Globalization of various types of markets, i.e. products,
services, or financial markets can be characterized by various scale and
dynamics, although most clearly it can be observed on the financial
markets. It is stimulated by the huge scale of capital being transferred
worldwide through the rapidly growing intermediary institutions, e.g.,
investment funds. The transfer most often happens in virtual terms only,
with the use of electronic money and a variety of new financial
instruments. For that reason financial markets operate in a fairly
autonomic way, relatively independently from the real sphere.
Independence from the real sphere coupled with the inter-relatedness of
the whole financial system globally carries the risk of the "domino"
effect.
A domino effect occurs when dangerous economic trends,
such as financial system crises, transfer from one market to another,
infecting them. The reason for this is a high sensitivity of the local
markets toward the changes in direction of capital flows and a high
level of interrelatedness of the whole system. It is worth noticing that
although financial globalization is caused by an increase in the volume
of world trade, financial markets globalize much quicker than the
market of products. Moreover, the phenomena of financial markets
leadership over the market of commodities can be observed in the
relation of foreign direct investments toward export. Foreign direct
investments show much higher dynamics than the trade volumes. There are
also significant differences in the pace and dynamics of foreign direct
investments regionally. To an extent, it is a good measure of the share
in the globalization process that respective countries have.
For
example, there was significant growth of foreign direct investment
volume globally in the beginning of the 1970s. However, a change of FDI
numbers in the European Union (EU) countries was more dynamic than its
overall global trend. A closer look at foreign direct investments trends
by region reveals the decreasing attractiveness of the United States
and Japan as targeted FDI locations for the benefit of the emerging
markets of central and eastern Europe and the former Soviet Union. The
EU countries, both EU-15 and the EU after enlargement, have significant
share in world foreign direct investments volume. Although investments
in the EU-15 countries, as well as in central and eastern Europe are
quite dynamic, the CIS countries (the Commonwealth of Independent tates)
have recently become more and more attractive for investors (this
applies especially to Ukraine and Belarus, although both countries are
known to be difficult to navigate because of bureaucracy and low
transparency).
It is expected, though, that business attention
will be naturally drawn to this part of the world, with the maturity of
the currently attractive CEE markets getting more advanced and their
labor costs increasing as a natural consequence of economic prosperity.
Data from the individual countries provides further information. Within
the EU-15 countries, which overtake the United States and Japan by the
total volume of FDIs attracted, individually only France and Germany
show FDI growth significant enough to be considered a driving force for
the whole EU. In the CEE and CIS regions, a similar role is played by
Poland, the Czech Republic, and Russia. Financial Markets Among the
reasons for the globalization of financial markets is the fact that more
countries guarantee the exchange of currency (as a result of
liberalization of the capital trade) and have deregulated their
financial sectors (for example through the cancellation of interest rate
limits and opening of the domestic financial sector to foreign
capital). This, among other reasons, is happening because of the
technological advancement, which on one hand, allows doing transactions
on a wide geographical scale and in the real time, while on the other
hand, makes them difficult to control, mainly due to the very liquid
nature of money.
The fact that there are no significant transport
costs related to the trade with use of electronic money, is not
unimportant. Liberalization of capital flows may pose a substantial
threat for the stabilization of domestic, local economies, for example a
risk of spread of financial crisis, as already mentioned before. The
scale of those threats is subject to a wider discussion on the pace and
degree of opening the local, national markets for international capital.
Economists seem to agree that a high quality of local financial system,
determined, among other things, by the existence of effective
institutions and measures of the bank governance, is fundamental for
this process to be safe for the local economies. The scale of
globalization within countries or regions can be measured in a few ways.
For example, the freedom of financial transfers, related to a
possibility of investing on the foreign markets, is measured by the
Investment Freedom Index, which is a part of a wider Economic Freedom
Index.
It illustrates how regions differ in globalizing their
economies. The majority of the EU countries saw the Index increasing in
the last decade, contributing to the overall growth of investment
freedom in the EU, which is now at a similar level to the United States.
However, global investment freedom decreased in the last decade, mainly
because of the situation in countries such as Bolivia, Burma, China,
Ecuador, Nigeria, Venezuela, and Zimbabwe. In the central and eastern
European countries, the Investment Freedom Index shows a tendency to
grow. The wider measure of the Economic Freedom Index is growing on the
global scale (5.52 percent in the last 10 years). The main driving
forces behind this growth are: growing fiscal and monetary freedom, the
freedom of trade, and the decrease in state interventionism. The markets
of commodities and services are the second important sphere where
globalization processes can be observed. Globalization in those markets
is stimulated by the common membership of countries in the WTO (World
Trade Organization), which ensures that liberal rules are adopted by its
members in the trade exchange. The Trade Freedom Index, which measures
globalization of the markets of commodities and services, is increasing,
showing growth of 22.16 percent in the last decade globally, 11.14
percent in the EU-15 countries and 21.24 percent in the central and
eastern European countries and the Commonwealth of Independent States.
It decreased only in Japan (-1.23 percent).
The labor market is
not immune to globalization, however, it subdues to the process more
slowly, although mobility of a labor force is a significant factor in
internationalization of domestic economies. It is easily observed in the
trans-national corporations, where higher management is characterized
by significant mobility. The freedom to work on the different
international markets and the freedom to employ international staff,
measured by the Labor Freedom Index, has grown globally only by 0.36
percent since 1997. In some cases such as Finland, Germany, and the
United States, it actually decreased (-10.47 percent, -8.78 percent, and
-0.85 percent, respectively). Globalization can be measured by indexes
specially constructed for the purpose, such as the KOF Index. Economic
globalization, one part of the index, is measured by the scale of
financial transfers, which include trade volumes, foreign direct
investments, portfolio investments, and wages paid to foreign
employees-all as a percentage of gross domestic product (GDP) of a
country, and by the scale of restrictions such as tariffs, hidden import
barriers, taxes, and import duties. Financial transfers and trade
barriers are getting more flexible and loose, leading to growing index
values. Economic globalization can be therefore considered to be an
ongoing and constantly eveloping process. Effects A single
interpretation of globalization would be difficult to offer.
The
complexity of the process with its net effects is visible in a simple
analysis of its benefits and costs. Positive results of globalization
may include easier participation in international trade and exchange,
which enables an export driven economic growth; wide access to
information and knowledge sharing, which decreases the isolation of
whole societies and individuals; deconstruction of national monopolies,
through new market entries and the enrichment of local economies with
new technologies. On the other side, it is difficult to ignore the costs
of globalization, such as increasing divergence between the high-income
and the low-income countries (the GINI coefficient, measuring
inequality in income distribution and/or expense, confirms that the rich
countries become even richer, while the poor ones face being
marginalized); lack of solutions to global poverty and no guarantees for
economic stabilization (the number of people living on less than $1 per
day is constantly increasing); negative social effects related to
migrations, e.g., ethnical conflicts and solidifying differences in the
economic standing and social status of the immigrants. One of the
obvious aspects of globalization is a deconstruction of the traditional,
geographical structure.
The distinction between the European
Union, the Americas, and Africa, seems to be less significant now, as
from the economic perspective, the countries that show the highest
participation in globalization come from various countries, e.g.,
Argentina, Bangladesh, Brazil, China, Columbia, Costa Rica, and India.
Last, but certainly not least, ethical and theoretical doubts cannot be
ignored. Noam Chomsky points to the report of Goodland and Dale-the
World Bank economists-who discussed the fact that globalization changes
the market architecture as understood in conventional economic theory.
Individual enterprises, compared to islands in the ocean of the market,
where none of them have enough power to influence demand and supply and
therefore the price, are growing bigger because of the international
expansion and a growth in transactions done within the same
organizations (e.g., capital groups, subsidiaries, etc.). Those
enterprises resemble continents more than islands.
This changes
the nature of transactions on the market, which effectively become
similar to those that are centrally managed, mainly due to the fact that
expanding enterprises are interconnected through complicated
international capital structures. Often, a majority of transactions
happen within the same capital group or in effect within the same
company, operating in the various markets and continents. Market
consolidation and an ongoing concentration of capital, together with
creation of the huge capital groups, makes governance one of the key
problems of contemporary management. Shrinking of the business
environment, caused by the common participation of countries in the
trade, based on the liberal rules of capital transfer, paradoxically
makes the market tighter and more demanding in terms of competition.
Due
to the existence of the global market with less and less restrictive
rules for economic activity, the distance between the market players is
diminishing, which becomes a reason for growing tensions and conflicts.
Paradoxically, what has been overlooked is that the conditions are not
those of a "free market" anymore, and despite that many still pursue the
liberal philosophy. Joseph Stiglitz describes the hypocrisy and
systemic imperfections of the international institutions such as the
International Monetary Fund, the World Trade Organization, or the World
Bank. They were expected to improve the standing of the developing
countries and de facto, in many cases, they caused a negative result
(e.g., increasing poverty, the unsolved problem of wealth distribution).
The distribution problem, according to Joseph Stiglitz, is related to
the representation rules and a structure of power in the international
institutions-there can be no just distribution if the only interest
groups represented are those from the commercial, business, and
financial environments, while the consumers and taxpayers are largely
marginalized. According to Joseph Stiglitz, the institutional background
of globalization became the seed of destruction, as the original ideas
behind the creation of those institutions and the logic of Keynesian
economy were already abandoned in the 1970s. A theoretical discussion,
related to the changing conditions for economic activity, focuses around
the paradigm of the "new economy." The notion was coined in the context
of attempts to explain the reasons for the long-term growth in the
United States in the 1990s. It describes the economy characterized by
massive technology advancement and a development of communication and
information techniques enabling the growth of labor productivity. The
net result of those factors combined together is a noninflationary
growth of wages with a parallel stabilization or even a fall of
unemployment (due to the quick pace of creation of new jobs in new areas
of production).
Accepting the new conditions for economic
activity provokes a natural question of whether the traditional economy
has tools enabling a proper description of a new reality. Moreover the
question remains, whether it is true that the economic laws are
unchangeable and only technologies become new. Perhaps the observed
changes in economy demand a brand new theory, which could describe and
explain them. The key problems of the new economy include the specifics
of new products on the market and so-called network effects. The
products of information technology generate benefits proportionally to
the number of users. This means that once a given product wins its
position on the market, demand for competing products will start to
weaken. The issue of the usefulness of the "invisible hand" paradigm
remains also to be determined. The fact that it treats employees'
creativity as an exogenous variable does not seem adequate under the
conditions of the new, knowledge-based economy, where the share of the
knowledge employees create is getting bigger and bigger. Under such
circumstances, the paradigm of creative destruction seems to prevail.
The main question related to the new economy, however, is the character
and persistence of a positive combination of macroeconomic factors.
It
seems that in the view of current slowdown of the American economy and
the continuously strong economic growth of the central and eastern
European countries, the question remains especially valid.
Socio-Cultural Aspects Cultural globalization is often defined as a
homogenization of the norms, standards, and behavioral patterns
resulting from consumerism and the influence of American pop culture. It
is characterized by three features: it is technologically driven, it is
empowered by economic liberalization and the opportunities for
international exchange created by free trade, and to a large extent it
is dominated by the United States. It seems that two industries are
specifically responsible for the international transfer of behavior
patterns and other cultural artifacts: the music industry and film
industry. Music became a forerunner of globalization due to its unique
ability to be understood without translation-when free trade was still a
long way off in the communist countries with centrally planned
economies, young people were already imagining Western lifestyles
because of music broadcasts from foreign radio stations.
Second,
the film industry started to increase its output, influencing the public
initially through cinemas, then through more and more sophisticated
communication channels, i.e., television, cable, and satellite
broadcasts, and recently through the Internet. When paired with
sociologically underpinned aspirations of people-having one's own
television set or a satellite dish is a sign of prestige and better
economic standing-broadcasting forms a powerful platform for influencing
a wide international audience. The critics of globalization per se
point to the fact that cultural homogenization destroys national
identities. Moreover, global culture is accused of being mainly
consumption driven. The key question in the current debate over cultural
globalization is whether it carries a common, global set of values and
what might they might be. One of the concepts proposes democracy as a
universal, globally demanded standard, built upon longings for freedom,
which can be considered a truly common value. The spread of democracy to
countries originally under heavy state control and various forms of
oppression, such as communism, is often mentioned as a positive outcome
of globalization.
Francesco Zinzaro
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