Globalization shakes the world
The growing economic integration of the world is having profound effects on both rich and poor countries. BBC News has launched a major examination of the subject. For some, their business is doing very well, but for others, their business is not doing well. Globalization is doomed for many of the ills of the modern world, but it is also hailed for bringing unprecedented prosperity.
Many economists have the opinion that globalization may be the explanation for key trends in the world economy such as:
- Lower wages for workers and higher profits in Western economies.
- The avalanche of migrants to cities in poor countries.
- Low inflation and low interest rates despite strong growth.
Trade has been the engine of globalization. Since 1960, international agreements have facilitated increased trade to reduce tariff and non-tariff barriers to the export of manufactured goods, particularly to rich countries. Countries that have succeeded in increasing their role in the world trading system have seen a substantial increase in their standard of living.
It is not just Western manufacturing that is under threat from globalization. Many service sector jobs are now under threat from outsourcing and offshoring as global companies try to save money by changing many functions that were previously performed in-house.
The dizzying pace of change in the new world of globalization is unprecedented and can pose a terrible risk. A recent survey by Deloitte in November 2006 showed a sharp rise in concerns about outsourcing administrative jobs in the UK.
Meanwhile, in the United States, the Democratic victory in the November congressional elections had much to do with concerns about the effect of globalization on wages and employment.
The speed and scale of economic change has made it increasingly difficult for governments to keep their economic destiny in their own hands. And what discourages many people the most is that no one seems to be in charge, or able to agree to fair rules for the new global economic order.
International institutions designed to deal with a globalized world that is in trouble. For example, the World Trade Organization (WTO) is now under fire for failing to take into account labor standards or the environmental impact of trade. And its efforts to break down global trade barriers are failing. And the IMF has found it increasingly difficult to influence the global capital market to correct the huge global imbalances that arise from trade. It has come under fire for not giving a bigger role to emerging market countries like India and China.
The moot question is whether the increasing globalization of the world economy will lead to a parallel increase in global regulation or not; and whether it would be good or bad for global economic growth and equality.