Capitalism and Globalization Effects Essay

Introduction

Capitalism began back in seventeenth century in Europe, whereby, it involved making of profit via production of goods and services. The main factor in capitalism is the capital, which is used to generate wealth, via production. Capitalism is a social system, which most countries have adopted, whereby, the means to produce and distribute goods are owned by a small group known as the capitalists; however, the rest who work in order to earn wages are the working class.

The working class group or labour always work hard to produce goods and services, which bring in profits for the capitalist, hence giving rise to the critic that capitalists exploit the working class group in order to make more profits and continue accumulating wealth.

In capitalism, the free market determines production and distribution as much as the price of good and services. In a free market, government interference is normally minimal and the buyers and sellers are the sole determinants of prices.

According to Fulcher (pp2), he describes capitalism as the investment of money with an expectation of profit, which could be huge depending on the risk taken. However, according to an article by Anderson (pp10), in free market capitalism, initial wealth is created, which then spreads; it then leads to the social and political change due to the increase of power in the society.

According to Rothenberg (176), “globalization is the acceleration and intensification of interaction and integration among people, companies, and governments of different nations.” Nevertheless, globalization involves a global market in which sales and purchases of goods and services are not restricted. Globalization contributes to the creation of wealth, job opportunities, as well as improving the quality and variety of goods and services globally.

However, globalization has been criticized for allowing investments in the developing countries where the cost of production is much lower as compared to the industrialized countries. Due to the cheap labor and low cost of raw materials in the developing countries, globalization seems to exploits this advantage.

However, the main aim of globalization should be creation of jobs and boosting of the economy for the developing countries. The main aim of business establishments is to make profits, but some organizations go to the extent of being unethical just to make profits. For instance, some industrial companies dispose their waste products in rivers and lakes, since they do not want to spend money of proper disposal.

The effects of such actions are hazardous to the human being and their surrounding environment, since it could lead to diseases that are sometimes fatal. According to an article by Anderson (pp10), globalization is seen as a factor that encourages social and political development in a society. Indeed, globalization expands the economic relations through the movement of capital and labor.

Effects of capitalism and globalization

Capitalism motive is to produce goods and service for profit purpose, hence satisfying customer’s need is not their priority. The capitalists’ base production on the profits that can be made through sales, while the profit motive of capitalists is prioritized because it is only through profit making that they will be able to be regarded as capitalists. Nevertheless, competition exists among capitalists, thus forcing each of them to work hard in order to keep up with the current production methods.

State directed capitalism occurs when government gets involved with capital movements, for instance, in china. According to Baumol (pp 60), capitalism can be categorized into state guide capitalism whereby, the government of a particular country guides the market via giving support to specific companies that are expected to prosper. An example is in South Korea, whereby the government favors certain companies via exclusive licenses, government contracts or through tax breaks.

They are also protected from competition from foreign companies. The favored companies are regarded as champions and they receive full support from the government, since their success is guaranteed.

However, the state-guides capitalism can be faced with pit-falls, for instance, in the case of South Korea in the 1990’s, when the government persuaded banks to loan the southern Korean conglomerates due to the expansion of steel and chemical industries. Hence, the banks invested heavily on these industries such that when the financial crisis hit, the country’s economy almost collapsed (Baumol, et al, pp 67).

Secondly, there is the oligarchic capitalism in which power and wealth is under a small group of people. This type of capitalism is mainly common in Latin America; however, incomes are normally distributed unequally, and the families that own the economies do not encourage competition from the new entrants. Governments make it difficult for any new business that will prove to be a competitor to operate.

The oligarchic capitalism is associated with corruption, such that, the governments makes it hard for citizens to obtain licenses for business. For instance, in Saudi Arabia, where one family runs and owns the oil, it is able to control the oil business and establish many businesses; the government issues this family with oil revenues, thus providing support to other businesses. The main characteristic arising from this capitalism is income inequality, corruption, and informal activities (Baumol, et al pp 76).

Thirdly, there is the big firm capitalism, whereby, profitable economic activities are carried out by giant firms only. Fourthly, there is the entrepreneurial capitalism in which an important role can be performed by a small firm. In a market with few competitors, the firms are at an advantage to set their own prices. However, an economy cannot survive on entrepreneurs who only focus on one item alone, which is why there is need for big firms in a country.

Capitalism is one of the successful system in wealth creation; “technology progress, the ultimate driving force of capitalism, requires the continuous discarding of obsolete factories, economic sectors, and human skills” (Gilpin Para. 1). However, capitalism is criticized for rewarding the adaptable and efficient businesses; however, it punishes those that are less productive. According to Gilpin, the process of creative destruction creates many winners and the same applies to the losers.

He further explains that, though capitalism is known to distribute wealth more equally, compared to other economic systems, still it rewards the most efficient and productive. However, it has a tendency of concentrating on power, wealth, and economic activities, such that those that are threatened by the power of capitalism tend to try to overthrow or change the system, since it poses as a threat to them (Para. 2).

Gilpin adds that, since the beginning of the 21^st century, the global economy seems threatened since the European movement and the North American free trade agreement (NAFTA), represent important shift away from an open economy and the political foundation of international economy have been undermined. The presences of forces of economic globalization trade, financial flow, and the corporation’s activities have contributed to the interdependence of the international economy.

Moreover, “among the developed countries, deregulation, privatilization, and other reforms have reduced the role of the state in the economy and led many to proclaim the triumph of international capitalism and economic ideas on which it rests” (Gilpin Para. 26 ). In fact, capitalism is based on ‘winner takes all’; therefore, it strengthens competition in a market since everyone wants to emerge as the best.

Nevertheless, capitalism has had effects on both the economy and the society; this is evident in families who only focus on their success and prosperity, hence ignoring the emotional needs of their children. Such parents are hardly at home, and are always working hard to achieve a competitive advantage at all times. Due to the fact that their children are not well grooming to assists them to be better and responsible adults, they seek comfort in the gang groups as they provide them with emotional support.

They end up engaging in drugs, alcohol, and violence, which could lead them to prison. Capitalism has also contributed to divorce in the society, whereby, one spouse is hardly at home but is always concentrating on making more and more money, and as a result, the other partner may feel neglected and decide to find emotional support elsewhere. In turn, this has led to the destruction of family structure in the society.

Globalization is associated with policies such as deregulation, whereby, the trade restrictions are limited and the government involvement in trade is less, hence business is able to flow efficiently and earn more profits. Moreover, accessibility of goods at lower price is possible, making them affordable to the customers. However, regardless the advantage of low priced goods, unequal distribution of wealth emerges from the factor that contributes to the exploitation of natural resources.

Despite the fact that globalization assists in the spread of wealth, the fact is that it does not distribute wealth equally; instead, it contributes to the wealth of the wealthy in the society. Globalization has also contributed to the growth in technology, which has enhanced effective communication globally, thus making trade and interaction easier. In addition, globalization has yielded to stiff competition among nations and organizations, as they aim to acquire more.

The emergence of the internet has truly made people’s lives easier since e-commerce has made the selling and purchasing of goods easier. The internet is also affordable and easier to communicate to people fast despite the distance. With the advancing technology, globalization has continued to increase thus opening more doors to trade between different organizations of different countries and yielding to globalization organizational integration.

Hence, it is contributing to foreign currencies, which boost and enrich the economies of the trading countries. However, the main disadvantage of globalization is that the wealthy nations become richer while the poor nations remain poorer, since entrepreneur wish to invest in countries whose economies are stable, where huge profits are a guaranteed – hence benefiting such countries.

Most investors target countries that have cheap labor and availability of raw material. Although by establishing industries in these countries leads to employment opportunities and boosts the economy of that country, it is however associated with the disadvantage of pollution of rivers and lakes due to improper disposal of waste materials.

This in turn contributes to the fatal diseases and environmental pollution that contributes highly to global warming. Hence, the developing countries are at a disadvantage in the protection of their environment from pollution. It is however evident that poverty in the developing countries reduces as the income rises; hence, globalization has played a major role in the reduction of poverty. Nevertheless, globalization makes it easy for people to travel, due to improved infrastructure that makes business more efficient.

It also makes it possible for local goods to be exported to different countries; the interaction between two different countries usually leads to cultural diffusion. Though globalization brings about development and creates employment, it is criticized due to the fact that some of the developing nations develop at the expense of other developed countries.

According to Anderson (pp12), those developing countries that have unwillingly embraced ‘partial economic openness’ tend to suffer due to the fact that the increasing wealth, only benefit a particular group of people due to corruption, hence the difference between the rich and the poor becomes more broad. These countries also face the limited trickle down effect, whereby, the rich continue to progress, while the poor suffer.

While the infrastructure advances, most of these countries show a decline in the local market while the exports are determined by the export prices. However, immigration is evident in all countries due to businesses and trade, promising jobs, which are brought about by globalization.

Anderson adds that globalization has contributed highly to change in the way of life, for instance, breast milk can be replaced with nestles condensed milk, leading to the increase in tobacco smoking, which is targeting the teenager and youths especially, hence lowering their lifespan.

Globalization has had both negative and positive impact on different countries. First, the developed countries have had to lower taxes to attract investors to their countries. The developing countries on the other hand have had to bear with low wages, child labor, and poor working conditions (Anderson, pp 13).

Even though capitalism and globalization has been taking advantage of economically declined countries for their work force for less than minimum wage, they are still turning towards them for the company’s income as the economy takes a huge toll. Globalization and capitalism have been criticized for expanding at the expense of the developing countries.

For instance, globalization is praised for the opportunities that are associated with it especially for the developing countries. Mainly globalization has resulted to the foreign direct investment (FDI), in which it creates employment opportunities for the unskilled labor in developing countries and contributes to the countries’ economy as a result of the investments.

However, in times of recession, FDI causes increase in unemployment, since the low wage laborers face a threat of losing their jobs. On the other hand, in the developed nations, recession makes the country to face an increase in income inequality.

Moreover, under capitalism, only a small group controls money and resources thus accumulating more and more wealth by keeping their profits high but wages are kept low. In capitalism, it is clear that profit comes above anything else, even the society. With this in mind, the societies compete against each other for the low wages and long hours to make ends meet, as the shareholders make most out of the laborers (Guang-jie pp 2).

As demand for profit increase from the capitalists, it leads to the exploitation of workers who are forced to work for ling hours with little pay. Needless say, the continuous production of good leads to an increase in pollution in the developing countries, since these countries have little control over the issue. Pollution of the rivers and lakes with waste products contributes to the rise of fatal diseases like cholera, which eventually lead to death if not treated at an early stage.

When the atmosphere is polluted as a result of greenhouse gases, like carbon dioxide, the effects are global warming, which interferes with the climatic conditions of a country, and could eventually lead to heavy rainfalls that lead to floods or long periods of drought that are evident in most parts of Africa.

Globalization has contributed to quality living standards of many people globally; however, it has also led to poverty for many more. This applies where the rising businesses in the developing countries face the challenge of competition from the wealthier nations.

Since they are unable to compete with the foreign multi-national firms, they result to doing business locally, hence, they never advancing at all. Due to advancing technology, production becomes rather expensive but not all countries can be able to accommodate the high price of technology, with the developed countries being at an advantage (Anderon 10).

Most wealthy companies are successful because they can easily access technology; hence, their profits continue to increase. Since investors invest in countries where labor is cheap, they are able to make more profits at the cost of employee’s hard work.

Income inequality is caused mainly by the advanced technology that has reduced the number of low-skilled jobs, thus increasing incomes of the skilled personnel. Globalization can be blamed on the issue of income inequality; however, we cannot deny that this challenge is overweighed by the many advantages of globalization.

According to Rivlin (Para. 18), the gap between top and bottom widens because income at the top moves up as the incomes at the bottom continue to decrease. In 1990, there were low unemployment rates, meaning that people were beginning to get better paying jobs, since the demand for skilled personnel were rising – the graduates were indeed benefiting.

He however argues that low employment rates and low inflation can only be achieved if the productivity if growing fast enough. Free market capitalist work well when policies are right and when technology is contributing to the growth in productivity and still labor is scarce. It is in such conditions that when competitiveness is effective since capital moves quickly into new ventures.

According to Barber (Para. 12), commerce, banking, and business usually depend on information flow and are facilitated by the communication technologies especially through computers, satellites, and fiber optic among others – this contributes to globalization.

In addition, globalization affects the ecology in many ways, such as, the pollution caused by green house gases that affect our planet, how gas- guzzlers fueled by leaded gas destroy the German forests. However, trading of between the developed countries and the developing countries give hope to the developing countries that they can catch up technologically, this hope is normally as a result of the direct foreign investment.

When the multinational companies settle in the developing countries, they impose policies concerning the investment they are providing, hence giving them an upper hand in the developing countries. The fact is that these foreign companies’s aim is not to boost the host country’s economy; instead, their priority is the cheap labor, low cost of raw materials and the convenient taxes.

The developing countries on the other hand, tend to abide by the policies implemented by the developing countries in fear of them withdrawing their investment. The irony is that, the profits of these multinational companies are repatriated home and not invested in the host country.

According to Harris (pp 6) in china, Russia and the Arab gulf, the state owned corporations present play a huge part in influencing the global economy. Growth of such countries is dependent on the state corporations and the government. With global capitalism in the developing countries, it has yielded to statist globalization and the emerge of transitional capitalist who act as independent players.

Harris explains that the transitional capitalist class power was evident in 2007 during the economic problems. Whereby as the United States experienced economic crisis, Russia, china and India were growing economically. According to Harris, “the flood of foreign investment produces an excess of cash in developing nations, while at the same time creating denationalized portfolios for the transnational capitalist class” (Harris pp7).

Therefore the developing countries are able to grow economically through foreign investment, nevertheless in china for instance the state owned transnationals control about 60% of the foreign investments and the same case applies to India. However Harris (pp 10) explains that most developing countries have oil and gas resources thus representing an economic and political power. An example is the Middle East which attains most of its money from oil.

In return there is flood on investment banks, venture capitalist and private funds; an example lies in the United Arab Emirates, which has over $20billion worth of investments. The Chinese government took a huge step in protecting their economy from foreign investment hence supporting it main sources of income, for instance the shanghai stock market is a no go zone for foreign investors, hence leaving china at a competitive advantage.

According to Gill (pp 277), when globalized markets fail, they cause great disaster since they can fail more deeply, nevertheless he blames the fall of a market on the state for allowing such disaster to occur. He adds that the factors that lead to cries include; over-extraction, over-concentration, under- consumption and underinvestment. At this point transformation is important, since the system can not be sustained by the current social, political and economic situations, thus avoiding further crisis.

Though capitalism offers job opportunities to the developing nations, it is criticized for the exploitation of these workers, which falls under the globalization of capitalism. According to Guang-jie (pp2), the neo-classical distribution theory identifies price as a factor that influences wage. The nature of price of a product produced in the developing countries determines the income of the laborers, but the price of these products is often under-valued, Therefore a clear indication of an unfair market.

Conclusion

Globalization benefits the wealthy nations and companies while the companies in the poor countries collapse as they lack the resources and capabilities to compete with the wealthy nations. This has led to the blocking of investments and growth in most developing countries. Capitalism only takes place in performing nations rather than the deteriorating economies; this is because it is mainly concerned with maximizing profits only. Nevertheless, we cannot deny that capitalist and globalization have some advantages.

Capitalism, for instance, contributes to a rather positive political and reforms in the developing countries. This in turn, leads to the citizens of the host country recognizing their rights, civil liberties and provide a better standard of living.

Most economies become stronger after adapting capitalism. Moreover, with the stiff competition, the capitalists are able to produce the best to make more sales. With the changing technology, and increase in speed, capitalism seems to fit in this setting of globalized system. However, the main problem lies with the low wages offered to the laborers.

Works Cited

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Harris Jerry. Statist Globalization in China, Russia and the Gulf States; Science & Society, Vol. 73, No. 1, 2009. Web.

Anderon, Ron. “Evaluating the Effects of Globalisation.” Ethos, Vol. 18, No. 2, 2010, pp 8-13.

Barber, Benjamin. “Jihad vs. McWorld.” The Atlantic magazine. 1992. Web.

Baumol, William et al. Good capitalism, bad capitalism, and the economics of growth and prosperity. NY: Yale University Press Publisher. 2007.

Fulcher, James. Capitalism: a very short introduction. Oxford: Oxford University Press Publisher. 2004.

Gilpin, Robert. The Challenge of Global Capitalism: The World Economy in the 21st Century. Princeton University Press. 2000. Web.

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Rothenberg, Laurence. “Globalization 101: The Three Tensions of Globalization.” The American Forum for Global Education, No. 176, 2003. Web.