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Globalization

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Night view of Shanghai, China


The construction of continental hotels is a major consequence of globalization process in
affiliation with tourism and travel industry, Dariush Grand Hotel, Kish, IranGlobalization
(globalisation) in its literal sense is the process of transformation of local or regional
phenomena into global ones. It can be described as a process by which the people of the
world are unified into a single society and function together. This process is a
combination of economic, technological, sociocultural and political forces.[1]
Globalization is often used to refer to economic globalization, that is, integration of
national economies into the international economy through trade, foreign direct
investment, capital flows, migration, and the spread of technology.[2]

Tom G. Palmer of the Cato Institute defines globalization as "the diminution or


elimination of state-enforced restrictions on exchanges across borders and the
increasingly integrated and complex global system of production and exchange that has
emerged as a result."[3]

Thomas L. Friedman "examines the impact of the 'flattening' of the globe", and argues
that globalized trade, outsourcing, supply-chaining, and political forces have changed the
world permanently, for both better and worse. He also argues that the pace of
globalization is quickening and will continue to have a growing impact on business
organization and practice.[4]

Noam Chomsky argues that the word globalization is also used, in a doctrinal sense, to
describe the neoliberal form of economic globalization.[5]

Herman E. Daly argues that sometimes the terms internationalization and globalization
are used interchangeably but there is a slight formal difference. The term
"internationalization" refers to the importance of international trade, relations, treaties etc.
International means between or among nations.

Contents [hide]
1 History
2 Modern globalization
3 Measuring globalization
4 Effects of globalization
5 Pro-globalization (globalism)
6 Anti-globalization
6.1 International Social Forums
7 See also
8 References
9 Further reading
10 External links
10.1 Multimedia

[edit] History
The term "globalization" has been used by economists since the 1980s although it was
used in social sciences in the 1960s; however, its concepts did not become popular until
the latter half of the 1980s and 1990s. The earliest written theoretical concepts of
globalization were penned by an American entrepreneur-turned-minister Charles Taze
Russell who coined the term 'corporate giants' in 1897.[6] Globalization is viewed as a
centuries long process, tracking the expansion of human population and the growth of
civilization, that has accelerated dramatically in the past 50 years. Early forms of
globalization existed during the Roman Empire, the Parthian empire, and the Han
Dynasty, when the Silk Road started in China, reached the boundaries of the Parthian
empire, and continued onwards towards Rome. The Islamic Golden Age is also an
example, when Muslim traders and explorers established an early global economy across
the Old World resulting in a globalization of crops, trade, knowledge and technology; and
later during the Mongol Empire, when there was greater integration along the Silk Road.
Globalization in a wider context began shortly before the turn of the 16th century, with
two Kingdoms of the Iberian Peninsula - the Kingdom of Portugal and the Kingdom of
Castile. Portugal's global explorations in the 16th century, especially, linked continents,
economies and cultures to a massive extent. Portugal's exploration and trade with most of
the coast of Africa, Eastern South America, and Southern and Eastern Asia, was the first
major trade based form of globalization. A wave of global trade, colonization, and
enculturation reached all corners of the world. Global integration continued through the
expansion of European trade in the 16th and 17th centuries, when the Portuguese and
Spanish Empires colonized the Americas, followed eventually by France and Britain.
Globalization has had a tremendous impact on cultures, particularly indigenous cultures,
around the world. In the 15th century, Portugal's Company of Guinea was one of the first
chartered commercial companies established by Europeans in other continent during the
Age of Discovery, whose task was to deal with the spices and to fix the prices of the
goods. In the 17th century, globalization became a business phenomenon when the
British East India Company (founded in 1600), which is often described as the first
multinational corporation, was established, as well as the Dutch East India Company
(founded in 1602) and the Portuguese East India Company (founded in 1628). Because of
the high risks involved with international trade, the British East India Company became
the first company in the world to share risk and enable joint ownership of companies
through the issuance of shares of stock: an important driver for globalization.
Globalization was achieved by the British Empire (the largest empire in history) due to its
sheer size and power. British ideals and culture were imposed on other nations during this
period.

The 19th century is sometimes called "The First Era of Globalization." It was a period
characterized by rapid growth in international trade and investment between the
European imperial powers, their colonies, and, later, the United States. It was in this
period that areas of sub-saharan Africa and the Island Pacific were incorporated into the
world system. The "First Era of Globalization" began to break down at the beginning of
the 20th century with the first World War. Said John Maynard Keynes[7],

“ The inhabitant of London could order by telephone, sipping his morning tea, the various
products of the whole earth, and reasonably expect their early delivery upon his doorstep.
Militarism and imperialism of racial and cultural rivalries were little more than the
amusements of his daily newspaper. What an extraordinary episode in the economic
progress of man was that age which came to an end in August 1914. ”

The "First Era of Globalization" later collapsed during the gold standard crisis in the late
1920s and early 1930s.

[edit] Modern globalization


Globalization, since World War II, is largely the result of planning by politicians to
breakdown borders hampering trade to increase prosperity and interdependance thereby
decreasing the chance of future war. Their work led to the Bretton Woods conference, an
agreement by the world's leading politicians to lay down the framework for international
commerce and finance, and the founding of several international institutions intended to
oversee the processes of globalization.

These institutions include the International Bank for Reconstruction and Development
(the World Bank), and the International Monetary Fund. Globalization has been
facilitated by advances in technology which have reduced the costs of trade, and trade
negotiation rounds, originally under the auspices of the General Agreement on Tariffs
and Trade (GATT), which led to a series of agreements to remove restrictions on free
trade.

Since World War II, barriers to international trade have been considerably lowered
through international agreements - GATT. Particular initiatives carried out as a result of
GATT and the World Trade Organization (WTO), for which GATT is the foundation,
have included:

Promotion of free trade:


Reduction or elimination of tariffs; creation of free trade zones with small or no tariffs
Reduced transportation costs, especially resulting from development of containerization
for ocean shipping.
Reduction or elimination of capital controls
Reduction, elimination, or harmonization of subsidies for local businesses
Creation of subsidies for global corporations
Harmonization of intellectual property laws across the majority of states, with more
restrictions.
Supranational recognition of intellectual property restrictions (e.g. patents granted by
China would be recognized in the United States)
Cultural globalization, driven by communication technology and the worldwide
marketing of Western cultural industries, was understood at first as a process of
homogenization, as the global domination of American culture at the expense of
traditional diversity. However, a contrasting trend soon became evident in the emergence
of movements protesting against globalization and giving new momentum to the defense
of local uniqueness, individuality, and identity, but largely without success. [8]

The Uruguay Round (1984 to 1995) led to a treaty to create the WTO to mediate trade
disputes and set up a uniform platform of trading. Other bilateral and multilateral trade
agreements, including sections of Europe's Maastricht Treaty and the North American
Free Trade Agreement (NAFTA) have also been signed in pursuit of the goal of reducing
tariffs and barriers to trade.

Global conflicts, such as the 9/11 terrorist attacks on the United States of America, is
interrelated with globalization because it was primary source of the "war on terror",
which had started the steady increase of the prices of oil and gas, due to the fact that most
OPEC member countries were in the Arabian Peninsula.[9]

World exports rose from 8.5% of gross world product in 1970 to 16.1% of gross world
product in 2001. [6]

[edit] Measuring globalization

Globalization has had an impact on different cultures around the world.


Japanese McDonald's fast food as an evidence of international integration.Looking
specifically at economic globalization, demonstrates that it can be measured in different
ways. These center around the four main economic flows that characterize globalization:

Goods and services, e.g. exports plus imports as a proportion of national income or per
capita of population
Labor/people, e.g. net migration rates; inward or outward migration flows, weighted by
population
Capital, e.g. inward or outward direct investment as a proportion of national income or
per head of population
Technology, e.g. international research & development flows; proportion of populations
(and rates of change thereof) using particular inventions (especially 'factor-neutral'
technological advances such as the telephone, motorcar, broadband)
As globalization is not only an economic phenomenon, a multivariate approach to
measuring globalization is the recent index calculated by the Swiss think tank KOF. The
index measures the three main dimensions of globalization: economic, social, and
political. In addition to three indices measuring these dimensions, an overall index of
globalization and sub-indices referring to actual economic flows, economic restrictions,
data on personal contact, data on information flows, and data on cultural proximity is
calculated. Data is available on a yearly basis for 122 countries, as detailed in Dreher,
Gaston and Martens (2008).[10] According to the index, the world's most globalized
country is Belgium, followed by Austria, Sweden, the United Kingdom and the
Netherlands. The least globalized countries according to the KOF-index are Haiti,
Myanmar the Central African Republic and Burundi.[11]

A.T. Kearney and Foreign Policy Magazine jointly publish another Globalization Index.
According to the 2006 index, Singapore, Ireland, Switzerland, the U.S., the Netherlands,
Canada and Denmark are the most globalized, while Indonesia, India and Iran are the
least globalized among countries listed.

[edit] Effects of globalization


Globalization has various aspects which affect the world in several different ways such
as:

Industrial - emergence of worldwide production markets and broader access to a range of


foreign products for consumers and companies. Particularly movement of material and
goods between and within national boundaries.
Financial - emergence of worldwide financial markets and better access to external
financing for borrowers. Simultaneous though not necessarily purely globalist is the
emergence of under or un-regulated foreign exchange and speculative markets.
Economic - realization of a global common market, based on the freedom of exchange of
goods and capital.
Political - some use "globalization" to mean the creation of a world government, or
cartels of governments (e.g. WTO, World Bank, and IMF) which regulate the
relationships among governments and guarantees the rights arising from social and
economic globalization. [12] Politically, the United States has enjoyed a position of
power among the world powers; in part because of its strong and wealthy economy. With
the influence of globalization and with the help of The United States’ own economy, the
People's Republic of China has experienced some tremendous growth within the past
decade. If China continues to grow at the rate projected by the trends, then it is very
likely that in the next twenty years, there will be a major reallocation of power among the
world leaders. China will have enough wealth, industry, and technology to rival the
United States for the position of leading world power. [13].
Informational - increase in information flows between geographically remote locations.
Arguably this is a technological change with the advent of fibre optic communications,
satellites, and increased availability of telephone and Internet.
Language - the most popular language is English[14].
About 75% of the world's mail, telexes, and cables are in English.
Approximately 60% of the world's radio programs are in English.
About 90% of all Internet traffic uses English.
Competition - Survival in the new global business market calls for improved productivity
and increased competition. Due to the market becoming worldwide, companies in various
industries have to upgrade their products and use technology skillfully in order to face
increased competition.[15]
Cultural - growth of cross-cultural contacts; advent of new categories of consciousness
and identities which embodies cultural diffusion, the desire to increase one's standard of
living and enjoy foreign products and ideas, adopt new technology and practices, and
participate in a "world culture". Some bemoan the resulting consumerism and loss of
languages. Also see Transformation of culture.
Ecological- the advent of global environmental challenges that might be solved with
international cooperation, such as climate change, cross-boundary water and air pollution,
over-fishing of the ocean, and the spread of invasive species. Since many factories are
built in developing countries with less environmental regulation, globalism and free trade
may increase pollution. On the other hand, economic development historically required a
"dirty" industrial stage, and it is argued that developing countries should not, via
regulation, be prohibited from increasing their standard of living.
Social (International cultural exchange) - increased circulation by people of all nations
with fewer restrictions.
Spreading of multiculturalism, and better individual access to cultural diversity (e.g.
through the export of Hollywood and Bollywood movies). Some consider such
"imported" culture a danger, since it may supplant the local culture, causing reduction in
diversity or even assimilation. Others consider multiculturalism to promote peace and
understanding between peoples.
Greater international travel and tourism
Greater immigration, including illegal immigration
Spread of local consumer products (e.g. food) to other countries (often adapted to their
culture).
Worldwide fads and pop culture such as Pokémon, Sudoku, Numa Numa, Origami, Idol
series, YouTube, Orkut, Facebook, and MySpace. Accessible to those who have Internet
or Television, leaving out a substantial segment of the Earth's population.
Worldwide sporting events such as FIFA World Cup and the Olympic Games.
Incorporation of multinational corporations in to new media. As the sponsors of the All-
Blacks rugby team, Adidas had created a parallel website with a downloadable interactive
rugby game for its fans to play and compete. [16]
Technical
Development of a global telecommunications infrastructure and greater transborder data
flow, using such technologies as the Internet, communication satellites, submarine fiber
optic cable, and wireless telephones
Increase in the number of standards applied globally; e.g. copyright laws, patents and
world trade agreements.
Legal/Ethical
The creation of the international criminal court and international justice movements.
Crime importation and raising awareness of global crime-fighting efforts and
cooperation.
Whilst it is all too easy to look at the positive aspects of Globalization and the great
benefits that are apparent everywhere, there are also several negative occurrences that can
only be the result of or major motivating factors that inspire some corporations to
globalize.

Globalization – the growing integration of economies and societies around the world –
has been one of the most hotly-debated topics in international economics over the past
few years. Rapid growth and poverty reduction in China, India, and other countries that
were poor 20 years ago, has been a positive aspect of globalization. But globalization has
also generated significant international opposition over concerns that it has increased
inequality and environmental degradation [17]

Business

Globalization has had extensive impact on the world of business. In a business


environment marked by globalization, the world seems to shrink, and other businesses
halfway around the world can exert as great an impact on a business as one right down
the street. Internet access and e-commerce have brought small-scale coops in Third
World nations into the same arena as thriving businesses in the industrialized world, and
visions of low-income workers handweaving rugs on primitive looms that compete with
rug dealers in major cities are not totally far-fetched.

Globalization has affected workforce demographics, as well. Today's workforces are


characterized by greater diversity in terms of age, gender, ethnic and racial background,
and a variety of other demographic factors. In fact, management of diversity has become
one of the primary issues of 21st-century business.

Trends such as outsourcing and offshoring are a direct offshoot of globalization and have
created a work environment in which cultural diversity can be problematic. A U.S.
company where punctuality is important and meetings always start on time faces
adjustments if it opens an office in South America or France, where being 10 to 15
minutes late to a meeting is considered acceptable: being on time is called 'British
Time'[18]

Sweatshops

It can be said that globalization is the door that opens up an otherwise resource poor
country to the international market. Where a country or nation has little material or
physical product harvested or mined from its own soil, an opportunity is seen by large
corporations to take advantage of the “export poverty” of such a nation. Where the
majority of the earliest occurrences of economic globalization are recorded as being the
expansion of businesses and corporate growth, in many poorer nations globalization is
actually the result of the foreign businesses investing in the country to take advantage of
the lower wage rate: even though investing, by increasing the Capital Stock of the
country, increases their wage rate.

One example used by anti-globalization protestors is the use of “Sweatshops” by


manufacturers. According to Global Exchange these “Sweat Shops” are widely used by
sports shoe manufacturers and mentions one company in particular – Nike.[19] There are
factories set up in the poor countries where employees agree to work for low wages. Then
if labour laws alter in those countries and stricter rules govern the manufacturing process
the factories are closed down and relocated to other nations with more liberal economic
policies.[citation needed]
There are several agencies that have been set up worldwide specifically designed to focus
on anti-sweatshop campaigns and education of such. “The Decent Working Conditions
and Fair Competition Act” is a legislation passed by the National Labor Committee in the
USA.[citation needed] The legislation now suggests that companies are legally obligated
to respect human and worker rights by prohibiting the import, sale, or export of
sweatshop goods .[citation needed]There are very strict standards set out by the
International Labor Organization and any violations shall be banned from the US market.
[citation needed]

Specifically, these core standards include no child labor, no forced labor, freedom of
association, right to organize and bargain collectively, as well as the right to decent
working conditions. [20]

Tiziana Terranova has stated that globalization has brought a culture of "free labour". In a
digital sense, it is where the individuals (contributing capital) exploits and eventually
"exhausts the means through which labour can sustain itself". For example, in the area of
digital media (animations, hosting chat rooms, designing games), where it is often less
glamourous than it may sound. In the gaming industry, a Chinese Gold Market has been
established. [21]

Culture

One powerful source has blown down cultural boundaries around the entire world. What
is this influential tool? It is the Internet and its endless margin of discovery. With the
Internet people can easily access someone half way across the world. They could
converse with someone living a completely different lifestyle yet still have something in
common, the Internet. If language is a barrier then a website like Flickr, a photo sharing
site, lets people from Singapore and Germany alike communicate without words. The
Internet in essence makes the world a smaller place. Someone in America can be eating
Japanese noodles for lunch while someone in Sydney Australia is eating classic Italian
meatballs. One classic culture aspect is food. India is known for their curry and exotic
spices. Paris is known for its smelly cheeses. America is known for its burgers and fries.
McDonalds was once an American favorite with its cheery mascot, Ronald, red and
yellow theme, and greasy fast food. Now it is a global enterprise with 31,000 locations
worldwide with locations in Kuwait, Egypt, and Malta. This restaurant is just one
example of food going big on the global scale. Meditation has been a sacred practice for
centuries in Indian culture. It calms the body and helps one connect to their inner being
while shying away from their conditioned self. Before globalization Americans did not
meditate or crunch their bodies into knots on a yoga mat. After globalization this is a
common practice, it is even considered a chic way to keep your body in shape. Some
people are even traveling to India to get the full experience themselves. Another common
practice brought about by globalization would be Chinese symbol tattoos. These specific
tattoos are a huge hit with today’s younger generation and are quickly becoming the
norm. With the melding of cultures using another countries language in ones body art is
now considered normal. Culture is defined as patterns of human activity and the symbols
that give these activities significance. Culture is what people eat, how they dress, beliefs
they hold, and activities they practice. Globalization has joined different cultures and
made it into something different. As Erla Zwingle, from the National Geographic article
titled “Globalization” states, “When cultures receive outside influences, they ignore some
and adopt others, and then almost immediately start to transform them.” [22]

[edit] Pro-globalization (globalism)

Globalization advocates such as Jeffrey Sachs point to the above average drop in poverty
rates in countries, such as China, where globalization has taken a strong foothold,
compared to areas less affected by globalization, such as Sub-Saharan Africa, where
poverty rates have remained stagnant.[23]Supporters of free trade claim that it increases
economic prosperity as well as opportunity, especially among developing nations,
enhances civil liberties and leads to a more efficient allocation of resources. Economic
theories of comparative advantage suggest that free trade leads to a more efficient
allocation of resources, with all countries involved in the trade benefiting. In general, this
leads to lower prices, more employment, higher output and a higher standard of living for
those in developing countries.[23][24]

One of the ironies of the recent success of India and China is the fear that... success in
these two countries comes at the expense of the United States. These fears are
fundamentally wrong and, even worse, dangerous. They are wrong because the world is
not a zero-sum struggle... but rather is a positive-sum opportunity in which improving
technologies and skills can raise living standards around the world.

—Jeffrey D. Sachs, The End of Poverty, 2005


Proponents of laissez-faire capitalism, and some Libertarians, say that higher degrees of
political and economic freedom in the form of democracy and capitalism in the
developed world are ends in themselves and also produce higher levels of material
wealth. They see globalization as the beneficial spread of liberty and capitalism. [23]

Supporters of democratic globalization are sometimes called pro-globalists. They believe


that the first phase of globalization, which was market-oriented, should be followed by a
phase of building global political institutions representing the will of world citizens. The
difference from other globalists is that they do not define in advance any ideology to
orient this will, but would leave it to the free choice of those citizens via a democratic
process[citation needed].

Some, such as former Canadian Senator Douglas Roche, O.C., simply view globalization
as inevitable and advocate creating institutions such as a directly-elected United Nations
Parliamentary Assembly to exercise oversight over unelected international bodies.

Supporters of globalization argue that the anti-globalization movement uses anecdotal


evidence[citation needed] to support their protectionist view, whereas worldwide
statistics strongly support globalization:
From 1981 to 2001, according to World Bank figures, the number of people living on $1
a day or less declined from 1.5 billion to 1.1 billion in absolute terms. At the same time,
the world population increased, so in percentage terms the number of such people in
developing nations declined from 40% to 20% of the population.[25] with the greatest
improvements occurring in economies rapidly reducing barriers to trade and investment;
yet, some critics argue that more detailed variables measuring poverty should be studied
instead [26].
The percentage of people living on less than $2 a day has decreased greatly in areas
affected by globalization, whereas poverty rates in other areas have remained largely
stagnant. In East-Asia, including China, the percentage has decreased by 50.1%
compared to a 2.2% increase in Sub-Saharan Africa.[24]
Area Demographic 1981 1984 1987 1990 1993 1996 1999 2002 Percentage Change
1981-2002
East Asia and Pacific Less than $1 a day 57.7% 38.9% 28.0% 29.6% 24.9% 16.6%
15.7% 11.1% -80.76%
Less than $2 a day 84.8% 76.6% 67.7% 69.9% 64.8% 53.3% 50.3% 40.7% -52.00%
Latin America Less than $1 a day 9.7% 11.8% 10.9% 11.3% 11.3% 10.7% 10.5% 8.9%
-8.25%
Less than $2 a day 29.6% 30.4% 27.8% 28.4% 29.5% 24.1% 25.1% 23.4% -29.94%
Sub-Saharan Africa Less than $1 a day 41.6% 46.3% 46.8% 44.6% 44.0% 45.6% 45.7%
44.0% +5.77%
Less than $2 a day 73.3% 76.1% 76.1% 75.0% 74.6% 75.1% 76.1% 74.9% +2.18%

'SOURCE: World Bank, Poverty Estimates, 2002[24]

Income inequality for the world as a whole is diminishing.[27] Due to definitional issues
and data availability, there is disagreement with regards to the pace of the decline in
extreme poverty. As noted below, there are others disputing this. The economist Xavier
Sala-i-Martin in a 2007 analysis argues that this is incorrect, income inequality for the
world as a whole has diminished. [7]. Regardless of who is right about the past trend in
income inequality, it has been argued that improving absolute poverty is more important
than relative inequality. [8]
Life expectancy has almost doubled in the developing world since World War II and is
starting to close the gap between itself and the developed world where the improvement
has been smaller. Even in Sub-Saharan Africa, the least developed region, life expectancy
increased from 30 years before World War II to about a peak of about 50 years before the
AIDS pandemic and other diseases started to force it down to the current level of 47
years. Infant mortality has decreased in every developing region of the world.[28]
Democracy has increased dramatically from there being almost no nations with universal
suffrage in 1900 to 62.5% of all nations having it in 2000.[29]
Feminism has made advances in areas such as Bangladesh through providing women
with jobs and economic safety.[23]
The proportion of the world's population living in countries where per-capita food
supplies are less than 2,200 calories (9,200 kilojoules) per day decreased from 56% in the
mid-1960s to below 10% by the 1990s.[30]
Between 1950 and 1999, global literacy increased from 52% to 81% of the world.
Women made up much of the gap: female literacy as a percentage of male literacy has
increased from 59% in 1970 to 80% in 2000.[31]
The percentage of children in the labor force has fallen from 24% in 1960 to 10% in
2000.[32]
There are increasing trends in the use of electric power, cars, radios, and telephones per
capita, as well as a growing proportion of the population with access to clean water.[33]
The book The Improving State of the World also finds evidence for that these, and other,
measures of human well-being has improved and that globalization is part of the
explanation. It also responds to arguments that environmental impact will limit the
progress.
Although critics of globalization complain of Westernization, a 2005 UNESCO
report[34] showed that cultural exchange is becoming mutual. In 2002, China was the
third largest exporter of cultural goods, after the UK and US. Between 1994 and 2002,
both North America's and the European Union's shares of cultural exports declined, while
Asia's cultural exports grew to surpass North America.

[edit] Anti-globalization
Main article: Anti-globalization
Anti-globalization is a term used to describe the political stance of people and groups
who oppose the neoliberal version of globalization.

"Anti-globalization" may also involve the process or actions taken by a state in order to
demonstrate its sovereignty and practice democratic decision-making. Anti-globalization
may occur in order to maintain barriers to the international transfer of people, goods and
beliefs, particularly free market degregulation, encouraged by organizations such as the
IMF or the WTO. Moreover, as Naomi Klein argues in her book No Logo anti-globalism
can denote either a single social movement or an umbrella term that encompasses a
number of separate social movements [35] such as Nationalists and socialists. In either
case, participants stand in opposition to the unregulated political power of large, multi-
national corporations, as the corporations exercise power through leveraging trade
agreements which in some instances damage the democratic rights of citizens[citation
needed], the environment particularly air quality index and rain forests[citation needed],
as well as national government's sovereignty to determine labor rights,[citation needed]
including the right to form a union, and health and safety legislation, or laws as they may
otherwise infringe on cultural practices and traditions of developing countries.[citation
needed]

Some people who are labeled "anti-globalist" or "sceptics" (Hirst and Thompson)
[36]consider the term to be too vague and inaccurate [37][38]. Podobnik states that "the
vast majority of groups that participate in these protests draw on international networks
of support, and they generally call for forms of globalization that enhance democratic
representation, human rights, and egalitarianism."

Joseph Stiglitz and Andrew Charlton write[39]:


“ The anti-globalization movement developed in opposition to the perceived negative
aspects of globalization. The term 'anti-globalization' is in many ways a misnomer, since
the group represents a wide range of interests and issues and many of the people involved
in the anti-globalization movement do support closer ties between the various peoples
and cultures of the world through, for example, aid, assistance for refugees, and global
environmental issues. ”

Some members aligned with this viewpoint prefer instead to describe themselves as the
Global Justice Movement, the Anti-Corporate-Globalization Movement, the Movement
of Movements (a popular term in Italy), the "Alter-globalization" movement (popular in
France), the "Counter-Globalization" movement, and a number of other terms.

Critiques of the current wave of economic globalization typically look at both the damage
to the planet, in terms of the perceived unsustainable harm done to the biosphere, as well
as the perceived human costs, such as poverty, inequality, miscegenation, injustice and
the erosion of traditional culture which, the critics contend, all occur as a result of the
economic transformations related to globalization. They challenge directly the metrics,
such as GDP, used to measure progress promulgated by institutions such as the World
Bank, and look to other measures, such as the Happy Planet Index,[40] created by the
New Economics Foundation[41]. They point to a "multitude of interconnected fatal
consequences--social disintegration, a breakdown of democracy, more rapid and
extensive deterioration of the environment, the spread of new diseases, increasing
poverty and alienation"[42] which they claim are the unintended but very real
consequences of globalization.

The terms globalization and anti-globalization are used in various ways. Noam Chomsky
believes that[43][44]

“ The term "globalization" has been appropriated by the powerful to refer to a specific
form of international economic integration, one based on investor rights, with the
interests of people incidental. That is why the business press, in its more honest moments,
refers to the "free trade agreements" as "free investment agreements" (Wall St. Journal).
Accordingly, advocates of other forms of globalization are described as "anti-
globalization"; and some, unfortunately, even accept this term, though it is a term of
propaganda that should be dismissed with ridicule. No sane person is opposed to
globalization, that is, international integration. Surely not the left and the workers
movements, which were founded on the principle of international solidarity - that is,
globalization in a form that attends to the rights of people, not private power systems. ”
“ "The dominant propaganda systems have appropriated the term "globalization" to refer
to the specific version of international economic integration that they favor, which
privileges the rights of investors and lenders, those of people being incidental. In accord
with this usage, those who favor a different form of international integration, which
privileges the rights of human beings, become "anti-globalist." This is simply vulgar
propaganda, like the term "anti-Soviet" used by the most disgusting commissars to refer
to dissidents. It is not only vulgar, but idiotic. Take the World Social Forum, called "anti-
globalization" in the propaganda system -- which happens to include the media, the
educated classes, etc., with rare exceptions. The WSF is a paradigm example of
globalization. It is a gathering of huge numbers of people from all over the world, from
just about every corner of life one can think of, apart from the extremely narrow highly
privileged elites who meet at the competing World Economic Forum, and are called "pro-
globalization" by the propaganda system. An observer watching this farce from Mars
would collapse in hysterical laughter at the antics of the educated classes." ”

Critics argue that:

Poorer countries are sometimes at disadvantage: While it is true that globalization


encourages free trade among countries, there are also negative consequences because
some countries try to save their national markets. The main export of poorer countries is
usually agricultural goods. Larger countries often subsidise their farmers (like the EU
Common Agricultural Policy, which lowers the market price for the poor farmer's crops
compared to what it would be under free trade.[45]
Exploitation of foreign impoverished workers: The deterioration of protections for
weaker nations by stronger industrialized powers has resulted in the exploitation of the
people in those nations to become cheap labor. Due to the lack of protections, companies
from powerful industrialized nations are able to offer workers enough salary to entice
them to endure extremely long hours and unsafe working conditions, though economists
question if consenting workers in a competitive employers' market can be decried as
"exploitated". The abundance of cheap labor is giving the countries in power incentive
not to rectify the inequality between nations. If these nations developed into
industrialized nations, the army of cheap labor would slowly disappear alongside
development. It is true that the workers are free to leave their jobs, but in many poorer
countries, this would mean starvation for the worker, and possible even his/her family if
their previous jobs were unavailable.[46]
The shift to outsourcing: The low cost of offshore workers have enticed corporations to
move production to foreign countries. The laid off unskilled workers are forced into the
service sector where wages and benefits are low, but turnover is high .[citation needed]
This has contributed to the widening economic gap between skilled and unskilled
workers. The loss of these jobs has also contributed greatly to the slow decline of the
middle class[citation needed] which is a major factor in the increasing economic
inequality in the United States .[citation needed] Families that were once part of the
middle class are forced into lower positions by massive layoffs and outsourcing to
another country. This also means that people in the lower class have a much harder time
climbing out of poverty because of the absence of the middle class as a stepping stone.
[47]
Weak labor unions: The surplus in cheap labor coupled with an ever growing number of
companies in transition has caused a weakening of labor unions in the United States.
Unions lose their effectiveness when their membership begins to decline. As a result
unions hold less power over corporations that are able to easily replace workers, often for
lower wages, and have the option to not offer unionized jobs anymore. [45]
In December 2007, World Bank economist Branko Milanovic has called much previous
empirical research on global poverty and inequality into question because, according to
him, improved estimates of purchasing power parity indicate that developing countries
are worse off than previously believed. Milanovic remarks that "literally hundreds of
scholarly papers on convergence or divergence of countries’ incomes have been
published in the last decade based on what we know now were faulty numbers." With the
new data, possibly economists will revise calculations, and he also believed that there are
considerable implications estimates of global inequality and poverty levels. Global
inequality was estimated at around 65 Gini points, whereas the new numbers indicate
global inequality to be at 70 on the Gini scale. [48] It is unsurprising that the level of
international inequality is so high, as larger sample spaces almost always give a higher
level of inequality.

The critics of globalization typically emphasize that globalization is a process that is


mediated according to corporate interests, and typically raise the possibility of alternative
global institutions and policies, which they believe address the moral claims of poor and
working classes throughout the globe, as well as environmental concerns in a more
equitable way.[49]

The movement is very broad[citation needed], including church groups, national


liberation factions, peasant unionists, intellectuals, artists, protectionists, anarchists, those
in support of relocalization and others. Some are reformist, (arguing for a more moderate
form of capitalism) while others are more revolutionary (arguing for what they believe is
a more humane system than capitalism) and others are reactionary, believing
globalization destroys national industry and jobs.

One of the key points made by critics of recent economic globalization is that income
inequality, both between and within nations, is increasing as a result of these processes.
One article from 2001 found that significantly, in 7 out of 8 metrics, income inequality
has increased in the twenty years ending 2001. Also, "incomes in the lower deciles of
world income distribution have probably fallen absolutely since the 1980s". Furthermore,
the World Bank's figures on absolute poverty were challenged. The article was skeptical
of the World Bank's claim that the number of people living on less than $1 a day has held
steady at 1.2 billion from 1987 to 1998, because of biased methodology.[50]

A chart that gave the inequality a very visible and comprehensible form, the so-called
'champagne glass' effect,[51] was contained in the 1992 United Nations Development
Program Report, which showed the distribution of global income to be very uneven, with
the richest 20% of the world's population controlling 82.7% of the world's income.[52]

+ Distribution of world GDP, 1989


Quintile of Population Income
Richest 20% 82.7%
Second 20% 11.7%
Third 20% 2.3%
Fourth 20% 1.4%
Poorest 20% 1.2%
Source: United Nations Development Program. 1992 Human Development Report[53]

Economic arguments by fair trade theorists claim that unrestricted free trade benefits
those with more financial leverage (i.e. the rich) at the expense of the poor.[54]

Americanization related to a period of high political American clout and of significant


growth of America's shops, markets and object being brought into other countries. So
globalization, a much more diversified phenomenon, relates to a multilateral political
world and to the increase of objects, markets and so on into each others countries.

Some opponents of globalization see the phenomenon as the promotion of corporatist


interests.[55] They also claim that the increasing autonomy and strength of corporate
entities shapes the political policy of countries.[56] [57]

[edit] International Social Forums


See main articles: European Social Forum, the Asian Social Forum, World Social Forum
(WSF).

The first WSF in 2001 was an initiative of the administration of Porto Alegre in Brazil.
The slogan of the World Social Forum was "Another World Is Possible". It was here that
the WSF's Charter of Principles was adopted to provide a framework for the forums.

The WSF became a periodic meeting: in 2002 and 2003 it was held again in Porto Alegre
and became a rallying point for worldwide protest against the American invasion of Iraq.
In 2004 it was moved to Mumbai (formerly known as Bombay, in India), to make it more
accessible to the populations of Asia and Africa. This last appointment saw the
participation of 75,000 delegates.

In the meantime, regional forums took place following the example of the WSF, adopting
its Charter of Principles. The first European Social Forum (ESF) was held in November
2002 in Florence. The slogan was "Against the war, against racism and against neo-
liberalism". It saw the participation of 60,000 delegates and ended with a huge
demonstration against the war (1,000,000 people according to the organizers). The other
two ESFs took place in Paris and London, in 2003 and 2004 respectively.

Recently there has been some discussion behind the movement about the role of the
social forums. Some see them as a "popular university", an occasion to make many
people aware of the problems of globalization. Others would prefer that delegates
concentrate their efforts on the coordination and organization of the movement and on the
planning of new campaigns. However it has often been argued that in the dominated
countries (most of the world) the WSF is little more than an 'NGO fair' driven by
Northern NGOs and donors most of which are hostile to popular movements of the poor.
[58]
12: Localisation Vs Globalisation:
Clarifying the Terms
Colin Hines

CORPORATE GLOBALIZATION versus INTERNATIONALISM

It is crucial to make a clear distinction between, for example, a global


flow of technology, ideas and information to rebuild sustainable local
communities — that is, a supportive ‘internationalism’ — and the
process of globalization. In essence, the latter is the systematic
reduction of protective barriers to the flow of goods and money by
international trade rules shaped by and for big business. It pits country
against country, community against community and workers against
workers. That is the point of it, because such a structure and process is
the route to maximizing profits.

Internationalism can be thought of as the flow of ideas, technologies,


information, culture, money and goods with the end goal of protecting
and rebuilding local economies worldwide. Its emphasis is not on
competition for the cheapest, but on co-operation for the best.

Linguistic clarity is vital since the advocates and beneficiaries of


globalization misuse the indisputable benefits that can accrue from
such constructive international flows to justify the destructive process
of globalization. In tandem with this misleading approach is invariably
a promise that some day the growth resulting from globalization will
somehow trickle down to benefit the majority.

CORPORATE GLOBALIZATION

This is the ever-increasing integration of national economies into the


global economy through trade and investment rules and privatization,
aided by technological advances. These. reduce barriers to trade and
investment and in the process reduce democratic controls by nation
states and their communities over their economic affairs. The process
is driven by the widespread lobbying of large corporations who use the
theory of comparative advantage, the goal of international
competitiveness and the growth model to achieve the maximisation of
their profits. It is occurring increasingly at the expense of social,
environmental and labour improvements and rising inequality for most
of the world.
LOCALIZATION: A COHERENT AND JUST ALTERNATIVE

Localization is a process which reverses the trend of globalization by


discriminating in favour of the local. It ensures that all goods and
services that can reasonably be provided locally should be. Depending
on the context, the ‘local’ is predominantly defined

as part of the nation state, although it can be the nation state itself or
occasionally a regional grouping of nation states.

The policies bringing about localization are ones which increase control
of the economy by communities and nation states. The result should
be an increase in community cohesion, a reduction in poverty and
inequality and an improvement in livelihoods, social infrastructure and
environmental protection, and hence an increase in the all-important
sense of security.

Localization is not about restricting the flow of information, technology,


trade and investment, management and legal structures, which further
localization. Indeed these are encouraged by the new localist emphasis
in global aid and trade rules. Such transfers also play a crucial role in
the successful transition from globalization to localization. It is not a
return to overpowering state control, merely governments’ provision of
a policy and economic framework which allows people, community
groups and businesses to rediversify their own local economies.

The route to localization consists of seven interrelated and

self-reinforcing policy areas. The basic steps are:

• reintroduction of protective safeguards for domestic economies;

• a site-here-to-sell-here policy for manufacturing and services


domestically or regionally;

• localising money, such that the majority stays within its place of
origin;

• local competition policy to eliminate monopolies from the more


protected economies;

• introduction of resource taxes to increase environmental


improvements and help fund the transition to the Protect the Local,
Globally approach;
• increased democratic involvement both politically and economically
to ensure the effectiveness and equity of the movement to more
diverse local economies;

• reorientation of the end goals of aid and trade rules such that they
contribute to the rebuilding of local economies and local control.

Under these circumstances, beggar-your-neighbour globalization gives


way to the potentially more co-operative better-your-neighbour
localization

ECONOMIC ROLE OF THE STATE IN THE ERA OF


GLOBALIZATION
Muhannad A. El-Mefleh, National University
ABSTRACT
This paper examines the economic role of the state in era of
globalization. The major findings of this study are that (1) the role of
government in reducing volatility and minimizing potential financial
crisis becomes essential; (2) the rise of a knowledge-based
economy requires less societal control and more governmental
help in reducing the digital divide; (3) privatization and deregulation
moved the governmental role from that of a provider of basic
utilities to the regulator of these utilities and from monopolist to an
advocate of consumer interest through the promotion of
competitive environment; (4) the state=s new roles are designed to
improve human capital for employment since the main asset of the
poor is labor; (5) physical capital is still important for economic
growth but its relative value is declining while the relative
importance of social and human capital is increasing; and (6)
governments played important roles in globalization by adopting
policies that increased integration and interdependency.
Key words: Privatization; Institutional Reform, and Mobilization of
Resources.
Introduction:
The question is no longer big or small government but enough and
efficient government to accomplish maximum welfare of society. Only
government can create rules of laws, security, setting policies, enforcement of
contracts, wider participation of civil society, reducing discrimination, a provider
of education and health to prevent anarchy and social upheaval. Larger
government than necessary may lead to intrusive state that destroys wealth
rather than creating it. Smaller government than is needed may create instability
and chaos. Government role now is considered an enabler of growth and
progress rather than an obstacle to it. Despite the free market and knowledge-
based economy, the need for government has still not been diminished.
Combining ideas from private and public sectors will strengthen both sectors and
enhance the changes of society’s success.
THE TRANSFORMATION OF THE STATE ROLE
The traditional role of government was to provide public goods such as

education, defense, maintenance of order, and an engine for economic


growth. But globalization expanded the government role into other areas such as
playing a pivotal role in economic integration, financial capital flows, and
productivity growth. Economics became a powerful force in governance.
Currently, fiscal liberalism is replaced with fiscal conservatism and government
plays the role of facilitator for individual entrepreneurship. State owned
companies have been privatized and the welfare state is no longer a viable
political option. In most developing countries, the extended family and the
community played the primary paternalistic role of providing welfare rather than
the state. Ohmae (1995) argued that nation states used to be a means to create
wealth in the past but a means to destroy wealth currently. People are
demanding more information to make their own decisions, freedom to be
entrepreneurs, and access to quality products and services at the lowest prices.
The creation of wealth has become more important than social equity.
The government role changed from guardian of local industry to a gradual
promoter of competition that allows companies with negative profit to fail or be
acquired by better managed corporations. Tariffs were used in developing
economies for revenue purposes and not for the protection of domestic
producers as in the case of advanced industrialized countries. The developing
countries replaced tariffs with sales taxes, which are regressive in nature, in
order to compensate for the loss of revenue from tariffs. According to Fréchette
(June 2002) governments across the globe cut corporate taxes to induce
investment and to prevent global corporations from leaving which led to the
reduction of the percentage of corporate sector contributions to total government
revenues. The reduction of tariffs and corporate taxes robbed governments in
developing countries from needed funds for investment in education, health, and
other infrastructures.
Interdependence of people, ideas, products, and information required to
think globally because local solutions may not be possible or efficient. A state’s
power to use fiscal and monetary policies effectively is limited due to the ease of
financial capital mobility. The government no longer can formulate economic
policy based purely on national interest when its country wants to be a member
of the World Trade Organization (WTO) and the International Monetary Fund
(IMF). Purely national fiscal, monetary, and trade policy are no longer viable and
enough instruments to deal with all kinds of economic problems since many
factors are beyond its ability to control. Globalization was of benefit to most
countries, but the countries that benefited the most were the countries that
invested in their own human capital and infrastructure. The lack of heavy
investment in the human capital and physical infrastructure in developing
countries led to smaller benefits from globalization. Also, globalization brought
many ills and crises that developing countries could not afford or manage.
Financial crises led government and private sectors in developing countries,
especially in East Asia, to the structural reform of their regulations, foreign
reserve, and new rules affecting financial capital mobility which is intended for

sustainable future economic growth. The future competitive advantage will


continue to be dependent on national stability, level of economic and social
development, regional cooperation, and international environment.
Globalization has changed but not ended the role of government.
Incentives, rules and limited resources will continue to be essentially national
where government can be instrumental not only on the above aspect but also on
its ability to create a favorable environment for foreign investment.
The Role of Government in Privatization
During the last 25 years, governments used their power to change labor
laws, opened their economies for foreign trade and investment, and established
privatization. According to Mahboubi (2001), privatizations of public assets were
close to one trillion dollars during the period of 1990-2000 around the globe.
Some argued that the privatization of public firms would promote and increase
the ordinary people’s shares and stocks in the privatized firms. The privatization
improved efficiency, but much of this privatization led to the fire sale of valuable
assets. These failures led to public frustration and the creation of large regulatory
bodies. Also, government thought the private sector could be the engine for
economic growth rather than government.
The proper privatization process could energize the private sector and be
an engine for economic growth when the proceeds from privatization are
reinvested in its infrastructure in the form of ports, roads, telecommunications,
and power plants as was the case for Malaysia. According to Mohamed (2001)
Malaysia started its privatization process in 1983. The privatization energized the
private sector during the 1990s and moved the economy from a public deficit of
21.8% of the GDP in 1983 into surplus of 6.5% by the eve of Asian financial crisis
in 1997. Without privatization the external debt of Malaysia would be double the
amount of their 1999 external debt of 72.5 billion RM. Also, privatization gave
Malaysian government the ability to reduce its top personal income tax rate and
corporate income rates to 29% and 28% respectively by year 2000. The
government of Malaysia gave the privatized entity employee the AEmployee
Share Option Scheme@, where workers received 5% to 13% of the shares
offered, expanding a capital owning democracy. Privatization decreased
government spending in the economic sector and increased its spending on the
social sector from 20.6% in 1983 to 31.6% by 1997.
The convergence of the pro-growth government policies, privatization, and
high savings rate in South East Asia when the Japanese industries were
expanding abroad helped fuel the economic miracle of South East Asia during
1980’s and 1990’s. The Japanese industries were trying to keep their competitive
advantage in terms of labor cost which brought jobs and a model for emulation to
the South East Asian countries.

Government Role and Civil Societies:


Government can be a promoter or inhibitor of civil society. Civil society
can be described as the network of organizations, associations and citizens that
are not subject to the state influence or marketplace but may be based on similar
interests, religion, professions or a given ideology. These civil societies may have
global interests such as concern for the environment, micro-credit, human rights,
and peace. London (2004) argued that some of these civil societies are opposed
to economic liberalization due to its negative impacts on a given sector of the
economy or on the distribution of income. These may represent a growing and
emerging countervailing power to the power of global corporations, the state, and
multinational organizations such as the IMF. Even though civil society as a grass
roots movement is not yet a match for the influence of global corporations, but
civil societies may become an instrument for creating a global common ethics.
The State, market, and civil societies need an integrated approach in
dealing with development and not a hierarchical or separate approach to
development. Unfortunately, civil society is very weak in most developing
countries. Transparency, integrity, accountability (financial, political and
administrative), access to information, enforceable codes of ethics and the media
in a proactive role are essential elements of a successful public, private, and civil
social organization in a democratic society (for more details see Cheema 2003).
Modern age civilization globalizes the appearance of human activities and
how we live but does not address the inner differences between cultures and
individuals. Also, globalization fails to harmonize the morality with technical ability
(for more details see Havel 1994.) Civil societies, labor unions, universities,
professional associations, religious communities, and non-governmental
organizations can be more effective in solving issues that the state used to
believe were completely within its domain, such as the social and economic
problems facing society. These civil societies can contribute volunteers, ideas,
and financial resources to solve social and economic problems. Government
needs to improve the relationship between citizens and their civil servants by
making sure that the public institutions work for all without favoring the rich and
influential at the expense of the poor. Government can be an instrument to
promote peaceful coexistence, which is an essential ingredient for economic
growth.
Government Role in the Globalization Process
Governments played important roles in globalization by adopting policies
that increased integration and interdependency. These policies are reflected in
the promotion of freer trade in goods and services, freer mobility of financial
capital, and changing laws governing labor. Poverty, negative externalities,
financial, and economic crises due to globalization require government programs,

social regulations, and economic regulations to improve the welfare of


society. The restructuring of the economy, especially in developing countries,
requires government to deal with the rise of unemployment.
Globalization created a shift of some decisions from national government
to international due to interdependence. On the other hand, the need for
regulations and cooperation with outside entities shifted some decisions from a
national to a local level. These two trends led some to believe in an end of the
power of national state. The increase in the size of trade relative to the GDP and
the free movement of financial capital did not reduce the value of the state or the
need for cooperation between governments to deal with market failures in the
form of financial and economic crises. Also, governments still have influence in
setting the international agenda based on their economic size. This is why
developed countries have large roles and influence in setting the rules and
policies that are shaping global social and economic activities.
Some of the potential benefits of globalization could be greater consumer
and producer choices in consumption and investment, greater benefit from
comparative advantage, economies to scale, lower prices and lower cost of
financial capital, and transfer of technology. The potential problem of
globalization is that the benefits are not distributed equally between countries
and within each country, market and policy failures in the form of financial crisis
and mass liquidation could produce devastating social and economic
consequences (for more detail see El-Mefleh 2002 and 2003) and the firms’
exploitation of natural resources without taking into consideration the long term
impact on society and without paying the full cost, where the social cost exceeds
private cost. Also, deregulations and liberalization policies were discriminatory
because they exclude given industries or sectors. Therefore, the use of state
authority to take advantage of the benefits and reduce the potential problems of
globalization is essential. The state continues to play an important role in
reducing negative externalities, reducing poverty, and insuring security and
property rights. Also, the state can play an important role in improving health
care, education, and eliminating absolute poverty, fighting corruption, improving
financial regulations, applying knowledge and know-how, mobilizing financial
reforms, and improving its own accountability in tax collection and government
spending. Rondinelli (2003) argued that problems attributed to globalization may
be the result of the state=s failure to create and develop proper and effective
institutions and regulations to stimulate investment, trade, and productivity. The
standard measures of a country=s competitiveness are based on economic
performance (growth, employment, prices, investment and trade), efficiency of
government (fiscal policy, monetary policy, public finance, education, and
institutional structures), efficiency of business (productivity, financial sector, and
management practices), infrastructure (basic, scientific, and technology), and
financial market development. A country=s competitiveness can be improved by
government policies that enhance the ability of private enterprise to compete
globally, reduce the potential cost for market failure, and provide public goods

that are socially valued.


Under the new era of globalization, government functions became more
focused on strategic objectives and planning, maintaining attractive environments
for the private sector, privatizing its role in producing goods and services, and
creating enough regulations to limit the market failure potential.
Reaction to Globalization and Financial Crises:
Globalization in the form of market integration and competition between
countries to attract foreign investment led governments to take major steps
toward economic reforms. The market reforms rely on freer movement of
financial capital, freer trade, and an export oriented approach to achieve
sustainable economic growth for developing economies. The financial crisis led
to not only addressing the issue of prioritization of the liberalization process but
to the workability and credibility of open macroeconomic policies. The financial
crisis led to stagflation in the form of steep increases in prices, substantial
declines in real GDP, a rise in unemployment, and an increase in poverty by 10%
of the population as was the case for Indonesia (for more details see El-Mefleh
(2003) and Soesastro (2004). The financial meltdown of many economies due to
globalization and freer mobility of financial capital led to two schools of thought.
The first school of thought advocated for an industrial policy of the past by
selectively targeting and import substitution. However, relying on an export
strategy for the economic growth of developing economies can be a risky
strategy. The risk comes from a recession in the major trading partner of the
industrialized country which then produces a recession in the developing country.
The second school of thought advocated the development of internal capabilities
where government can facilitate competition and provide training for public
administrators in the sophisticated skills needed for the new era. It seems that at
least for now, the second school of thought has won the debate.
Government as a Coordinator for Negotiation and Decision-Making
The government in the new era of globalization acts as a coordinator for
negotiation and decision-making by different governments, regions, occupations,
and governmental organizations. Also governments establish social safety nets,
democratic institutions, maintain justice departments to mediate conflicts, protect
the weakest groups of society such as the women, elderly, the sick, children, and
minorities, and ensure that the benefits of globalization are fairly distributed
across different groups of society, reducing the negative impact of globalization
on a given segment of society and establishing a fair tax system, safety nets in
the form of programs for the unemployed, the poor, health, education to combat
poverty and invest in human capital and public infrastructure. Government in the
new era of globalization should not reduce the size of government without
looking at the secondary effect. Lack of proper study of the secondary effect led
to terrible consequences for some developing countries. So, being a small-sized

government does not mean the elimination of the welfare state, but could
change its role. The welfare state of the past contributed significantly to
economic and social development even though it produced inefficient use of
resources and large national debts.
CHALLENGES FACING GOVERNMENT
Globalization and privatization significantly weakened the ability of the
state to exercise its influence on social and economic development as well as the
ability of the government to be the major provider of essential goods and services
such as health, education, utilities, etc. But the state continues to be needed to
provide necessary infrastructure and services so the economy can compete
internationally. The above weakness did not reduce or eliminate the roles of the
state but changed its emphasis in the era of globalization. The state=s new roles
are intended to create economic incentives, a favorable political environment,
and social attitudes conducive to economic expansion of the private sector,
efficient use of resources, and increased productivity. The state=s new roles are
designed to improve human capital for employment (the main asset of the poor is
labor), increase the openness of the economy to stimulate foreign investment,
and provide a costly social safety net to alleviate poverty, especially for the
poorest segment of the population.
According to Bertucci and Alberti (2003) there are four areas of the public
sector that need to be reformed for economic, political, and social development.
These four areas are institutional reform, information technology, human
resources, and financial management.
Institutional Reform
Democratic reform at the national and local level where elected members
of parliaments, legislatures, or councils will be informed, independent, and
accountable can play the main forum for solving major problems. Reforming the
judicial system where the individual and the minority rights are preserved, an
impartial judicial system can be an effective instrument for reducing corruption
and the abuse of public office. The executive branch needs to be reformed to
deal more effectively with new challenges of globalization. Governments need to
promote partnerships with both civil society and the private sector while pursuing
development. Also, government needs to create policies that are helpful for
investment, helpful for the adoption of new technology, and collect accurate data
for policy makers.
Information technology (IT)
Information technology provides adequate, accurate, relevant and timely
data for policy makers and the public. Therefore, information technology is
capable of improving services, accountability, and wider participation by

stakeholders. Government needs to formulate policies that improve


technology training, affordable access to information technology and reduce the
externality cost of introductory information technology by providing retraining and
safety nets for those workers who lose their jobs due to information technology.
Human Resources
Efficient institutions need competent people as much as competent people
need efficient institutions. Government in the new era of globalization needs to
constantly improve leadership skills. Public employee recruitment and promotion
are based on merit. Also, negotiating with other countries or international
agencies, and navigating international treaties and laws require improved skills
on the part of government representatives. The information technology (IT)
requires skilled government employees. Strategic planning requires sophisticated
analytical skills, understanding of emerging opportunities and constraints and the
ability to create a support for organizational restructuring. All of the above will not
be achieved without governmental help in building a culture of dialogue,
promoting consensus, accepting diversity, and implementing change peacefully
without violence.
Financial Mobilizations and Management
Competent people and acceptable rules are necessary conditions for a
well-functioning institution, but are not sufficient. Financial resources and the
political commitment to use these financial resources for society=s welfare are
needed. Efficiency of government fiscal policy and simple forms require a tax
structure that is fair and simple, to achieve the highest possible degree of
voluntary payments by tax payers.
Economic growth requires government, especially in developing countries, to
actively secure the needed finances. The needed finances for investment come
not only from abroad but also from domestic savings. Domestic savings are an
essential instrument for sustainable investment and growth. Unfortunately, most
developing countries have low household, corporation, and government savings
rates. Converting savings into investment requires security, law and order,
physical infrastructure, clearly defined property rights, a skilled labor force,
exports to pay for imported capital goods, soundness of fiscal and monetary
policies, and sound regulation of the financial sector. Also sound fiscal and
monetary policy are important instruments for achieving low inflation rates,
reducing unsustainable current account deficit, creating smaller public debts, and
reducing the potential of crowding out private investment. In addition, the proper
amount of investment in public education and health, and social programs are
essential for reducing poverty.
Globalization led government to reduce its tariffs and corporate taxes
which reduces government revenue without finding an alternative source of
revenue that does not burden the poor unfairly. Foreign aid may help build the

productive capacity of an economy if it is used for investment and not for


consumption. Also, growth may lead to increased income inequity and not a
reduction in poverty.
In developing countries, the larger the difference between the interest paid
by the borrowers and the interest received by the depositor reflects a lack of
efficiency, weak competition, and a higher risk associated with their financial
sectors. The Asian miracle was based on planning, hard work, sacrifice and
deliberate public policy. Public policy was the engine for creating a large middle
class in Singapore and Malaysia and was also the power behind industrial
transformation of these two countries. The Asian miracle was achieved because
the state kept inflation low, encouraged savings, strengthened the legal
framework, created an attractive environment in which the private sectors could
prosper, managed trade, and followed prudent fiscal policy. Also, the government
targeted education which provided a skilled labor force and created regulations to
protect investment. All of the above implies sound fundamental economic
policies.
The state=s new role is designed to stimulate human capital, financial
resources for investment, and economic openness. Sustainable economic growth
requires coherent economic policy. Physical capital still is important for economic
growth but its relative value is declining while the relative importance of social
and human capital is increasing according to Agosin and Bloom (2003). The
improvement of social and human capital is the ultimate objective of economic
development.
Governments of developing countries play a crucial role in economic
development by mobilizing sufficient resources for investment. This role leads to
budget deficits and substantial debt. Also, lack of voluntary regular tax payment
makes their budget woes worse since government can get the resources from
taxes, non-tax revenues (return on government investment and foreign grants),
and borrowing.
One way to mobilize resources is through taxes. Taxes are the main
source of revenue for the government, but it creates direct costs for the
taxpayers, indirect costs by causing economic distortion that alters relative
prices, and creates administrative costs for compliance (collecting) and
enforcement. If the internal sector is a very large percentage of the economy,
then taxable income from wages is a tax paid by lower and middle income
classes, while rich taxpayers will be able to escape the income tax according to
Shende (2003). Mobilizing financial resources can be achieved through
progressive tax, equitable tax incidence, improved legislative and administrative
measures to prevent tax evasion, and a simplified tax code.
Another way to mobilize resources is through public debt. If debt is not
used for economic growth, then the cost of borrowing would create

macroeconomic problems in the future in the form of debt repayment and


debt servicing. But if government finances the internal debt by printing money,
then inflationary pressure will be the result of borrowing. On the other hand, if the
government issues bonds to finance the expenditures, then crowding out private
investment may become a serious problem. If a fiscal deficit is the result of
government consumption, then that may also trigger crowding out of private
investment. But if a fiscal deficit is the result of large public investment, then that
may trigger crowding in the private investments due to an increase in productivity
and a higher return of private investment. Some countries export their tax burden
by luring foreign consumers to shop in their country by providing low sales taxes
which also reduces foreign countries= tax revenue.
Final Remarks
Globalization, changing technology, spread of knowledge, and freer
financial capital mobility require the state to rethink its role in order for the state to
improve the welfare of its citizens. In order for the state to be relevant, especially
in small economies, it needs to promote the production of goods and services
that has the competitive advantage, provide better quality education, better
infrastructure, and encourage more participation in the decision making. Due to
the failure of the market on one hand and the failure of the state run economy on
the other hand, economists are no longer accepting an economic theoretical
approach to increase welfare of society by relying on the market growth or relying
on the state approach to economic development. Economies of scale, internal
markets, external markets, efficiency, institutional settings, regulations, the
private sector and government are needed for effective development strategy.
Globalization made the economic responsibilities of the government very
different than before. The government has to reduce volatility, minimize potential
financial crisis, deal effectively with the consequences of economic crisis, and
create effective and sound regulatory bodies in the financial sector and financial
capital flows.
The information communication technology and personal computers
created the rise of knowledge-based economy. This knowledge-based economy
requires less societal control, and more governmental help in reducing the digital
divide. The digital gap can worsen distribution of income and wealth in favor of
those who master the new factors of wealth creation. This digital gap may create
social tension and unrest which could produce a new ideological backlash similar
to that of socialism as a reaction to unregulated capitalism of the 19th century.
The liberalization policies in many countries led to the worsening
distribution of income between different groups and regions. Also globalization
led to different advantages and disadvantages for small, medium, and large
companies. Government and civil societies need to find an effective way to
respond to the negative consequences of globalization.
CONCLUSION
Finding an efficient government to achieve the maximum welfare of
society is not an easy task. Currently, fiscal liberalism is replaced with fiscal
conservatism and government plays the role of facilitator for individual
entrepreneurship. State owned companies have been privatized and the welfare
state is no longer a viable political option. Privatization and deregulation moved
the governmental role from that of a provider of basic utilities to the regulator of
these utilities and from monopolist to an advocate of consumer interest through
the promotion of a competitive environment. Physical capital is still important for
economic growth but its relative value is declining while the relative importance of
social and human capital is increasing. Thus, the state=s new roles are designed
to improve human capital for employment since the main asset of the poor is
labor). Under the new era of globalization, government functions became more
focused on strategic objectives and planning, privatizing its role in producing
goods and services, and creating enough regulations to limit the market failure
potential. Economics became a powerful force in governance and the creation of
wealth has become more important than social equity.

The extent of the 2008 economic collapse surprised and shocked the conventional
wisdom in Washington and on Wall Street. But in hindsight, a good case can be made
that the massive globalization of labor and financial markets, coupled with "free markets
uber alles" policies, formed a toxic mixture that made the collapse inevitable. Here's why:

1). The globalization of labor markets -- and especially the outsourcing of once high
paying jobs to low-wage economies - drove down incomes in the United States and
western Europe. That effect might have been tempered by the growth of unions and by
trade agreements that protected labor rights. But the right wing assault on unions in the
United States--and the passage of trade deals that protected the rights of capital and did
nothing to protect the incomes of average workers--allowed real incomes for most
Americans to drop, especially in the last eight years. In fact, all of the economic growth
of the last eight years went to the wealthiest 2% of the population.

Stagnating incomes led the Central Banks in Europe and the U.S. to encourage
massive increases in consumer credit to fuel the economy. Without all that new
consumer debt, the economy would have tanked years ago. Long-term economic growth
requires that there are more and more people who have more and more money to buy
products and services. Otherwise, businesses won't invest in new plants and equipment
and hire new workers, since no one will have the money to buy their products.

The terrible consequences of shrinking incomes were also staved off by rising home
prices. This allowed average people to borrow more and more against the rising equity of
their homes.
But all of this new consumer and home equity debt created a giant "house of cards." It
masked the underlying sickness of the economy for a while. As long as the economy
continued to grow enough to create a net increase in jobs - and as long as housing prices
rose - things were rickety but continued to hang together. But as soon as the economy
began to contract, and housing prices fell, the whole construction came tumbling down in
a heap.

By themselves, stagnant average incomes lead to stagnant economic growth. But stagnant
average incomes, coupled with large amounts of consumer and home equity debt, lead to
precipitous collapse. Homeowners went into foreclosure, lenders failed, credit markets
seized and the massive bubble in asset values burst.

2) The globalization of financial markets removed most sources of capital and credit
from the regulated national environment and placed them into the deregulated
international environment.

One lesson of the Great Depression was the need to assure that banks were no longer free
to make investments so risky that they threatened the savings of average investors and the
stability of the financial system. Banks were required to buy insurance from the FDIC
that protected depositors, and they were subjected to oversight and regulation to assure
their solvency.

The stock market was regulated - with margin requirements and strict disclosures.

Back then, banks were the major sources of capital and credit. The stock market was
mainly domestic. Nowadays, most capital and credit is provided through investment
banks and hedge funds that are barely regulated in U.S. and operate in international
markets with virtually no regulation at all.

It was inevitable that in that context, the "market" would once again repeat the mistakes
of the 1930's. Hedge funds became heavily overleveraged. Some were simply Ponzi
schemes. Risk was sliced and diced into "derivatives" over and over so that investors no
longer had a clue about the underlying value of their assets. International currency
speculators operated with no oversight.

Central banks and regulators encouraged these trends as "financial innovation."

The bottom line was simple. Globalization created a context where market forces had
more and more freedom to call the economic shots. They were free of "non market"
forces like unions and the government regulation that been created precisely to control
the natural tendency of private markets to self-destruct. Modern economic history -
capped by the Great Depression - had made one thing clear: if left to their own devices,
financial institutions and companies act in their own short term economic interest - but
not necessarily in the interest of the whole economy. Financial institutions take more and
more risk, and take on more and more debt, to make more and more money - even if
doing so creates speculative bubbles that will one day burst. Individual companies
continually seek cheaper sources of labor, even if cumulatively they end up choking off
the very consumer demand they all need to sell their products.

Barack Obama has proposed a jobs and economic recovery program that is
desperately needed. Right now, government investment is the only source of demand
available to jumpstart the economy.

But we need much more to address the fundamental problems created by


globalization:

* Stronger unions. Congress must pass the Employee Free Choice Act (EFCA) that will
dramatically increase the percentage of the workforce with union representation. Wages
and benefits are 30% higher for union jobs than non-union jobs. To generate long-term
consumer demand in our economy, average people have to make good wages.

* Rewrite trade deals. NAFTA and the WTO must be revised to protect labor rights and
assure that the world economy is integrated by bringing the bottom up - not the top down.
Economic integration in Europe proved that you can maintain high wages in the most
prosperous countries while you simultaneously increase standards of living in poorer
countries. That is not what's happening the in the world today.

* The U.S. must support the rights of unions to organize around the world. The
unionization of workers worldwide is critical to the protection of American wages.

* Re-regulate credit markets. That requires tougher regulation in the U.S. and new
regulatory structures on the international scale. The U.S. needs to lead in the creation of a
new international system to regulate credit and financial markets - one that applies the
lessons of the New Deal to the new reality of a global economy.

In the end, if we want our kids to have more prosperous and fulfilling lives, we have to
abandon the right-wing economic conventional wisdom of the last thirty years. We must
create a high-wage economy where the fruits of increased productivity are widely shared
and everyday people have money to buy goods and services. That won't happen without
stronger financial regulation and a growing labor movement.

Global meltdown: Mukherjee voices doubts


over globalization
With India facing the heat of a global financial meltdown, External Affairs Minister
Pranab Mukherjee on Monday voiced doubts over globalisation bringing in all-around
benefits to developing economies of the world.
"Recent developments, particularly the challenges confronting the global financial
system, have thrown up a qualitatively different set of questions to security and foreign
policy.

"In addition, we also are hearing protectionist voices, as previous notions about
globalisation bringing in all-round benefits are being questioned," Mukherjee said,
delivering a lecture on India's security challenges at the National Defence College in New
Delhi.

India had adopted economic liberalisation since early 1990s under the Congress
government led by PV Narasimha Rao, under whom current Prime Minister Manmohan
Singh served as the Finance Minister and the architect of the country's globalisation
policy.

"The most obvious is the unprecedented linkages between economic stability and
security policy. We have in recent weeks seen countries seeking international financial
assistance to stave off financial and economic collapse; elsewhere, falling oil prices have
dampened political confidence and muted foreign policy and security orientations,"
Mukherjee said, referring to nations on the verge of going bankrupt as a result of giants
in the financial sector going bust.

Mukherjee said the manner in which the present events reshaped the structural contours
of the world could be difficult to predict.

"We can, however, conclude with some certainty that we will be required to address new
challenges in the coming years, the biggest of which would be management of global
inter-dependence," he said, in an obvious reference to the ripple effect the financial crisis
that hit US companies have had on economies worldwide.

From India's perspective, he said, the country needed to see how best it could manage
the crisis, while positioning itself to play a role in any future global financial or political
structure.

"The immediate challenge will be to continue with economic reforms, striking a balance
between financial stability, price stability and maintaining growth rates.

"The long-term challenge will be to fashion a set of policies encompassing both security
and foreign dimension in such a manner that we can ensure an external environment
conducive to India's transformation and continued development," he added.

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