History of Economics and Globalization

Question: Discuss about the History of Economics and Globalization. Answer: Introduction The term Globalization is a contemporary term but this of globalization practice is not new. There are economic trades, flow of capital, financial flows, increasing economic activities and transaction across the political borders exists since middle ages. There are many ups downs in the evolution of Globalization. It is in first half of the 20th century that globalization really picked up and expanded. In the 1929, the great depression started in US and crippled the economy for the next 4 years. Then In 1937, US economy was back on its track. There were shortage of resources in some nations and as a result export capital of some other nations grew rapidly during this time. Nations are begun to cooperate with each other. There was also understanding to exchange the economic resources between the nations to settle the international disputes as war consumers the resource of all the participating nations. In further course of time, Institutions like World Bank and international monetary fund established. The purpose of these is to monitor, regulate as well increase the economic transactions between the nations (www.imf.org). Gradually many nations also open their economies for foreign investment which give further rise to globalization n. Further With the advent of internet, digitalization and other disruptive IT innovations has fastened the pace of increasing economic transaction among nations. Also, the rapid growth of multinational companies and their hunger for newer markets has accelerated the globalization. Globalization, which had picked up its pace during the last quarter of 20th century has increased rapidly during 21st century. However Globalization has both positives as well as negatives. On one hand, it is making sure that the consumers get the lowest price due to the increased competition but at the same time, many people are becoming unemployed because there are poor nat ions with cheap labor available. There are tax heavens which are exploited by the corporations who saved a lot of tax by shifting their base to such countries. Unemployment levels in US have become very high due to migrants from India and China has replaced their jobs. Every time there are elections in America, increasing employment by putting more restriction on immigrants is the top agenda of all the parties. However, there are corporate who always require fewer rules and thus believe in lobbying the government. The objective of this report is to throw a light on history of economics and globalization in details and how some countries are benefitted from it while some countries are losing because of it. Evolution of Globalization Globalization is not a new practice; it has been there since middle ages. However, it enters to next level in the 18th century with the spread of Industrial revolution and huge development in human technology, inanimate traction for goods which lead to mass production of goods and transportation of goods and people across border, financial investments flows between nation and colonial plunder by European nations. The income was increasing rapidly between European and American nations on one hand and rest of the world on the other hand. After that Globalization halted for sometime due to the various wars of 20th century. However it picked up again during the second half of 20th century and currently in 21st century, Globalization has become the trend and pervades every aspect of life. It will be difficult to image the life without Globalizations. Some brands have become commodity worldwide, some corporate have shifter their manufacturing units in low cost countries that it will be con tinue to be there. It can be said that the economies of different nations is linked closely with the globalization. It is observed that the nations that are open to global firms have strong economic structure as compared to the nations that are not open to global firms. Many forums like World Bank, World trade organization, international monetary fund are established to regulate the international trade between countries (https://www.wto.org/english/thewto_e/coher_e/wto_imf_e.htm). World bank was established with long-term aim of reducing poverty and improving standard of living by promoting economic development (Baylis, Smith, Owens, 2013). International trade and International Finance International finance uses the macroeconomic models to understand international economy. It identifies the relationship between indicators like GDP, exchange rates, unemployment rate, inflation rate, interest rates. The aim of international finance is to look after trade deficit and imbalances and makes sure that indicators are in control by influencing government fiscal and monetary policies and determining exchange rates. International trade is the application of micro economic models to study the international economy. It studies demand and supply analysis of international markets, consumer behavior, oligopoly, effect of market distortions. This is basically to understand how the international trade has affected the individuals, businesses. Globalization has increased the unemployment rate in some developed countries and decreases the unemployment rate in some developing countries. This statement is more related to International finance. Globalization has increased the demand of s ome goods across world and there is always shortage of supply is related to International trade. Emergence of Cross-national cooperation and agreements There are various forums developed like SAARC (South Asian Association for regional cooperation) with aim to increase and promote regional and economical integration. The Organization for Economic Co-operation and Development (OECD) was also established in 1961 to improve the standard of living and quality of life of the people around the world. Under it, member countries share their problems and try to help each other. OECD also measures global flows of investment and trade. Likewise, there are many forums established worldwide which is a sign of Collaboration. More and more nations are now realizing the power of the collaboration. Nations began to understand that this will lead to more growth. Many nations are sharing their technology and hence there is no need to reinvent the wheel every time. Research also progressed at a rapid pace. ASEAN (Association of Southeast Asian Nations) was established in 1967 with one of the aim of cooperation in Industrial development, Food and agriculture, Finance, Banking industry, Tourism, energy, private sector. APEC (Asia pacific Economic co-operation) was established in 1989 with aim of reduce trade barriers between the member countries and to increase the gains for the world economy resulting from the interdependence of the economies and by encouraging flow of goods, service, technology. Similarly, there is establishment of AU (African union) and EU (European Nation). EU is political and economical union of 28 member countries to achieve more economic integration and generate more jobs in all the member countries (Draguhn, Manske, Ruland, 2013). NAFTA (North America Free Trade Agreement) is union of US, Canada and Mexico creating free trade area. After NAFTA was signed, there is huge increase in exports and imports with Canada and Mexico as it reduced the trade barriers. It also aims for protecting the intellectual propriety rights of the nations and promote conditions of free trade. It highly encouraged the flow of investment in each others capital nations. OPEC (Organization of Petroleum Exporting Countries) was also established consisting of countries that mainly exports oil with aim of safeguarding the interest of all the oil producing countries individually as well as collectively (Nye, 2012). This is how the various nations come together to signed contracts, trade agreements with each other to increase the trade. However, this wave of Globalization during last quarter of 20th century consists more of government, social and political nature. In the beginning of 21st century, technology was growing at a rapid pace, Internet, digitalization becomes much more common and globalization grows in a much accelerated mode. This current wave of Globalization is lead by the growth of the multinational corporations (MNCs). As these MNCs firms have relocated their various business functions across different countries in search of cheap labor, tax gains, potential for growth markets, they have started a new wave of accelerated economic internationalization. They are increasingly seen as main agents of Globalization. Today, Pizza hut, McDonalds, KFC, starbucks are present in almost many countries. Brands like Unilever, PG, Colgate, Apple, Microsoft, Virgin, Mtv, Samsung are also quite po pular around the world because of the Globalization. Some countries are hugely benefitting from the Globalization while some countries are declining in terms of their economy due to Globalization. Similarly, some industries are also enjoying the benefits of Globalization, while some industries are struggling due to their technology being stolen by other nations or mimic by other nations and provided cheaper alternatives to the consumers. Benefits of Globalization Let us look at the some of the benefits of the Globalization and the countries/Industries, which are enjoying these benefits: The most important benefit of the Globalization is the increase economic activity and increased competition among the companies. Consumers are spoilt for choice as same product is available in multiple brands as well as there is huge diversification in products also. Consumers are enjoying the best of the things of different countries. Also, due to increased competition among the corporations, there is a need to keep the prices low which is also very good situation for the consumers. Consumers now enjoy huge bargaining power. Globalization has also increased the wealth and standard of living of people in developing countries. Organizations have created the jobs in the developing nations by shifting their offices in those countries. Globalizations impact on Developing countries Countries like India, China, are hugely benefitted from the Globalization because of availability of cheap labor. Lot of labor jobs as well as white collar jobs has shifted from America and Europe to eastern nations like China and India because of availability of cheap labor. Different countries are sharing their technology and resources for the research to solve the worlds problems like pollution, scarcity of water. Due to globalization, there is no need to reinvent the wheel every time. Many organizations like unilever, Amazon, Microsoft, apple, Pizze hut, McDonalds, Burger King, Sony, Samsung benefitted hugely from the globalizations by selling their products to newer and unexplored markets (Mcmichael, 2015). Also, as these organizations have shifted their offices and manufacturing units to cheap places, they area also generating jobs which in turn have increased the purchasing power of the people and hence there is huge increase in demand. It improved the global economy and reduc es the poverty to some extent (Mcmichael, 2015). Also, another benefit is that people who are very talented but not getting the adequate education now have to world class institutions like Stanford, Harvard. China and Indian economies are hugely benefitted from the globalization. Chinas economy is growing very fast and has already surpassed Japan and Germany and as per the research, by 2030 China will become the largest economy in the world ahead of USAs economy (Jorgenson, Vu, 2013). Few years back, Researchers were claiming that china will surpass USA by 2040. Tremendous growth of China has led the researchers to refine their forecasts and decrease the guidance. Indias economy is also growing rapidly and may climb the ladder by outshining the France by 2018 (Dyker, 2015). (Source: databank.worldbank.org) Downsides of Globalization However, there are downsides of Globalization also. It has increased the gap between rich and poor. Rich people are getting richer while poor are getting poorer. These multinationals corporations are becoming greedy in their continuous search of newer markets and are exploiting the developing countries due to the strict norms in the developed countries. For instance, many pharmaceutical companies are shifting their research into Africa because people are so poor over there that Pharmacy companies can test their new medicines on them by paying them (Myers, 2014). It is although illegal but happening. These organizations are exploiting workers, labors to meet the increasing demand and not paying them as per the standards. Also, these gigantic companies with presence all over the world are effecting the development of small scale companies in developing countries. For instance, these companies are cash rich and when they expand their business in newer countries, they offer tremendous di scounts to attract the customers. This lead to closure of many small and medium scale companies in such countries (Stromquist, Monkman, 2014). Uber and Amazon are some of the examples practicing this strategy (Hong, 2016). Brain drain is another consequence of the Globalization. Talented people are leaving their countries in search of high paying jobs and shifting to different countries (Docquier, Rapoport, 2012). This practice is very common in some eastern countries and hence hinders the economic development of such countries. For instance Doctors, Scientists are highly paid jobs in western countries and people in these professions are moving to western countries. Globalization has shifted the manufacturing technology to cheaper areas like India and China and that led to risk of technology being stolen or copied. For instance, Apple moves their manufacturing in China. Their technology is copied in China and there are many cell phones similar to Apple are being sold in China at very low prices (Hay, Marsh, 2016). There are legal wars going on between Apple and Samsung about copying of each other intellectual rights. China has copied everything available and selling their duplicates products in markets at a cheaper price. This is a classic downside of the Globalization. Impact of Globlization on Developed countries America and Europe are badly affected by the Globalization. With Globalization, American workers compete with workers from all the countries and definitely corporate will hire cheap labor which put American jobs at high risk. There has been constant loss of manufacturing jobs as well closure of factories in America since globalization picked the pace (Lamber, Mattson, Dorriere, 2016). Politicians have this agenda of lose of American jobs as top priority in their elections. There are elections in 2016 and all the parties are putting this thing on top of their agenda to gain votes. Donald Trump is openly claimed that he will get the American their jobs back which are taken by the people from China and India (Tseng, Cowen, 2013). However, Multinational corporations are also very powerful and they always want the cheap labor. This is how Globalization has affected Americans. US trade deficit is also continuously increasing due to globalization. USA, Germany, France are gradually began to see the effect of globalization that China and economies of other countries are become quite gigantic and will rise the ladder soon (Morroson, 2012). Conclusion Globalization has become a trend in this new wave of economic internationalization and rapid growth of multinational corporations. Globalization has both positives as well as negatives impacts. While developing nations are hugely benefitted from Globalization, Developed nations are now facing the heat after enjoying the benefits of globalizations, exploiting the cheap labor in under developed countries. There are so many factories closing down in China. Organizations like Apple have shifted their manufacturing units to China. Google, Amazon is planning to shift their operation in India to save the huge expenses. There should be central leadership or forum that should control the mal practices that arise due to globalization. There are many forums already in place to regulate the trade activities but the issues are also remained as it is from several years. There is a lack of leadership. 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