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Examining The Benefits Of Globalisation Economics Essay

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Globalisation has benefited everyone. It helped all the people to increase their living standards, brought advantages to organisations and businesses and enabled economies to develop. Discuss.

Proponents of globalisation are of the view that it has benefited everyone and helped to pull millions upon millions out of poverty. However a close analysis of the affects of globalisation tell a very different story. While it is true that globalisation has benefited many, it has had an equally devastating effect on the lives of many others and made ‘true’ development more of a mirage rather than a reality (Dunning, 2003). This essay will critically analyse and discuss the benefits and disadvantages of globalisation and will conclude by either agreeing or disagreeing with the above statement.

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Even though globalisation is the buzzword today, it has been in existence in some form or another for over a century. After World War II many regions of the world that were reeling from the devastating effects of the war, came together to create trade agreements that would help each of those regions to grow in the post war era. The European Union is one such trade agreement as is the NAFTA agreement, GATT, APEC, ASEAN and many others. Due to the advances made in technology, especially in the telecommunication industry, globalisation saw a rapid increase in the latter part of the 20th century (Guillen, 2001). The ultimate goal of globalisation was to liberalise formerly closed economies, integrate national economies and create one huge global economy that would not only decrease trade barriers and increase trade and corporation but would also help poorer and developing nations to become ‘industrialised’ – thus uplifting the living standards of billions (Grewal, 2006).

While the goals and objectives of globalisation are noble, such goals and objectives are not very easy to achieve. Even though the above may look good in theory, in reality it is easier said than done and usually causes more damage to economies, the social fabric of nations and the environment as a whole (Suárez-Orozco & Qin-Hilliard, 2004).

With the onset of globalisation in its current form, which began in the late 1980s and has been gathering steam, many manufacturing organisations in the west have seen their profitability increase. The reason for this positive effect on the bottom line has been chiefly due to the fact that globalisation allowed these companies to relocate their manufacturing plants to developing countries, where labour is cheap. In doing so they were able to reduce the cost of the products and become more profitable. While such a relocation, may have benefited the developing economy where the plant was relocated to, it left huge numbers of individuals unemployed in its home country (Helbling, Batini & Cardarelli, 2005). Thus it can be stated that while one economy gained jobs and was able to uplift the living standard of many, another economy lost jobs, which had an equally devastating effect, while the company in question continued to earn profits and prosper.

During the 1990s and to date, India is one such country that has benefited immensely from globalisation. Throughout the past decade or more many European and North American, technology companies have outsourced their software development to India, which rose up to the challenge and has become a global IT giant. While such a growth in employment has benefited the country and helped to create a new middle class, globalisation has not been as favourable to its closest neighbour Sri Lanka. Sri Lanka with a literacy rate of 90% has seen much foreign direct investment in the garment sector. While this has helped the country to keep unemployment levels down, the semi-skilled or low skilled nature of the jobs that are available to its citizens does not help the country to grow and prosper to the level that globalisation has aided India (Schmidt & Hersh, 2000). On the contrary, Sri Lanka has seen a severe increase in underemployment of its university educate youth, who due to the lack of ‘white collar’ jobs, have had to resort to working in the garment industry (Kiggundu, 2002). As is apparent from the above, while globalisation benefits one segment of the population, its affects are not equal, on the contrary they are mixed, thereby it can be stated that the above statement is not accurate in its view of globalisation.

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Proponents of globalisation often cite the fact that increased demand for export from developing countries, create an inflow of foreign exchange revenue and increases employment opportunities, which in turn helps the country to develop (Bhagwati, 2004). While this is true to some extent, there is an equally disadvantageous side to this phenomenon. In order for employment opportunities to increase in an economy, it requires output growth to exceed productivity growth. At the same time for profitability to increase, it needs productivity growth to outpace output growth. This conflict in the two, results in companies opting to increase productivity at the expense of output growth. Thus even though the developing economies have ‘bent backwards’ to attract foreign direct investment by providing tax cuts, capital and natural resources etc, in the hopes of boosting domestic employment and earning foreign exchange revenues. The companies that enter the country usually plunder the capital and natural resources made available to them (Samli, 2002). And instead of making use of the labour that is available to them, they automate their production processes to a great extent. Further they return much of the profits earned to the parent company and its shareholders who are often resident in developed economies (Smith & Debrah, 2002). Here again it is apparent that while globalisation has helped businesses to develop and become more profitable, the benefits of globalisation are often enjoyed by the developed economies, rather than the developing economy that were supposed to benefit, in the first place.

As a part of the initiative to liberalise an economy, most developing economies were forced to reduce welfare spending in terms of healthcare, education and social assistance. Further in order to attract foreign direct investment into the country, most of these economies were required to relax their stringent labour laws, which have resulted in the exploitation of workers (Murshed, 2002). While it is true that many multi-national companies are now operating in developing economies and have helped to increase employment levels within the country. The lack of strong labour laws, allow these companies to pay meagre wages to their employees and not a ‘living wage’ as is the ethical thing to do. This combined with the lack of universal health care and education has a devastating affect on the workers (Brysk, 2002). While they may have a job and are able to earn a living, their wages are usually insufficient for paying for more than food and rent. Thus making it impossible for this segment to educate their children adequately (Mittelman, 2002). Thereby causing a vicious cycle, where the children end up in low skilled or semi skilled jobs much like their parents and unable to breakout of poverty (Midgley, 2007). The lack of education and healthcare also has a catastrophic affect in the long term for the economy, as it will never be able to make the leap from being a ‘developing economy’ to a ‘developed economy’ as long as its citizens lack a strong education (Micklethwait & Wooldridge, 2001). Further this lack of education not only will increase the wealth disparities within the economy, but it will also continue to increase the disparity between developed and developing nations in the long run.

Based on the discussion above it is apparent that globalisation has been very advantageous to businesses. While it is a fact that some countries like India and China have benefited immensely from globalisation and seen the prosperity of their citizens increase to unprecedented levels, other countries have not been so lucky. On the contrary, globalisation has succeeded in further increasing the social challenges faced by these countries and pushed the dream of becoming a developed economy further out of their reach (Micklethwait & Wooldridge, 2001). Therefore it can be stated that the statement ‘Globalisation has benefited everyone. It helped all the people to increase their living standards, brought advantages to organisations and businesses and enabled economies to develop’ is only partially true.

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