Globalization and States' Influence on Research Paper
- Length: 10 pages
- Sources: 12
- Subject: Economics
- Type: Research Paper
- Paper: #97973003
Excerpt from Research Paper :
Greater integration of global economies and capital flow has also become more and more prevalent. Weiss states, "The post-war trend towards greater trade integration, especially marked since the 1960s has been weakening." (Weiss, 1997, pp. 7). Greater integration was, at one time thought to be a boon for developing nations. This was certainly not the case for Thailand as an example, and this premise needs to be completely rethought in order to more adequately allow nations to successfully develop individually. Integration was the core of the old model of globalization, but more and more, economists and scholars are arguing for a nation-centric view of economic growth, one where the nation sets the economic parameters because they quite obviously know their own limitations and strengths better than outsiders; and they know how to grow their own economy in ways that are beneficial to the local population and local investors (Cook and Kirkpatrick, 1997, pp. 57). Certainly there will always been a need for investment in emerging markets, even outside investment shows international confidence and helps national economic interests become more diverse and robust.
The IMF and World Bank
IMF and World Bank influence is a topic of much debate. These institutions seek to better there economic conditions of nations and states in desperate need of outside financial resources. They were not intended to act on the behalf of outside investors, nor were their resources intended to be used for prolonged periods of time (Stiglitz, 2004, pp. 66). During the 1980's and 1990's, the IMF was one of the world's most influential financial institutions. It also encouraged emerging markets to develop in a liberalized economic model. This model has added to the prolonging of the old definition of globalization as well as the perpetuation of the western-derived economic model of a market-based, open economy. Stiglitz (2004) argues that while the IMF and World Bank provide a necessary aid function to developing nations and nations in desperate financial need, the economic development model that the IMF and World Bank propagates is very archaic in the sense that it is not culturally sensitive and doesn't take into account the specific strengths and weaknesses of each state that accepts assistance.
Race to the Bottom
The global economic policies currently in place reward countries that can provide large, cheap labor pool to other developing and developed nations and their MNC's. This race to the bottom, as termed by author Garrett (1998) has given many developing nations the ability to create a service-based economy. However it has also cost many countries their exclusive economic autonomy. As MNC's have moved in to take advantage of lower cost labor alternatives and incentives, the host nations are giving up economic influence and political clout on the global economic market (Krugman and Venables, 1995, pp. 870). MNC investment and interest is a double-edged sword, and as seen in the statistics and previous arguments, can both help and hurt a developing economy. Perhaps many nations' economies are legitimately tied to labor and services. This would seem rather reasonable since service providers have to exist somewhere in the world. The argument that MNC's are choosing developing nations' labor pools to exploit due to lower costs doesn't exactly hold up, as we have seen in earlier arguments. However, MNC's are driven to places with the least amount of labor laws and restrictions in order to produce as much product as possible for the least amount of monetary investment (Garrett, 1998, pp. 77). This drives the labor standards downward, particularly in the Asian markets.
Chinese workers are working at near slave wages in order to support foreign MNC's. Certainly their economic prowess does not come from outside MNC investment, but from internally, and from their own intrinsic motivation to become one of the world's economic superpowers. But the labor pool is huge in places like China, and while it may seem as though China is giving up part of its economic autonomy in catering to the needs of MNC's, it is also exploiting its own economic potential for a service based and production economy (Feenstra and Hanson, 1996, 242). It is only natural for countries like China to do so, but the sad fact remains that because of the outside capital investment flows, China remains one of the worst places to work relative to labor laws and restrictions. This is directly imposed by the demands of outside investment and MNC's. In this way, outsiders are still influencing the economies of nations as large as China.
The Chinese model is unique for another reason as well. China has begun to gain momentum as a world economic superpower because of both outside capital flow as well as internal investment. China is perhaps the best example of a country that understanding its potential, both the strengths and weaknesses of its economy and resources (Wen, 2001, pp. 436). It is exploiting that potential rather successfully as well. The nation understands that autonomy cuts both ways politically as well as economically. Interestingly enough, it has remained a socialist authoritarian nation to the chagrin of the western world. However, the decision to remain so has also influenced China's economic potential in a positive way, giving it the necessary willpower, strength, and synchronicity to succeed in the global economic market (Yeung, 1999, pp. 24). China also possesses some other distinct economic advantages over other countries like their wealth of natural resources as geographic location.
Understanding globalization and the current global political economy is no small task. Currently there is a reinvention underway of what it means to succumb to globalization and how far nations should go in preserving their own political and economic autonomy. There have been a few great examples of developing and developed nations who have both succeeded and failed in these terms, for many different reasons. It is safe to say however, that the idea that autonomy is a black and white issue is inaccurate. State economic autonomy can be potentially good and bad. Too much autonomy shuts the state out of the global market and prevents growth to its fullest potential. No state can act as a nation-state any longer, especially in regions such as Southeast Asia. The individual state has been replaced with a global economic niche, and outside capital and investment flows influence the economic functions of each state just as much as the state's own fiscal policy does.
State autonomy is a thin line, a balance between distancing itself from its own limitations and restricting its economy through MNC intervention and outside influence. Thailand is an excellent example of a state whose laissez-faire economic policies eventually suffocated sustainable growth, leading to a brief global currency crisis. Too little state autonomy sets a nation up for too much outside influence. Too little restricts the state's potential as a global economic player. As much as MNC's want to come into a nation to help grow their own company as well as provide jobs in the state's economy, there can be little outside intervention if autonomy becomes the main driving force behind a state's policy decisions. The implications of not interacting with the rest of the world in an economic sense can be quite profound, as are the implications of interacting too freely.
The definition of globalization needs to be retooled to include states whose autonomy is part of their strength. As long as these states strike a relevant balance between state and international institutional power, they can be assured that their full economic growth potential can be reached. The IMF and World Bank function as organs of crisis intervention, not as investor stopgaps or measures to help float a currency just long enough for investors to divest of it, as was seen in 1999 in Thailand. These institutions have the potential to do more damage than good if they are misused.
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