Globalisation: Challenges & Response
Globalisation is a contested concept; there is no consensus on its context, causation, direction, and impact. Uneven and unequal, it is affecting, directly as well as indirectly, every country, developing or developed. However, 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.
What is Globalisation?
Despite its being a universal and historical phenomenon, it is easy to understand but difficult to define Globalization as there is no consensus regarding its precise definition. For this essay, I would quote the following definition given by Manfred Steger
“Globalization refers to a multidimensional set of social processes that create, multiply, stretch and intensify worldwide social interdependencies and exchanges, while at the same time, fostering in people, a growing awareness of deepening connections between the local and the distant.”
Following processes constitute the subject matter of Globalisation namely
a. Creation of new and multiplication of existing social networks and activities that increasingly overcome traditional political, economic, cultural, and geographical boundaries. (Professional networking, technological innovation, and political decisions)
b. Expansion and stretching of social activities and interdependencies (Financial markets, shopping malls, NGOs, UN)
c. Intensification and acceleration of social exchanges and activities (internet, satellites -> local happening, global impact)
According to Manfred, the “above processes are happening at objective as well as subjective planes. People are thinking globally!”
Historical Background of Globalisation
Much talked about, globalization is a gradual process with deep historical roots and can be traced to the length of your imagination. The far is 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.
And even more controversial is dividing it into stages. Everyone has his/her way of dividing history into phases. For this presentation, I take five inventions that changed the course of history. These are namely fire, wheel, printing press, steam, and internet- each being driver of that age as well as representing its essence
- Pre-Historic Phase: 10,000 to 3500 BCE/ Age of Fire
The harnessing of fire by humans started the globalisation process and aided it in several ways. In addition to acting as a heat source, protection against predators, and extending the shelf life of their food supplies, fire made food tastier as well as easier to chew and digest. Consequently, early humans could spend less time gnawing away at uncooked food, and a lot of those extra calories went to nourishing their growing brains. With more brainpower, men learnt how to slash and burn the forest and carve out land for starting agriculture, building houses, and perfecting tools for agricultural operations.
The start of agriculture with new crop varieties, techniques of production, and domestication of animals led to food surpluses and consequently a population explosion. Improved agriculture led to tribal settlements which later merged into villages. Small villages merged into towns where service delivery needed state apparatus such as craft specialists and professional bureaucrats and soldiers. They were needed not only for monopolization of means of violence for the state but also for rule application and precise accounting of food surpluses. Their emergence, besides running the state, helped the rulers in the acquisition of new territories and the establishment of permanent trade rules. Thus, started the process of globalization which was initially slow due to limited technology to cover space and spread information. Only at the end of this stage, did centrally administered forms of agriculture, religion, bureaucracy, and welfare state became active agents of globalization
2. Historic Phase: 3500 to 1500 BCE/Age of Wheel
The invention of writing in the Fertile Crescent and China and the invention of the wheel in Southwest Asia around 3000 BCE accelerated the globalization process. The wheel spurred animal-driven carts and the construction of roads, while writing facilitated the spread of ideas and inventions. Both helped coordinate complex social activities and thus, encouraged large state formulations/empires leading to wars, conquests, and thus the spread of technology, communication/inventions, and migration of people resulting in urban growth. AuThe auspiciousast-west orientation of Eurasia’s major continental axis facilitated the spread of crops and animals helped in the diffusion of technologies, a network of interlocking trade routes, and the spread of religions. 15th-century voyages of Christopher Columbus, Vasco DA Gama, etc made it possible for Europe’s colonial empires to generate wealth and power for these European powers
3. Early Modern Period:1500–1750 CE/Age of Printing Press:
The printing press, invented by Johannes Gutenberg in 1440 changed the world by increasing the quantity, quality, access, and affordability of getting information and gaining knowledge. In 1620, British philosopher Francis Bacon wrote that printing, gunpowder, and the compass were the three inventions that “have changed the appearance and state of the entire world.” It accelerated the Renaissance and ushered in the Scientific Revolution, Enlightenment, and Modern Age. From here forward, information was democratized and literacy spread. With the invention of the printing press, power over the written word moved away from the monasteries and into the hands of private publishers who sought markets for their books. The biggest markets were found in books published not in Latin but in various local languages. From the early eighteenth century onwards Latin was no longer the dominant language of learning. As a result, it was suddenly far more difficult for Europeans to understand each other.
Soon after the creation of the printing press, we get the first modern universities, although it wouldn’t be until 1800 when non-religious education took root. that eventually resulted in industrialisation in Britain, international mass industrialisation, and then globalisation. Benefitting from the technological diffusion of Islamic and Chinese Civilizations, Europe started modernization/ enlightenment-objective science, universal morality, and law, rational mode of thinking and became the agent for globalization. Technological inventions/innovations such as mechanized printing, sophisticated wind, and watermills, extension in postal services, advanced navigation technology, etc further accelerated the globalization
4. The Modern Period-1750 to 1950/Age of Steam:
This period can also be called Pax Britannica. Although Industrial Revolution had started earlier than the Steam Revolution, it was the latter that galvanised the Industrial Revolution, leading to a greater need for resources and markets which in turn accelerated the globalisation process through colonization. Now factories could be built anywhere, not just along fast-flowing rivers, transportation of raw material to the factories and their finished products inside the country was now speedy and convenient through locomotive engines, Similarly, steamships perform these functions in case of foreign countries. Transportation was one of those important beneficiaries. By the early 1800s, high-pressure steam engines had become compact enough to move beyond the factory, prompting the first steam-powered locomotive to hit the rails in Britain in 1804. Steamships and railroads made it economical to consume goods that were made far away. With things being made in one country and consumed in another, trade boomed. With the reduction in trade costs and time, the globalisation process accelerated.
5. The Contemporary Period-1950 CE Onwards/ Age of Internet:
If the previous period can be called Pax Britannica, then the contemporary period starting from the end of the 2nd WW can be described as Pax Americana. In this phase, there is no doubt, that internet and the information technology have played a pivotal role in rapid globalisation. By facilitating outsourcing of production and transfer of technology, information technology has radically transformed global production, consumption, and trading patterns
Impact of Globalization
Globalisation has a deep and wide impact on every sector of the economy and section of society in almost every country. Some of the ways it has impacted them are as follows
- Penetration of Global/Outreach of Local Entities
Global state and non-state actors are increasingly penetrating those domains which were henceforth exclusively reserved for the domestic state machinery. Not only interfere in the policy formulation but are now acting directly through their nongovernmental organizations in domestic policy implementation. Centers of actual power and decision-making are shifting from local to global level with the outreach of domestic interests groups to their sympathizers in international organizations, multinational corporations, and those in the governments of global powers. This outreach enables them to force their government to accede to their demands because of the economic and political clout of the global players.
2. Globalization of Local/Localization of Global Events
Thanks to social and electronic media, small issues which a decade or so ago could only find a place on the back page of a national newspaper become breaking news in major global channels creating advocacy and sympathy movements in different parts of the world. Arab spring started from a small incident but swept country after country. with the rapidly globalizing world, global issues like environmental degradation, climate change, GMOs, etc which were only discussed in the corridors of power are being debated in the drawing rooms of countries and creating strong advocacy movements among the population
3. Revolution of Rising Expectations
First Revolution of Rising Expectations followed the start of the decolonisation process in the 1950s/60s when citizens of newly-independent nation-states expected too much too soon from their inexperienced leaders and bankrupt states. New generations of those old guards now have access to see the lifestyles of the West through media/travel and demand the same rights and amenities from their respective ruling elites. However, these states are still struggling with their perennial problems of shortages and solvency, unable to meet their demands. Hence the periodic uprisings in these countries-Colour Revolutions/Arab Spring/Iranian Uprising etc
4. Clash of Cultural Identities
Two streams going side by side-cultural assimilation at an elite level and cultural clashes at the street level. Domestically, people becoming more conscious of their cultural identities in the face of the cultural invasion of Pax Americana. Similarly, those who migrate to Europe/USA try to preserve their identities by living in ethnic enclaves. Their non-acceptance by social classes coupled with state inaction to mainstream them through affirmative action marginalises them. Becoming breeding grounds of dissatisfaction, prompting some to become radicalised, eterroristsrist. This becomes a self-fulfilling prophecy for those who believe in the Clash of Civilisation thesis instead of the End of History narrative
Is Globalisation Beneficial?
Most of the debate on globalisation is on this issue. Some proponents put forward the following positive points of globalisation to prove their point that globalisation is beneficial for the humanity
- Production/Productivity Gains
Foreign Direct Investment in the wake of globalisation is not only helping the countries to find and exploit the resources which could not be utilized due to shortage of resources or non-availability of technology but it is also resulting in increasing the productivity/efficiency of their utilisation. In this connection, the role of developing country firms in the value chain is becoming increasingly sophisticated as these firms expand beyond manufacturing into services. For example, it is now commonplace for businesses in industrialized countries to outsource functions such as data processing, customer service, and reading x-rays to India and other less industrialized countries (Bhagwati et al, 2004). Advanced telecommunications and the internet are facilitating the transfer of these service jobs from industrialized to less industrialized and making it easier and cheaper for less industrialized country firms to enter global markets. In addition to bringing in capital, outsourcing helps prevent “brain drain” because skilled workers may choose to remain in their home country rather than having to migrate to an industrialized country to find work.
2. Market Expansion
One of the greatest benefits of globalisation is the scope of increasing the market of those countries which found it difficult to sell their products because of the limited market for their products. Globalisation has made it possible for even the smallest country on earth to reach the biggest markets in the world if they are willing to accept the challenge. Globalization can create new opportunities, and new ideas, and open new markets that an entrepreneur may have not had in their home country. Thus, there are several positives associated with globalization-more access to capital flows, technology, human capital, cheaper imports, and larger export markets. It also allows businesses in less industrialized countries to become part of international production networks and supply chains that are the main conduits of trade
3. Cultural Enrichment
We may agree or not, it is a fact that every culture is a beneficiary of globalisation. If you disagree just compare the quantity, quality, and diversity of present-day food, shelter, clothing, entertainment, health, etc., with 50 years ago. The cross-flow of ideas and technology is affecting everyone directly or indirectly all over the world, making everyone a global citizen. Intensification and acceleration of social exchanges and activities through the internet are affecting every family.
4. Improved Quality of Life
Improving the quality of life of the citizens has been the traditional historical role and the prime objective of every state as well as the natural desire of every human being. Quality of life, in turn, is a multidimensional phenomenon encompassing improved economic standard of living, greater public participation in decision making, sociocultural enhancement, etc. And there is no denying the fact that globalisation has contributed a lot in this respect. Thus, whether it is increased life expectancy or better living conditions on the one hand or improved literacy, or a greater range of goods and services available to choose from, it is the rapid speed of globalisation that has made these things possible.
However, some oppose globalisation for the harm it is inflicting specifically
As the world is becoming flat, low-cost industries are dismantling the industrial structures of the high-cost developed countries forcing some to enter the de-industrialisation phase. Do not blame China only; it was a late entrant. This process started with the Japanese rise and got momentum in the 1970/the 80s when Asian Tigers entered the arena.
2. Employment Reduction
Related to the above is the rise of unemployment in the developed countries which are being affected in two ways. One is of course the tough competition given by the low-cost industrial countries but more lethal than the above is the rapid speed of technological transformation of the developed countries themselves. It is an Alice Trap. To increase the growth rate of the economy, you increase the productivity of your labour force by equipping them with new technology. But this new technology displaces a large chunk of the labour force for whom these were invented.
3. Cultural Annihilation
Alas, the greatest negative effect of globalisation is the wholesale and rapid extinction of the indigenous cultures of the individual countries. The world is becoming Westernised, rather than Americanised as presciently predicted by Francis Fukuyama in his remarkable thesis End of History. Only those languages will survive that change their script to the Romanised version of alphabets; all others are doomed
4. Global Economic/Financial Crises
Financial and economic crises are not new phenomena. Countries near a nation-state in turmoil were also affected even in the olden days. However, globalisation has increased the reach, intensity, and duration of financial crises. Thus, one country’s woes are now transmitted in no time to far corners of the world due to the mobility of the financial capital through electronic means-a gift of globalisation. The volume and volatility of capital flows increase the risks of banking and currency crises, especially in countries with weak financial institutions
5. Growing Inequality
There is no doubt the economic disparity is increasing within the countries and among the countries. It does not mean that the poor are necessarily getting poorer; they are prospering also but the rate of prosperity of those on the upper part of the wealth and income pyramid is far greater than those at the lower rungs. And one of the reasons for this growing inequality is globalisation-it provides far more opportunities of expanding the wealth base of those who already have got more. There are now 10 people in the world whose combined wealth is more than the total GDP of 50 % of the total countries in the world-they earned abnormal profits by selling their products in these very countries.
6. Environmental Degradation
Although it would be too much if we blame globalisation for all the environmental degradation we are witnessing in the world, there is no escaping the fact that fast-paced industrialisation in the wake of globalisation has contributed a lot to this phenomenon. Global commerce is increasingly dominated by transnational corporations which seek to maximize profits with less regard for the development needs of individual countries. local populations or the environment.
Who wins this debate depends upon the angle you have in mind and how you tackle it. Globalisation poses challenges but also presents opportunities. It is the leadership test of the ruling elite of a country on how they face these challenges and how effectively they respond. All these developments need careful assessment and an appropriate but timely response.
In this connection, the experience of the East Asian countries is very illuminating, demonstrating the positive effect of globalization on economic growth. By devising a proper policy framework, East Asian economies were successful to increase their GDP per capita by eightfold and raising millions of people out of poverty within two decades. It was based largely on globalization — export-led growth and closing the technology gap with industrialized countries (Stiglitz, 2003). Generally, economies that globalize have higher growth rates than non-globalizers (Bhagwati and Srinivasan, 2002).
Is Globalisation reversible? Can it be Rolled Back?
This issue has taken a lot of attention after Brexit, the rise of the far-right in Europe, and the triumph of Trump in the USA. To many people, these are the are indications of de-globalisation.
Globalisation is the internationalisation of western capitalism which is on the rise as predicted by Francis Fukuyama in his End of History thesis. Every country, even Russia and China has embraced a capitalistic mode of production. In this inexorable march of history, odd events like Brexit do not matter. History moves forward but not in a linear model; there are zig-zags here and there but the trend is clear
Brexit was long overdue; it was a marriage of convenience brokered by the USA for achieving its own Cold War objectives. UK was an outsider in the EU. After its exit, the EU looks like a more cohesive and well-integrated institution. 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
Lastly, the triumph of Donald Trump in the USA elections is 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
Challenges of Globalisation
There is no denying the fact that globalisation poses a lot of challenges and as well offers countless opportunities. It is the leadership test of the ruling elite of a country how they respond to these challenges and gain maximum benefits from the opportunities by exploiting their strengths and creating new avenues to harness the energies unleashed by the globalisation process. Some of the challenges these will encounter are
A. Challenge of Productivity
How to accelerate the economic growth and create exportable surplus through productivity improvement to reap from globalisation? If you do not have a sizeable quantity of goods and services to export, globalisation would be a one-way traffic
B. Challenge of Equity
How every section of society benefits from globalisation-not necessarily equally but at least equitably
C. Challenge of Competitiveness
How to ensure that your exportable surplus is competitive enough in terms of price, quality, and social/environmental compliance? At the end of the day, the economic survival of any nation-state depends upon its competitiveness in terms of these parameters
How to Respond to Challenges
The ruling elite in consultation with all stakeholders should formulate a vision for the country where it would be in a short to a long period in the rapidly globalising world. Thus, it could be an active partner, without it, the country could be a silent spectator or at worst a passive recipient. However, articulating a vision without formulating following attendant policies & strategies to achieve it is an exercise in futility
- Policy Framework Needed
To fully exploit the opportunities of globalisation, first, formulate business-friendly national economic policies which encourage the creation of an exportable surplus of high-quality goods and services. Reinforcing each other, these policies should indicate a broad direction for the economy, create institutions and define their respective roles, make rules for coordination, set safety and quality standards, and provide incentives and rewards for R&D and value addition. In this policy environment, Government’s role should be confined to legislation, policy development, regulation, capacity building, and facilitation, while the private sector should take the lead in investment and value chain development on its own. The broad objectives of this policy could be
- Increase productivity by increasing efficiency in all processes and operations
- Increase profitability of all stakeholders by providing them appropriate incentives and rewards
- Making exports competitive in the rapidly globalizing world
- Ensuring sustainability by promoting environment-friendly good manufacturing practices
o Ensuring equitable distribution of gains from enhanced productivity to all stakeholders
2. Create Exportable Surplus
There is a lot of capacity in every industrial unit which cannot be utilized for one reason or other-costly imported raw material, lack of finance, inadequate BMR, shortage of expertise, etc., Carry out a comprehensive analysis of export-oriented industrial units and find solutions for optimum utilization of their excess capacity. In industries that have lost their relevance or competitive edge, we should take bold steps and let them die their death. Similarly, diversify the production base and select goods and services to be promoted for exports based on their comparative advantage, global demand, and growth potential-the sunrise industries.
3. Accelerating Productivity Growth
The economic measure of output per unit of input, productivity gains are vital to the economy as they allow us to accomplish more with less. Productivity growth comes from three major sources namely
- investment in physical capital and promoting innovation
- skills formation by increasing labour productivity through education, on the job training, skill up-gradation, and dissemination of new knowledge and techniques and
- competition ensures that resources are allocated to the most efficient firms and forces existing firms to organize work efficiently
Productivity growth not only increases production/exportable surplus but makes products more competitive due to economies of scale and reduced costs of production through better utilisation of resources
4. Improving Competitiveness
World Bank ranks countries in its Ease of Doing Business Index for the guidance of potential global investors as well as states to take corrective measures. Improve this ranking by improving the country’s physical infrastructure, removing administrative delays, and enforcing a strict accountability regime. This includes reliable and low-cost supplies of power, water, and gas telecommunications, cutting down long delays in shipments, clearances, cargo space, handling at the ports and airports, etc. Similarly, well-developed and maintained, and appropriately connected infrastructure is a prerequisite for global integration efforts in a country.
5. Meeting Social/Environmental Standards
Developed countries are progressively imposing stringent social conditionalities and environmental compliance rules. Even their citizens are becoming extremely conscious in this respect and would boycott the products which are not by international standards. As such meeting, these requirements, not only from a specific and technical perspective but also from regulatory, social, environmental performance, and customer-specific standpoints is essential in a rapidly globalizing world. Government must ensure their compliance through appropriate policy formulation, creating institutions,s and providing an attractive incentives and rewards framework for those who do meet these standards
6. Research & Development
R%D is crucial as new technology, material, techniques etc., result in new products and their cost-effective production-essential for competing in a rapidly globalising world. This state has to be proactive as the private sector which is the ultimate beneficiary is not willing to invest in this risky field. However, there must be more focused and need-based research by encouraging greater collaboration among the universities, research institutes, and the industry to keep the research on track.
7. Globalisation Friendly Tariff Rationalisation
We can’t restrict imports under WTO rules but we should not go for massive import liberalisation; no country practices absolute free trade Follow a cautious liberalization of imports, restricting freer imports to the export sector via bonded warehouses and export processing zones. Similarly, reduce the level of protection for domestic industry and agriculture gradually after consulting the stakeholders
8. Meeting Quality Standards
Promote a culture of quality at every stage of the value chain through an awareness campaign, appropriate legislation, and institutional mechanism. There should be strict quality control measures even for domestic sale of goods and services to make our producers quality conscious. At the same time, compulsory quality certification along with subsidies to the manufacturers of high-quality products is urgently needed. The establishment of facilitation centers by the state to reduce the costs of production and ensure the quality of finished products would be helpful
9. Attracting Foreign Investment
Direct foreign investment accelerates growth rate and promotes exports by bringing in capital, technology, and management practices. Attract foreign investors for export-oriented joint ventures inside the country and also establish joint ventures abroad by co-opting local industrialists. Target brand-name merchandisers and large retailers of standardized products who can provide marketing, design, logistics, and financing while the production can be handled by domestic firms. However, it will require greater transparency and disclosure by domestic firms and a reliable dispute resolution mechanism to redress grievances.
Globalization is a multifaceted phenomenon that represents the increasing integration of economics, communications, and culture across national boundaries. It’s affecting, directly as well as indirectly, governance structures, processes, and culture in every country. All these developments need careful assessment and action to keep us relevant in the comity of nations and should not be considered an outcast because of a lack of proper and timely response to these developments.
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