitute a part of free economic zones.

¢ A tax haven is a state, country or territory where certain taxes are levied at a low rate or not at all, which are used by businesses for tax avoidance and tax evasion. Individuals and/or corporate entities can find it attractive to establish shell subsidiaries or move themselves to areas with reduced or nil taxation levels. This creates a situation of tax competition among governments.
¢ Different jurisdictions tend to be havens for different types of taxes and for different categories of people and companies. The central feature of a tax haven is that its laws and other measures can be used to evade or avoid the tax laws or regulations of other jurisdictions. A 2012 report from the Tax Justice Network estimated that between USD $21 trillion and $32 trillion is sheltered from taxes in unreported tax havens worldwide.

The ratio of German assets in tax havens in relation to the total German GDP. The "Big 7" shown are Hong Kong, Ireland, Lebanon, Liberia, Panama, Singapore, and Switzerland

¢Economic globalization is the increasing economic interdependence of national economies across the world through a rapid increase in cross-border movement of goods, service, technology and capital.Whereas the globalization of business is centered around the diminution of international trade regulations as well as tariffs, taxes, and other impediments that suppresses global trade, economic globalization is the process of increasing economic integration between countries, leading to the emergence of a global marketplace or a single world market.

¢Depending on the paradigm, economic globalization can be viewed as either a positive or a negative phenomenon. Economic globalization comprises the globalization of production, markets, competition, technology, and corporations and industries

Gross domestic product in 2011 US dollars per capita, adjusted for inflation and purchasing power parity (log scale) from 1860 to 2011, with population (disk area) for the US (yellow), UK (orange), Japan (red), China (red), and India (blue).

Disadvantages Of Globalisation

    •      By the early 21st century, a worldwide framework of legal agreements, institutions, and both formal and informal economic actors came together to facilitate international flows of financial capital for purposes of investment and trade financing. This global financial system emerged during the first modern wave of economic globalization, marked by the establishment of central banks, multilateral treaties, and intergovernmental organizations aimed at improving the transparency, regulation, and effectiveness of international markets.
    •       The world economy became increasingly financially integrated throughout the 20th century as nations liberalized capital accounts and deregulated financial sectors. 
    •      Increasing international commerce with high barriers to entry, corporate consolidation, tax havens and other methods of tax avoidance, and political corruption have all caused increases in income inequality and wealth concentration: the increasingly unequal distribution of economic assets (wealth) and income within or between global populations, countries, and individuals. 
    •       Economic inequality varies between societies, historical periods, economic structures or systems (for example, capitalism or socialism), ongoing or past wars, between genders, and between differences in individuals' abilities to create wealth. There are various numerical indices for measuring economic inequality. A prominent one is the Gini coefficient, but there are also many other methods.
    •      Economic inequality affects equity, equality of outcome and subsequent equality of opportunity. Although earlier studies considered economic inequality as necessary and beneficial,some economists see it as an important social problem. Early studies suggesting that greater equality inhibits economic growth did not account for lags between inequality changes and growth changes.
    •      Later studies claimed that one of the most robust determinants of sustained economic growth is the level of income inequality.
    •      Capital flight occurs when assets or money rapidly flow out of a country because of that country's recent increase in taxes, tariffs, labor costs, or other unfavorable financial conditions such as government debt defaulting, which disturb investors. This leads to a sometimes very rapid disappearance of wealth and is usually accompanied by a sharp drop in the exchange rate of the affected country, leading in turn to depreciation in a variable currency exchange rate regime or a forced devaluation under fixed exchange rates. 
    •       This can be particularly damaging when the capital belongs to the people of the affected country, because not only are the citizens now burdened by the loss of faith in the economy and devaluation of their currency, but probably also their assets have lost much of their nominal value. This leads to dramatic decreases in the purchasing power of the country's assets and makes it increasingly expensive to import goods.
       The Argentine economic crisis of 2001 caused in a currency devaluation and capital flight which resulted in a sharp drop in imports.

    A McDonald's in Osaka, Japan illustrates the McDonaldization of global society

    • Societies utilize forest resources in order to reach a sustainable level of economic development. Historically, forests in earlier developing nations experience "forest transitions", a period of deforestation and reforestation as a surrounding society becomes more developed, industrialized and shift their primary resource extraction to other nations via imports. For nations at the periphery of the globalized system however, there are no others to shift their extraction onto, and forest degradation continues unabated. Forest transitions can have an effect on the hydrology, climate change, and biodiversity of an area by impacting water quality and the accumulation of greenhouse gases through the re-growth of new forest into second and third growth forests. 

  • A major source of deforestation is the logging industry, driven by China and Japan.The global marketing of palm oil has led to such a degree of deforestation in Southeast Asia that many species are critically endangered, especially rhinoceros, tigers and orang-utans.

      • Another concern is labelled "environmental apartheid",which claims that the resources and wealth of society are typically appropriated by a small minority group of a privileged race or class, under much protection. Thus, the excluded majority never gets a chance to access to resources necessary for well-being and survival. In the pre-Rio period, it was the North that contributed most to the destruction of the environment. Globalization is restructuring control over resources in such a way that the natural resources of the poor are systematically taken over by the rich and the pollution promulgated by the rich is systematically dumped on the poor.
           Burning forest in Brazil. The removal of forest to make way for cattle ranching was the leading cause of deforestation in the Brazilian Amazon from the mid-1960s. Soybeans have become one of the most important contributors to deforestation in the Brazilian Amazon.

        Deforestation of the Madagascar Highland Plateau has led to extensive siltation and unstable flows of western rivers.

      "Black markets" and organized crime often operate on a transnational basis, with global sales totaling almost US$2 trillion annually as of 2013.
      • In 2010, the United Nations Office on Drugs and Crime (UNODC) reported that the global drug trade generated more than US$320 billion a year in revenues.The UN estimated that as of 2000 there were more than 50 million regular users of heroin, cocaine, and synthetic drugs worldwide.T he international trade of endangered species was second only to drug trafficking among smuggling "industrie
        • Traditional   
          Chinese medicine often incorporates ingredients from all parts of plants, the leaf, stem, flower, root, and also ingredients from animals and minerals. The use of parts of endangered species (such as seahorses, rhinoceros horns, saiga antelope horns, and tiger bones and claws) resulted in a black market of poachers who hunt restricted animals.
      •     The term globalization implies transformation. Cultural practices including traditional music can be lost or turned into a fusion of traditions. Globalization can trigger a state of emergency for the preservation of musical heritage. Archivists must attempt to collect, record or transcribe repertoires before melodies are assimilated or modified. Local musicians struggle for authenticity and to preserve local musical traditions. Globalization can lead performers to discard traditional instruments. Fusion genres can become interesting fields of analysis.

      • Capital markets have to do with raising and investing moneys in various human enterprises. Increasing integration of these financial markets between countries leads to the emergence of a global capital marketplace or a single world market. In the long run, increased movement of capital between countries tends to favor owners of capital more than any other group; in the short run, owners and workers in specific sectors in capital-exporting countries bear much of the burden of adjusting to increased movement of capital.
      • It is not surprising that these conditions lead to political divisions about whether or not to encourage or increase international capital market integration.
      • In light of the economic gap between rich and poor countries, movement adherents claim "free trade" without measures in place to protect the under-capitalized will contribute only to the strengthening the power of industrialized nations (often termed the "North" in opposition to the developing world's "South"). Some of the powerful Northern corporations have implemented policies like privatizing public industry and reducing tariffs. By doing this it has created a growth in sweatshops in the developing world, where wages are minimal and unfair, and conditions are unsafe to the workers’ health and psychological state. 
      •      The global North can benefit from this by getting goods for a cheaper monetary amount. However, this is at the expense of these impoverished people and the community or country as a whole. Now, fair trade has been introduced in order to attempt to rebuild the economies of third world countries by paying employees, who work to produce goods to be exported, a fair price for their efforts.

      World Bank Protester, Jakarta, Indonesia.


      • GCSE Bitesize by BBC 

      • The Economist Magazine
      • Wikipedia

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