Globalisatio

Nowadays, globalization has become the trend of times that any countries or people around the world cannot ignore it. It has also penetrated deeply into the social life of many countries in the world through three main spheres, which are Economic, Culture, and Political. Especially in the economic sector, globalization is playing a major role in changing the world economy. It has become the main factor to merge historically distinct and separate national markets into one giant global marketplace. When national companies participate in the giant global marketplace, they will have more opportunities in finding the resources for the production of goods or services from locations around the world by taking advantage of differences in cost or quality of the factors of production such as the difference in cost of labor, land or capital between developed countries and developing countries. The world economy has had significant shifts since globalization emerged over the last three decades. These shifts has brought on many benefits for the world economy, but also caused more risks and problems to the world economy such as fiscal crisis and economic downturns problems. This essay will discuss some shifts in the global economy that caused by globalization, and also look at positive and negative aspects that globalization has brought to people in the countries where globalization has been through. The first major shift is the change in share of global output and world trade picture. The United States has always led the world economy for many decades. With the industrialization and technological development very early comparing with the rest of the world, the US has had the ability to control the global economy in many areas such as finance, services, manufacturing, exports, science and technology, and entertainment industry. However, since globalization emerged many countries especially developing countries in Asian has integrated with the global market. This led to developing countries had better chances to access with modern technology and enhance the productivity in producing goods and services, and with the advantage of cheap and abundant labor force developing countries are attracting more and more international companies or manufacturers around the world come and start to produce commodities. These make the share of world output change in a more balanced way. The US dominance in the share of global output has been reduced significantly by the rise of developing countries such as China or India. According to some statistics about Share of world output (%) in 1963 the United States led the world with 40.3% following are Germany with 9.7%, United Kingdom with 6.5% and China was none. However in recent years, the share of world output of United States and developed countries has decreased rapidly whereas the share of world output of China has increased significantly from 0% in 1963 to 10.6% in 2009 overcome the United States with only 8.6% in the same year. From these statistics it can be seen that the world economy has had a major shift from the dominance of the US to other countries, especially developing countries like China, India or Japan. The second major shift is Foreign Direct Investment Flows. Foreign Direct Investment (FDI) Flows play an important role in the process of developing globalization, and FDI makes the interdependence of economies between countries in the world. According to Dumitrescu and Bal, (2002), the nature of FDI is that “FDI develops in the form of portfolio international investment through the acquisition on the financial market of securities in the form of shares or bonds and foreign direct investments that allow the investor to purchase the control share package of a firm or to set up new companies” cited by Isac, Dura, and Ciurlau, 2011, p. 142. Globalization has helped the world economy with many different economic entities become a common economy in which international investors might be able to invest their money in producing goods and services or doing business. FDI brings important benefits for a country’s economy because FDI is one of main factors affecting the economic growth, the increase in developing production, the creation of new jobs, and the promotion of developing technology. Nations around the world especially developed countries as United States, United Kingdom, France, Italy or Japan, realized the importance of FDI flows many years ago, and the governments in these countries have always had favorable policies to encourage foreign investors investing and producing in their countries. The group of these developed countries always attracted most the FDI Flows for a long time. However, after the global financial crisis in 2008 that the main reason was the collapse of the US financial systems leading to the world economic recession. Many countries in the European Union have suffered huge debts. Foreign investors started losing their confidence in the US or European markets. This created new opportunities for developing countries in attracting FDI flows. The dominance of the US and developed countries in attracting the FDI flows seems to shift to developing countries such as Vietnam, Indonesia, Singapore or Thailand. The FDI flows in the US decreased from 313.8 $billion in 2007 to 298.6 $billion in 2008, and the FDI flows in Europe decreased significantly from 1270.7 $billion in 2007 to 990.3 $billion in 2008, whereas the FDI flows of countries in East Asian, Southeast Asian and South Asian increased from 166.5 $billion in 2007 to 185.2 $billion in 2008. (Isac, Dura, & Ciurlau, 2011). The FDI flows have been expanding to developing countries instead of focusing only in the US or developed countries like before. Globalization in the financial sector has been strengthened through the widespread liberalization of national financial transactions and developing international financial markets towards the financial markets globally. Financial liberalization includes basic contents such as loosening credit controls, interest rate liberalization, liberalization engaged in banking and financial services throughout the world, or liberalization of the movement of international capital flows. This process has led to financial system of the country become more integrated and interdependent. Financial liberalization has facilitated to the FDI flows moving easily to many countries, and this makes a shift in the world economy. The third major shift in the world economy derived from multinational corporations (MNCs). MNCs are also one of the main factors in the process of globalization, and they have important influence to the world economy as well. According to the United Nations Conference on Trade and Development (UNCTAD, 2005), there are above 50,000 multinational companies and the MNCs contributed around 25% of the world’s GDP, and half of total global trade (cited by Flores & Aguilera, 2007). The United States has always been the home country of the world’s largest MNCs in many areas such as Apple and Microsoft in the technological area, Ford in the car industry, Mcdonald’s and Coca-Cola or Pepsi in the fast foods and soft drinks area, Facebook and Google in social media area. However, with the evolution of globalization more and more MNCs from other countries that are emerging and competing with American MNCs. This is threatening the domination of US multinational firms in controlling the global economy. For example, in the car industry there are many famous multinational corporations come from Asian and European countries such as Japan with the brand Toyota or Honda, Germany with the brand Mercedes-Benz or Volkswagen. These car brands are overcoming the American famous car brands as Ford to become the top car suppliers in the world. Another example is in the smart phones sector, when major brands from the United States as Apple or HTC are competing fiercely with strong rise of other brands from developed and developing countries as the Korean brand Samsung, Nokia of Finland, or Sony of Japan. Today, MNCs are becoming an important part in the structure of the world economy because they are contributing half of total global trade, creating millions of jobs each year in the world, and affecting directly to the economies of many developing countries. The fourth major shift in the global economy that caused by globalization is the transformation and integration of previously isolated economies in the communist countries into the world economy. According to Smith (2013), after the collapse of Soviet bloc and the USSR since the 1970s, the structure of global economy has changed rapidly. The communist countries such as China or Vietnam eliminated the planned economy to change to the market economy. They started to implement huge economic reforms, open up their national market that had been isolated with the world outside before. Moreover, communist countries realize the emergence of the globalization, especially in the economic sphere, and their economy need to change and integrate with the global economy if they do not want to see their economy will be lagged with other developed countries such as the US or UK. They started to create new economic polices replacing for previously inefficient policies, reduce the government interventions in economic activities. The new policies have the purpose to encourage the development of the privatization, and also attract foreign capital flows as FDI flows. Foreign capital flows has been the substantial factor in the economic development in those countries. China is one of communist countries has had the strongest economic reforms, and it has always focused in attracting foreign capital flows as FDI. For instance, with the passage of the Chinese Equity Foreign Venture Law in 1979 that facilitated for foreign capital flowed into the Chinese economy significantly. From 1997 to 2001, the annual foreign capital commitment was on the order of $64 billion, and by 2001 the amount would over $70 billion every year (Guthrie, 2012). From the economic transition and the integration into the world economy of communist countries after the collapse of Soviet Union, the world economy has witnessed the greatest transformations in history when China has become the new superpower in the world. It overcame Japan to become the world’s second largest economy. China is still playing a major role in the world economy. According to Guthrie (2012), China has a great influence on the United States bond market, when China becomes the largest foreign holder of the United States Treasury bonds. Since globalization has emerged over the last three decades, the disputation about the advantage and disadvantage of globalization has been a hot topic of particular interest of everyone from developed or developing countries. Caporaso, and Madeira (2012, p. 48) said “globalization creates winners and losers, some have much to gain, while others are marginalized or are left worse off “. Globalization brings on many benefits for people around the world. For example, trade barriers between countries have reduced that facilitated to develop the production of goods and services. This leads to commodities become more affordable and cheaper for consumers in the world. Poor people have more chances to purchase necessary goods such as clothes and foods. Furthermore, globalization helps the world create millions of jobs annually. Globalization is the main factor in stimulating economic growth in developing countries helping these countries decrease the gap with developed countries. However, globalization also caused many problems for countries that it has been emerging for many years. Environment is the first problem. Developing countries participating actively in the process of globalization are facing with serious pollution issues. For example, in China, after the success of economic reforms that helped China become the world’s second largest economy, China is dealing with serious environmental problems that caused by the energy consumption for the development of its giant economy. According to Guthrie (2012) said China passed Russia to become the second largest energy consumer in the world in 2000, and nowadays it has overcome America as the largest energy consumer on earth. From the use of a huge amount of fossil fuels caused pollution issues such as air and water pollution in China. According to Guthrie (2012, p. 163) said that “ In 2007, a World Health Organization study estimated that air pollution in China kills over 600,000 Chinese citizens each year”. Another problem of globalization is that globalization has widened the gap in wages between unskilled and skilled workers in developed countries. In advanced countries, skilled workers have a good fundamental education and specialized skills training. These help them have the capability to use technology in producing high-tech products that can be sold in high prices in the market. In contrast, unskilled workers in advanced countries seem to be globalization losers because they are losing their wages and jobs to unskilled workers from developing countries who can always accept the lower wages. In conclusion, globalization has been playing a great role in the structure of the world economy for the last three decades. Globalization has made major transformations in the global economy, and it gives the opportunities for bringing together labor, capital and resources from local markets to a huge common global market that facilitates to develop the economy of countries. Globalization brings on many benefits and also problems for the world. Therefore, each nation needs to have appropriate policies to balance between the economic development and the environmental protection when participating in the process of globalization.