Essay on "Globalization and the Impacts in the Politics of Authority"

Essay 13 pages (4413 words) Sources: 13

[EXCERPT] . . . .

Globalization and the Impacts in the Politics of Authority

Does globalization impact in triggering recent economic recession?

The current financial crisis will be remembered as one of the most serious in the history of world capitalism. The increasing difficulty experienced by the financial authorities of the major economies and by international financial bodies in limiting the most devastating effects of events on the world economy makes it difficult, in turn, to handle banking and financial crises. The current institutional composition of the markets, the deregulated nature of those markets and the vast liquid assets in private hands have even placed limits on concerned action by national governments. This does not allow anticipating stabilization, but, on the contrary, it might be alleged that episodes of large volatility or even crises might follow, whether these are limited to consortia, national or international spaces. Since the mid nineties, repeated deep financial instability and detriment in the quality of financial assets have occurred, as well as decline in prices, and breakdown and rescue of financial and non- financial enterprises, attached to economic spaces or presented and revealed as an international financial crisis (Giron, & Correa, n.d).

Globalization has been blamed as the main reason for the severe effects of recent financial crisis in a number of developing countries. It is argued that the size and speed of capital flows' movements in international financial markets have led to disturbing consequences for these countries. For many politicians and journalists, these events have been a crisis of globalization (Globalization and Recent Financial Crises in Developing Countries, n.d). Globalization frequently has the effect of generating an industrial revolution in some regions; it is this, and not globalization itself, that produces both wealth and poverty. but, there is another side. Globalization is generating super profits for large companies, but is making the market for labor more viable. As a consequence, it seems the rewards from wealth formation are drifting away from labor to business (Globalisation and the Economic Crisis, 2010).

Despite the financial liberalization in many emerging economies throughout the 1990s, their institutional and regulatory infrastructure continued seriously underdeveloped. Rather than an excessive confidence on international capital markets, it was the lack of confidence that led to financial crises around the world. In previous crises as today, it was frequently the flow of short-term and portfolio investors that set off events, but in none of these cases have they been the fundamental cause of the crises. Financial crisis can be always located at the peak of business cycles with particularly high growth and/or expectations. High expectations lead to speculative excess, and a change in expectations then leads to a stampede out (Globalization and Recent Financial Crises in Developing Countries, n.d).

Opponents of globalization, who claim that it causes poverty, fail to understand that in reality what it really does is expose poverty that already exists. The workers laboring in dreadful conditions in sweatshops frequently take these jobs because their previous jobs were even worse. But just because globalization generates wealth, it doesn't mean it is all good. Every positive comes with a negative. One powerful reason why globalization truly may have caused the current economic crisis and why recent data may show this underlying downside of globalization has not gone away (Globalisation and the Economic Crisis, 2010).

Wealth is being generated, but the profits from this wealth are not being dispersed. Globalization is producing a big gap between capital and labor. One may or may not think this is unjust, but it does seem that, from a financial growth point-of-view, it is counter productive (Globalisation and the Economic Crisis, 2010). Several elements of the ongoing process of globalization, especially the unfettered markets, (including the labour market) and the growing inequality (resulting for many households to indebt themselves in order keep up spending on basic needs), have given cause to the current crisis (van der Hoeven, 2010.

The dominant view during the current process of globalization was that unfettered markets were judged sufficient to ensure economic efficiency. The best role for government was a limited one, and somehow the benefits of the growth that this would engender would trickle down to everybody in society. Added to that was the view of a dominant strand of economists arguing that the problem in the market economy was rigid wages, and that if it were not for wage rigidities, the economy would work in the way that classical economics predicted. The implication of this theory was very invidious but very pervasive: Get rid of the rigid wages, and let labour markets be more "flexible." That has been the basis of a whole set of doctrines undermining job protections and labour rights. But as was found out wages are not rigid. The problem is though, that wages can be too flexible. Accordingly, imposing more wage flexibility can result in exacerbating the underlying problem of lack of aggregate demand. The people in the global economy have the same skills as before the crisis, and the machines and real resources are the same as before the crisis. The problem is that there is an organizational failure, a coordination failure, and a macroeconomic failure (van der Hoeven, 2010.

The current wave of globalization is characterized by widespread adoption of policies for financial openness. Over the past two decades, many countries have liberalized their capital accounts and almost all policy measures related to foreign direct investment favored a more open regime. These measures have been adopted autonomously by some countries, and also as conditions of adjustment loans. The major expected result from financial openness was that it would allow developing countries to better utilize resources and to increase capital formation by stimulating foreign direct investment (FDI) and other international capital flows such as private portfolios investment. A more open national financial system was seen as a necessary complement to the lifting of impediments to international capital flows (van der Hoeven, 2010.

Capital has become more globally mobile as a result of these policy changes, especially since the mid-1990s. Worldwide gross private capital flows (the sum of the absolute values of foreign direct, portfolio, and other investment in- and outflows) have exceeded 20% of world GDP every year since 1998 and reached a new record of 32.3% of GDP in 2005 -- compared to less than 10% of world GDP before 1990. Worldwide FDI flows, a sub-category of private capital flows, also rose substantially during the 1990s. They peaked at 4.9% of world GDP in 2000 and declined when with the downturn of the early 2000s, but strongly rebound before the current global financial and economic crisis. On average, global FDI flows doubled between the 1980s and the 1990s, and again in the years from 2000 to 2007 (van der Hoeven, 2010.

In spite of this substantial increase in capital flows, the expected benefits have not materialized for many countries. During the surge in foreign capital flows since the mid-1990s, actual investment into new infrastructure and productive capacity stagnated. This can in part be attributed to the fact that much FDI was spent on mergers and acquisitions, rather than on investment into new factories or equipment that would have added productive capacity. Gross fixed capital formation (the most commonly used measure for physical investment) averaged 21.6% of GDP in the 1990s and 21.0% in the years from 2000 to 2006. Hence, it fell well short of the level reached in the 1970s and 1980s). Moreover, despite much excitement about the promise of 'emerging markets', cross-border capital flows are still largely a phenomenon of developed countries. In 2005, gross private capital flows equaled 37.2% of GDP in high-income countries, but only 12.7% of GDP in low- and middle-income countries (WID 2009). While there was a positive balance between in- and outflows for developing countries as a group, these flows by-and-large bypassed the poorest countries since the early 1990s as middle income countries accounted for more than 90% of the total. FDI, as well, is highly concentrated among industrialized countries and a small group of middle-income countries (van der Hoeven, 2010.

When the economic crisis started in the United States, many people thought that since United States started the crisis, it should stop the recession. However, the United States showed that it is powerless to stop the crisis from spreading to other parts of the world.

The near bankruptcy of Greece and Dubai highlighted to us the far reaching effect of the crisis which started in the United States. That is one of the disadvantages of globalization. Due to globalization, the problems in one country spread throughout the world. As a result, many people from different parts of the world lost their jobs (Disadvantages of globalization, 2012).

Globalization has reduced the power of the governments to cope with the economic situation. The government of China and United States cannot stop the recession. They do not have much power over the economy. Even though the various governments tried hard to prevent their people from losing their jobs, they were not very successful.… READ MORE

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