Winners and Losers of Globalization

Business Administration, Year IIIGroup 8881

COJANU RALUCA & GOIA LENA5/18/2011

The Winners and Losers of Globalization

Globalization

Globalization, or the increased interconnectedness and interdependence of peoples and countries, is generally understood to include two interrelated elements:

- the opening of borders to increasingly fast flows of goods, services, finance, people and ideas across international borders; and

- The changes in institutional and policy regimes at the international and national levels that facilitate or promote such flows.

It is recognized that globalization has both positive and negative impacts on development.

Globalization, although not a new phenomenon, has increased rapidly in recent years. It has been driven by technological advances and the reduced cost of making transactions (exchanges) across borders and distances, as well as the increased mobility of capital. These forces mean that globalization not only consists of economic activity, but also extends to political, cultural, environmental and security issues, and relates to the increasing interconnectivity of countries and communities.

Economic globalization is generally associated with neo-liberal policies. Such policies include reductions in tariffs, the reduction or elimination of restrictions on foreign investment, and the inclusion of services such as banking and insurance in trade regimes.

Globalization has resulted in massive:- Economic change: trade liberalization, deregulation, expansion of the global market

place- Political change, redistribution of power from states to interstate bodies and the

growth of global civil society- Social and cultural change

- Technological change, including improved global telecommunications and transport links.

These changes are sometimes described in terms of:

- Spatial components, such as international trade, global levels of political representation, global communication and impacts of increased cultural exchange.

- Temporal components, such as the increased speed of transactions, travel, political change, resource depletion and social mobilization.

Cognitive components, such as the spread of neo-liberal economics, democratic principles and support for human rights

Globalization Winners and Losers

Globalization benefits all countries when a country specializes in a product or service and then exchange that good or service with other countries. But these benefits of globalization are never evenly distributed across the whole economy of a given country. There are always winner and losers.

When it comes to winners and losers, it is helpful to distinguish between long term and short term effects of international trade. The short term winners are manufacturers who produce exportable goods and the consumers who buy imported goods. For instance, American manufacturers benefit to the extent that they can expand their market overseas, while American consumers benefit to the extent that they pay less for imported goods than for domestically produced goods.

The short terms losers are the domestic producers of importable goods whose prices must now compete with imported goods, and the consumers of exportable products who now have to pay more because of the additional international demand. When Chinese textiles are sold in America the losers are American producers of textiles because Chinese imports are cheaper than American products, while consumers in China also lose because they now have to pay more for textiles because of the rise in international demand.

In the long term the picture looks a little different though. Let’s say in exchange for the textiles China exports, it begins to import large amount of cheap wheat from America. The short terms winners are the US producers of wheat and the Chinese consumers of wheat. The long term winners and losers will depend on the factors of production - mostly capitol, land and labor.

To understand the long terms effects of a wheat/textile exchange it is necessary to know that the production of wheat requires a lot of land and just a little labor, while the production of textiles requires a lot of labor and only a little land. In this example the long term winners will be American landowners and Chinese workers, while the long term losers will be Chinese land owners and American workers. The reason is as follows: As the demand for wheat increases internationally the demand for land will increase in America which will drive up rent, while the expansion of the textile market in China will increase the demand for labor which in turn will drive up wages. As textile production in America shrinks, the demand for labor will decrease which will lower wages, while the demand for land in China will decrease, resulting in less rent for landowners in China.

The short term winners and losers of globalization are not necessarily the same as the parties that experience long term gains and losses.

Economic integration and trade liberalization have produced an unstoppable movement toward economic globalization. Most economists applaud the trend, pointing to the

modernization and growing wealth that have resulted. But many countries have been left on the sidelines or have even been harmed by globalization.

What have been the positive and negative effects of the trend? And more importantly, since globalization seems certain to continue, what can be done to make its benefits as widespread as possible?

Growing trade. The Principal cause and effect of global integration is international trade, which has expanded substantially since World War II as measured by the ratio of goods. But in the developing world, the benefits of expanding trade have been concentrated in East Asia, Brazil, Mexico and, most recently, China. The populous countries of South Asia and Sub-Saharan Africa have generally been left out. Overall, the bulk of the international flow of goods, services, direct investment and finance is among the United States, Europe and Japan.

An increase in trade has often been followed by higher economic growth, although not in all cases. Annual growth rates of gross domestic product in East and Southeast Asia were 6-8: in Latin America and Sub-Saharan Africa they averaged less than half a percent per year.

Unemployment. While expanded trade has generally resulted in more jobs, the parallel growth in competition has forced many companies to shed workers in order to cut costs, boost efficiency and increase profits. Higher productivity only becomes a plus for the overall economy if output grows quickly enough to generate employment for the whole workforce. In the industrialized world, where a number of countries are currently grappling with the problem of growth without jobs, high unemployment has become a political issue. Developed countries have been especially affected by new information and communication technologies that boost efficiency but make some white-collar workers redundant.

Some less-developed countries have also had to deal with jobless growth. China, which has experienced an economic boom in recent years, has begun to struggle with unemployment, particularly in urban areas. The need to cut unit labor costs to compete in the global market has led to the elimination of guaranteed employment and over staffed factories. Unemployment has also grown as a result of proliferation of low-cost imports from low-wage countries. Though these imports are a small part of the total, they are concentrated in labor-intensive sectors such as shoe-clothing and toy-making.

Income distribution. Both theoretical and empirical evidence suggest that increased trade between North and South has reduced income inequality among skilled and semi-skilled workers in the South while increasing inequality among such workers in the North. This is because manufactured exports from the South raise demand and wages for workers with only limited skills and education. But the effect in the North is the opposite. There the service and

technology industries pay top wages to highly skilled workers but have little use for semi-skilled labor.

Overall, globalization appears to have deepened inequalities in the international distribution of income, though the evidence is mixed. Between 1960 and 1994 the share of developing countries in the global distribution of wealth declines. This can partly be explained by the growing impact of multinational corporations that funnel profits to the parent country and allocate the highest wages to highly trained managers from industrial nations.

Technology. Some observers worry that new technologies will deprive developing countries of their comparative advantage in labor-intensive activities and prompt industries to relocate plants back to the developed countries.

But in fact, the skills required to use many new technologies, particularly in the field of electronics, can be taught cheaply in classrooms nearly anywhere. Moreover, the manufacturing technique of flexible specialization, which is increasingly replacing mass production, is neither capital- nor foreign exchange-intensive, and is thus well suited to developing countries.

WINNERS LOSERS

Productive output Employment

People with assets People with no assets

Profits Wages

Skilled workers Unskilled workers

Adaptive firms, workers Rigid firms, workers

Techno-specialists Primary producers

Creditors Debtors

Those not dependent on public services Those dependent on public services

Large companies Small companies

Men Women

International markets Local communities

Global culture Local culture

A number of policies should be adopted in order to diminish the liabilities while encouraging the benefits of economic integration:

- Create transnational institutions to develop and enforce global anti-monopoly, anticartel and anti-restrictive practices and legislation.

- In the developed countries, implement training and education programs, provide income support for low-wage workers, and adopt tax policies that create jobs.

- In developing countries, change policies that overprice labor, under-price capital and overvalue exchange rates as a means of reducing unemployment. Promote world-class exports and improve living standards.

- Improve the share of developing countries in the global distribution of wealth, using their collective bargaining power with multinational corporations to retain a greater proportion of profits. Use these funds to alleviate poverty, improve social services and invest in local human capital through education.

Through such measures, developing countries can gradually increase the domestic value added to their exports and expand the local economy--the essence of development and one of the major forces behind globalization itself.

Conclusions

Globalization is an irreversible process in accord with natural laws. On the one hand, globalization greatly benefits all countries. Less-developed countries can benefit from globalization to enhance their development and narrow the gap with developed countries. However, there are many challenges and potential risks in globalization that cannot be underestimated. Globalization opens opportunities for integration, peace, dialogues, mutual learning, stability, cooperation and development. Globalization can also cause under-developed countries to regress and lose their traditional values if they lack suitable, protective strategies and/or fail to exercise them.

References:

http://www.globallearningnj.org/global_ata/a_global_game_of_winners_and_losers.htm

http://www.crvp.org/book/Series01/I-19/chapter_vii.htm

http://www.lerntippsammlung.de/Globalization.html