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Why does globalisation generate ‘winners’ and losers?
Globalization refers to international interdependence of economies through an increment of economic, social, political and cultural interdependences. Scientific and technological innovation and invention in communication and transport has made the world a global village.
With globalisation, good and services, labour and capital find their way in the country where they can be put into maximum use. Through economic integration, nations get a wider access to the world economy/markets and their dependence on local resources is reduced. For trade to be complete there must be the demand and supply of commodity; globalization is at the centre of international trade; it is supported by trade, environmental, political and social agreements, has supported it.
With the increased globalisation, some economies stand to benefit from the integration while other loses. Whether a country stands to loss or gain depends with the efficiency of production employed in the economy relative to that of its competitor (Schulte, 2000). This paper discusses why there are losers and winners because of globalisation.
Why there are winners and losers
Globalisation has created some winners in the integration, some countries have benefited while other has lost in different aspects, and alternatively, there are countries that are benefiting more than others are. The current economic growth of the United States and China has been attributed to globalisation and international trade. Germany has been the world largest exporter followed by United States but of late, 2009, China is catching up with them, and it became the second largest economy in August 2010.
According to Economic survey conducted in 2009 and released in August 2010, china has had a continuous economic growth rate to a point that it surpassed Japan to be the second largest economy in the world.
Although globalization has had many benefits, it has not been able to encompass all sectors. Many nations continue to experience regional disparities. Poverty rates are still high in sub-Sahara Africa although there has been a fall in its rates in South and East Asia.
Statistics from the United Nations (UN) shows that about one billion people live on less than one dollar per day and about 2.6 billion live on less than two dollars. It is believed that this has been because of too little globalization. If globalization is increased, some of these problems can be eliminated.
The benefits of globalization came along with some risks associated with it. These are a result of capital movements among nations. IMF employs policies from time to time that help nations manage some of these risks. It offers technical assistance in some of the macroeconomic policies, the exchange rate and financial sector. Losing can be in the form of material loss or in social attributes like culture and countries pride. The differences in benefits from globalisation can be attributed:
- Technological differences
Developed countries have high, efficient technology than developing countries, they are able to produce goods at lower cost than in the developing countries, when they are competing, and they can sell their commodities at relatively low prices than those from the developing countries.
When there is high competition, then local industries in developing countries are not given time to mature and compete with well-developed international companies at the same level. Inefficiency them prevails in developing countries that leads to their deterioration in economies. Some countries have become net consumers since they cannot develop companies and industries that can effectively compete with those in the developed countries.
- Comparative and absolute advantages paradigm
International trade operated under the paradigm of absolute and comparative advantage. The concept behind absolute advantage is that households tend to produce what they can produce more cheaply and opt to buy those that they cannot produce effectively. The same concept should be used in countries production. The concept broadly states that if a country can import goods and services more cheaply that they can produce in their county, then there is no point of producing that product or service.
If we have two trading countries, country A and country B, country A has a comparative advantage than country B if it has a marginal superiority in production of certain product. Abundance of factors of production differs with countries. A country will generally tend to produce those products that utilize the most abundant (cheap) factor of production.
According to this concept, if each country specializes in those products and service that it can produce more efficiently, then production can increase and maximum and efficient resource utilization realized. The concept argues that trade allow each country (trading partner) to specialize in those goods and service that it can have a lower marginal production cost.
The problem with the approach is that there are some countries that do have commodities to produce at low rate, if they have the commodities they then have no the required technology to do it, they thus become consumers of other countries products. On their side, they are missing the chance to innovate and develop measure and methods to make their production effective. Those countries with the expertise and technology gain in that they produce and sell even to those places that might be able to produce their own goods.
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- Resources distribution
Some countries have better resource distribution than others; this has resulted to some nations having the commodities more needed in the world market than others do. Resources include minerals, climate and other natural resources. A country like Kenya in east Africa has good climatic conditions that favour tourism and production of tea and coffee.
When these commodities are competing with others in the market, the country is likely to have an upper hand. Oil is an important mineral in the world, those countries that have the deposits stands to benefit more than consuming countries. Countries that have higher production have enjoyed form fair trade dealings. Fair trade is an ethical concept where in case of trade there is mutual benefit between the producer, sellers, and consumers benefit from a certain production.
It emphasis on equality in benefits and sometimes dangers caused by a production process; sometimes fair trade is used to refer to how producers are paid, the level of quality of production and efforts made to restore nature. There are different international organizations which support fair trade, they include Fair-trade Labelling Organizations International (FLO), created in 1997 and World Fair Trade Organization (formerly the International Fair Trade Association). The final net effect is countries that have developed better than others have.
- Intellectual property and capabilities
People in different countries have different mental capabilities shaped by different attributes, some in born while other has been moulded through talent maturing and education. They are able to produce new commodities to the market and thus stand to benefit from the innovation.
Since they have come up with a commodity, they are able to create a market niche. Some of those countries include China, Japan and Germany that have been known to develop a number of products. They are further supported by mechanisms set by the government and intellectual policies.
- Strategic locations, infrastructures and political standing
The location of country in the globe has either positive or negative effect on the business; the more accessible a country is the more the business it will attract and thus results to increased benefits from globalisation. Coastline is the main transport system that is used to trade among countries especially for bulky goods. If a country does not have a coastline then its trade will be hampered; it may need to pass through another country to get its products from abroad. This increases the cost of trade in the country.
For example, Uganda is a landlocked country; the country gets its products using the Kenyan coastline. The trade comes with a cost incurred for the use of the coastline. Currently the country discovered oil deposits in the northern part, with the discovery, countries as Kenya has started to prepare to enjoy spill over benefits. In such a situation, we can see that Kenya has been favoured by its positioning.
- Protectionism policies and trading blocs in some countries
Some countries have put barriers to trade, openly while others are hidden in policies; barriers put restriction to international trade. Trade barriers are governmental policies, fiscal and physical barrier; the government may impose restrictions, which burrs the importation or exportation of goods or services from certain countries. On the other hand, there are trade regulations defined in different nations, which restrict trade with specific goods and services.
It may also open its borders to facilitate trade. Most of the trade barriers use the same principle; they impose some cost on trade to raise the prices of the goods in question. When determining import duties, country use the CIF (Cost, insurance and Freight) policy, this means that those goods form inefficient countries will pay higher import taxes than efficient countries. The result is favour in one side of the countries.
Free trade agreement removes these trade barriers except the ones they deem necessary for the nation’s security. Examples of such agreements are North American Free Trade Agreement (NAFTA), European Union (EU), South Asia Free Trade Agreement (SAFTA), Union of South American Nations and European Free Trade Association.
When such countries engage in free trade agreements, they lock other countries who are not members to the agreement from benefiting the trade (Michie, 2003). The countries in a trading agreement benefit at the expense of others who are not part of the deal.
As economies expand and trade with each other with assistance of improved technology, the world is becoming a global village. The enhanced transport and communication networks are the foundations of globalization; however, globalisation has resulted to winners and losers.
Developed countries with unique natural and artificial resources benefit from globalisation more than developing countries. Major factors that lead to winners and losers in globalisation are technological differences, comparative and absolute advantages paradigm, resources distribution, intellectual property differences, strategic locations, infrastructures, and protectionism policies.
Michie, J. (2003). The handbook of globalization. Northampton: Edward Elgar Publishing.
Schulte, J. A. (2000). Globalization: a critical introduction. New York: Palgrave Macmillan.