Number 3: Cao Ngọc Tuấn - Quảng Bình Gifted High School K1998-2001
[align=center]Is globalization creating liberalization in economy, a wider gap between the rich and the poor countries, the state demise in economy as well as the global crises?
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Nowadays, the world is becoming a global village. The more integrated
that (omitted) the world economy is, the more benefits and challenges it gains. According to many researches of economists, the current integrated world has been created by globalization. Some of the questions posed are “What is globalization?” and “Is globalization good for the poor economies?” This essay will answer those questions and will prove that globalization is not good for the third world nations. In the other words, it will discuss the negative effects of globalization on the poor economies in the world. Although globalization promotes the global economy through liberalization it has led to a wider gap between the rich and the poor economies, the reduction of poor countries’ capacity to control domestic economy and the global crises.
We have seen the fast development of developing countries such as China, India, Korea, the instabilities of some developed
countries(omitted) economies including the United States, Japan or the low standard of living in African are somehow the results of globalization. So, what is globalization? According to Mittelman (2000), globalization is the process of reducing borders between countries and encouraging closer economy, politics and society. With the same view, Steger (2003) defines globalization as a set of social process of transforming the world into one entity. Following those definitions, we know that globalization is a worldwide process which thoroughly influences countries of the world.
First of all, it is hard to deny that globalization promotes
of(omitted) the world economy due to its liberalization. Globalization creates the liberalization in commerce. More specifically, the current globalized world is bound together by free trade, responsible investments and multi-national organizations. According to Streeten (2001), globalization in some ways has been giving the advantages for the world economy including the rapid growth of the ratio of international trade in relation to national income and the fast increase of the world gross domestic product (GDP). In 2000, the volume of international trade reaches US$7.6 trillion, much higher than in the 1990s. In addition, the flows of the foreign direct investment (FDI) as well as the mobilization of capital between countries and countries in the world seem to be easier in recent years. According to the statistics cited from the United Nations (UN) report and the World Trade Organization (WTO) report (1996) cited by Michie and Smith (1998), there has been a very rapid growth of FDI in the 1990s. Those statistics notes the average annual FDI inflows had been rising from US$77.5 billion during 1983-1987 and to US$315 billion in 1995. In this book, Michie and Smith also say that the East and South East Asian countries grow fast because many of these countries have been major recipients of FDI. In the more updated statistics of O’Connor (2002), FDI in the global economy tops US$1 trillion in 2000. This indicates the fast increase of FDI in the world. Hence, the world economy has been improved because of the liberalization, one effect of globalization.
However, that is the overview of the world economy. To analyse this process specifically, we can see globalization has generated many unwanted effects on the poor economies.
The first negative effect of globalization process is that globalization makes the gap between the rich and the poor countries in the world even wider. According to Tisdell. and Sen (2004), globalization makes people and countries unprepared to adapt measures for it. The rich countries have enough
resouces (resources) including finance, technology and political power; therefore, they can overcome the globalization shocks. Meanwhile, because of underdeveloped technology and dependence on external economies, poor countries become passive once the globalization shocks happen. Broadly, the globalization shocks contain the economic, cultural, political and environmental shocks. Poor countries are facing the shocks of literacy, diseases as well as starvation. The statistics given by O’Connor (2002) in the book “Demystifying the Global Economy” note in 1999, 47% of the total adult population were illiterate; 57% of people had inadequate sanitation facilities in poor countries; 25 million people in Africans lived with HIV. Alternatively, O’Connor’s report shows that in 1999, the GDP rate in developed countries was
UD$ (USD$)24.3 trillion, meanwhile, that of lower-middle income countries and low-income countries were US$ 2.6 trillion and US$ 1 trillion. O’Connor also cites the estimation of UNFPA which notes 20% of the world’s population living in the high income countries consumes about 86% of all private goods, compared with the poorest 20% of the world’s population that consumes just 1.3% if all private goods. Those indicators are the reflection of the globalization effects and in many economists’ opinion, this situation will continue so far. Therefore, it is no doubt that the gap between the rich and the poor countries is wider.
Moreover, globalization is seen as the
fundamental (fundament) of global crises, particularly the financial crises and debt crises. According to Gangopadhyay and Chatterji (2005), global economic crises are caused by the two main mismatches including the maturity mismatch and the currency mismatch. Financial crises can arise out of a mismatch between the maturity of investments and debts and the currency mismatch. poor countries normally have low currency in comparison with rich countries; therefore the potential of financial crises is high with poor countries. Gangopadhyay and Chatterji (2005) also clarify that one of the causes of Asian countries in 1997 was the mismatch of currency maturity. After the “bubble” burst, the foreign investors in Thailand, Korea wildly withdrew money once they had to pay more for
facilitations (facilities) and for workers. With the weak currency, those Asian countries could not adjust to the “bubble” price and declare to float currency. After the declaration, the inflation rocketed, the domestic currency valuation ceased to plunge. Consequently, a series of crises happened in those Asian countries in 1997.
In addition, the mismatch between the debts and investments is seemly popular in poor countries and it is the major cause for the debt crises in those countries. In some severe situations such as suffering natural disasters, experiencing economic shocks, the poor countries must sign some contracts for loans. However, those poor countries after certain of times are not able to pay those debts and become the unpayable debtors. As a result, the debt crises are caused. The debt crises in the Third World nations are also popular Today. According to Buckman (2004), the Third World debt in 2004 was about US$2,530 billion, about two times its level of 1980. Moreover, he asserts that when the poor countries sign in a contract on a loan from developed countries, IMF or the World Bank, they must also pay other costs for this. For example, they must cut the tariff, minimal controls on foreign investment, currency devaluation and low government spending. Particularly, they must accept the rich countries to come and exploit the national raw materials to pay for the debts. However, it is not enough for the Third World nations.
Furthermore, globalization makes the capacity of national management in economy decrease. Meanwhile, it makes the role of multinational corporations and international organization increase. It also can be understood as the nation state demise in economy. Technically, globalization is indicated as the considerable uniformity exhibited by sovereign states in terms of their goals, structures, programs and internal operations. (Boli and Lechner (2000)). Therefore, the economic sovereign and independence of countries, particularly poor countries are not stable. When countries participate
into (in) the world economy, they must obey the world’s economic principles. The world market will decide the domestic economy. Former Malaysian Prime Minister Mohamad (2002) in Globalization and the New Realities indicates that one of the five major challenges for countries, particularly for the poor countries, is the challenge on independent thoughts. Consequently, governmental capacity of controlling the domestic economy will be decreased in the globalized world. Alternatively, the role of international organizations is increasingly more important. It is hard to deny that since the establishment of the World Trade Organization (WTO), the International Monetary Fund (IMF), and Organization of Petroleum Exporting Countries (OPEC), those international organizations have been playing important roles in the global trade. As a result, a series of commercial regulations and agreement systems have been established and successfully implemented such as General Agreement on Tariff and Trade (GATT), Most Favoured Countries (MFN)… In some ways, those regulations and agreements are directly affecting to all countries in the world.
In brief, it is undeniable that globalization has given a lot of advantages for the world economy. Owing to this process, the world GDP and the international trade has soared. Conversely, globalization has made the poor countries even poorer. The negative effects of this process on poor economies are reasons for the bigger gap between the rich and the poor countries. In addition, globalization is the fundament of global crises and it reduces the capacity of a government in controlling domestic economy, but the role of multi-national enterprises and global organizations increase. Obviously, globalization is indispensable. The essential things that the poor economies should do are to avoid as much as possible the negative effects of globalization. In essence, the poor countries need to be careful when participating in international organizations or sign into trade contracts. That is the only way for them to avoid potential risks and keep their economic more independent.
Cao Ngoc Tuan (19/12/2007)
Bibliography:
Boli, J. & Lechner, F.J. (2000), The Globalization Reader, Blackwell, Malden, Massachusetts, USA.
Buckman, G., (2004), Globalization: Tame It or Scrap It?, The University Press Ltd, Dhaka, Bangladesh.
David E. O’Connor, (2002)) (O’Connor, D., E. (2002), Demystifying the Global Economy, Greenwood Press, Connecticut, London.
Gangopadhyay, P. & Chatterji, M. (2005), Economics of Globalization, Ashgate Publishing Limited, Aldershot, England.
Gangopadhyay, P. & Chatterji, M. (2005), Economic Globalization In Asia, Ashgate Publishing Limited, Hampshire, England.
Michie, J. (2003), ‘The Future of Globalization’, The Handbook of Globalization, Edward Elgar Publishing Limited, Cheltenham, UK, pp. 17-37.
Michie, J. & Smith, J. G. (1998), Globalization Growth, and Governance: Creating an Innovative Economy, Oxford University Press Inc., New York.
Mittelman, J.H. (2000), The Globalization Syndrome Transformation and Resistance, Princeton University Press, Princeton, New Jersey, The United State of America.
Mohamad, M. (2002), ‘Globalization and Its Impact on Developing Economies’, Globalization and the New Realities, Pelanduk Pulications (M) Sdn Bhd, Selangor Darul Ehsan, Malaisia, pp. 39-52.
Steger, M.B. (2003), Globalization A Very Short Introduction, Oxford University Press Inc, New York.
Streeten, P. (2001), Globalization Threat or Opportunities, Copenhagen Business School Press, Denmark.
nflicts, Labour and Environmental Issues, Edward Elgar Publishing Limited, Cheltenham, UK.
@Tuan: your article is very informative. I appreciate your great analysis but you should take care of some minor mistakes as cited.
Also, you are supposed to send me your current address( school or office) so that we can contact you in case you win the award
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