Globallization Vs Anti Globalization

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The Essay is about impact of globalization over the world Economy in both positive and negative aspects

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  • In spite of the vast natural resources and abundant agricultural produce India ranks below10th in the export of food products. Conservative estimates put processing levels in thefruits and vegetables sector at 2%, meat and poultry at 2%, milk by way of moderndairies at 14%, fish at 4%, bulk meat de-boning is to the tune of 21%. Currently, the foodprocessing sector, though in the nascent stage, constitutes 14% of manufacturing GDPamounting to products value of Rs.2, 80,000 Crores. It employs 130 lakh persons and issupposed to increase at an annual rate of 7%.
  • India can become the food supplier of the world. It has the cultivable land, all the seasonsfor production of all varieties of fruits and vegetables, an agribusiness system that worksalthough it needs to be vastly improved. The single most important problem facing theIndian agricultural industry is the highly inefficient supply chain. Because of lack of coldchain infrastructure and also a food processing industry about 20 per cent of all foodsproduced in India (Rs. 500 b) are wasted. By building an efficient and effective supplychain using state of the art techniques it is possible to serve the population with valueadded food while simultaneously ensuring remunerative prices to the farmers. Thesurplus of cereals, fruits, vegetables, milk, fish, meat and poultry can be processed asvalue added food products and marketed aggressively both locally and internationally.Investments in cold chain infrastructure, applied research in post harvest technologies,installation of food processing plants in various sectors and development of food retailingsector are mandatory for achieving gains in this sector. Strategic growth plans forachieving both national and international competitiveness of the food industry areessential.
  • The Food processing industry has an important role to play in linking the farmers to thefinal consumers in the domestic as well as the international markets. Food processingcombined with marketing has the potential of solving the basic problems of agriculturalsurpluses, wastages, rural jobs, and better remuneration to the growers. In the next tenyears, food production is expected to double. These produces, if processed and marketedsmartly, can make India a leading food supplier of the world.India with a population of 1.08 billion (growing at about 1.7 % per annum) provides alarge and growing market for food products. Food products are the single largestcomponent of private consumption expenditure, accounting for as much as 49% of thetotal spending. Furthermore, the upward mobility of income classes and increasing needfor convenience and hygiene is driving demand for (a) perishables and non food staplesand (b) processed foods. Also, eating out is a booming practice in urban India andprocessed foods are accepted as alternative to the home cooked food because of theconvenience it offers. Also, with the globalization of trade and availability of high speedlogistics, food retailers in developed countries are sourcing an year-round supply of fruitsand vegetables from developing countries. Thus, both for local consumption as well forexport there is a year round opportunity for fruits and vegetables, meat and poultryproducts and ready to eat processed foods.The processed food industry should introduce innovative new products of high quality atlow cost in small package sizes in ready to eat format to cash on this boomingopportunity. HLL, ITC, MTR and others have introduced some innovative heat and eatdishes with reasonably good packaging. But there is lots of manual handling and hencefood hygiene and quality are suspect. Multinational companies have entered the foodvalue chain in India, Cargill and Conagra in agri-inputs, Tropicana in food processingand Metro in wholesaling. Local companies like Dabur, MTR, ITC, Godrej, and Amulare aggressive across the value chain. Multiple restaurant chains such as McDonalds,Pizza Hut, Dominos, Coffee day, Qwiky’s and SaravanaBhavan, and Sagar Chains aregrowing rapidly. However, the pace is slow in the food sector compared to the othersectors such as IT and Pharma. There are no billion dollar players in India in the foodindustry where as China and Philippines have several large players with sales exceedingUS $ 1 billion.
  • India has a huge opportunity to become a leading global food supplier if only it has theright marketing strategies and of course agile, adaptive and efficient supply chain. Indiahas diversity in terms of its population with several religious groups with different foodhabits and culture. This diversity should be used to advantage to become the “Halal FoodHub”, the “Organic food hub”, the “Vegetarian food hub” the “Sea food hub” amongothers.The food supply chain is complex with perishable goods and numerous small stakeholders. In India, the infrastructure connecting these partners is very weak. Each stakeholder: farmers, wholesalers, food manufacturers, retailers all work in silos. Also,demand forecasting is totally absent and the farmers try to push what they produce in tothe market. Data integration, financial flow management, supply-demand matching,collaborative forecasting, information sharing, goods movement synchronization throughefficient transport scheduling, are very well practiced in high technology industries withimmense benefits. These best practices should find their way in to the food supply chains.Cold chain logistics supply chains should take advantage of technology improvements indata capture and processing, product tracking and tracing, synchronized freight transporttransit times for time compression along the supply chain and supply –demand matching..Also, the supply chain need to be designed and built as a whole in an integrated mannerwith the processes of new product development, procurement and order to deliveryprocesses well designed and well supported using IT tools and software.The food supply chain can be subdivided into a number of sectors. Agriculture,horticulture, fisheries and aquaculture are the primary producers, the manufacturers whoprocess the food for ready to eat or cook format together with the packaging companiesare in the intermediate stage, and the retailers, wholesalers and caterers are in the laststage of the supply chain. At each stage value is added by the new ownership such asprocessors, distributors, packers, etc. and the cost and profits are part of the business. Thefood items can go to the final consumer from any of the three stages: from farmers in theform of fresh produce, to the caterers directly from the manufacturer, and finally from theretailer (small or big) to the consumer. The movement of goods from one stake holder toanother is facilitated by the in house or third party logistics service provider. Theinformation management is done by the all the stake holders and their informationsystems are all interconnected seamlessly. What we described above is the state of foodchain in the advanced countries. In India and other developing countries, the state of foodchain is more fragmented and primitive we have dealt with it in the earlier sections.
  • Food chain clusters (See Figure1) are formed with the participation of all stake holderssuch as farmers, seed growers, merchants, transporters, wholesalers, retailers, financialinstitutions, and insurance companies. Information sharing is essential for generating theefficiencies. The Internet and mobile communications are used to enable information andfinancial transfer between the stake holders. Also, recent advances in RFID technologywill have tremendous impact in the management of the food chain particularly for sourceidentification and tracking and also in providing supply chain visibility.In advanced countries, the retailers (Walmart, Tesco, etc) have become the ChannelMasters of food supply chain taking over from the food manufacturers. In India, with nosuperstores, no economies of scale, too many intermediaries, there is a vacuum, meaningthere is no real channel master managing the supply demand situation and coordinatingthe supply chain and managing the logistical activities. This provides a tremendousopportunity for smart players to enter a growing market with a high potential of retailFDI. But one needs to remember that the infrastructure capital outlays are high and thereturns are long term. Also there are various risks associated with owning a cold chain.some of these include country risk, monsoon risk, crop or raw material supply failuresdue to pests, diseases, etc., partner risk, and numerous othersIn India, there are very few large food manufacturers. Amul, Ruchi Soya, Nestle, MTR,ITC, Dabur, Britannia, HLL’s food and beverages section, beverage companies such asCoke and Pepsi are some of the big names. In poultry Godrej Agrovet, Suguna, Pioneerand Venkateswara hatcheries are some of the companies integrating operation s end toend from breeding to ready to eat chicken foods. High taxes on processed food, highimport duties, nascent contract forming, make the profitability a big issue in India. Thereare several regulatory changes that need to be made all along the supply chain so thatthey are consistent and mutually reinforcing
  • Cold chain is a logistic system that provides a series of facilities for maintaining idealstorage conditions for perishables from the point of origin to the point of consumption inthe food supply chain. The chain needs to start at the farm level (e.g. harvest methods,pre-cooling) and cover up to the consumer level or at least to the retail level. A wellorganizedcold chain reduces spoilage, retains the quality of the harvested products andguarantees a cost efficient delivery to the consumer given adequate attention for customerservice. The main feature of the chain is that if any of the links is missing or is weak, thewhole system fails.The Cold chain logistics infrastructure generally consists of• Pre-cooling facilities• Cold Storages• Refrigerated Carriers• Packaging• Warehouse and Information Management systems• Traceability• Financial and Insurance InstitutionsThe temperature controlled supply chains or cold chains are a significant proportion ofthe retail food market. Fast foods, ready meals and frozen products have increasedmarket share in recent years. There are several food temperature levels to suit differenttypes of products. Frozen, cold chill, medium chill, and exotic chill are some of thefrequently nomenclatures with identified temperature ranges. The range of temperaturesis dependent on the products whether it is meat or ice cream or potatoes or bananas.Failure to maintain appropriate temperature regimes through out the product life cyclemay shorten the product life or adversely affect its fitness for consumption. Cold chainmanagement involves maintaining appropriate temperature regime when the producttravels from the farm in Himachal Pradesh to the consumer in London or New York City.That is why the logistics challenge is formidable in food chains, which is cost consciousindustry. There are several governmental regulations in all countries and theresponsibility to maintain hygiene and standards falls on the food retailer ormanufacturer. The recent developments in electronic tagging could be useful formonitoring the temperatures and also the shelf life of the product.
  • There is a need to embrace the concept of Efficient Consumer Response (ECR) whichwas introduced in the United States in the 1990s and is now followed world wide ingrocery supply chains. ECR refers to a set of strategies that aims to get companies acrossa supply chain to work closely to serve their customers better and at lower cost.Consumers benefit from improved product availability and choice, while distributors andsuppliers derive better efficiency and cost savings. Also collaborative planningforecasting and replenishment is another area that has yielded substantial savings forretailers. Relationship between the stake holders in the supply chain is of paramountimportance for ECR, CPFR and other relationship paradigms to work.Dairy products, edible oils, farm products, sugar, fruit juices, concentrates, preserves, hotand cold beverages, breakfast foods, biscuits and confectionery, atta, are some majorfoods of daily necessities where packaging will have excellent potential and growthareas. Package has become the competitive tool to reach the consumer and the taskassumes increasing responsibility with more and more of competitive and substituteproducts being introduced. This has opened the sector for introduction of moderntechnology for processing and packaging and entry of host of new organizations from allsectors of the economy both domestic and overseas. Cost of packaging ranges anywherefrom 10 to 64% of production costs and efforts should be made to reduce these coststhrough use of manufacturing automation and economies of scale.
  • Globallization Vs Anti Globalization

    1. 1. ESSAY GLOBALIZATION VS ANTI GLOBALIZATION Indian Institute of Foreign Trade Page 1
    2. 2. Kofi Annan, the seventh Secretary-General of the United Nations, addressed the force of globalization in his quote, “It has been said that arguing against globalization is like arguing against the laws of gravity.” ROLL NO: 32 COURSE: EPGDIM NAME: SURYA PRAKASH SRIVASTAVA Indian Institute of Foreign Trade Page 2
    3. 3. Contents Introduction .................................................................................................................................................. 4 Globalization of world Economy ................................................................................................................... 4 Impact of Globalization ................................................................................................................................. 7 Positive Impacts ............................................................................................................................................ 9  Benefit to Market System-Adam Smith ............................................................................................ 9  Commercial gains .............................................................................................................................. 9  Emerging Economies ....................................................................................................................... 10  World Health Organization ............................................................................................................. 10  Governance ..................................................................................................................................... 10  Languages........................................................................................................................................ 10  Competition .................................................................................................................................... 10  Global Sharing of Environmental Resouces .................................................................................... 10  World Culture.................................................................................................................................. 11 Technology Innovation, Emerging Economies ........................................................................................ 11 Negative Effects .......................................................................................................................................... 12 Export Poverty ........................................................................................................................................ 12 Negative effects of economic liberalization ........................................................................................... 13 Brain drain............................................................................................................................................... 13 Environmental degradation .................................................................................................................... 13 Food security........................................................................................................................................... 14 Disease .................................................................................................................................................... 14 Drug and illicit goods trade ..................................................................................................................... 15 International Inequality .......................................................................................................................... 15 Trade verses Aid ...................................................................................................................................... 16 Culture Clash ........................................................................................................................................... 18 Trade Liberalization ................................................................................................................................ 21 Conclusion ................................................................................................................................................... 22 Indian Institute of Foreign Trade Page 3
    4. 4. Introduction The benefits and drawbacks of globalization continue to be hotly debated. And there is no doubt that company operating across borders face complex challenges as they strive to conduct business in ways that are ethical and meet increasingly high standards imposed by all constituencies. Globalization, the integration of the world technologically, economically and politically, is the most important development of our time. Global production and global markets offer business organizations extraordinary opportunities for growth and profits. Globalization is credited with stimulating innovation and technological progress. However, it is also blamed for increasing the gap between rich and poor, accelerating the destruction of the environment, and threatening human rights. The intensity of feelings in the globalization debate is astonishing. In the last three years, the anti-globalization movement has staged protests at meetings of the World Trade Organization, the European Union, the World Bank, the International Monetary Fund, the World Economic Forum, and the G-8. Globalization – the ongoing process of greater interdependence among countries and their citizens – is complex and multifaceted. Many of the problems that the critics of globalization point to are real. Some of them relate to economics. Others relate to non-economic, but no less important, aspects of life. And while some of the problems do stem from the process of global integration, others do not. Globalization is a powerful real aspect of the new world system, and it represents one of the most influential forces in determining the future course of the planet. It has many dimensions: economic, political, social, cultural, environmental, security, and others. The focus here will be on the concept of "globalization" as applied to the world economy. This concept is one that has different interpretations to different people. Partly as a result of these different interpretations, there are very different reactions to "globalization," with some seeing it as a serious danger to the world economic system while others see it as advancing the world economy. I will be covering two aspects of globalization in this essay. First, it will clarify the notion of "globalization" as applied to the world economy. Second, it will evaluate both the potential benefits and the potential costs stemming from globalization. The view taken here, representing the thesis of this paper, is that there are both positive and negative aspects to globalization, that some of its positive features stem from the effects of competition that it entails, and that some of the negative aspects that could potentially lead to conflicts could be offset by international or global cooperation through agreements on policy or through the development of new international institutions. Thus, while globalization can cause international conflicts, it can also contribute to their containment through the beneficial effects of competition and the potential of global cooperation to treat economic and other threats facing the planet. Globalization of world Economy Economic globalization, the ongoing process of greater economic interdependence among countries, is reflected in the increasing amount of cross-border trade in goods and services, the increasing volume of international financial flows, and increasing flows of labor. "Globalization" will be understood here to mean major increases in worldwide trade and exchanges in an increasingly open, integrated, and borderless international economy. There has been remarkable growth in such trade and exchanges, not only in traditional international trade in goods and services, but also in exchanges of currencies, in Indian Institute of Foreign Trade Page 4
    5. 5. capital movements, in technology transfer, in people moving through international travel and migration, and in international flows of information and ideas. Globalization has involved greater openness in the international economy, an integration of markets on a worldwide basis, and a movement toward a borderless world, all of which have led to increases in global flows. There are several sources of globalization over the last several decades. One such source has been technological advances that have significantly lowered the costs of transportation and communication and dramatically lowered the costs of data processing and information storage and retrieval. The latter stems from developments over the last few decades in electronics, especially the microchip revolution. Electronic mail, the Internet, and the World Wide Web are some of the manifestations of this new technology. A second source of globalization has been trade liberalization and other forms of economic liberalization that have led to reduced trade protection and to a more liberal world trading system. This process started in the last century, but the two World Wars and the Great Depression interrupted it. It resumed after World War II through the most-favored-nation approach to trade liberalization, as embodied in the 1946 General Agreement on Tariffs and Trade (GATT) and now in the World Trade Organization (WTO). As a result, there have been significant reductions in tariffs and other barriers to trade in goods and services. Other aspects of liberalization have led to increases in the movement of capital and other factors of production. Some have suggested that globalization is little more than a return to the world economy of the late nineteenth century and early twentieth century, when borders were relatively open, when there were substantial international capital flows and migrations of people, and when the major nations of Europe depended critically on international trade. This is particularly the view of some British scholars, looking back to the period of British imperial dominance of the world economy. While there are some similarities in terms of trade and capital movements, the period of a century ago did not have some of the major technological innovations that have led to a globalized world economy today that is qualitatively different from the international economy of the last century. A third source of globalization has been changes in institutions, where organizations have a wider reach, due, in part, to technological changes and to the more wide-ranging horizons of their managers, who have been empowered by advances in communications. Thus, corporations that had been mainly focused on a local market have extended their range in terms of markets and production facilities to a national, multinational, international, or even global reach. These changes in industrial structure have led to increases in the power, profits, and productivity of those firms that can choose among many nations for their sources of materials, production facilities, and markets, quickly adjusting to changing market conditions. Virtually every major national or international enterprise has such a structure or relies on subsidiaries or strategic alliances to obtain a comparable degree of influence and flexibility. As one measure of their scale, almost a third of total international trade now occurs solely within these multinational enterprises. With the advent of such global firms, international conflict has, to some extent, moved from nations to these firms, with the battle no longer among nations over territory but rather among firms over their share of world markets. These global firms are seen by some as a threat to the scope and autonomy of the state, but, while these firms are powerful, the nation state still retains its traditional and dominant role in the world economic and political system. Non-government organizations, the NGO's, have also taken a much broader perspective that, as in the case of the global firms, is often multinational or global. Even international organizations, such as the United Nations, the International Monetary Fund and World Bank, and the new World Trade Organization have new global Indian Institute of Foreign Trade Page 5
    6. 6. roles. Overall, multinational enterprises and other such organizations, both private and public, have become the central agents of the new international globalized economy. A fourth reason for globalization has been the global agreement on ideology, with a convergence of beliefs in the value of a market economy and a free trade system. This process started with the political and economic changes that started in the 1978 reforms in China and then involved a “falling dominoes” series of revolutions in Eastern and Central Europe starting in 1989 that ended with the dissolution of the Soviet Union in December 1991. This process led to a convergence of ideology, with the former division between market economies in the West and socialist economies in the East having been replaced by a near-universal reliance on the market system. This convergence of beliefs in the value of a market economy has led to a world that is no longer divided into market-oriented and socialist economies. A major aspect of this convergence of beliefs is the attempt of the former socialist states to make a transition to a market economy. These attempted transitions, especially those in the former Soviet Union and in Eastern and Central Europe have, however, been only partially successful. The nations involved and their supporters in international organizations and advanced western market economies have tended to focus on a three-part agenda for transition, involving: 1) stabilization of the macroeconomy, 2) liberalization of prices, and 3) privatization of state-owned enterprise. Unfortunately, this “SLP” agenda fails to appreciate the importance of building market institutions, of establishing competition, and of providing for an appropriate role for the government in a modern mixed economy. A fifth reason for globalization has been cultural developments, with a move to a globalized and homogenized media, the arts, and popular culture and with the widespread use of the English language for global communication. Partly as a result of these cultural developments, some, especially the French and other continental Europeans, see globalization as an attempt at U.S. cultural as well as economic and political hegemony. In effect, they see globalization as a new form of imperialism or as a new stage of capitalism in the age of electronics. Some have even interpreted globalization as a new form of colonialism, with the U.S. as the new metropole power and with most of the rest of the world as its colonies, supplying it not only with raw materials, as in earlier forms of European colonialization, but also with technology; production facilities; labor, capital, and other inputs to the production process; and markets on a global basis. Whether one sees globalization as a negative or as a positive development, it must be understood that it has clearly changed the world system and that it poses both opportunities and challenges. It is also clear that the above technological, policy, institutional, ideological, and cultural developments that have led to globalization are still very active. Thus, barring a radical move in a different direction, these trends toward greater globalization will likely continue or even accelerate in the future. One important aspect of these trends will be the growth in international trade in services that has already increased substantially but promises even greater growth in the future, especially in such areas as telecommunications and financial services. The result will be continued moves toward a more open and a more integrated world as it moves closer and closer to a planet without borders and to a more integrated, open, and interdependent world economy. The result will Indian Institute of Foreign Trade Page 6
    7. 7. be even greater worldwide flows of goods, services, money, capital, technology, people, information, and ideas. Impact of Globalization Globalization has had significant impacts on all economies of the world, with manifold effects. It affects their production of goods and services. It also affects the employment of labor and other inputs into the production process. In addition, it affects investment, both in physical capital and in human capital. It affects technology and results in the diffusion of technology from initiating nations to other nations. It also has major effects on efficiency, productivity, and competitiveness. Several impacts of globalization on national economies deserve particular mention. One is the growth of foreign direct investment (FDI) at a prodigious rate, one that is much greater than the growth in world trade. Such investment plays a key role in technology transfer, in industrial restructuring, and in the formation of global enterprises, all of which have major impacts at the national level. A second is the impact of globalization on technological innovation. New technologies, as already noted, have been a factor in globalization, but globalization and the spur of competition have also stimulated further advances in technology and speeded up its diffusion within nations through foreign direct investment. A third is the growth of trade in services, including financial, legal, managerial, and information services and intangibles of all types that have become mainstays of international commerce. In 1970, less than a third of foreign direct investment related to the export of services, but today that has risen to half and it is expected to rise even further, making intellectual capital the most important commodity on world markets. As a result of the growth of services both nationally and internationally, some have called this "the age of competence," underscoring the importance of lifelong education and training and the investment in human capital in every national economy. Globalization, an important characteristic within the contemporary economic environment, has resulted in significant changes to individual nations in terms of economic development strategies undertaken by national governments. The term globalization refers to the integration of local and international economies into a globally unified political economic and cultural order, and is not a singular phenomenon, but a term to describe the forces that transform an economy into one characterized by the embracement of the free movement of trade, investment, labor and capital. The drive for globalization has resulted in greater economic growth globally, through the opening up of barriers to international trade, yet this increase in world output is often associated with detrimental effects in relation to the stability of a national economy, being susceptible to the ups and downs of the international business cycle and also both positive and negative effects on the standards of living or quality of life with in a nation. It is often difficult to categories an economy as being globalized, yet there are several key indicator that suggest economic management decisions undertaken by the govt have come as a result of globalization. The main evidence to suggest the globalization of nations has been the growth in global markets, changes in global consumption patterns, the establishment of intergovernmental agreements as well as the rise of transnational corporations. Globalization has been essentially driven by the breaking down of economic barriers between nations over recent decades that have resulted in greater worldwide economic growth. This economic liberalization has been spurred on by the global trend towards the Indian Institute of Foreign Trade Page 7
    8. 8. deregulation of national economies as well as reforms to encourage greater competitiveness with in the global markets. As a result of the microeconomic reforms, globally there has been a general reduction of restrictions on trade, capital flows and foreign investments. In addition to this, technological advancements over the last half century have contributed to this “economic liberalization” where as a result of this technology growth, transport costs have reduced dramatically, making trade more cost efficient. Communication costs have also reduced through advancements in telecommunications and e- commerce resulting in escalated movements in international finance. Through these increases in trade and financial flows, countries have experienced increased level of economic growth over time that has contributed to the world standards of living. The global population now has greater access to the wider varieties of consumer goods and services, aided by the development of international markets and the ease of transactions permitted by technological advancements. It is estimated that global economy grew, on average, by 2.5% per annum during the late 1990s. This was fuelled by a growth in trade of over 7% per annum, and growth in foreign investment levels of over 23%. It is clear that globalization has brought about greater rates of economic growth in most nations, as proven by the highly successful NIC’s in Asia, known as the “Asian Tiger” economies, however, while the global economy has grown in total the benefits have varied significantly between economies. Where high income and newly industrialized countries have achieved growth rates of around 3% and 7% respectively, low income countries achieved growth of only 2%. Economic activity in transitional economies fell during the 1990s by an average of 2.7% per annum, showing that globalization has not resulted in more equal standards of living. However, the standard of living, or quality of life Is not simply a measure of the level of economic growth or change in real GDP, but it is a measure that takes into account the literary levels, education, health care, technological change and mortality rates. An example of a quality of life indicator is the Human Development Index (HDI) which measures changes in those factors as a result of globalization. Over the last few decades, the HDI of the world’s richest countries have increased as a result of globalization, where growth and development has been attributed to these economies through willingness to embrace market liberalization. However, the HDI of the poorer nations have grown at a slower rate to the richer nation’s which, as some economists put it, shows that globalization is another word for the continual plundering of the poorer and weaker nations by the rich and powerful economies. It has been strongly argued that the benefits of competition go only to those who can compete, and poor countries have to negotiate on unequal terms. In addition, the forces of globalization take no account for social injustices, with Asian sweat shops being a prime example. Trade growth has contributed significantly to changes in living standards and economic growth of global economies, but its impacts have differed between different economies. While the increases in global imports and exports have come as a result of falling protectionist policies, it has advantaged mainly producers of manufactured goods, while producers of primary goods still face international barriers to trade. The consequence of this is the increase in trade between nations that produce different types of manufactured goods, and as a result much of the benefits of this increase trade go towards high income and NIC nations. Developing nations, while experiencing growth, have not reached the same levels as high income nations, there for widening the income divide globally. Similarly, 70% of the financial glow increases are to industrialized nations, increasing their access to capital and living standards, leaving lower income nations on slower growth rates. The quest for economic growth and improved quality of life has resulted in greater focus on nation’s external stability. The ability of a country to manage its exchange rate, balance of payments and foreign Indian Institute of Foreign Trade Page 8
    9. 9. liabilities impacts on the perceptions of traders on world markets. Volatility of foreign exchange markets can contribute to external instability, and globalization has resulted in increased trade, requiring increased currency movements, there for market currencies are more prone to sudden appreciations and depreciations, altering a nation’s competitiveness, and debts levels. The improved access to international finance has detrimentally affected the external balance of many nations, in particular developing nations, as rising interest on massive loans can heavily outweigh the revenue eared, resulting in debt trap scenarios. Additionally, the global movement toward free trade has resulted in many high income manufacturing nations increasing in there terms of trade through comparative advantage, and increasing there rates of economic growth. However, developing nations’ terms of trade tend to fall over time as prices for primary exports fall. This result in long term trade deficits and a worsening CAD that results in a deteriorating external balance, which generally maintains the income divide between the rich and poor nations with in the global economy. While globalization has resulted in aggregate increases in trade, output and investment growth over the past few decades, it is clear that the benefits from this growth have been distributed unequally between different economies. While developing nations are now focusing on manufacturing productions, high income economies are establishing new production patterns and many poor nations are not adapting significantly. Consequently, this has resulted in lagging economic growth rates with in less developed countries, while nations such as the fast growing “Tiger” economies have experienced phenomenal growth rates of close to 9%. The income divide globally, as a result would tend to widen, as richer nations become richer at a faster rate than poor nations. However, a limiting factor towards continuing accelerated growth with in high income nations continues to be the maintenance of an economy’s external stability, in particular preventing the blow outs of net foreign debt and equity over the business cycle, which might affect the international confidence in the management of the particular economy. There for globalization on the whole has come as a benefit throughout the world, yet these benefits are still heavily weighed towards the already rich nations, while the developing economies struggle to maintain growth on par with the higher income nations, resulting in the evident contrast in quality of life between there “classes” of nations in the global economy. Positive Impacts Globalization has various aspects which affect the world in several different ways such as:  Benefit to Market System-Adam Smith - emergence of worldwide production markets and broader access to a range of foreign products for consumers and companies. Particularly movement of material and goods between and within national boundaries. International trade in manufactured goods increased more than 100 times (from $95 billion to $12 trillion) in the 50 years since 1955. China's trade with Africa rose sevenfold during 2000-07 alone.  Commercial gains - emergence of worldwide financial markets and better access to external financing for borrowers. By the early part of the 21st century more than $1.5 trillion in national currencies were traded daily to support the expanded levels of trade and investment. As these worldwide structures grew more quickly than any transnational regulatory regime, the Indian Institute of Foreign Trade Page 9
    10. 10. instability of the global financial infrastructure dramatically increased, as evidenced by the Financial crisis of 2007–2010  Emerging Economies- realization of a global common market, based on the freedom of exchange of goods and capital. The interconnectedness of these markets, however, meant that an economic collapse in any one given country could not be contained  World Health Organization- On the global scale, health becomes a commodity. In developing nations under the demands of Structural Adjustment Programs, health systems are fragmented and privatized. Global health policy makers have shifted during the 1990s from United Nations players to financial institutions. The result of this power transition is an increase in privatization in the health sector. This privatization fragments health policy by crowding it with many players with many private interests. These fragmented policy players emphasize partnerships and specific interventions to combat specific problems (as opposed to comprehensive health strategies). Influenced by global trade and global economy, health policy is directed by technological advances and innovative medical trade. Global priorities, in this situation, are sometimes at odds with national priorities where increased health infrastructure and basic primary care are of more value to the public than privatized care for the wealthy.  Governance - some use "globalization" to mean the creation of a world government which regulates the relationships among governments and guarantees the rights arising from social and economic globalization. Politically, the United States has enjoyed a position of power among the world powers, in part because of its strong and wealthy economy. With the influence of globalization and with the help of The United States’ own economy, the People's Republic of China has experienced some tremendous growth within the past decade. If China continues to grow at the rate projected by the trends, then it is very likely that in the next twenty years, there will be a major reallocation of power among the world leaders. China will have enough wealth, industry, and technology to rival the United States for the position of leading world power.development of the system of non-governmental organisations as main agents of global public policy, including humanitarian aid and developmental efforts.  Languages - increase in information flows between geographically remote locations. Arguably this is a technological change with the advent of fibre optic communications, satellites, and increased availability of telephone and Internet. o Language - the most popular first language is Mandarin (845 million speakers) followed by Spanish (329 million speakers) and English (328 million speakers). However the most popular second language is undoubtedly English, the "lingua franca" of globalization: o About 35% of the world's mail, telexes, and cables are in English. o Approximately 40% of the world's radio programs are in English. o About 50% of all Internet traffic uses English.  Competition - Survival in the new global business market calls for improved productivity and increased competition. Due to the market becoming worldwide, companies in various industries have to upgrade their products and use technology skillfully in order to face increased competition.  Global Sharing of Environmental Resouces - the advent of global environmental challenges that might be solved with international cooperation, such as climate change, cross- boundary water and air pollution, over-fishing of the ocean, and the spread of invasive species. Since many factories are built in developing countries with less environmental regulation, globalism and free trade may increase pollution. On the other hand, economic development historically required a "dirty" industrial stage, and it is argued that developing countries should not, via regulation, be prohibited from increasing their standard of living. Indian Institute of Foreign Trade Page 10
    11. 11.  World Culture - growth of cross-cultural contacts, advent of new categories of consciousness and identities which embodies cultural diffusion, the desire to increase one's standard of living and enjoy foreign products and ideas, adopt new technology and practices, and participate in a "world culture". Some bemoan the resulting consumerism and loss of languages. Also see Transformation of culture.  Spreading of multiculturalism, and better individual access to cultural diversity (e.g. through the export of Hollywood). Some consider such "imported" culture a danger, since it may supplant the local culture, causing reduction in diversity or even assimilation. Others consider multiculturalism to promote peace and understanding between people. A third position that gained popularity is the notion that multiculturalism to a new form of monoculture in which no distinctions exist and everyone just shift between various lifestyles in terms of music, cloth and other aspects once more firmly attached to a single culture. Thus not mere cultural assimilation as mentioned above but the obliteration of culture as we know it today. In reality, as it happens in countries like the United Kingdom, Canada, Australia or New Zealand, people who always lived in their native countries maintain their cultures without feeling forced by any reason to accept another and are proud of it even when they're acceptive of immigrants, while people who are newly arrived simply keep their own culture or part of it despite some minimum amount of assimilation, although aspects of their culture often become a curiosity and a daily aspect of the lives of the people of the welcoming countries.  Greater international travel and tourism. WHO estimates that up to 500,000 people are on planes at any one time.In 2008, there were over 922 million international tourist arrivals, with a growth of 1.9% as compared to 2007.  Greater immigration, including illegal immigration. The IOM estimates there are more than 200 million migrants around the world today. Newly available data show that remittance flows to developing countries reached $328 billion in 2008.  Spread of local consumer products (e.g., food) to other countries (often adapted to their culture).  Worldwide fads and pop culture such as Pokémon, Sudoku, Numa Numa, Origami, Idol series, YouTube, Orkut, Facebook, and MySpace. Accessible to those who have Internet or Television, leaving out a substantial segment of the Earth's population.  Worldwide sporting events such as FIFA World Cup and the Olympic Games.  Incorporation of multinational corporations into new media. As the sponsors of the All- Blacks rugby team, Adidas had created a parallel website with a downloadable interactive rugby game for its fans to play and compete. Technology Innovation, Emerging Economies o Development of a Global Information System, global telecommunications infrastructure and greater transborder data flow, using such technologies as the Internet, communication satellites, submarine fiber optic cable, and wireless telephones o Increase in the number of standards applied globally; e.g., copyright laws, patents and world trade agreements.  Legal/Ethical o The creation of the international criminal court and international justice movements. Indian Institute of Foreign Trade Page 11
    12. 12. o Crime importation and raising awareness of global crime-fighting efforts and cooperation. o The emergence of Global administrative law.  Religious o The spread and increased interrelations of various religious groups, ideas, and practices and their ideas of the meanings and values of particular spaces. Negative Effects Globalization has been one of the most hotly debated topics in international economics over the past few years. Globalization has also generated significant international opposition over concerns that it has increased inequality and environmental degradation. In the Midwestern United States, globalization has eaten away at its competitive edge in industry and agriculture, lowering the quality of life in locations that lack the opportunity to adapt to the change. Some also view the effect of globalization on culture as a rising concern. Along with globalization of economies and trade, culture is being imported and exported as well. The concern is that the stronger, bigger countries such as the United States may overrun the other, smaller countries' cultures, leading to those customs and values being faded away. This process is also sometimes referred to as Americanization or McDonaldization. Export Poverty It can be said that globalization is the door that opens up an otherwise resource-poor country to the international market. Where a country has little material or physical product harvested or mined from its own soil, large corporations see an opportunity to take advantage of the "export poverty" of such a nation. Where the majority of the earliest occurrences of economic globalization are recorded as being the expansion of businesses and corporate growth, in many poorer nations globalization is actually the result of the foreign businesses investing in the country to take advantage of the lower wage rate: even though investing, by increasing the Capital Stock of the country, increases their wage rate. One example used by anti-globalization protestors is the use of sweatshops by manufacturers. According to Global Exchange these "Sweat Shops" are widely used by sports shoe manufacturers and mentions one company in particular – Nike. There are factories set up in the poor countries where employees agree to work for low wages. Then if labour laws alter in those countries and stricter rules govern the manufacturing process the factories are closed down and relocated to other nations with more conservative, laissez-faire economic policies. There are several agencies that have been set up worldwide specifically designed to focus on anti- sweatshop campaigns and education of such. In the USA, the National Labor Committee has proposed a number of bills as part of The Decent Working Conditions and Fair Competition Act, which have thus far failed in Congress. The legislation would legally require companies to respect human and worker rights by prohibiting the import, sale, or export of sweatshop goods. Indian Institute of Foreign Trade Page 12
    13. 13. Specifically, these core standards include no child labor, no forced labor, freedom of association, right to organize and bargain collectively, as well as the right to decent working conditions. Negative effects of economic liberalization The world today is so interconnected that the collapse of the subprime mortgage market in the U.S. has led to a global financial crisis and recession on a scale not seen since the Great Depression. Government deregulation and failed regulation of Wall Street's investment banks were important contributors to the subprime mortgage crisis. A flood of consumer goods such as televisions, radios, bicycles, and textiles into the United States, Europe, and Japan has helped fuel the economic expansion of Asian tiger economies in recent decades. However, Chinese textile and clothing exports have recently encountered criticism from Europe, the United States and some African countries. In South Africa, some 300,000 textile workers have lost their jobs due to the influx of Chinese goods. The increasing U.S. trade deficit with China has cost 2.4 million American jobs between 2001 and 2008, according to a study by the Economic Policy Institute (EPI). A total of 3.2 million – one in six U.S. factory jobs – have disappeared between 2000 and 2007. Brain drain An opportunity in richer countries drives talent away from poorer countries, leading to brain drains. Brain drain has cost the African continent over $4.1 billion in the employment of 150,000 expatriate professionals annually. Indian students going abroad for their higher studies costs India a foreign exchange outflow of $10 billion annually. Environmental degradation Burning forest in Brazil. The removal of forest to make way for cattle ranching was the leading cause of deforestation in the Brazilian Amazon from the mid 1960s. Recently, soybeans have become one of the most important contributors to deforestation in the Brazilian Amazon. The Worldwatch Institute said the booming economies of China and India are planetary powers that are shaping the global biosphere. In 2007, China overtook the United States as the world's biggest producer of CO2. At present rates, tropical rainforests in Indonesia would be logged out in 10 years, Papua New Guinea in 13 to 16 years. A major source of deforestation is the logging industry, driven spectacularly by China and Japan. Thriving economies such as China and India are quickly becoming large oil consumers. China has seen oil consumption grow by 8% yearly since 2002, doubling from 1996–2006. Crude oil prices in the last several years have steadily risen from about $25 a barrel in August 2003 to over $140 a barrel in July 2008. State of the World 2006 report said the two countries' high economic growth hid a reality of severe pollution. The report states:The world's ecological capacity is simply insufficient to satisfy the ambitions of China, India, Japan, Europe and the United States as well as the aspirations of the rest of the world in a sustainable way Without more recycling, zinc could be used up by 2037, both indium and hafnium could run out by 2017, and terbium could be gone before 2012. It is said that if China and India were to consume as much resources per capita as United States or Japan in 2030 together they would require a full planet Earth to Indian Institute of Foreign Trade Page 13
    14. 14. meet their needs. In the longterm these effects can lead to increased conflict over dwindling resources and in the worst case a Malthusian catastrophe. Food security The head of the International Food Policy Research Institute, stated in 2008 that the gradual change in diet among newly prosperous populations is the most important factor underpinning the rise in global food prices. From 1950 to 1984, as the Green Revolution transformed agriculture around the world, grain production increased by over 250%.The world population has grown by about 4 billion since the beginning of the Green Revolution and most believe that, without the Revolution, there would be greater famine and malnutrition than the UN presently documents (approximately 850 million people suffering from chronic malnutrition in 2005). It is becoming increasingly difficult to maintain food security in a world beset by a confluence of "peak" phenomena, namely peak oil, peak water, peak phosphorus, peak grain and peak fish. Growing populations, falling energy sources and food shortages will create the "perfect storm" by 2030, according to the UK government chief scientist. He said food reserves are at a 50-year low but the world requires 50% more energy, food and water by 2030. The world will have to produce 70% more food by 2050 to feed a projected extra 2.3 billion people and as incomes rise, the United Nations' Food and Agriculture Organisation (FAO) warned. Social scientists have warned of the possibility that global civilization is due for a period of contraction and economic re-localization, due to the decline in fossil fuels and resulting crisis in transportation and food production.One paper even suggested that the future might even bring about a restoration of sustainable local economic activities based on hunting and gathering, shifting horticulture, and pastoralism. The journal Science published a four-year study in November 2006, which predicted that, at prevailing trends, the world would run out of wild-caught seafood in 2048. Disease Globalization, the flow of information, goods, capital and people across political and geographic boundaries, has also helped to spread some of the deadliest infectious diseases known to humans. Starting in Asia, the Black Death killed at least one-third of Europe's population in the 14th century. Even worse devastation was inflicted on the American supercontinent by Europe. For instance 90% of the populations of the civilizations of the "New World" such as the Aztec, Maya, and Inca were killed by small pox brought by European colonization. Modern modes of transportation allow more people and products to travel around the world at a faster pace, they also open the airways to the transcontinental movement of infectious disease vectors. One example of this occurring is AIDS/HIV. Approximately 1.1 million persons are living with HIV/AIDS in the United States, and AIDS remains the leading cause of death among African American women between ages 25 and 34. Due to immigration, approximately 500,000 people in the United States are believed to be infected with Chagas disease. In 2006, the tuberculosis (TB) rate among foreign-born persons in the United States was 9.5 times that of U.S.-born persons. Indian Institute of Foreign Trade Page 14
    15. 15. Drug and illicit goods trade The United Nations Office on Drugs and Crime (UNODC) issued a report that the global drug trade generates more than $320 billion a year in revenues. Worldwide, the UN estimates there are more than 50 million regular users of heroin, cocaine and synthetic drugs. The international trade of endangered species is second only to drug trafficking. Traditional Chinese medicine often incorporates ingredients from all parts of plants, the leaf, stem, flower, root, and also ingredients from animals and minerals. The use of parts of endangered species (such as seahorses, rhinoceros horns, saiga antelope horns, and tiger bones and claws) has created controversy and resulted in a black market of poachers who hunt restricted animals. In 2003, 29% of open sea fisheries were in a state of collapse. International Inequality Inequality must be defined and be able to be measured so that comparisons can be made between rich and poor countries. Once the causes are determined, the effects of globalization can be evaluated and be measured. The World Bank defines inequality as the disparity of income and standard of living among nations and their citizens (Birdsall, 2002). To compare inequality among nations, incomes and living standards of their citizens should be reviewed. The World Bank has determined that people living on $1 per day in developing countries and people living on $2 per day in medium economies are considered poor (Infoplease, 2005). In contrast to the $1-$2 per day standard, in the United States, Japan, Europe or other developed nations, a person trying to live on less than $1,000 per year is unimaginable because the cost of living is many times this amount. The US Census Bureau defines poverty for a single, elderly person (over age 65) earning less than $25 a day as poor (US Census, 2005). Younger workers and/or people living in multiple person families have a higher threshold than $25 a day before they are considered poor. The income gap that exists between rich and poor counties has become substantial. Although great strides have been made in improving income for poor nations, many regions of the world have 25% or more of their population living off less than $1 per day (World Bank, 2005). Some people think that with the poor people having limited earning capacity, they also have limited access to the world’s wealth. In 2003, the richest fifth of the world's population received 85% of the total world income, while the poorest fifth received just 1.4% of the global income (Infoplease, 2005). When the GDP is compared between the richest and poorest nations over the past century, a wider income gap can be seen growing. Between 1900 and 2000, the richest quarter of the world’s population saw its per capita GDP increase nearly six-fold during the century, while the poorest quarter experienced less than a three-fold increase (IMF, 2005). Income inequality has increased and has continued widening. Income alone is not the only indicator to measure the wealth of a country’s citizens. Besides income, there are quality of life characteristics that should also be considered. Sri Lanka has a low income, but has impressive social indicators such as life expectancy is the same as in developed nations, high literacy rates, low mortality rates and a declining population growth rate; results of a social welfare system put in place during the 1940s (IMF, 2005; Sri Lanka, 2005). Cuba is another such example where living conditions have improved, yet the incomes of the people have stagnated. Cuba has had limited trading opportunities with a US boycott in place and the cessation of Soviet support to the island-nation; yet its healthcare and education draw praise from the World Bank (Newsbatch, 2005). There are social benefits that a government can provide that will improve the quality of life and can be measured. Poverty is measured by several different organizations, but many are similar to the UN measure for poverty. The UN's Human Poverty Index is a measurement of poverty that factors in illiteracy, malnutrition among children, early death, poor health care, poor access to safe water, vulnerability to famine or flooding, Indian Institute of Foreign Trade Page 15
    16. 16. lack of sanitation, exposure to disease, a diet poor in nutrients, and the absence of education (Infoplease, 2005). These factors are as much the signs of poverty as material deprivation. The UN considers nations that share in these characteristics to be in poverty. Countries with these conditions under control can limit the exposure that their people have to poverty. The World Bank has 14 key indicators (Appendix 2) that measure poverty within a country. They are subdivided into four sections: growth and poverty reduction, governance and investment climate, infrastructure for development, and human development. A connection (Appendix 1) has been established that for each percentage point of economic growth, the average number of households existing on $1 per day decreases by 2% (World Bank, 2005). Several factors can drive economic growth, including increases in education, life expectancy and economic policies - such as openness to trade. The World Bank’s measurement of poverty from the number of persons living on a dollar per day has decreased over the past decades, which would lead one to believe that poverty has decreased. However, when adjusted for inflation, the findings are that the income gap has widened and is well below the income levels of the leading industrialized countries in 1870; but the social conditions of today’s poor countries far exceed the social conditions of the leading industrialized countries of 1870 (IMF, 2005). Incomes have risen for poor countries modestly, yet their social conditions have improved considerably due to increased aid packages. Richer nations have made advances in medical research and have given aid to poor countries for vaccines and expensive drugs that can improve the quality and length of life for the citizens in the poor country. Inequality among rich and poor nations exists in terms of income and living conditions. Rich nations have tried to address this issue by distributing aid packages aimed at specific needs of each poor country. These aid packages ranged from literacy programs to food handouts and health programs. Poor nations need more than aid packages; they need economic conditions that can sustain growth. Trade verses Aid Wealthy nations have not always been rich. They have needed to have years of a stable government and the ability to accumulate wealth. Establishing a fair and equitable system of distributing economic and political power creates stable governments. These nations have been able to develop relationships with trading partners beyond their own borders by lowering trade barriers and having a government seen as non-corrupt. Wealthy nations have invested in infrastructure such as proper disposal of sewage, education for its children, healthcare, transportation systems, early immunization against childhood disease, and efficient drainage systems. When the society invests in these types of programs and infrastructure, all the citizens that live in the country reap the benefits. The nations where people live longer and healthier contribute more labor hours to the production of goods on a per person basis. As a nation is able to increase its productivity, it is able to trade with other nations. A nation’s wealth is not limited by what it is able to produce domestically when that nation engages in trade beyond its own borders. Nations that pursue international trade are able to increase their growth rate. During the 20th century nearly all nations encountered unparalleled economic growth as global per capita GDP increased almost five-fold with the strongest expansion in the second half of the century, a period of rapid growth accompanied by increase in trade (IMF, 2005). International trade has enabled economies to recover more quickly after war, natural disaster, and economic crisis. The developing countries of China, India and Mexico, which represent about 3 billion people, have adopted policies enabling their citizens to take advantage of globalization and their economies are catching up with rich ones (Manzella, 2002). Many economists predict that China’s economy will surpass the United States’ in terms of GDP in a few decades (Johnson, 2005). International trade has had a beneficial impact on these countries due to their policy changes and willingness to open their society. Indian Institute of Foreign Trade Page 16
    17. 17. Nations that do not participate in international trade hinder their own growth. After World War I, the countries around the globe became very protectionists and began putting high tariffs on goods from abroad. This is argued by many economists to have been the reason for high unemployment during the global depression of the 1930s, with such legislation like the Smoot-Hawley Tariff Act tha raised tariffs to historical highs (Newsbatch, 2005). Even today there are countries that do not want to allow trade with other nations. The incomes of the least globalized countries, including Iran, Pakistan and North Korea, have declined or remained static over the past several decades (Manzella,2002). Countries that do not open up their society to international trade choose to limit their growth potential. Examination of the per capita income between rich and poor countries verifies that poor nations have other factors working against them. Poverty in the developing African nations is not the result of slow growth since the per capita incomes of poor nations grew since 1960 as fast as, and perhaps faster than the per capita incomes of rich countries; it is the result of ineffective government spending such as the Kenyan International Airport, which is barely used (Becker, 2005). Aid is part of the problem that keeps corrupt politicians in power and keeps real economic development from happening. In an interview with an African economist, James Shikwati discussing the best approach by Western nations to help the developing nations of Africa, as cited by Thielke (2005): Huge bureaucracies are financed (with the aid money), corruption and complacency are promoted, Africans are taught to be beggars and not to be independent. In addition, development aid weakens the local markets everywhere and dampens the spirit of entrepreneurship that we so desperately need. As absurd as it may sound: Development aid is one of the reasons for Africa's problems. If the West were to cancel these payments, normal Africans wouldn't even notice. Only the functionaries would be hard hit. Which is why they maintain that the world would stop turning without this development aid. Foreign aid to poor countries should be able to help the government develop the infrastructure and institutions to eventually become self-sufficient. Rich nations have been giving considerable amounts of aid, including low-interest rate loans to developing nations for the last half of the 20th century, yet many of these nations are still poor. This is done through direct foreign aid from a donor country and through international organizations like the World Bank. In many of these poor countries, the economic system is comparable to pre-capitalist conditions where the goods and services they produce are very limited in scope. Even if a country chooses to accept aid to improve the conditions of its people, the people may not be able to benefit due to corrupt leadership and institutions. Many developing nations have corrupt leaders that do not invest in the social services or infrastructure needed for its people. They are more concerned with staying in power and tend to reward people that will help them stay in power. The developing nations suffer from poverty not because of high debt burdens, but because inefficient governments redistribute the existing economic pie to privileged political elites rather than trying to make the pie grow larger through sound economic policies (Easterly, 2001). In their attempt to gain economic stability, they are in a constant search for more resources to generate wealth. African tribes war against one another to scramble for land. President Yoweri Museveni of Uganda, has continued to spend money on questionable military adventures in the Democratic Republic of the Congo; and other governments like Angola, Ethiopia, and Rwanda have also preferred a military route rather than engaging in economic trade with their neighbors (Easterly, 2001). These corrupt governments spend large amounts of their budgets on their military and pet projects that do not serve the people well. Another example is the government of North Korea that has spent its resources developing nuclear weapons while its people are starving. When government money is spent on the military and war, it is not spent on providing education, clean water, medicine, or the basic amenities that allow a country’s people to move out of Indian Institute of Foreign Trade Page 17
    18. 18. extreme poverty. Many of the nations that receive aid packages are dictatorships and do not always spend the money where it will do the most good for the people. The World Bank financed the dictatorial socialist regime of Robert Mugabe in Zimbabwe until 2000, when the bank refused to give him any more money until he stopped his murdering rampage (Bovard, May 2003). There are countless examples of dictatorships misusing funds to support their own agenda without moving forward their own people out of poverty. Cited by Bovard, 2003, William Easterly, former senior World Bank economist, discussed the failure of foreign aid, “When governments’ incentives are for political patronage rather than development, aid supports incompetent but politically connected schoolteachers, builds schools without textbooks, and roads that attract crooked contractors but little maintenance.” When donor nations see misuse of funds they become less likely to support poor nations and their governments. Scandinavian countries have recognized that corrupt governments are part of the problem and have started denying them aid (Lambsdorff, 1999). Financial aid packages are given with good intentions by the donors that the aid will be used to help the people that need it. Instead the people that need it are oppressed and do not have the political means to change their own situation. Once the people can have more control over their own political future, their economic future can improve. Without trade, foreign aid is the alternative of choice to help the people move out of poverty. Yet many of the people continue to live in poverty year after year due to inefficient governments and distribution of resources. Transparency International, a nongovernmental organization dedicated to stop corruption in governments, reported that nine out of ten developing nations are corrupt and inefficient. Even when aid is given, these nations are so corrupt that very little of the aid makes it to the people that it is suppose to help. Without aid, people will depose inefficient governments and collect the political willpower to engage their problems and search for long-term solutions. Aid allows inept and corrupt governments to stay in power. A unilateral transfer payment in the form of aid is not a long-term solution. For a solution to become permanent, governments must be stable and be perceived as non- corrupt and willing to spend on the proper infrastructure and encourage trade. Culture Clash Not everyone believes international trade can benefit the poor, developing countries. People who are not in favor of expanding international trade and desire preservation of local culture and customs are referred to as anti-globalists. They are an assortment of several different groups with different issues; all motivated toward a common cause: to stop global trade (Wikipedia, 2005). They believe many trade agreements and multinational corporations can undermine the environment, labor rights, national sovereignty, and the third world. The 20th century has seen international trade and the income gap between rich and poor nations increase. Some anti-globalists perceive that international trade and the widening of the income gap between rich and poor countries to be correlated. The World Economic Outlook studied 42 countries for which data was available for the entire 20th century and reached the conclusion that output per capita has risen but that the distribution of income among countries has become more unequal than at the beginning of the century (IMF, 2005). This conclusion has erroneously accused rich countries of getting richer by exploiting poorer countries. Indian Institute of Foreign Trade Page 18
    19. 19. Inequity does exist, but it is not because rich countries are taking advantage of poor countries. However, multinational corporations are taking advantage of market forces and introducing it to developing nations as a peaceful means to promote economic growth. Each nation uses its most abundant resources to a comparative advantage. This is true with land and the products it can produce; true when too much money is available to invest in businesses; and, true when there is too much labor. Developing countries are labor abundant. When labor is abundant, there is a higher ratio of labor to other factors for the poor country than there are for its trading partners (Pugel, 2004). These market forces allow an efficient distribution of resources. Population growth in poor nations is high and the people have little education, as it does not take much education to work on a farm. Cited by Birdsall, 2002, Dr. Wade, a professor of political economics at the London School of Economics, blames this rising inequality on differing rates of population growth between rich and poor countries and the pressures of technological change. Many of these poor countries still have an agrarian economy. Since the people cannot afford technology, like tractors to work the land or irrigation systems to increase productivity, human capital is employed. It is more advantageous for a family to have more children, so they can help work the farm. Many of the children will get sick and some die, due to lack of proper healthcare. In some countries like India, there is a growing industrialized sector. As these countries’ economies become industrialized, the population, who is uneducated in everything but farming, begin to move to the cities as unskilled laborers if they are lucky enough to find work. Unfortunately, most people who move to the city will become part of the growing unemployed. These developing countries are abundant with unskilled labor due to high population growth and lack of education, especially among women, that make the country a source for inexpensive, unskilled labor in exchange for jobs. Its large population is a resource that makes another nation want to trade with it. Many of these developing countries do not have continuing growth as part of their culture, which leads to the continuation of the stagnate economic conditions. Economic growth needs to be examined to verify or disprove the widening inequity gap because poor nations are being exploited by rich nations. Economic growth is defined as the increase in the value of goods and services produced by an economy and can be measured as the percent rate of increase in real gross domestic product (Wikipedia, 2005). There are two types of economic growth a nation can undergo to move itself out of poverty: intensive and extensive. Intensive growth is due to an increase in the quality of a nation’s factors of production, usually due to a change in technology or international trade; where as, extensive growth is growth due to an increase in the quantity of a nation’s factors of production, usually increased by acquiring land via war and colonialism. Technology means change to a society, and many pre-capitalist societies were based on tradition and certainty, and change was uncertain, therefore discouraged (Berri, 2004). In order for pre-capitalist economies to grow they had to increase their factors of production. Land was limited and technology did not exist to yield more crops. Lack of technology also limited capital accumulation. Population increases labor, but still limited by the same technologies and quality, per- capita growth does not increase. Therefore in the absence of trade, economic growth in pre-capitalist societies is zero (Berri, 2004). Capitalist nations have been able to increase technology and embrace change to become the wealthier nations on the globe. Many of these non-capitalists countries are still considered developing nations. Antiglobalists regard the extension of international markets and financial interests as the cause of increasing global inequality (and poverty) and declining levels of human welfare (Birdsall, 2002). The population of these poor countries is plentiful and willing to work at cheap wages, as they are labor abundant. Their own government is eager to oblige the multinational corporation and in many cases, Indian Institute of Foreign Trade Page 19
    20. 20. such as in Nigeria, the environmental laws are more relaxed than in their home countries. However, if the wages were not low or environmental regulation required more expensive technology to be employed, the corporation might choose to stay in their home country or choose to build in another country. The developing country’s government needs the multinational corporation to provide investment and jobs for the people. Without these jobs, the government would spend money that it doesn’t have to care for the people, still increasing its debt burden. India is a good example of how efficient government policies open up a society to trade to improve the economic condition. Since its independence in 1947, India has been given more aid than any other nation. Yet for 40 years it had been grouped among the world’s poorest countries and had a very slow growth rate. Around 1990, recessions in donor nations threatened foreign aid to India. Dr. Manoman Singh, a reform-minded economist, was brought in as finance minister. India implemented many of his basic economic reforms, which included decreasing very high tariffs and quotas, substantially reducing regulation of private domestic investments, encouraging foreign direct investment, and privatizing many government sectors. India's rate of economic growth increased, due to these reforms, to more than 6% per year, without increased foreign aid (Becker, 2005). India changed its policy without getting increased aid and was able to increase its growth rate and begin to alleviate poverty conditions in its country. Aid had handicapped economic growth for India. Only when India was able to participate in trade with other nations was it able to break its cycle of dependence on foreign aid. Governments in developing countries have convinced their people that the aid and limits to international trade is necessary for their continued development. These governments have limited their own growth by imposing tariffs and quotas on imports and claiming that international trade has kept their own countries from developing stable economies. Many of the poor nations are forced to agree to economic reform before they are allowed to receive aid, and additionally, many of these nations are reluctant to accept foreign aid because they believe it will have a negative impact on their cultural identity. These economic reforms are seen as to favor the rich nations by allowing them more access to the poor nation’s resources. The World Bank and International Monetary Fund (IMF) have lending policies that compel poor countries to adopt economic policy reforms, which are perceived to benefit only their wealthy trading partners and leave the emerging economy with an overwhelming debt burden (Newsbatch, 2005). Poor countries think international trade will destroy their culture and lifestyle. Many of these poor nations believe that if they participate in globalization, their culture will change and they will lose part of their identity (Tomlinson, 2003). Modern technology has actually led to the opposite being true. Globalization does not destroy local civilization and customs, but proliferates individual culture by using modern communication like the Internet and television satellite, so that a culture is not limited by location (Tomlinson, 2003). A person in their home country will go about their routine without giving any thought to their identity; however, when they travel to another country for employment or vacation, like the Mexican laborer in the US, they become more aware of their national identity. Globalization as a destroyer of cultural identity is a misconception that encourages poor countries to remain in the same cycle of poverty. Poor nations remain in the same cycle of poverty because of their culture is not growth oriented, has high population growth, low-level of education and a distrust of wealthier nations placing conditions on their economic aid. By accepting economic policy reforms, many nations feel they no longer have control over their nation’s economic affairs. Developing nations have a distrust of rich nations, which prevents them from taking advantage of market forces that will allow them to move toward peaceful economic growth. Indian Institute of Foreign Trade Page 20
    21. 21. Trade Liberalization Trade allows people to make individual decisions concerning their own wellbeing. This requires a different approach to the traditional beliefs that the governments are best qualified to distribute goods to its people. In the 1980s, the laissez-faire capitalist policies of Ronald Reagan and Margaret Thatcher broke down trade barriers and business regulations as privatization and trade liberalization was seen as a more favorable method to distribute benefits and resources to the public, resulting in a more weakened public sector (Wikipedia, 2005). Many ant globalists would like to see governments take a more active role in this distribution process. As multinational corporations control more resources and the means to distribute them, they have more power when negotiating trading terms with poor countries. The poorest of the least-developed countries’ problem is not that they are being impoverished by globalization, but that they are in danger of being largely excluded from it. Of the impoverished countries, 0.4 % of these countries had declining trade with international partners in 1997, down by half from 1980. Their access to foreign private investment remains negligible (PREM, 2000). These nations have limited the outside world’s access to their nation, and in doing so, have limited their own growth. There are four aspects of globalization that should help poorer countries become more self-sufficient. These include trade, capital movements, movements of people, spread of knowledge and technology (IMF, 2000). Trade allows individuals to exchange labor, goods, land and technology and is more efficient at putting these items into more peoples control rather than trying to control these from a single point like the government or aid organizations. In developing countries, as a whole, trade has increased from 19% in 1971 to 29% in 1999, but not all countries have benefited equally. Countries in Southeast Asia, China and India are on track to becoming economic powerhouses as they export primarily manufactured goods and have opened their society to allow international trade. Then there are others, mainly in Africa, who primarily exports raw materials and food, and trade has not fared as well (IMF, 2000). The agricultural subsidies of the rich countries inundate their markets with artificially low cost agricultural products, as a result ruining domestic agricultural industries (Newsbatch, 2005). Further observation has also shown that African countries are more dictatorial and aid packages have remainedprevalent. Capital movements are the movement of financial assets across international borders. Since the 1980s, trade has opened up, allowing business investment to replace foreign aid as the single most important category to help transition developing economies to market economies. The World Bank (Appendix 4) shows the net private flows to developing nations are at higher levels than net official flow consistently from 1992 through 2002, the period of the observed data. Not only did net private flows to developing nations outpace official net flows, they did so by a significant amount. By the end of the 1990s, private investment exceeded net official assistance by seven times (World Bank, 2004). Private investment is investment that is made by private companies to developing countries that does not require direct repayments from the country itself. The government does not control private investment; but the government does benefit indirectly. Multinational corporations build factories and hire workers, and usually pay them above local wages, yet below the wages of their home country. Local governments can then collect more revenue from the increased tax base from the workers and the industry. Workers will move to where the jobs are located. This means that unskilled workers will move to where more unskilled labor is required; or skilled workers moving to where more skilled labor is required. Wages communicate the demand for the labor that is required by each country. Most migration is Indian Institute of Foreign Trade Page 21
    22. 22. between developing nations, but some migration does occur between developed nations and developing nations and in this process, skills can be transferred (IMF, 2000). If an unskilled, labor abundant nation wants to develop a more skilled work force; they should want to engage in trade with a country that is more abundant in skilled labor. Nations that participate in trade will have higher wages than those who do not. There is a direct relationship (Appendix 3) between the openness to trade and per capita income. In a more open society, companies compete against other companies, and provide better opportunities for qualified individuals, offering higher wages for the required labor. The poor nation will also benefit when workers go abroad and can earn higher wages in another country and send money back home, which will also pump money into the economy of the poor nation. Technology is spread by business investment as new equipment and technology are installed in the developing nations. Knowledge is also shared regarding production methods, management techniques, export markets and economic policies. These are available at low cost, and it represents highly valuable resources for the developing countries (IMF, 2005). Technology is expensive and is developed by richer nations and then put in poorer nations for production. The poorer nation can benefit from the expensive technology as a rich nation generates the new technology, a multinational corporation invests in the production, and the unskilled labor of the poor country will have jobs that pay a better wage. Nations that embrace these policies will benefit from trade with international markets. Countries, whose economies have flourished, have learned to let their people be responsible for their own economic welfare. These governments have privatized many of their industries allowing them movement in and out of countries as they search for economic benefits. In doing so, these companies are able to share capital, people and technology that can benefit both countries without engaging in direct unilateral gift exchanges, in the form of aid. Conclusion This paper has demonstrated that inequality exists and that it is widening. When the rich nations get richer other factors are at work such as more efficient use of resources, which need stable, open governments and the infrastructure for improved social conditions. Many poor nations fail because the state fails, or with a large population growth rate, have difficulties managing the allocation of their resources. Rich nations have implemented policies and a capitalist approach to distribution of goods and services that propagates long-term growth. Not all nations are endowed with an equal proportion of factor inputs; inequality will exist. By opening up trade, nations can share their factors more equitably and the total global pool of wealth will increase. For most of the 20th century, rich nations gave aid to poor nations only to see it squandered. The people of the country must have the political will and capability to select leaders that choose a path of economic growth instead of cultural stagnation. Many of these countries are poor and have an unequal distribution within the country itself due to corrupt government leaders that view international aid as a source of personal income. Several of the poorer nations do not want to open up to international trade due to fear of losing their own identity, when in fact they are losing an opportunity for its people to move out of poverty. Many of the poorer nations have an agrarian economy that is labor intensive, without technology. They are changing over to an industrial economy that is not as labor intensive. During this transition, they will provide cheap labor markets for multinational corporations, and wages for these people will increase. Globalization, when there is free movement of goods and services, capital, people and technology, helps poorer nations. International trade allows each nation to maximize the benefits of its input factors where it has a comparative advantage. Control of these resources must be dispersed to individuals so that they are empowered to make decisions that will improve their economic condition. Indian Institute of Foreign Trade Page 22

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