Globalization

Introduction:

There are a few important questions that need to be asked when discussing globalization and the effects it has on the world.

1. How can the developing countries, especially the poorest, be helped to catch up?

2. Does globalization aggravate inequality or can it help to reduce poverty?

3. Are countries that integrate with the global economy inevitably vulnerable to instability?

Let's first start off with a definition...

What is globalization?

The term "globalization" has acquired considerable emotive force. Some view it as a process that is beneficial, a key to future world economic development and also inevitable and irreversible. Others regard it with hostility, even fear, believing that it increases inequality within and between nations, threatens employment and living standards and prevents social progress.

This presentation offers insight to some aspects of globalization and aims to identify ways in which countries can reap the benefits of this process, while remaining realistic about its potential and its risks.

Globalization offers extensive opportunities for worldwide development but it is not progressing evenly. Some countries are becoming integrated into the global economy more quickly than others. Countries that have been able to integrate are seeing faster growth and reduced poverty.

Globalization is a historical process, the result of human innovation and technological progress. It refers to the increasing integration of economies around the world, particularly through trade and financial flows. The term sometimes also refers to the movement of people (labor) and knowledge (technology) across international borders. The definition reflects technological advances that have made it easier and quicker to complete international transaction through trade and financial flows. It refers to an extension beyond national borders of the same market forces that have operated for centuries at all levels of human economic activity from the smallest village markets, urban industries, or to the largest financial centers.

Markets promote efficiency through competition and the division of labor which refers to the specialization that allows people and economies to focus on what they do best. Global markets offer greater opportunity for people to tap into more and larger markets around the world. It means that they can have access to more capital flows, technology, cheaper imports, and larger export markets. But markets do not necessarily ensure that the benefits of increased efficiency are shared by all. Countries must be prepared to embrace the policies needed, and in the case of the poorest countries may need the support of the international community as they do so.

A Brief History of Globalization:

Globalization is not just a recent phenomenon. Some analysts have argued that the world economy was just as globalized 100 years ago as it is today. But today commerce and financial services are far more developed and deeply integrated than they were at that time. The most unusual aspect of this has been the integration of financial markets made possible by modern electronic communication.

The 20th century saw unparalleled economic growth, with global per capita GDP increasing almost five-fold. But this growth was not steady, the strongest expansion came during the second half of the century, a period of rapid trade expansion accompanied by trade and typically somewhat later, financial liberalization.

In the inter-war era, the world turned its back on internationalism--or globalization as we now call it--and countries retreated into closed economies, protectionism and pervasive capital controls. "This was a major factor in the devastation of this period, when per capita income growth fell to less than 1 percent during 1913-1950. For the rest of the century, even though population grew at an unprecedented pace, per capita income growth was over 2 percent, the fastest pace of all coming during the post-World War boom in the industrial countries."

The story of the 20th century was of remarkable average income growth, but it is also quite obvious that the progress was not evenly dispersed. The gaps between rich and poor countries, and rich and poor people within countries, have grown. "The richest quarter of the world's population saw its per capita GDP increase nearly six-fold during the century, while the poorest quarter experienced less than a three-fold increase."

The Pros and Cons of Globalization:

PROS

-- Productivity grows more quickly when countries produce goods and services in which they have a comparative advantage. Living standards can go up faster.

-- Global competition and cheap imports keep a lid on prices, so inflation is less likely to derail economic growth.

-- An open economy spurs innovation with fresh ideas from abroad.

-- Export jobs often pay more than other jobs.

-- Unfettered capital flows give the U.S. access to foreign investment and keep interest rates low.

CONS

-- Millions of Americans have lost jobs due to imports or production shifts abroad. Most find new jobs--that pay less.

-- Millions of others fear losing their jobs, especially at those companies operating under competitive pressure.

-- Workers face pay-cut demands from employers, which often threaten to export jobs.

-- Service and white-collar jobs are increasingly vulnerable to operations moving offshore.

-- U.S. employees can lose their comparative advantage when companies build advanced factories in low-wage countries, making them as productive as those at home.

DATA: Taken from www.BusinessWeek.com

(VISUAL AID)

Americans are deeply divided about globalization and free-trade pacts. In the

abstract, they like both concepts; 64% of those polled

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