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

5. Conclusion-------------------------------------------------------------------18

Reference------------------------------------------------------------------------19

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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.

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

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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

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.

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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

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

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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

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national governments guided the nationalization process. Instead we have a system

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

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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.

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

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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

compensation adjusted for self-employment as % of GDP)

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Labor Share AS Reported by the Bureau of Labor Statistics

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,

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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

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

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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

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

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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

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

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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

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

19

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.

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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Available at: http://www.uschina.org/statistics/tradetable.html [Accessed: 06/01/11]

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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

Federal Reserve Bank of San Francisco

IMF Working Paper (2006) Effects of Globalization on Labor’s Share in National

Income. International Monetary Fund

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