GLOBALIZATION

Globalization of a nations economy as generally understood, entails the dovetailing the countries economy with the global economy. The measures undertaken are aimed at enabling the country to benefit economically and provide a better standard of living and quality of life for its people.

To do so governments encourage foreign direct investment by foreign firms, encourage the flow of equity into the capital markets of the country, encourage the flow of technology and capita and make it easier for the countries domestic firms, to invest and set up businesses overseas.

LIBERALIZATION

Liberalization as understood entails the lowering or eliminating of customs tariffs and encouraging a free flow of goods and services in and out of the country.

PRIVATIZATION

Privatization entails the divestment of firms owned and controlled by the government which are sold to either foreign firms, domestic firms or joint ventures of domestic and foreign firms. In case of loss making companies, the objective is, to put and end to the drain of scarce government resources that are swallowed by loss making public sector companies and to encourage higher productivity and better access to global markets. Profitable public sector firms may also be privatized, to enable the government to focus its resources on better governance and leave the business of running businesses, to business organizations. It has at times been argued, that the government needs the profits generated by public sector companies, which can be used for sectors such as education and health care for the benefit of the under privileged. However, in reality, governments generally do not specifically earmark these surpluses specifically for such deployment and instead use them for government spending and to bridge the fiscal deficit. Hence, a commitment to divest and redeploy fully the capital thus generated in such projects would result in ensuring that such objectives are indeed fulfilled and with quicker results since the entire capital so generate could be deployed therein.
Privatization also entails, the privatization of infrastructural facilities such as ports, roads, railways, airports and other utilities such as power, water, municipal services etc.

The privatization of various services and infrastructure has also been found to enhance productivity and reduce costs. It has been documented that privatization of port services in Vera Vercruz in Mexico improved productivity by 50% and reduced costs by 30% similar benefits were seem by the privatization of telecommunication services in Argentina in the 90’s.

ECONOMIC PROGRESS

From the late 70’ early 80’s, developing the countries like China, Mexico, Argentina, Philippines, Malaysia, Bangladesh, Brazil and India have attempted to globalize, liberalize and privatize.
Total capital flow increased more than 10 fold to developing countries from about 30 billion in the 70’s to about 300 billion during the turn of the century. Of this about one third flowed in the form of portfolio investments which means the rest was towards Foreign Direct Investment and other forms of such investments, making a huge impact to the manufacturing and technology capability of these countries. Foreign capital which represented about 20% of GDP of many developing countries, almost doubled in countries which have implemented policies of globalization and liberalization, more rapidly.

The result of these measures has also been that there has been an overall increase of developing countries exports who before the 80’s exported 75% of raw material and primary commodities and only 25% of manufactured products to an increase of 80% of manufactured products of their total exports.

Similarly, the export of services of developing countries which only averaged 9% of their total exports before the 80’s has almost doubled to 17% by the turn of the century.

The GDP growth rate of these countries have also on an average almost doubled in each of these countries ranging from 2.9 to 5% from the 70’s to the 90’s, in some cases like China and India, it has been as high as 7-10%.

PRODUCITIVITY ENHANCEMENT

With globalization and free flow of capital, technology, information and management skills, the productivity of domestic firms has increased, making them more competitive in international markets. This is as foreign firms bring scarce capital, more advanced technologies and better management practices. The liberalization process of tariff and duties also has a positive impact of increasing competitiveness and productivity of domestic firms. How does this happens? For instance when the duties on machinery, such as machinery used for manufacturing other products is reduced then advanced machines imported by domestic firms while using the lower labor cost prevalent domestically are able to become more productive, thereby competitive by offering lower prices in the international markets. Previously, their labor cost advantages would have been offset by low productivity, due to use of obsolete machinery and equipment. This also translates to lower prices domestically. Thus the local consumers also benefit.

The downside of this process is that low productivity companies that are unable to enhance their productivity through better capital, technology and management skills close down resulting in a loss of jobs.

EMPLOYMENT

However, the shift towards creation of new business by MNCs or in joint ventures with domestic companies increases capital flow and technology and creates new jobs usually entailing higher and better level of skills. Thus the net result is the creation of more jobs, in the higher skill category and reduction of jobs in the lower skill category as some domestic firms are edged out. This call for measures of retraining, redeployment, of those who lose jobs.

As the demand for better skill training increases, there is also a raising of the levels of education attainment driven by both the forces of economic progress, the needs of the market place and government initiatives.

SUPPORTING DEVELOPMENT

However, globalization and liberalization without a corresponding improvement in infrastructural development, a better focus on reforms in capital markets, education, and rule of law and property rights can be counter productive. This is as monopolies and vested interests can take advantage of the lack of transparencies and equality for all players.

INFLATION

Countries globalizing and liberalizing over the last 2-3 decades have seen that inflation rates have been contained at single digit levels, in spite of the inflationary tendencies of higher growth rates, due to better fiscal management

ECONOMIC CLUSTERS

Economic activities in countries around the world tends to get concentrated in clusters. In the United States it is in the East and West coast and the borders of Mexico. In China it is in the coastal region of China. In Brazil it is in Northern Brazil and in India in the Western and Southern states. This is as telecommunication and logistic advantages tend to be better in coastal areas, although local governments where relevant can have a counter balancing effect even in such areas. The other tendencies is the concentration of economic activities in urban areas. This results in migration from rural to urban areas, causing a further slide in the lot of the neglected rural folk dependent on agriculture, with the maximum negative impact on the poor partly employed worker in the rural agricultural economy. This is in spite of the fact, that research has shown that there has been a reduction in the globalizing liberalization economies of about 100 Million people, who have risen above absolute poverty per decade, in the last 20 years. Vietnam represents the best example of this where it has been found where three quarters (75%) of the people were under the absolute poverty level, this reduced in a short period of 10 years to half, that is about (35%) one third of the population. None the less measures such as employment insurance, wages and food for work programs, an effective public distribution system for low cost food and health care and some measures of social security need to be focused on, by governments to alleviate the negative impact on these sectors of the population.

WTO

The world trade organization (WTO) which has often been criticized for imposing its rules, is in fact a better forum for developing countries, to get together and for collective bargain against developed countries, who may otherwise resort to arbitrary measures, in areas such as, environmental protection rules, labor protection rules and patents and IPR in pharmaceutical and other areas and impose unfair, unilateral protective measures, without any recourse to developing countries. It also serves as a forum for individual firms to seek redressal against unfair black listing, duties and other protective measures practiced by developed countries.

GLOBALIZATION AND CULTURE

One of the criticisms against globalization has been the pop culture invasion of Coca Cola and Mc Donald’s of the traditional local cultures in developing countries. It has been said that this has resulted in changing dress, tastes, life style and behavior and to an extent of even having a negative impact on the traditional values of spiritual and family life in developing countries. It must be recognized that not only globalization but also the information and tele media, revolutions create instant awareness of products and services and life styles everywhere. This in turn builds desires and aspirations. It is clearly upto governments to take necessary measures, to blend the best of the local traditions with the modern. This has been done very successfully, in countries like Singapore.

GLOBALIZATION AND POWER

Globalization has also been accused of undermining the power of governments. The forces of globalization such as the global regulatory framework, the free flow of information through the internet and television media, the much more rapid flow of capital, technology and the greater mobility of people certainly puts pressure on governments to perform and deliver what people see is available elsewhere.

GLOBALIZATION AND ENVIROMENTAL PROTECTION

The environmental impact of globalization at times has been found to be negative. For instance when developed countries imposed higher standards of pollution and environmental control, such pollutant industries move to or thrive more in developing countries. However, it has been found that as incomes rise, local populations and citizen groups concerns for the environment increase and this puts direct and indirect pressure to improve the environment.

Multinational companies also adopt uniform environmental standards worldwide, thus arguing in favor of lower pollution of the environment by newer firms with more advanced technology. The Indian automobile industry is a good example of this.

CONCLUSION

While globalization and liberalization are inevitable forces for economies to progress in the world, the mitigating actions to overcome the negative effects of globalization are of crucial concern and importance in developing countries. This is specifically in relation to those that lose out both in the short term due to losses of jobs and increases in inequality as urban centers and regional clusters develop faster than rural agricultural areas. There is need for localized economic activity creation in rural areas through better agricultural reforms, agro industries and local industry creation. It is also necessary to build other measures of supporting security blanket measures, strengthening public distribution systems in remote areas, health service, education and infrastructure development.

The challenge before governments is, finding the resources and putting the optimum policies in place. They also need to communicate the overall strategy and benefits of the policy and its short and long term implications transparently, to ensure acceptance at all levels. There is no common approach. Countries have succeeded with different strategies. There are variety of choices, depending of the specific conditioning of each country viz, the levels of economic development, the political sensitivity to economic decision making, the demographics, the cultural and geographic diversity etc.

Thus countries need to find and fine tune their own course. There are pains to globalization but the gains of globalization far outweigh the pains.

The above article is based on a whole host of research carried out by different researchers in different countries and published in different publications.

The author Dr. Hiru Bijlani is the Managing Director of Zenith Global Consultants Ltd., and the author of ‘Globalization -an Overview’, ‘A Guide to Global Joint Venture and Alliances’, both published by Heinemann Asia Singapore and ‘Tip and Tales for travellers’ and ‘Succeed in Business India’, by Times Publishing Singapore. The last book having been translated to Chinese and published in China recently.