Faculty of Science and Social Sciences

(Level H – honours)

Globalization and International Business

BSTH010

Assessment Questions:

Critically assess the view that the process of globalisation has

provided advances in economic and social development for all

regions across the globe. In your answer you should refer to specific

globalisation theorists and also to the role of NGOs in international

development.

Word count 3779

 Mengmeng Wu (09007778)

Tutor: Ilva Navarro Bateman

Due date: 21st, January 2011

Content

1. A Brief Introduction on “Globalization”--------------------------3

1.1 A Shrinking World-------------------------------------------------3
1.2 Controversy----------------------------------------------------------3
2. Globalization and Its Economic Impact----------------------------5
2.1 Theoretical Basis of Globalization ------------------------------5
2.2 The Far East Miracle-----------------------------------------------6
2.3 Poverty, Inequality and Instability------------------------------9
2.4 East Asia Crisis---Increased Instability-------------------------10
2.5 Chapter Conclusion-------------------------------------------------12
3. Globalization and Its Social Impact----------------------------------12
3.1 Jobs Taken Away-----------------------------------------------------13
3.2 Working Conditions in Manufacturers in Less Developed
Countries---------------------------------------------------------------15
3.3 Environment in Peril-------------------------------------------------16
3.4 Chapter Conclusion---------------------------------------------------16
4. NGOs—A Long Way to Go-----------------------------------------------17

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5. Conclusion-------------------------------------------------------------------18
Reference------------------------------------------------------------------------19

1. A Brief Introduction on “Globalization”

Globalization refers to the shift toward a more integrated and independent world
economy (Hill, 2009, p.7). According to Hill (2009), the declined trade and
investment barriers as well as technological change are the drivers of globalization.

1.1 A Shrinking World

The economic crisis originated in America in autumn of 2008 spread to the whole
world and finally resulted in a worldwide economic recession, indicating that no
region in the world exists separately. Distant events acquire very localized impacts.
Globalization embodies a process of relative deterritorialization: as social, political
and economic activities are increasing ‘stretched’ across the globe, they become in a
significant sense no longer organized solely according to a strictly territorial logic
(Held& McGrew, 2008, p.4).

In the shrinking world, with the globalization of markets and products, whether the
process of globalization has provided advances in economic and social development
for all regions across the globe has aroused great debate.

1.2 Controversy
The controversies lie in both economic aspect and social aspect, as well as whether
advances have been provided in ‘all regions’---the divide between North and South,
and among every nation.

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There are many theories in support of free trade and globalization such as the Adam
Smith’s theory and the theory of comparative advantage advanced by David Ricardo.
The existing examples of many nations’ growth prove that globalization is the cause
of economic advances.

However, there are many critics about globalization. In this essay, the critical opinions
of theorists such as Bhagwati, Stiglitz, Held, McGrew and so on will be discussed.

As Stiglitz(2002:8) pointed out, If, in too many instances, the benefits of globalization
have been less than its advocates claim, the price paid has been greater, as the
environment has been destroyed, as political processes have been corrupted, and as
the rapid pace of change has not allowed countries time for cultural adaptation. The
crises that have brought in their wake massive unemployment have, in turn, been
followed by longer tern problems of social dissolution-from urban violence in Latin
America to ethnic conflicts in other parts of the world, such as Indonesia.

Bhagwati (2004:30) admits the economic advances, but he mentioned that

globalization may be economically benign in the sense of increasing the pie, it is
socially malign. These fears relate to several areas, among them accentuation of
poverty in both rich and poor countries, erosion of unionization and other labor rights,
creation of a democratic deficit, harming of women, imperiling of local mainstream
and indigenous cultures, and damage to the environment.

First, this essay will examine the economic aspects. Both theories and evidence agree
and disagree with globalization will be discussed. Especially, whether globalization is
the cause of poverty, inequality and instability will be critically judged.

Second, this essay will examine the social aspects of globalization in terms of
employment and environmental problems. Whether workers’ wages and work

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opportunities in developed countries have decreased will be discussed. The problem
of low standard working condition in developing countries will be illustrated with
reference to a case study on Foxconn in China.

Finally, the role of NGOs played in globalization will be introduced with some critical
opinions presented.

2. Globalization and Its Economic Impact

2.1 Theoretical Basis of Globalization

Adam Smith’s theory of absolute advantage is the first theory to support free trade.
The invisible hand of the market mechanism, rather than government policy, should
determine what a country imports and what it exports (Hill, 2009, p.161). According
to Ricardo’s theory of comparative advantage, it makes sense for a country to
specialize in the production of those goods that it produces most efficiently and to buy
the goods that it produces less efficiently from other countries, even if this means
buying goods from other countries that it could produces more efficiently itself (Hill,
2009, p168). The theory of comparative advantage is a powerful support for free
trade. It suggests that every country will gain economic growth if it adopts free trade
policies and participate in globalization.

Bhagwati examined the relationship between trade and growth as well as growth and
the reduction of poverty. Freer trade helps economic growth has been proved by
comparative advantage. As for economic growth and reduced poverty, Bhagwati
presented the opinion that it is the inappropriate policy rather than growth itself that
affect reducing poverty negatively. A country always planned growth strategy relied
on massive import-substitution in heavy industry in early development. However, this
policy turned out to cause increased poverty because it demands skilled labor instead
of low-grade labor. Thus, the employment problem cannot be solved. The failure of
Russia and China in early development to get rid of poverty is an evidence of this

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opinion. If growth turns to be more out-oriented, relying more on the exports of light
manufactures, it will help to reduce poverty in an efficient way. It is the policy that
makes the distinct result. Finally Bhagawati(2004) concluded that growth had to be
the principle strategy for raising the incomes, and hence consumption, and living
standards, of the poor.

In short, since freer trade helps economic growth and growth helps reducing the
poverty, globalization, in specific forms of freer trade, provides economic advances
and reduces poverty for all countries theoretically. The evidence of these theories will
be showed below.

2.2 The Far East Miracle

Dramatic economic growth caused by outward oriented economy has happened in the
Far East.

The four Little Tigers---Singapore, Hong Kong, South Korea and Taiwan experienced
a dramatic economic growth from 1960s to 1990s. Exports and income grew at a
rapid pace and the investment rates were high. It is admitted that apart from outward
oriented policies, these regions also benefited a lot from higher education, which is
not simply relying on unskilled low-grade labors. However, the economic policy,
which is the base for high and productive investments, is still the original motivation
for growth.

The table below illustrates how the policy orientation is related to economic growth
(Held& McGrew, 2008, p.129). It can be seen that outward oriented trade relates to
economic growth positively.

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Then it comes to China---a growing power with a large amount of people under
poverty. After reform and open up in 1978, China enjoyed a dramatic economic
growth. The three tables below are from The US-China Business Council (2009) and
China Today (2010).

China’s trade with the world ($ billion)

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 China GDP Growth Rate between 1978 and 2009

Poverty Line and Poverty Headcount Rate in China, 1978-2003

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It can be seen that after China changed its economic policy to an outward orientation,
it has enjoyed a continuous high speed of growth. Poverty declined from 30 percent in
1978 to 3.1 percent in 2003. China’s miracle proves that globalization could provide
economic advances in a region which adopt outward oriented economic policy.
However, the increasing inequality and the widening gap between North and South
has aroused many critical arguments that doubt the economic advances globalization
has provided, which will be discussed soon.

2.3 Poverty, Inequality and Instability

The main critic about globalization is that globalization brings about more poverty,
inequality and instability. Global inequality and poverty, in all its dimensions,
undoubtedly ranks as ‘by far the greatest source of human misery today’ (Pogge,
2001, as cited in Held& McGrew, 2008, p.117). For many the principal source of this
misery is globalization, and in particular its dominant neoliberal form-the Washington

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Consensus in its various guises （ Thomas 2000; Harvey 2006, as cited in Held&
McGrew, 2008, p.117）.

Whether the widening gap between North and South is caused by globalization is
controversial. There are many opinions from different perspectives. One opinion is
that rather than anti-globalization, anti-capitalism counts more. It is the system that
makes the major capitalist economies benefit far more from trade and foreign
investment than poor countries. Another opinion is that states still matter. They argue
that globalization scholarship exaggerates its historical and theoretical significance,
since the world remains principally one of discrete and competitive national states
(Held& McGrew, 2008, p7). The distinct national policies will result in different
outcomes. Nations adopt and implement policies to benefit their own interests in
international trade. However, the “nations” here refer more to developed countries
than those countries in the Third World. Since the rules of the “game” are made by a
few institutions which are linked to certain financial and commercial interests. The
developed countries have little voice. On one hand, western countries force
developing countries to adopt freer trade policies; on the other hand, they prevent
developing countries from exporting low-grade products. The intervention protects
the local producers, however, does harm the consumers.

Regardless of all the arguments presented above, the statistics show that the gap
between North and South is widening and the inequality rate has increased although
the total world income actually increased by an average of 2.5 percent annually.

Then what the role of the World Bank, the IMF and the WTO? The global institutions
fail to keep the promise for developing countries to guarantee their rights in
international trade. We have no world government, accountable to the people of every
country, to oversee the globalization process in a fashion comparable to the way
national governments guided the nationalization process. Instead we have a system

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that might be called global governance without global government (Stiglitz, 2002,
p.22).

Globalization has not provided economic advances cross all regions; also it has not
insured stability with the policies of global institutions. Below the East Asia crisis will
be discussed.

2.4 East Asia Crisis---Increased Instability

The Asian financial crisis was a period of financial crisis that gripped much of Asia
beginning in July 1997, and raised fears of a worldwide economic meltdown due to
financial contagion.

The figure is cited from Stanford University (2000), showing how the affected
countries South Korea and Thailand suffered a economic instability.

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According to The Federal Reserve Bank of San Francisco, trade deteriorations,
unsustainable currency pegs, the declines in the stock markets of Thailand and Korea
from early 1996 are possible causes for this crisis. Capital account liberalization and
lack of risk management are thought to be key factors that lead to the crisis.When a
developing country carries out financial liberalization before its institutions or
knowledge base is prepared to deal with the consequences, it opens itself to the
possibility of tremendous shocks and instability associated with inflows and outflows
of funds.

Then we should take a look how the IMF and Treasury responded to the crisis. Based
on Stiglitz’s (2002) research, IMF and Treasury made two rounds of mistakes. First,
the initial responses misdiagnosed the problem. The condition of East Asia is very
different from Latin America, with insufficient demand and high level of
indebtedness. The second round of mistakes is restructuring. And the most grievous
mistakes are risking social and political turmoil. Finally he presented an explanation
for these mistakes: the IMF was not participating in a conspiracy, but it was reflecting
the interests and ideology of the Western financial community (Stiglitz, 2002, p.130).

Despite of the complex explanations for the East Asian crisis, one thing must be
admitted that globalization make the countries participated in it actively gain much
opportunities in development, but it does not insure stability. By contrast, the
developing countries lack risk management and the financial systems of which are
still not mature. The international institutions misguided these countries and represent
western countries to some extent. As a result, the risk of economic crisis increases.

Since economic stability is an important aspect of economic advance, it is not fair to

say that globalization has provided economic advances in both North and South.

2.5 Chapter Conclusion

Most countries, whether proactively or passively, have participated in globalization.

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Many theories and evidence prove that globalization provides chance for countries
who participate in it to economic prosperity. However, it is not fair to say that
globalization has provided economic advances across all regions. More poverty,
inequality and instability exist in the recent decades though they are not related to
globalization directly. The international trade wad leading by developed countries
with international institutions represented their interests. As a result, no matter how
much developing countries have benefited, they participate in a comparatively passive
way and the developed countries benefit far more, let alone those countries in Africa
that still suffer from serious poverty.

It is vital to make all countries have a voice in globalization. The growth should be
sustainable, and the fruits of this growth need to be more equitably shared.

3. Globalization and Its Social Impact

As social impact involves many issues, this paper mainly deals with employment and
environmental problems. As has mentioned in the introduction part, globalization may
be economically benign in the sense of increasing the pie, it is socially malign. The
problem of poverty has been discussed in the economic impact, here, the issue of
globalization, jobs and income in advanced industrial economies will be firstly
discussed.

3.1 Jobs Taken Away

One concern frequently voiced by globalization opponents is that falling barriers to
international trade destroy manufacturing jobs in wealthy advanced economies such
as the United States and Western Europe (Hill, 2009).

The data shows that the share of labor in national income has declined in OECD
countries.
Labor's Share - average of 17 OECD countries 1960-2005(employee

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 compensation adjusted for self-employment as % of GDP)

Labor Share AS Reported by the Bureau of Labor Statistics

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However, there are some points that need to be concerned. First, the whole economy
of these advanced countries is better off by relocating manufacturing and services.
Second, moving factories to less developed countries will benefit these countries,
increasing their income level, which will help them to purchase more products from
advanced nations. Third, the cost of production can be decreased, making the price
lower, which could benefit consumers. These affected workers themselves are
consumers. Fourth, the fall in labor’s share is mainly due to the fall in the share taken
by unskilled labor and economic growth may have offset the fall. Living standard
doesn’t decrease.

In addition, it is not only the globalization that leads to declined labor’s share. Other
factors make sense.

A working paper of the IMF examined the factors in explaining

movements in labor’s share: factor-biased technological progress,
openness to trade, and changes in employment protection.
The IMF’s econometric study suggests that labor’s share has fallen more in countries
where the levels of taxation on labor have risen more, or where unemployment
benefits have risen more (Andrew, p.2). This is related to a country’s welfare system.

In short, the elimination of trade barriers leads to unemployment problems and

declined income share in advanced industrial countries, but it still benefits labors from
other aspects. The declined share cannot attribute solely to globalization.

3.2 Working Conditions in Manufacturers in Less Developed Countries

---- A Case Study on Foxconn
Free trade encourages firms from advanced nations to move
manufacturing facilities to less developed countries that lack
adequate regulations to protect labor and the environment from

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abuse by the unscrupulous (Hill, 2009, p.31).

Pearl River Delta of China is the world factory with a large number of cheap labors
from all over China. Foxconn International Holdings Ltd is the largest electronic
manufacturer located in Shenzhen, Mainland China. Its products include iPhone and
iPad.

In 2010, fourteen workers in Foxconn suicide, which aroused critical concern about
labor mistreatment. Foxconn is blamed for making workers work for long time,
discriminating labors from mainland China and lacking legal contract to protect labor
rights. Workers also suffer from spiritual stress. They have insufficient chance to
communicate with others. This is a common phenomenon in Southern China. China
has long relied on cheap labors with insufficient union representation and legal
protection. However, the problem of mistreatment becomes more serious in recent
years, not because the working condition has become worse. By contrast, the wage
keeps increasing and workers’ rights have been considered more than before. Then
what caused the recent changes?

According to The BBC News (28 May 2010), Chinese worker is changing. The days
of toiling for hours for basic pay and being very happy are long gone. As China opens
up, the workers are exposed to Western ideals of consumerism and freedom. Seeing
this in the outside world and yet being treated like army recruits inside leaves many
thinking what is it all for. Especially now more workers were born after 1980s and
1990s. Unlike their parents, they have a greater desire for life of high quality.

Although many factories are forced to improve the working conditions and increase
wages, the problem will not be solved in a short time. Government has come out
policies to protect workers’ benefits. However, the fact is that these workers keep

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living on the fringe of big cities and experiencing inequality. It is these workers that
make these products consumed by people in western countries with a lower price.

3.3 Environment in Peril

Apart from labor mistreatment, the environment degradation in developing countries
also arouses concern. International economic relationship poses a particular problem
for environmental management in many developing countries. Exports of natural
resources remain a large factor in their economies, especially for the least developed
(Lechner&Boli, 2008, p.407).

Bhagwati (2004) commended on the concept that the freer trade without
environmental policy in place is harmful. He pointed out the key factor lies in
appropriate environmental policy. The best policy is to combine free trade with
appropriate environmental policy.

3.4 Chapter Conclusion

The globalization of products decreases the labor’s share in advanced industrial
countries. However, this does not mean a lower living standard. By contrast, due to
the cheap labors, more manufacturers move to less developed regions. Though the
movement has provided economic opportunities for these regions and helped people
get out of poverty, the ethnic social problems cannot be neglected.

Only the problem of poor working condition has been analyzed in details here. Many
other problems, such as child labor, women discrimination, international crimes and
terrorism and spread of disease need to be concerned. Obviously, globalization failed
to provide social advances in all regions in every aspect.

4. NGOs---A Long Way to Go

NGO---non-governmental organization refers to organisations

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concerned with the promotion of social, political or economic
change. They are commonly defined as any non-profit organization
that is independent from the government (Bhagwati, 2004, p.37). The past
decade has witnessed a growing insistence on the importance and value of NGOs and
social movements as mechanisms for satisfying the needs and desire of the world’s
population, rather than the desires of often corrupt or power-hungry elites
(Lechner&Boli, 2008, p.259).

However, there is till a long way for NGOs to go. Firstly, only a few NGOs are
focused narrowly on the global economy and global issues. Second, NGOs need to
improve transparency. Third, if transparency is not routinely practiced by NGOs, it
would be nothing short of a miracle if NGOs did not produce their own counterparts
of the occasional corruptions of some multinationals such as Enron (Bhagwati, 2004,
p.44). Fourth, the division between rich- country NGOs and poor-country NGOs is
obvious. The NGOs in poor countries suffer from limited budgets and less support
from government. Thus, the NGOs of rich countries will have more power, making
the initial purposes of NGOs to satisfy the needs and desire of the world’s population
unrealistic.

In short, NGOs is helping provide social advances for people in the process of
globalization. However, NGOs still have a long way to go to fulfill this dream.

5. Conclusion

In this paper, the economic and social aspects of globalization were incompletely
discussed, emphasizing on a few key issues.

Most countries, whether proactively or passively, have participated in globalization.

Many theories and evidence prove that globalization provides chance for countries

18
who participate in it to economic prosperity. However, it is not fair to say that
globalization has provided economic advances across all regions. More poverty,
inequality and instability exist in the recent decades though they are not related to
globalization directly.

Globalization may be economically benign in the sense of increasing the pie; it is

socially malign in terms of many social problems. The movement of manufacturers to
developing countries has declined the labor share of national extent. However, this
does not bring about lower living standards. Workers in some developing countries
lack legal protect and union representation. The environmental problem in less
developed countries is worth concerning.

Although NGOs has provided benefits for the whole world, many problems still exist
with the need to make improvement.

In short, the international trade wad leading by developed countries with international
institutions represented their interests. Globalization has provided many advances,
both economic and social, all over the world. But the benefits are not identical. It is
vital to make all countries have a voice in globalization. The growth should be
sustainable, and the fruits of this growth need to be more equitably shared.

Reference
Andrew, G. (2009) Explaining Labor’s Declining Share of National Income. G-24
Policy Brief

BBC News (2010, May 28) Foxconn suicides: 'Workers feel quite lonely' [online].
http://www.bbc.co.uk/news/10182824 [Accessed: 10/01/11]

Bhagwati, J. (2004) In Defense of Globalisation. Oxford: Oxford University Press.

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Burns, Sarah et al (2001) “Faces of Globalisation” in Kirkbride, Paul (ed)
Globalisation: The External Pressures. West Sussex: John Wiley & Sons.

Held, D. and McGrew, A. (2008) Globalisation/Antiglobalisation: Beyond the Great

Divide. 2nd ed. Cambridge: Polity.

Hill, C. (2009) International Business: Competing in the Global Marketplace. 6th ed.
International edition. McGraw-Hill.

Lechner, F. and Boli, J. eds. (2008) The Globalisation Reader. 3rd ed. Oxford:
Blackwell Publishing.

Stiglitz, J. (2002) Globalization and its Discontents. New York: W. W. Norton

The US-China Business Council (2009) US-China Trade Statistics and China's World
Trade Statistics. [online] USCBC Offices.
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Martin, K. ( 1998) Background to the East Asian crisis [online].

http://www.sunsonline.org/trade/other/martinAsia1.htm [Accessed:
10/01/11]

Lawrence J. L. (2000) The East Asian Crisis: A Retrospective Look. Stanford

University; 1-4.

FRBSF Economic Letter (1998) What Caused East Asia's Financial Crisis? The
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IMF Working Paper (2006) Effects of Globalization on Labor’s Share in National

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Income. International Monetary Fund

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