What is Globalization? Essay

Globalization is a term in heavy usage but one whose meaning remains obscure, often even among those who invoke it. Indeed, Jan Aart Scholte states that “globalization stands out for quite a large public spread across the world as one of the defining terms of late twentieth-century social consciousness.”1

Globalization defines the processes whereby people all over the world interact and affect one another in an instantaneous manner, thus rendering the locations of each individual and the distances between them insignificant. Unlike internationalism, there are no borders separating participants seeking social relations, this means that the world as a whole is regarded as a singe place where straightforward homogenization is meant to occur. The processes of globalization can be seen in communication systems, international organization, ecological concerns, global production and enterprise units, economic transaction, global weaponry and in the consciousness and cognitive processes of peoples.

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The most notable features of new world economy are the increasing links between the high and low income nations. A generic argument is as follows; National economies are subsumed into one global economy in which international financial market and trans-national companies dominate. National economies are becoming more integrated in four fundamental ways- through trade, finance, production and a growing web of treaties and institutions.

The sharp rise in foreign direct investment (FDI) underscores the enormous and increasing role of multinationals in global trade and productions. With falling transport and communication costs, different stages of the production process of a single output can be carried out in different parts of the world.2 In essence, globalization is the continued development of the international system of commercial (neo)liberalism. Along with it, or following, is a second renaissance of culture, ideas and etc.

For globalization enthusiasts, this development promises increased gains from trade and faster growth for both sides of the worldwide income divide. Its argument is based on liberal dictum that economic gains will trickle down encouraging a liberalization of society as a whole. For sceptics, the integration of rich and poor nations promises increasing inequality and greater dislocation in the latter. Some sceptics view it as a threat to traditional cultures as the process of modernization changes societies.

The decline of the nation state has also been identified as a concurrent phenomena. It is argued that as a result of globalization the nation state has ceased to be an effective economic manager; it can no longer independently control the level of economic activity or employment within their territories. Soon, global institutions will gradually take over the functions and power of nation-states. While the decline of nation state is a crucial element of globalization theory, some argue that the nation-state will remain at the centre of international political activity. Rather, states will adapt to face the challenges in the international system.

Weighing the pros and cons of Globalization

Economic Growth and Income Distribution

Adam Smith’s conjectures of dynamic gains to trade are at the centre of many mathematical models of “endogenous growth.” These models stress that long term growth depends on increased productivity and innovation and that the incentives for both depend on the scope of the market. In the standard theory both sides of the great economic divide stand to benefit from globalization. The developed countries by reaching a larger market for new innovations and the developing economies by enjoying the fruits of those innovation while sharing in global production via multinational enterprises.

But if one understands globalization to be an inclusive participation and easy access to global economic activity, then it has failed to be a universal process. Inclusive participation is analogous to Nancy Birdsall’s supposition of “convergence” where economic equity is achieved via free intra-national market interaction. The process of globalization is associated with trans-nationalization and the pre-eminence of internationally mobile capital. Such process is infused, not only with capital and labour, but also ideas, identities, interests and forms of state. However, the extensive reach of such globalization has been far more prominent within and between major capitalist nations. For example, out of 45 nations, only 8 nations (including Japan and three European countries) have shown an improvement in income distribution.3

One possibility for this is geography. If the economy is geographically isolated, the chances for trade are extremely limited. Trade depends on the transport cost being low enough to permit an extensive interaction between the economy and world markets. The combination of increasing returns to scale and high transport cost may cause economic activity to concentrate in some areas at the expense of others. This entails that a significant portion of the world may face a severe geographical obstacles to development.

Sceptics argue that a common implication of globalization has been the growing, or rather a reinforced, inequality within and among nations while under the guise of political and economic liberation. Over the past 30 years, international economic theory has focused on two kinds of trade: intra-industry and inter-industry. An example of the former being the export of cars to Europe by the US while at the same time importing cars from Europe. This being a win-win situation for both. The latter involves the US export of high technology goods to Asia, in return for inexpensive labour-intensive goods imported from Asia. In this case, trade is motivated by differing factor proportions.4 The US produces and exports goods that are capital and skill intensive- such as advanced telecommunication equipment -and imports goods that are labour intensive- such as textiles and footwear. The comparative advantage theory suggests that both regions will benefit from this kind of trade though workers within each country may well lose.

In the US, workers in footwear and textiles would stand to lose their jobs in the face of increased low wage competition, whereas in Asia, highly skilled workers would lose out when skill intensive goods are imported from the US. This is one area of contention between globalization supporters and opposers. While it may be all good on paper, comparative advantage could prove to be a case of competitive advantage. This was demonstrated by Friedrich List who claimed that specialization in less skills intensive labour could hinder the growth of knowledge-capital of a nation. List argued that knowledge and technological advancement are the true capital of an industrial economy.

Technology has been a highlight of globalization and it has also been one of the major causes of inequality within and between countries. For example, technology has fostered a need for specialized and skilled knowledge in order to be competitive in the labour market. Such requirement demands access to tertiary level education that is not readily available to everyone in both the developed and developing world.

For those in the developing countries living with the effects of globalization, it is not only the inaccessibility of education that reinforces the existing social disparity, but such conditions are forced on their livelihood in order to be cost competitive in the labour market. A push for wage increase would prompt employers to find a cheaper mode of production elsewhere. Thus education- which is the only means of upward mobility -is rendered unattainable due to the lack of substantial income. Stephen Gill concedes that as long as the constitutional flaw in the neo-liberal framework of globalization process is not amended, the trickle down of prosperity and equality will be very limited.

Contrary to Gill’s argument, Saud Choudhry claims that equality will emerge as globalization propels forward into the future. Choudhry uses the emancipation of women in the Third World as an example. He argues that global factories in the developing nations will eventually diminish traditional patriarchy. In addition, access to capital will increase their social standing within the family and community.5 However, it should be noted that it is difficult to rely on the market alone to generate an egalitarian system of work, politics and society. Subordination of women begins in the private domain, that being the home and hearth, and many feminists concede that economic independence does not necessitate egalitarian status. In fact, it would appear that given the lower wages in comparison to their male counterparts, women are still denigrated into the lower echelons of class hierarchy and armed with less political weight.

Macroeconomic Stability

As globalization took off in the past three decades, many forms of international capital flows have risen. FDI, portfolio investment through country funds, bank loans, bond lending, derivatives and etc., have proliferated significantly. Economic theory asserts that trade in financial assets will benefit individual countries in much the same way to trade in goods.

In theory, financial transaction produces two benefits; increased diversification of risk and an ability to borrow and lend overtime against the economic climate of the time.6 How the international financial system works is still unclear to economists and financial analyst. In spite of this, the movement of free capital is endorsed and encouraged by the International Monetary Fund (IMF), the World Trade Organization (WTO) and the Bank for International Settlements.

Opposing thesis shows that unfettered financial flows from advanced to emerging markets can create profound destabilization in the international financial market, as demonstrated by the East Asian Currency Crisis. It is often argued that the lack of financial regulation further escalated the crisis. The tendency of under-regulated and undercapitalized banks to play dice with depositors fund is an invitation for trouble.

Not only did the East Asian Crisis decrease the credibility of international organization, such as IMF, World Bank and WTO, it fused and gave credence to critics that claimed that these institutions were irrepressibly western in its view of how global polity should be engineered and governed.

Furthermore, sceptics of globalization claim that capital liberalization has been the cause of domestic economic woes. Anti-globalization movement have noted that freeing up of capital has reinforced the wealth of the wealthy at the expense of the poor. For example, the present financial system of realistic exchange rate and lower inflation means that accounts held with foreign currency, i.e. in US dollars, gives greater purchasing power for those living in nation whose currency is weaker. Latin America is a case in point.

During the 1980s the well connected upper class increased the value of their assets through a rapid consumption of US currency. This led to devaluation of local currency and a blow out of current account deficit. It left the less wealthy fellow citizens to bear the burden of extra tax in order to pay off the nation’s debt. But for those reaping the benefits of globalization, it has created a “culture of contentment,” thus facilitating less reactionary cause or incentive for change.

In lieu of this, what does the disparity in economic growth signify? It shows that economic growth and the benefits are not entirely uniform in their distribution and this has significant implication on the thesis of globalization.

How global is Globalization? Globalization in Question

It is argued that the multinational corporations (MNC) are responsible for the development of “transnational” processes. However, the need for a regulating body to manage FDI, capital flows, income redistribution and competition policy suggests that the role multinationals have played in promoting globalization have not been effective in tying nations into a unified global entity. In some cases, MNC have deterred globalization. For example, World Trade Survey identified that rather than opening up nations, free trade has made countries more protectionists.

Furthermore, multinationals have yet to promote “transnationalism” through standardization despite the argument that products like MacDonalds have created a world-wide standard in taste, presentation and policy. Concepts and ideas do not facilitate homogeny and some consumers/people defy the “standard.” For example, it is unlikely that MacDonald’s Big Mac will ever be in great demand in Hindu majority India. This entails that there is a need for flexibility for MNCs to address these differences by employing subcontracted production by small local producers. For Holton, this outsourcing of specialized services is exemplary of “corporate decentralization.”7

This is an indicator that MNCs are not global in the sense that they overlap or transcend the boundaries of regional internationalism. This view is further supported by Hirst and Thompson who asserts that international businesses are still largely confined to the home market and home based economic activities. United Nations data shows that in the latter half of the 1980s, nearly 80 percent of all FDI inflows were directed to developed countries.

In fact, past activity of the MNC shows that there has been little shift to globalize global corporations. For example, the physical location of MNCs, such as Ford, IBM and General Motors among others, are still centred in global cities- New York, London, Frankfurt and Tokyo.8 It displaces the notion that multinationals have clear autonomy over its activities. Instead, it reinforces the understanding that the corporations are still a multinational network geographically and nationally embedded because it is not completely beyond the powers of national government.

In addition, Hirst and Thompson argue that not all developing nations receive FDI. They assert that FDI is absorbed by nations already well off in comparison to other developing nations. For example, FDI is tied in East and South East Asia, Latin America and the former socialist Eastern Europe. A primary reason for this is due to the existing commercial infrastructure necessary for commodity production, such as roads, factories, financial institution and etc. Whereas the lack of stability in some weak nation states have hindered development. For example, internal conflicts in Somalia have expended government efforts and resources solely in maintaining control, rather than building the infrastructures that will benefit from globalization.

The indigenous economic growth thus far maintains the characteristic of an international economic network. According to Holton, there are increasing global networks that are dependent on personalized ties of family or ethnicity. He coins this development as a “global business Diaspora.”9 These personalized business networks generate trust and familiarity. It is also highly advantageous where property rights are unstable and legally reliable forms of regulation is not available. China is a case in point. Only a fifth of FDI in China have been from the US, Japan and Europe combined. The larger portion has been from Hong Kong, Singapore, Taiwan, Indonesia, Malaysia and etc. Places where majority or, in Malaysia and Indonesia, a fraction of the population speak the same language and understand the same cultural constraints.

Thus, Hirst and Thompson argue that, rather than globalization, current world economic process is better described as ‘internationalization’ in which the continuing place for nation state is found. They argue that, “there is a vast difference between a strictly global economy and a highly internationalized economy in which most companies trade from their bases in distant national economies.”10

More clearly, national level economic processes remain central, and thus the world economy remains an inter-national system, characterized by competition between nationally based companies. This is due to companies seeking to benefit nationally from nation states, national organization and national business culture; and seek internationally, a measure of security and stability in financial markets and free trade.11

The world economic system has never been a distinct system ruled by its own internal laws, that is free market forces. Instead, “international economy” prescribes to the complex interaction of economic relations and political processes that is governable by the agreements of major nation states rather than by global market forces and the multinationals. While Hirst and Thompson concede that states are less autonomous and have less exclusive control over the economic and social processes within their territories, the nation state nevertheless matters.

However, the governing powers at different levels- international, national and regional -need to be patched into a relatively well integrated system. Effectively, the central function of the nation state becomes the distribution of complex and multiple powers of governance from top- international agencies and trade blocs like the EU -to bottom- regional and other sub-national agencies of economic co-ordination and regulation -in order to prevent the erosion of governance at every level.12

Likewise, it should be noted that all regulatory regimes, international agencies, common policies come into being because major nation states have agreed to create them and to give legitimacy to those conditions. After all, nation states still retains power over the people and regulate their own population. The state is the key source of sovereignty and legitimacy.13 Thus, nation states function as the components of an international polity legitimizing supra- and sub-national governing mechanism through the process of law binding.14 In lieu of this, it becomes clear that Hirst and Thompson views globalization as an internationalization of national economies and the nation state’s role is to support such processes as the key source of legitimacy and legality.

Linda Weiss, on the other hand argues that the economic integration in a highly ‘internationalized’ economy is being promoted not only by corporations but also by national governments. Strong states often facilitate ‘globalization’ which is in itself a by product of states developing the internationalization strategies of their corporations.15

This is reinforced by Wolf, who asserts that, “for people to be successful in exploiting the opportunities afforded by international integration, they need states at both ends of their transactions.”16 Weiss and Wolf both advocate the idea of internationalization of nation states wherein states have a positive economic role.

Weiss argues that contemporary international flows are not novel challenges to the state. First, trade and capital flows in prior to 1913 is not so different from the contemporary system, and the growth of world trade has actually slowed in the 1990s. Secondly, FDI is not mainly directed toward “globalization of production” and thus it does not automatically extend economic linkages in the areas that might have a direct effect on state policies. Like Hirst and Thompson, Weiss concedes that “globalization” has only occurred in some regions. In turn, she challenges the theory of “powerless state.” Weiss emphasises the variety of “state capacities” for domestic adjustment strategies and the adaptability of states. Indeed, “a country that chooses international economic integration implicitly accepts constraints on its actions. Nevertheless, the idea that these constraints wither away the state’s capacity to tax, regulate or intervene is wrong.”17

Therefore, Weiss asserts state adaptation does not abandon economic policy. But the focus and nature of the policy shifts from macro-economic to the industrial- that is industrial policies “shaping strategic partnerships and innovation strategy.”18 States as facilitators and mediators of internationalization can be seen in East Asian countries wherein globalization must be viewed as a politically mobilised, rather than technologically mobilised, occurrence. For example, South Korean government has taken proactive economic policies to avoid being a passive medium of globalization by adopting import-substituting and export-led economy.

Moreover, transitional states consolidating national and regional networks of trade and investment- to create more real control over their economies through collaborative power arrangement such as interstate coalition and state-business alliances like NAFTA and APEC -all show that the state is not so much delegating power to other power actors. Instead, the state is constantly seeking a power sharing arrangement which allows amplitude for maintaining an active centre. Wolf concedes that international governance rests on the ability of individual states to provide and guarantee stability. The bedrock of international order is the territorial state with monopoly on coercive power within its jurisdiction.

But Weiss’s thesis is based only on the study of strong nation states that have established mature political and economic institutions and society. These states are better primed for counteracting or responding to the demands of global (or internationalized) market economy and politics. Sorensen, however, outlines that the erosion of weak states is not in any way motivated by globalization or internationalization as the sources of instability and struggle for power are internal. In fact, international society has given judicial survival to weak nation states, no matter how deficient they may be. He claims that external guarantee has taken on the role of “insecurity container” by preventing demise of weak states.19 Therefore, weak states are protected by the norms of international society of states, concerning judicial equality and non intervention. Given the way these norms currently operate, weak states will not demise and thus their legitimacy and persistence is secure.

While this exemplifies one level of Weiss’s co-operative and power sharing model, it highlights a built in contradiction between people and state. This point towards processes which may increase state strength in some respect but not in ways which secure security for the population. How will neighbouring nation states deal with internal conflict in weak states once it spills over territorial borders? Sorensen claims there is no clear cut or easy solution, but the problem solution falls back on the nation state.

Nation States: The Reason for Being

Essentially states should be treated as means not ends. In the face of economic collapse, political oppression, scarcity, overproduction, ethnic rivalry, global warming, terrorism, crime and disease, states constitute the primary nexus when it comes to security for individuals because it is “the single most institution in deciding about how the unfolding of such threats will take place and what their consequences will be for individuals and groups.”20

Globalization has yet to displace the nation states. Rather, states have learned to adapt to the changing international climate. They no longer resemble traditional roles, rather states have learned to “move on with the times.” Their roles continue to be important. One reason for this is that the world is still polarized at large. National diversity still exist and remains a symbolic boundary. While cultural patterns have been opened up to interchange with global migration, world travel and co-existence, these convergences are mainly physical. Martin Albrow for one claims that globalization “restores the boundlessness of culture and promotes the endless renewability and diversification of cultural expression,”21 National diversity is enhanced through the reciprocal effect from the global process.

Bibliography

The Global Age: State and Society Beyond Modernity by Martin Albrow

Polity Press 1998

Globalization and the Nation State by Robert J. Holton

Macmillan Press 1998

“Interlocking economics: Unlocking the mysteries of globalization” by Jeffery Sachs

Foreign Policy Spring 1998

Globalization: A Critical Introduction Jan Aart Scholte.

Palgrave Macmillan 2000

The State is Still Decisive, OK? Security and Globalization by George Sorensen

“Globalization and the Myth of Powerless State” by Linda Weiss

New Left Review No.225, 1997

“Will Nation State Survive Globalization?” By Martin Wolf

Foreign Affairs Jan/Feb 2001 VOL. 80, No.1

“Globalization and the future of Nation States” Hirst, Paul and Thompson Grahame,

Economy and Society VOL.24, 1995

Globalization in Question by Hirst, Paul and Thompson, Grahame

Polity Press 1998

“Women in the global factories: Impact of gender power asymmetries” by Saud Choudhry in The Political Economy of Globalization Satya Dev Gupta (ed.)

Kluwer Academic Publishers 1998

1 Globalization: A critical Introduction by Jan Aart Scholte

2 “Interlocking economics: Unlocking the mysteries of globalization” by Jeffery Sachs

3 Life is Unfair: Inequality in the World By Nancy Birdsall in Foreign Policy Summer 1998

4 See No.2

5 “Women in the global factories: Impact of gender power asymmetries” by Saud Choudhry in The Political Economy of Globalization Satya Dev Gupta (ed.) Kluwer Academic Publishers

6 See No. 2 pp3

7 Globalization and the Nation State by Robert J. Holton

8 Globalization in Question by Hirst and Thompson

9 Globalization and the Nation State by Robert J. Holton

10 Globalization and the future of Nation States Hirst, P and Thompson G., in Economy and Society VOL.24 , pp424

11 See No.7, pp 425-428

12 See No.7 pp 423

13 Will Nation State Survive Globalization? By Martin Wolf in Foreign Affairs Jan/Feb 2001

VOL. 80, No.1

14 See No. 7, pp409

15 Globalization and the Myth of Powerless State by Linda Weiss in New Left Review No.225, pp4-6

16 See No.10, pp190

17 See. No. 10, pp189

18 See No.12, pp18

19 The State is Still Decisive, OK? Security and Globalization by George Sorensen, pp8

20 The State is Still Decisive, OK? Security and Globalization by George Sorensen, pp6

21 The Global Age: State and Society Beyond Modernity by Martin Albrow, pp153 Polity Press

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