8 Drivers of Globalisation
Globalization, a multidimensional set of social processes that create, and intensify worldwide social, economic, and technological interdependencies and exchanges, is a historical phenomenon affecting every country directly or indirectly. Despite all the occasional setbacks and resentment expressed against its different dimensions, globalisation is the march of history, which like the water flowing in a river, moves forward not backward.
In this essay, I discuss the 8 drivers of its rapid speed after the 2nd World War.
Although Globalization is a gradual process with deep historical roots, the term Globalisation normally used now a day was coined by an American economist Theodore Levitt in 1983. He argued that all around the world people’s tastes seemed to be converging and that firms were now beginning to offer standardized products in all countries.
However, over time Globalization has acquired much broader meanings and now it refers to a multifaceted phenomenon of increasing integration of economics, communications, and culture across national boundaries. There are six dominant features of globalization
1. Historicity: It is a historical phenomenon that can be traced to the length of your imagination. The far, the better! You may declare the first African who came out of Africa as the pioneer of globalisation. Or, you may credit Greeks or Iranians or Alexander, the Macedonian for initiating this process.
2. Universality: It is a universal phenomenon, colour-neutral, size-neutral, and location-neutral; every country is affected directly or indirectly
3. Multidimensional: It is a multi-dimensional phenomenon with a deep and wide impact on every sector of economy and section of society in almost every country- food, shelter, clothing, lichenology, beliefs
4. Uneven: It is uneven in its impact- every country is affected differently-some more, some less depending upon their respective level of exposure to this inexorable march of history
5. Double-edged Weapon: It poses threats as well as provides opportunities to every country; those who take advantage of the opportunities provided by it are in its favour and those who fail to benefit, are opposing it
6. Private Sector-Led: By and large, it is a private sector-led phenomenon in which the states are just facilitators
Drivers of Accelerated Globalisation
Since the end of World War II, and particularly in the past 10 to 15 years, we have seen the process of globalisation drive forward at an unprecedented rate. A large part of this is down to legal, political, and technological developments which have facilitated trade across national boundaries, both in products and in factor inputs. Some of the reasons for its acceleration after the 2nd World War are as follows
A. March of History
Globalization was inevitable because of the march of history-from hunter/gatherers to tribes living in villages which over some time became towns. Later, few towns became city-states encompassing these towns/villages. History moved forward and these city-states formed themselves into nation-states which are now forming regional blocks like EU, NAFTA, etc. These regional groupings are just another milestone in our slow but steady journey towards the formation of World Government-the endpoint of the march of history.
Within the next two centuries, all the current state borders will be abolished, and nation-states will be replaced by continent-sized units of governance, with maximum devolution/decentralisation for the provision of basic services to the people. While UNO will act as the world Parliament to formulate global policies, its constituent units such as UNICEF, WHO, etc will be acting like global ministries with the World Bank as the central bank English will be recognised as the universal language with inputs from different languages towards its vocabulary.
B. The Reduction and Removal of Trade Barriers
It was the General Agreement on Tariffs and Trade (GATT) concluded after the 2md World War which accelerated the pace of globalisation by reducing tariffs and various non-tariff barriers to trade, enabling more countries to exploit their comparative advantage. Equally important is the number of countries taking part in free trade negotiations. In 1948, when the GATT treaty became effective, there were only 23 Contracting Parties to the agreement. Just over 60 years later, there are now 153 member states of the WTO who all enjoy the benefits of free trade based on the principle of comparative advantage. Accordingly, between 1948 and 2008, trade rose from only 5% to a massive >25% of world GDP making countries more and more reliant upon each other for their export earnings, income, and employment.
C. Rise of Capitalism
Globalisation, in essence, is the internationalisation of western capitalism as presciently predicted by Francis Fukuyama in his End of History thesis. Despite all the criticism levelled against his thesis, there is no denying the fact that after the fall of communism, there has not been any serious threat to the capitalistic form of economic management from any quarter. Every country, even Russia and China has embraced a capitalistic mode of production.
In their pursuit of profit maximisation, big corporations are always searching for cheaper resources and expanded markets. The rising costs of doing business in the USA/Europe due to rising prosperity and huge costs of maintaining welfare states are forcing Western MNCs to locate their production houses in cheaper countries. There has been an increase in the minimum efficient scale (MES) making the domestic market too small to satisfy the selling needs of the multinational corporations. The costs of ocean shipping have come down, due to containerisation, bulk shipping, and other efficiencies. The increasing prosperity of middle-income countries is an additional reason for accelerating the process of globalisation.
D. End of Cold War
The end of the Cold War led to greater interaction among the states and the people accelerating the globalisation process completely altering the way nations communicate, negotiate, and interact with each other. Consequently, globalisation improved and expanded global commerce, brought more Foreign Direct Investment to developing countries, built infrastructure, advanced literacy, inspired democratic movements via social networks, and created emerging middle classes all over the world. These middle classes are by tradition anti-war and pro-peace for expansion of trade, investment, and greater prosperity
Side by side with economic globalization, there is a multiplication of social networks and activities that increasingly overcome traditional political, economic, cultural, and geographical boundaries. Expansion and stretching of social activities and interdependencies are resulting in the intensification and acceleration of social exchanges and activities through information technology. The world is becoming a global village with chances of warfare diminishing
E. Technological Change
Since the end of the 2nd WW, globalization started expanding rapidly due to multiple reasons, one being the rapid speed of technological transformation including the internet and information technology. The growth of the internet has increased e-commerce, enabling firms of all sizes to compete more easily in global markets. Essentially, the internet acts as a 24-hour shop front. For the firm, it, therefore, provides cheap marketing with a global reach, such that even small local businesses can afford to serve customers abroad. By facilitating the outsourcing of production and transfer of technology, information technology has radically transformed global production, consumption, and trading patterns.
In his remarkable book “The World is Flat” Friedman has captured the essence of the fifth generation of globalisation. He believes the world has become flat in the sense that there is a level-playing field for any entrepreneur belonging to any country-rich or poor due to his internet access. He maintains, individual entrepreneurs as well as companies, both large and small, are becoming part of a large, complex, global supply chain extending across oceans, with competition spanning entire continents.
F. Globalisation is Beneficial
Globalisation has benefitted every country in the world-some more, some less. No one is willing to become an island. UK after its exit from the EU is not going to become a fortress; rather it will be getting itself more integrated with the world. Even the triumph of Donald Trump in the USA elections was a temporary phenomenon and in no way indicated the desire of the USA to roll back globalisation which has benefitted America the most. The USA has a lot of grievances with its trade relations with China but it does not mean American firms will exit from China and come back to the USA-no way. The maximum they will do is to re-locate in India and other countries
The desire of businesses to benefit from lower unit labour costs and other favourable production factors abroad has encouraged countries to adjust their tax systems to attract foreign direct investment (FDI). Many countries have become engaged in tax competition between each other in a bid to win lucrative foreign investment projects. Old forms of non-tariff protection such as import licensing and foreign exchange controls have gradually been dismantled. Borders have opened and average import tariff levels have fallen.
G. Growth of Multinational Corporations (MNCs)
An MNC is a firm that owns production facilities in at least one country outside its home state. MNCs are said to epitomise global interdependence, as they often span across several different countries, with sales, profits, and a smooth flow of production being reliant on several countries at once.
With lower transport costs firms are more easily able to disperse their production processes around the world to take advantage of varying cost conditions. Secondly, falls in communication costs have also facilitated the dispersal of the production process. Both types of cost reductions (i.e. falls in transport costs and communication costs) are said to have caused the death of distance.
H. The Development of Trading Blocs
Also known as a ‘regional trade agreement’ (RTAs), a trading bloc is essentially a group of countries that remove tariffs and quotas on trade between themselves. In recent years, the number and size of trading blocs have increased dramatically. Trading blocs promote global interdependence through trade creation as well as increased integration amongst members of a trading bloc. Trading blocs like the EU which has expanded to over 26 countries with a combined population of 356 million, help globalisation by making global negotiations easier. For example, in the case of trade negotiations, the EU negotiated as a single trading block making it easier to push through practices that have increased free trade.
Uneven and unequal, it is affecting, directly as well as indirectly, every country, developing or developed; the severity of its impact, positive or negative, is directly dependent upon the capacity of each country to respond to the challenges posed by globalization itself. Nonetheless, globalisation continues to gather pace in the 21st century and with technology becoming cheaper and more advanced, we can only expect the process of globalisation to propel further forward in the years to come
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From the e-book “International Relations; Basic Concepts & Global Issues- A Handbook”, published by Amazon and available at https://www.amazon.com/dp/B08QZSRWT1