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Why some states benefit from globalisation while others fall victim to it Essay

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Updated: Nov 30th, 2019

Introduction

The global economic crisis triggered a renewed interest in the process of globalisation and an analysis of whether increased interdependence among nations is actually all it has been cut out to be by its supporters.

An examination of the phenomenon

Globalisation can be understood in various ways but for purposes of this analysis, it will the process by which technological, cultural and economic aspects of sovereign nations begin converging and becoming interdependent on one another (Burchill, 2008, 5). One of the most prominent depictions of globalisation is the interconnectedness of the world financial markets; a fact that contributed towards the world economic crisis.

In economic terms, globalisation can also be seen through increased use of internet banking, currency trading and the credit card phenomenon. Culturally speaking, globalisation is prevalent through continued Americanisation of the world, the use of the English language in several countries and spread of the Hollywood culture as well. Concepts like social networking websites, emails, global media and mobile technologies are also an important part of the phenomenon.

Indeed exposure to global forces and convergence of distance and time have been one of the short term effects of this phenomenon. Despite these seemingly new additions, one must not imagine that globalisation is anything new. It has been in existence since the 20th century and was analysed or predicted by early scholars such as Karl Marx who asserted that the need to increase the forces of capitalism would eventually result in a unification of world entities.

Globalisation should also not be seen as a combination of events; it is a combination of unrelated decisions made by authoritative entities in various nations of the world (Dickens, 2007, 8). Consequently, this explains why the phenomenon has as many supporters as it does sceptics. Sometimes globalisation can occur in reverse or may be manifested in a totally different way (Burchill, 2008, 189).

Why globalisation produces winners

Frieden (2006, 15) explains that the last one hundred years in the world’s history can provide valuable insights on globalisation. Some countries started benefiting from it especially in the first two decades of the twentieth century because at that time the movement of people around the world was prevalent thus facilitating growing times.

Therefore, nations that spearheaded this rapid rise such as Great Britain were the ones who greatly benefited from it (Kampfner, 2005, 103). As years went by, market economics altered and new western nations took over. The United States started winning in this globalisation ‘game’ because they held a central role in the world economy after the Second World War. Their approach to economic management was quite workable because it appeared to benefit both the recipients and initiators of global exchanges (Warren, 2005).

For instance, poorer countries would be encouraged to open up their borders to trade with the US and they would in turn benefit from increased aid during war and the like. Most importantly though, Frieden (2006, 237) shows that the United States was able to benefit from globalisation because it was in a position where it could effectively control the global economy through currency exchange.

The dollar had become the currency upon which other currencies were standardised and this gave it an upper hand. Another element that led to the US’s growing benefits from globalisation was the issue of reducing transportation costs. This eventually led to a decrease in the prices of factors of production and consequently, brought about greater prosperity and dependence between nations that traded with one another.

The US alongside its partners from Asia could both grow from globalisation and this led to subsequent increments in their developments (Wolf, 2004, 28). The US was able to ‘win’ in the globalisation tussle because it spearheaded a series of elements that caused convergence. For instance, the use of supply chaining in its organisations led to great returns back in the US. Walmart is one such example; this company has used technology to coordinate shipping, distribution and other supply chains and this has led to its worldwide growth.

Franchising from the latter country has also been responsible for placement of the US in the global map and hence their rapid growth (Friedman, 2006, 57). Conversely, Smith (2007, 154) argues that it is the spread of a hegemonic power that has contributed towards the US’s prominence in the global arena.

In other words, the ideas behind colonialism continue to plague the United States which continues to focus on its need to dominate other societies. American society has always been at the forefront of many political changes in the world. It has a tendency to impose its ideas upon many nations and this creates a situation where it appears to be more prominent than others.

In the last two decades, the United States was gaining from this domination because the world thought of it as an essential caretaker. The US reinforced those perceptions by advocating for human rights amongst oppressed nations, equality for minority groups and other freedoms. The world therefore looked at the US as a ‘big brother’ that was crucial in preserving world peace (Smith, 2007, 98). Its positive contributions therefore led to greater prominence in the world political arena and positive results thereof.

Another state that has grown and benefited from globalisation is Russia. As Friedman (2006, 201) explains, the falling down of the Berlin wall was one of the critical flatteners of the world. In other words, the end of the cold war denoted the fall of communism and also indicated that the former Soviet Union could be open to world interchanges.

Members of the former Soviet such as Russia were now able to access world markets and this eventually led to improvements in their economy. In fact, communism was seen as a threat towards the free flow of capital and factors of production in the world (Bisley, 2007, 94). Since this ceased to be a problem after the cold war, then countries that had not been participating in world trade could now be free to do so and this promoted greater levels of interaction.

One state that has contributed greatly towards globalisation in the past two decades is China. The latter country, alongside other Asian nations became the preferred choices for off shoring and outsourcing among older economies. China was seen as a cheaper production source for manufactured goods and this caused many western based firms to offshore their production to the latter country.

Countries in the west were also able to split costs of producing or delivering goods and services through outsourcing. China was seen as an ideal location for subcontracting. The country’s economy therefore grew by leaps and bounds and these trading activities reverberated across the globe. In other words, it benefited from globalisation because one of the critical drivers for globalisation i.e. cost cutting, could be achieved from China (Friedman, 20006, 79).

Why globalisation produces losers

As described earlier, a number of nations have been at the forefront of globalisation and they have therefore appeared to be winning. However, because of the changing patterns of this phenomenon, some countries that were previous winners have started experiencing the downside to globalisation and have therefore lost their ability to benefit from the growth. Smith (2007, 51) asserts that the US’s notion of being an empire has contributed to the latter scenario.

In the past, the US presented itself as a philanthropic entity in the global scenario and this could cover up its hegemonic interests (Baylis et al., 2008, 19). However, when the latter changed, it became clear to the world that the US was propagating a hegemonic agenda that revolved around their interests rather than on human rights issues. A classic depiction of this matter was the war in Iraq (The US led 2002 invasion).

It has been seen that such an invasion sought to advance the US‘s interests as directly and as unashamedly as is reasonably possible. The move to military methods by the US is an indication of a change from neoliberalism which had dominated the nineteen nineties to neo-conservatism (Smith, 2007, 177).

The inability of markets to evaluate fundamentals has also contributed to the creation of losers in globalisation because this has reversed trends. Eichengreen (2008, 67) argues that many emerging economies heavily depended on exports in the twenty first century. They were forced to embrace the concepts of free trade because their economies are heavily relied on other nations. To this end, these nations were forced to rely on monetary policy to control their economies.

The problem with this approach was that it led to vulnerability to currency fluctuations which are quite unpredictable in the outside world. To this end, a country such as Thailand underwent this problem and its currency started going down. Eventually, other currencies in the region like South Korea were also affected (Zakaria, 2005, 7). This susceptibility to foreign currency fluctuations is what has caused a victimisation of nations to globalisation.

Johnson (2009, 51) gives a thorough explanation of what has led to the crisis that the US is currently going through. Here, America had entered into agreements within the financial sector with many global lenders. Its overreliance on the financial and service sector also made it very vulnerable (Sirkin et. al, 2008, 57).

Its lenders worried over its ability to deal with its rising debt levels and therefore stopped lending to them. In the end, major financial institutions like the Lehman brothers had to close and this led to greater bankruptcy in other spheres of the economy which were tied to the financial sector. The financial sector was propagated and grown by globalisation and therefore illustrates how globalisation can create a winner at one point and a looser at another.

Rachman (2009, 14) believes that the interdependence of nations caused the economic crisis in one nation to spread to others dramatically. Financial markets are largely interlinked thus illustrating that an alteration in the New York Stock Exchange will be reflected in the Nikkei exchange as well. This means that the bankruptcy that started in US spread to other trading partners of the world (Held and Mc Grew, 2007, 109).

Consequently, some sort of de-globalisation was recorded where nations reported lowering employment rates, reduced investment and increased protectionism. A number of developed nations like the UK and China have witnessed this and are therefore feeling the pinch of this phenomenon negatively (Naim, 2009, 30). Nonetheless, Tett (2009, 17) asserts that the problems of the global crises started with the continued greed prevalent amongst investment bankers who resisted government intervention and acted recklessly.

Their financial gambles trickled into other spheres of their lives and eventually spread to global markets. So developing nations are losing this globalisation ‘game’ (Wade, 2008, 18). Ironically though, marginalised societies that were initially ignored in more successful times of globalisation are not as devastated with the financial crisis as developed nations because their resources were not as directly tied to these influential states as anticipated (Ghemawat, 2007, 15).

Conclusion

Globalisation caused immense victories when the world economy was stable and growing; however, after the global crisis, traditional winners have fallen victim to globalisation and must therefore reassess their reverence for this phenomenon.

References

Warren, B. (2005). The Great Leveling. Washington post, 6th September

Ghemawat, P. (2007). Why the world is not flat. Growth strategies, 4th June

Wolf, M. (2004). Why globalisation works. New haven: Yale university press

Sirkin, H., Hemerling, J.,Bhattacharya, A. (2008). Globality: competing with everyone from everywhere for everything. NY: Business plus

Kampfner. J. (2005). Inside the new superpowers. Guardian unlimited, May 15th

Baylis, J., Smith, S. & Owens, P. (2008). The globalisation of world politics. Oxford: OUP

Zakaria, F. (2005). Wealth of yet more nations. New York Times , May 1st

Scott Burchill, ‘The World Economy: Globalisation and Crises’, in Sally Totman and Scott Burchill (eds), Global Crises and Risks (Oxford University Press, 2008), pp. 187–201.

Moisés Naím, ‘Globalization’, Foreign Policy, No. 171 (March–April 2009), pp. 28–34. Further Reading

Nick Bisley, Rethinking Globalization (Palgrave Macmillan, 2007).

Peter Dicken, Global Shift: Mapping the Changing Contours of the World Economy (SAGE, 2007, 5th Ed.).

Barry Eichengreen, Globalizing Capital: A History of the International Monetary System (Princeton University Press, 2008, 2nd Ed.)

Jeffry A. Frieden, Global Capitalism: Its Fall and Rise in the Twentieth Century (W.W. Norton, 2007).

Thomas L. Friedman, The World is Flat: A Brief History of the Twenty-First Century (Penguin, 2006, Updated and Expanded Ed.).

David Held and Anthony McGrew (eds), Globalization Theory: Approaches and Controversies (Polity, 2007).

Simon Johnson, ‘The Quiet Coup’, Atlantic Monthly, May 2009, pp. 46–56.

Gideon Rachman, ‘When Globalisation goes into Reverse’, Financial Times, 2 February, 2009. Available at:

Neil Smith, The Endgame of Globalization (Routledge, 2004).

Gillian Tett, Fool’s Gold: How Unrestrained Greed corrupted a Dream, shattered Global Markets and unleashed a Catastrophe (Little, Brown. 2009).

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