INTBUSTRA

After studying this chapter, the students should be able to:

1. Explain globalization and describe how it functions

2. Identify the major international institutions facilitate globalization
3. Describe the key policy measures that make globalization sustainable
4. Describe the validity of the anti-globalization argument
5. Describe the role of information technology

INTRODUCTION

We live in a highly integrated and interdependent world. The crisis not only had impact on the residents
of the country of its origin-the US-but also on farmers in Burkina Faso, miners, and steel workers in
Ukraine, assembly workers in Singapore, and white collar workers at information technology firms in
Ireland. Business has become increasingly global in nature, so that the success of businesses big and
small depends not only on the domestic economic environment but also on developments abroad.

GLOBALIZATION.......

......encompasses the socioeconomic reform process of eliminating trade, investment, information

technology, and cultural and political barriers across countries, which lead to increased economic
growth and geopolitical integration and interdependence among nations of the world.

News media may give the impression that globalization has been a new phenomenon, but it is not the
case. The globalization represents freer international trade and investment or the free flow of goods and
services between countries. This includes the process of integrating the nations of the world so that they
become more economically efficient and independent. That process has been based upon changes in
national policies that aim to promote private enterprise and reduce or eliminate economic, cultural, and
social barriers between countries.

Policies include:

- Moving toward economic strengthening the role of the private sector

- Supporting free-market pricing
- Eliminating barriers to free movement of goods, services, capital, and information
technology
- Promoting institutions that enforce transparency, disclosure, and the rule of law

International Institutions facilitating Globalization

IMF (International Monetary Fund)

It was conceived in July 1944, shortly after the surrender of the Axis powers in WWII, when
representatives of 44 countries me in Bretton Woods, New Hampshire in the US, and agreed
upon a framework for international economic cooperation. IMF came into formal existence in
December 1945, when the first29 member countries signed its articles of agreement. It began
operations on March 1, 1947, in Washington, DC. IMF membership began to expand in the late
1950s and 1960s as many African nations, formerly European colonies, became independent
and applied for membership.

September 18, 2014, 188 countries were members of the IMF, a part of the UN family of
192. The IMF has been uniquely placed to help its member governments take advantage of the
opportunities and manage the challenges pose by globalization. Helping countries enjoy
globalization’s benefits while avoiding its downsides has been an important task for the IMF. In
many ways the IMF’s main purpose-to provide global financial stability-has remained the same
today as it was when the organization was first established.

The IMF continues to:

-provide forum for cooperation on international monetary problems

-promote exchange rate stability and an open system of international payments

-facilitate the sustainable growth of international trade, promoting job creation, economic
growth and , and poverty reduction

-lend countries foreign exchange when needed, on a temporary basis and under adequate
safeguards, to help address balance of payment problems

The World Bank (WB)

The International Bank for Reconstruction and Development, commonly referred to as World
Bank, is an international financial institution whose purposes include assisting the development
of it’s member nation’s territories, promoting and supplementing private foreign investment
and promoting long-range balance growth in international trade.

WB was established in December 1945 at the United Nations Monetary and Financial
conference in Bretton Woods, New Hampshire. It opened for business in June 1946 and helped
on the reconstruction of nations devastated by WWII. Since1960’s the WB has shifted its focus
from the advanced industrialized nations to developing third-world countries.

The WB finds globalization as an opportunity to reach global solutions to national challenges.

Concern for the environment coupled with the sustainable growth and development in
developing countries has been embedded in the Bank’s work.

Five focus areas that accommodate and facilitate globalization process:

1. Trade expansion
2. Bank’s analytical and advisory role
3. Bank participates in various forums with the IMF and other financial institutions
4. Bank as knowledge and information technology transfer agent
5. Bank focuses on eradicating communicable diseases without neglecting the importance of
cultural heritage

The World Trade Organization (WTO)

WTO commenced operation on January 1, 1995, but its trading system began in 1948 under the
General Agreement on Tariffs and Trade (GATT). Whereas GATT primarily dealt with
merchandise trade, the WTO and its agreements now cover trade in agriculture, services,
inventions, and intellectual property.

The WTO is based in Geneva, Switzerland, has no branches anywhere else in the world. Its 160
member nations (as of June 26, 2014) account for more than 97 percent of world trade in goods
and services.

WTO helps global trade to flow smoothly, freely, fairly, and predictably by:

a. Administering trade agreements

b. Acting as forum for trade negotiations
c. Settling trade disputes
d. Reviewing national trade policies
e. Assisting developing countries with trade policy issues, through technical assistance and
training programs
f. Cooperating with other international organizations like the IMF and WB

At the heart of the system-known as the multilateral trading system-are the WTO’s agreements,
negotiated and signed by a large majority of the world’s trading nations and ratified in the
parliament. The agreements lay the legal ground rules for international commerce.

Principles of the foundation of the multilateral trading system;

1. Trade without discrimination

2. Freer trade
3. Predictability
4. Promoting fair competition
5. Encouraging economic reforms in developing countries

Effective Policy Measures that Promote Globalization

Countries cannot thrive on high-quality institutions alone, they also need effective policies as
complements to globalization.

a. Good Governance
Countries that have successfully adapted to globalization realize that they cannot succeed
without high-quality government at home. Singapore to cite an example is a country in
which government actions are fully disclosed and discussed before they are implemented.
 This type policy transparency is very attractive for domestic and foreign investors.
Quality of administration is also significant; fine policies alone do not inspire respect and
confidence without competent administrators and consistency over time. The quality of
government services, the capabilities of civil servants, the political independence of public
agencies, and the credibility of the government’s commitment to good policies can measure
effective governance.
b. Competitive Markets
c. Property rights
The protection of property rights enables buyers and sellers to conduct transactions with a
high degree of trust. If government actions call into question the ownership and transfer
and/or sale of property, conducting business could become risky and economic activity
could stall.
d. Anticorruption policies

Impact of Information Technology on Globalization

Innovations in information technology are radically changing the way people all over the world,
live, communicate and work. IT has changed everything people do in daily life, at home, at
school, at play, and at work. We are in the period of profound transformation-adjusting
lifestyles to make the internet and wireless technologies a part of everyday life called the, Digital
Era.

a. Digital Generation. Imagine life without the internet and cell (mobile) phone. Users are
accessing the internet via many types of wireless devices in order to have mobile access to
email and other applications. Millions of people now use the internet/smartphones for
everything including banking, investments, research, publishing, Skype, doing home work,
buying books, playing, downloading books, data, games, music, movies, ad recipes. Social
networking sites represent additional rapidly developing global frontiers of communication.
b. Expanding the Global Use of IT. It may be less apparent that internet-based applications
underlie major advances in science, business organization, environment monitoring,
transport management, education, and e-government. This reflects the increasing global
reliance on the internet for business and social activity. IT has helped to globalize the
production of goods and services and has encouraged a freer flow of these items, including
capital, across national boundaries. IT acts as a catalyst in the globalization process by
lowering operating costs.
c. Digital Divide Myth. This is the perceived economic gap between countries or people with
easy access to digital and information technology and those with very limited access or
none. The progressive and rapid fall in prices of digital IT equipment and services has
increased access and accelerated globalization, thereby narrowing the digital gap.

The Globalization Controversy

1. Job Losses and Income Stagnation

 Critics argue that globalization harms the poor through loss of jobs and stagnant, if not
falling , wages. Critics also argue that open trade and foreign direct investment take jobs
from workers in advanced industrial economies and transfer them to less expensive workers
in developing countries. This leaves the workers in the richer country out of work. This
increase in labor supply drives down wages causing wage stagnation. Meanwhile, the
workers in developing countries are drawn into jobs that may exploit them. Those workers
often get paid much less than their counterparts in richer countries, and they are often
required to work longer hours in substandard environments. In a knowledge-based
economy, the workers in high income countries will need to use more technology and be
more productive in order to maintain or enhance their wage rates. The only way workers in
industrialized countries can compete with their counterparts in the developing world will be
through increased productivity by using technologically intensive manufacturing techniques.
In developing countries, globalization will lead to increased demand for labor and will raise
wages even for workers who are not directly employed in the new trade related jobs.
2. Sustainable Development and Environmental Degradation
Brundtland Commission defined sustainable development as development that meets the
needs of the present without compromising the ability of future generations to meet their
own needs whether environmentally, socially, or economically. Sustainable development
has become a source of increasing tension between the developing world and developed
nations especially between China, the US, and the European Union. Globalization and Asia’s
role in it has become particularly contentious. For example, China’s unprecedented
economic growth since 1978 has left a legacy of environmental degradation. Pollution has
made cancer China’s leading cause of death. Likewise, the debate over deforestation, which
focuses on countries ranging from Brazil to Indonesia and Malaysia, does not have simple
solutions. Finding solutions depends on upon shared, single vision-meeting the needs of the
present without compromising the future-and working toward that vision together. Some
businesses have adopted sustainable development policies.
A survey of the WB indicates that corporate social responsibility practices are now a
significant factor in determining where multinational corporations conduct business.

(Source: Intro to Global Business. J.E. Gaspar, J.W. Kolari, R.T. Hise, L. Biernan, L.M. Smith,
A.A. Risa. 2nd ed. 2019)