Topic

Due to the recent surge in inflation worldwide and the impact of sub-prime
Mortgage crisis on the global economy, countries have intensified the claim
Against the positive influence of globalisation. Critically evaluate the arguments
for and against globalisation and discuss if such claims are sustainable.

By – John Fasheyiku, UBU No - 05011482

Personal Project on Globalisation

The effects of globalisation, GBE – 2008

Global Business
Environment

1
 The Foremost argument for globalisation is the increased access to
developing countries to foreign investments, information technology and an
outlet for their trades,
China, heralded as the epitomistic result of globalisation, has seen an average of
8% growth due to Trade and FDI, and 9.1% in 2003, supported by a 37.1%
increase in total import and export volumes [1]. Japan realised similar growth
due to a huge influx of foreign US investments after the Second World War.
Anti-Globalist, dispute this fact stating that though globalisation and
international trade gains has contributed to a significant growth in the world
economy, 80% of trade income is realised by 20% of the world economy. The
main trading partners of developed countries are within themselves [2].

The outcome of practising the Heckscher-Ohlin and Absolute Advantage

reasoning trade theory [3] is that Developed countries produce and export highly
technological and finance intensive goods, at which they have become more
effective at exporting, whilst developing countries export labour intensive
products, such as agriculture and low-skilled goods at which they are more
efficient at producing. – (value added, marginal profit)
The outcome is, trade gains from financial services, and technology intensive
exports vastly outweigh the gains from agriculture exports and labour intensive
goods. Hence Globalisation, in its drive to promote global competition has, in fact
kept developing countries poorer, and made Developed nations increasingly
richer and has kept a majority of global wealth circulating within only a handful
of countries.

The actions of the WTO Talks and 2005 Hong Kong conference [5], statistically
has resulted in little to solve this issue. WTO speak of open markets, yet sets
stringent bureaucratic rules in place which serve themselves as trade barriers
against developing economies, and with FDI mainly in the hands of developed
countries, developing countries hardly have access to enough funds to invest
further in their production, manufacturing and technological capabilities to
compete globally[6].
This global monopoly has resulted in a dangerous phenomenon, 51% of the
world’s FDI is in the hands of 10 countries [4], increasing the global economy’s
sensitivity to macro economical factors affecting only those handfuls of
countries.

The result of this trend in global dependence on a few countries is the increased
likely-hood of a global recession.

The 1997, Thailand's Currency Baht collapse amidst huge foreign debt[7],
affecting most countries in Asia, many of whom struggled to stay afloat, and
significantly increasing the region’s overall debt to GDP ratio, whilst almost
bankrupting South Korea[8].
Growing protectionist trade policies in African and Asia grain and rice exportation
is increasing the price of rice around the world [9]. Huge retreat in global oil
demand is seeing oil prices fall lower than $50 a barrel [10], actively impacting
the Middle East economy current and future economy prospects.
Globalist argue though, that without globalisation, the demand for such
commodities, i.e. oil and rice, and their generated income for the countries
exporting them would have been significantly smaller, there would also be huge
shortages in those commodities in parts of the world without the natural
resources to produce them, which was the main cause of past imperialistic wars.

2 The effects of globalisation, GBE – 2008

Yet the risks of over-dependency on other countries can be seen by the effects of
the US recession.

Trillions of Dollars have been wiped off the global economy, Stock markets slums
around the world, the Euro zone and Japan are officially in recession, with many
other nations on the brink of it. Trillions in USD Needed in bailout funds, large
institutions and banks going into bankruptcy, or nationalisation resulting in
thousands of job losses worldwide. Effects also include Singapore shipping
industries witnessing huge losses on half-empty shipments overseas [11], and
China’s Toy Industry [12].

It can be said Globalisation caused the world to grow too quickly, resulting in risk
taking based on forecasted gain, and the exploitation of market policies. China
and Japan floated their currencies against the USD; the result was a huge under-
evaluation of their currencies, giving them un-even profits from trades with the
US, and in-essence exploiting producers and manufacturers overseas.

Globalists argue globalisation was sparked by the world's understanding of the

need for unity after the effects of the two world wars. Sparking the creation of
the Brenton Woods foundation, GATT, and other global unions such as WTO, UN,
EU and SADC. This has increased economic inter-dependence, as a result,
increased the tendencies to peaceful resolution of conflicts rather than violent
measures, in the aim of continued economic gain and advancement.

Anti-Globalists on the other hand have refuted this perception, stating

globalisation has paid the cost for countless wars and oppressive regimes since
WW2. US financial inputs into the country of Somalia during 1970s and 80’s
sustained the government of Siyaad Barre and his oppressive regime[13],
Western and European countries traded in weaponry with Saddam Hussein
preceding the gulf war, accounted for a large quantity of the weapon stockpiles
he used against he’s neighbours, Kuwait and Iran[14],
Western countries still had huge investments in Zimbabwe indirectly funding the
atrocities of the Mugabe regime, leading to the 2008 elections, notably the Anglo
American £200m investment in the country [15]. Nevertheless globalisation has
increased the effectiveness of sanctions against perceived bad governments, in
the way of trade and arms embargos and travel restrictions, in countries like
Zimbabwe and Cuba.

Conclusion
As globalisation has resulted in increased world growth and opened global access
to information and technological advancement, I do not believe in moving
against the globalisation trend. Instead FDI increase in developing countries
must be encouraged allowing them to invest in available technologies to
compete more effectively. Stringent rules to stop MNC’s from dealing with
oppressive governments and dictatorship regimes in the understanding that
human rights, come before economic advancement. An international regulator
“Watchdog” should be instigated, to enforce MNC’s business transparency, and
stop political involvement in global markets, so MNC’s act with prudence and do
not carry out such practices which led to the current global recession [See bli1].
Trade Blocs, must order periodic reassesion of member currencies so all currency
exchange and trade gains are even, reducing unfair trade gains.

3 The effects of globalisation, GBE – 2008

References

1. http://english.cri.cn/855/2005/09/03/192@16626.htm
2. www.cia.gov/worldfactbook
3. Heckler Oshlin, GBE powerpoint
4. Stock of FDI-Inward Rank; https://www.cia.gov/library/publications/the-
world-factbook/rankorder/2198rank.html
5. GBE PowerPoint on DOHA talks, and Hong kong conference;
http://www.wto.org/english/theWTO_e/minist_e/min05_e/min05_e.htm
6. World distribution of global income; http://images.google.co.uk/imgres?
imgurl=http://news.bbc.co.uk/nol/shared/spl/hi/guides/457000/457022/im
g/1169457081.gif&imgrefurl=http://news.bbc.co.uk/1/shared/spl/hi/guides
/457000/457022/html/nn5page1.stm&h=305&w=416&sz=23&hl=en&star
t=1&um=1&usg=___Kyt44h8I2zd4y1gngBZg_XHzsk=&tbnid=J9hShKt46G
A3RM:&tbnh=92&tbnw=125&prev=/images%3Fq%3Ddistribution%2Bof
%2Bworld%2Bwealth%26um%3D1%26hl%3Den%26sa%3DN
7 Effect of Thailand recession on the Asian continent;
http://en.wikipedia.org/wiki/1997_Asian_Financial_Crisis
8 Effect of Asian recession on South Korea;
http://www.imf.org/external/np/exr/facts/asia.htm
9 Protectionism on food exports http://news.bbc.co.uk/1/hi/world/europe/7352091.stm
10 Fall in oil prices; http://news.bbc.co.uk/1/hi/business/7739352.stm
11 Singapore shipping industry;
http://news.bbc.co.uk/1/hi/business/7680156.stm
12 China’s toy exports; http://news.bbc.co.uk/1/hi/world/asia-
pacific/7670351.stm
13 The road to hell – Ravaging effects of Aid in Africa, Michael Maren, 2003
14 Arms sales to Iraq; http://www.heritage.org/Research/Iraq/wm217.cfm
15 Investing in Zimbabwe;
http://www.timesonline.co.uk/tol/news/world/africa/article4207971.ece

Bibliography
1. Financial Times article, 19/11/2008, pg 15. Title “We need an international
regulator”
2. UGI Report 150 – Globalisation 2008
3. The road to hell – Ravaging effects of Aid in Africa, Michael Maren, 2003

4 The effects of globalisation, GBE – 2008