Economic risks of globalisation

Mohammad Mosaddek Hussain :
Globalisation refers to the increasing interdependence of world economies as a result of the growing scale of cross-border trade of commodities and services, flow of international capital and wide and rapid spread of technologies. It highlights expansion and mutual integration of market frontiers, and the overall trends of economic growth in various sectors throughout the world.
In the world market and all types of productive activities and process of marketization are the two major driving forces for economic globalisation in the current world factors. The rapid trend of the fast globalization of the world’s economies in the present age is largely based on the rapid development of science and technologies in various sectors growing throughout the world.
The new innovation in science and technologies has greatly reduced the cost of communication and making economic globalization possible As studies and various reports show that . today’s shipping cost is only a half of that in the year 1930, the current airfreight 1/6, and telecommunication cost 1%. The price level of computers in 1990 was only about 1/125 of that in 1960, and this price level in 1998 reduced again by about 80%. This kind of ‘time and space compression effect’ of technological growth largely reduced the cost of international trade and investment, thus making it possible to organize and coordinate global production throughout the world.
Needless to say that global production is possible due to development of technology and its world-wide use. Moreover the development of the networking-based economy has given birth to a large group of shadow enterprises, making the concept of national boundaries and distance for certain economic activities meaningless.
On the other hand, multinational corporations (MNCs) have become the main carriers of economic globalization in the recent development process. The production companies and other enterprises are globally organizing production process and allocating resources according to the objectives of profit maximization. And their global expansions are reshaping macroeconomic mechanisms of the operation of the world economies.
Globalization of the financial sector has become the most rapidly developing and most influential aspect of economic globalization in all respects. International finance came into being to serve the needs of international trade and investment activities. However, along with the development of economic globalization, it has become more and more independent. Compared with commodity and labor markets, the financial market is the only one that has realized globalization in the true sense of ‘globalization’. Since 1970’s, cross-border flow of capital has been rapidly expanding. As the trend highlights the process of economy globalization is also the process of global industrial restructuring and readjustment as per need. For the rapid advancement of science, technology and income level, industrial structures of all the countries have been also undergoing readjustment and upgrading for more benefit. In recent years, developed countries in the west are gradually entering the era of knowledge economy and have started to shift to developing countries many labor-intensive industries of weak international competitiveness.
This cross-country shift is pushing forward an in-depth development of economic globalization. On the other hand, there has existed a surplus of productivity since the end of the cold war. Due to this fact, economic globalization has intensified the competition at the international market among enterprises from different countries. To improve their competitiveness at the international market, both domestic enterprises and those from other countries have been resorting to mergers and acquisitions one after another, which has resulted in tides of industrial restructuring. For example : the most recent acquisition of Mannesmann by Vodaphone, acquisition of MCI by British Telecom, and the amalgamation of Citibank with Travelers and that of Daimler-benz. All of these restructuring activities will exert far-reaching consequence on the world’s industrial competition pattern.
In reality, the developed countries have been playing a pivotal role in the process of economic
globalization throughout the globe. In 1996, the total volume of exports of developed countries was US$ 4,057 billion, accounting for 81.7% of the world’s total value of international trade. In 1995, the
foreign direct investment by 10 major developed countries including the G7, Switzerland, Sweden and the Netherlands took up 85.1% of the total value of foreign direct investment in the whole world. The role of developed countries in the process of economic globalization is also showed that it is they that determine the rules for international economic exchanges. Although current rules of game for international economic activities have the good aspect of being in keeping with socialized mass production, they are generally laid down under the dominance of developed countries which creates a new economic order in many sectors as a whole .
As we see that International economic and financial organizations are managed by the United States and other western countries. So that they are enjoying advantages to promote and dominate the development of globalization process in the whole world. At the same time, they are the largest beneficiaries of economic globalization then other countries. The pressure of international competition will become a driving force for the reform and opening toward the outside world. This in turn will promote the competitiveness in the world market.
It is also equally true that actve participation of developing countries in the globalization process can enable them to properly utilize their comparative advantages, introduce advanced technologies, foreign capital investment and management experience. It is also favorable for eliminating monopolistic behaviors and strengthening market competition. Nevertheless, while providing more development opportunities for developing countries, the globalization process has also other types of risks that can be harmful in some ways.
Further, the economic globalization has increased rather than reduced the gap between the North and South i.e. between the developed and developing countries in many ways. Some report published by UN in 1999 shows that the number of developing countries that have benefited from economic globalization is smaller than 20. The difference of income per capita between the richest country and poorest country has enlarged from 30 times in 1960 to the current 70 times.
Except for donations and bilateral financial aids, most developing countries could not attract any capital. Besides, economic globalization has also developing countries’ risks of being concussed by unfavorable external factors.
Huge amount of international capitals may lead up to bubble economies and disorderly fluctuation of foreign exchange rates. They may also weaken the monetary sovereignty of a country and bring along a dysfunction of its monetary policy. The ‘self-fulfilling mechanism” of monetary crisis existing in international financial markets will further strengthen the concussion suffered by developing countries. Although the financial crises erupted in Mexico and East Asia in 1990s were rooted in the defects of the economic systems and economic structures, the impact from the floating international capital was the direct fuse which also greatly reinforced their destructiveness.
To prevent the risks brought along by economic globalization to developing countries, the following measures are to be helpful:
International organisations should play a bigger role in the process of economic globalization. What is in striking contrast with the rapid development of economic globalization is the vacancy of an organization for global economic regulation and control as well as the lagging behind of the establishment of a regulatory system. In reality, the current international economic organizations have many limitations in managing the world economy. To change this, the following should be undertaken: (1) The coordination of the macroeconomic Created by cirdpolicies of different countries should be strengthened, and IMF and World Bank should establish perfect early warning system against financial crises and build up their post-crisis supporting capacities. (2) The cross-border financial supervision should be strengthened.
An organization that can play the role of ‘final lender’ all over the world, providing floating
financial relief and support to crisis institutions so as to restore the confidence of international investors, strengthening the monitoring and supervision system over financial institutions and stamping out ethic crisis. (3) Appropriate control over the flow of international capital, particularly over the flow of short-term capital that has serious negative effects, should be exercised.
The trend of economic globalization that came into being and has developed under conditions that the old international economic order has not yet been fundamentally changed. Globalization itself can not bring a fair and reasonable new international economic order, and some developing countries that are unable to enjoy the benefits and evade the harms are confronted with the danger of becoming outsiders. Therefore in the face of economic globalization, developing countries are bogged in a dilemma: On one hand, if they keep themselves away from this process, they will surely be left far behind the development of other economies. On the other hand, if they participate actively in the process, it is most probable that they will be reduced to annexes of developed countries due the latter’s dominance in the process. In view of this anticipation, the interests of developing countries must be guaranteed and their say enlarged in the process of developing a new international economic order. The precondition for the development of economic globalization to gain a sustainable driving force for its development is that growth sharing must be guaranteed. The progress of globalization not only should bring huge benefits for the world economy, but also should make these benefits available to every country and to different departments and interest groups.
To be more exact, a few countries or a handful of nations and interest groups should not exclusively enjoy the benefits of globalisation. If for a long run developing countries can not benefit from the globalization process, the economic interests of developed countries will surely be affected.
Labor standard problem is a major issue both in developed and developing countries for setting a uniform labor standard including wage standard. If the wage standard in any country does not meet the uniform standard, this country would be punished as per provision. This insistence in fact means to eliminate the comparative advantages of developing countries and weaken their international competitiveness. Developed countries requested to take enough consideration of the realities of developing countries and give up their unreasonable requirement of linking labor standard to trade issues.
Thirdly, reformation of economic system and readjusting economic structures should be quickened. International competition in the era of economic globalization is competition on economic systems, enterprise mechanisms and profit competition. In terms of both economic system and economic structure, the gap between developed and developing countries is vast in reality. The problems of the government being offside, vacant and dislocated must be solved effectively for economic growth.. To this effect, direct administrative interventions in the affairs of macroeconomic players should be gradually weakened and finally eliminated. At the same time, the government should strengthen its functions of protecting intellectual property rights, ensuring legal fulfillment of contracts, providing infrastructure and stabilizing macroeconomic situation, etc. At the microeconomic level, the government should play the major role in establishing incentive and constraining mechanisms in line with enterprise system and corporate governance so as to improve enterprises’ efficiency and competitiveness.
The government should focus their efforts on stimulating rapid scientific, technological and education development and increasing investment in developing human capital for the purpose of overall global development.
(Mohammad Mosaddek Hussain, Email: mosaddekshaheen@yahoo.com)