Principle and practice of globalization

Now it may be interesting to have a fresh reference to the very concept of globalization. Any exercise or any attempt undertaken keeping in view world standard, worldwide preference and worldwide imperatives: across traditional geographical frontiers speaks of globalization. Growing economic: interdependence and ever-enlarging market integration are two basic developments.

And now both scale and scope have to be reviewed, revised and redefined in response to new mandates of higher interaction. Outlook, design of organization and model of adjustment need to be scientifically updated.

In other words, the act of globalization is largely forward looking and equally exciting. It is associated with increasing cross-border movement of capital, goods, services, technology, ideas and people. As such at the centre lies tension of adjustment, adaptation and creation.

The increasing extent of globalization is reflected in the tremendous growth of trade in goods and services. From 25 percent of World GDP it has become 46 percent in 2003-06.

Capital flows amounted to 10 percent of global GDP. It may not be nice to look upon globalization as brakeless train wreaking havoc or a free lunch. Essentially it has developed into a new phenomenon of security of market access.

We come across three waves of globalization the first of which started more than 100 years ago - between 1870 and 1914. During this period exports nearly doubled and foreign investment tripled in Africa, Asia and Latin America.

International migration was particularly dramatic with about 10 percent of world’s population moving from Europe to the New World and from China and India to the less populated neighbouring countries. However this impressive wave of globalization was virtually reversed during the First World War, the Great Depression and the Second World War.

The second wave of globalization lasted from 1950s to 1980s and involved only developed countries. Trade and investment were growing among European countries, North America and Japan aided by a service of multilateral agreement on trade liberalization under the auspices of the General Agreement on Tariffs and Trade (GATT).

The third and current wave started from 1980s and continues to-day driven by two main factors:
(1) technological advances and
(2) liberalization of trade and capital markets.

More and more Governments of developing countries choose to reduce protection of their economies from foreign competition and influence by lowering import tariffs and minimizing non-tariff barriers such as import quotas, export restraints and legal prohibitions.

A number of international institutions established in the wake of the Second World War - including the World Bank, the International monetary Fund and World Trade Organization play important role in promoting global, free trade in place of protectionism. For participating countries the main benefit of free trade stem from the increased access of their producers to larger international market.

For a national economy that access means an opportunity to benefit from international division of labour by moving its resources to the most productive uses, — by specializing in producing and exporting what it can produce best, while importing products utilizing their country’s comparative advantage in the global market more efficiently and their consumers enjoy a wide variety of domestic and imported goods at lower prices.

In addition, an actively trading country benefits from new technologies that spill over to it from its trading partners through the knowledge embedded in imported production equipment. These technological spillovers are particularly imported for developing countries because they give them a chance to catch up quickly with developed countries in terms of rising productivity.

But a country joining the global race also faces considerable risk associated with tough international competition. But one can argue that international competition creates the necessary pressures to prevent economic and technological stagnation and to stimulate domestic producers to produce competitive goods at competitive costs.

Thus globalization means being able to manufacture in the most cost-effective way possible anywhere in the world. It means being able to produce raw materials and drawing management resources from the cheapest source anywhere in the world. It means having the world as a market

But in real life the physical and human capital in the uncompetitive (sick) industries in underdeveloped areas is not easily transferable to other more productive uses for many reasons,— such as lack of additional investment, shortage of information about market behaviour and new technologies.

Meanwhile, there is also apprehension of rising unemployment and slow economic growth resulting from these possible changes. Not surprisingly, Government of underdeveloped regions often argues that many of their national industries require temporary protection until they become better established and reasonably competitive and less vulnerable to aggressive foreign competition.

Economists justify protectionist policies mostly as temporary measures. The costs and benefits of participation in global economic activities largely depend on such country-specific factors such as:
(a) the size of a country’s domestic market,
(b) its natural resources and
(c) its geographic location.

— to be continued

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