The term "globalization" is a debatable one. Some view globalization as a process that is beneficial -- fundamental to future world economic development -- and also inevitable and irreversible (IMF, 2000). Others regard it with hostility, and sometimes fear, arguing that it increases inequality within and between nations, threatens employment and living standards and disturbs social progress. This paper offers an overview of some aspects of globalization and aims to identify ways in which countries can optimize the gains of this process, while remaining realistic about its potential and its risks.
Globalization offers many opportunities for future worldwide development. However, it is not progressing evenly. Some countries are becoming integrated into the global economy faster than others. Countries that have been successful at integration have reaped the benefits of faster growth and less poverty.
For instance, global-oriented policies resulted in dynamism and greater prosperity for much of East Asia, transforming it from one of the poorest areas of the world to one of the richest (IMF, 2000). As living standards in the region increased, globalization made it possible to make progress on democracy and economic issues, including the environment and work standards.
On the other hand, countries in Latin America and Africa that turned away from globalization thirty years ago, opting instead for inward-oriented policies, now suffer from stagnant economies, increased poverty and high inflation (IMF, 2000). In many cases, especially Africa, adverse external developments worsened the problem. As these areas changed their policies, their incomes rose. These facts show the importance of globalization, proving that encouraging this trend is the best course for promoting worldwide growth, development and poverty reduction.
However, the crises in the emerging markets in the 1990s demonstrate that the opportunities of globalization are not without risks. These risks are rooted in volatile capital movements and the risks of social, economic, and environmental degradation created by poverty. This is not a reason to reverse direction; instead, it is a sign that developing countries should embrace policy changes to build strong economies and a stronger world financial system that will produce more rapid growth and ensure that poverty is reduced.
What is Globalization?
Economic "globalization" is the increasing integration of economies around the world, especially through trade and financial flows (IMF, 2000). This term also describes the movement of people (labor) and knowledge (technology) across international borders.
In general, globalization is a standard process. The term has been commonly used since the 1980s, reflecting technological advances that have made it faster and simpler to complete global transactions -- both trade and financial flows. Today, the term describes an extension beyond national borders of the same market forces that have operated for hundreds of years at all levels of human economic activity, including village markets, urban industries, and financial centers.
Global markets have opened up new doors around the world, promoting efficiency through competition and the division of labor. They allow people and economies to focus on what they do best and provide access to more and larger markets around the world. They open the doors to more capital flows, technology, cheaper imports, and larger export markets. But markets do not necessarily ensure that all shares the benefits of increased efficiency. Countries must be prepared to embrace the global policies that are necessary today, and in the case of the poorest countries, may need the support of stronger nations as they do so.
Does Globalization Increase Poverty and Inequality?
During the 20th century, global average per capita income increased sharply, but with much variation among countries (IMF, 2000). As a result, the income gap between rich and poor countries has been widening for many decades. According to a recent World Economic Outlook study of 42 countries (representing almost 90% of world population) of the entire 20th century, output per capita has increased significantly but the distribution of wealth among countries has become more and more unequal as the years progressed.
Still, it is important to notes that incomes are just part of the equation. Broader measures of welfare that look at social conditions demonstrate that poorer countries have made significant progress. For example, some low-income countries, such as Sri Lanka, have positive social indicators. A recent study revealed that if countries are compared using the United Nation's (UN) Human Development Indicators (HDI), which consider education and life expectancy, the results are different from that suggested by the income data alone.
It is true that the gaps between the richest nations and the poorest have narrowed, but judged by their HDIs, today's poorer countries are well ahead of where the leading countries were in 1870. This is mainly because medical advances and improved living standards have brought major increases in life expectancy.
However, even if the HDI gap has narrowed in the long-term, far too many people are losing ground. Life expectancy has increased yet the quality of life for many has not improved, with many still in abject poverty. This has brought new urgency to policies that are designed to alleviate poverty. Countries with a strong growth record, focusing on the right policies, can expect to see a reduction in poverty, since recent evidence suggests that there exists at least a one-to-one correspondence between growth and poverty reduction. And if strongly pro-poor policies -- for instance in well-targeted social expenditure -- are pursued then there is a better chance that growth will be amplified into more rapid poverty reduction. This is one compelling reason for all economic policy makers to focus on the objective of poverty reduction.
The Effects of Globalization on Sovereignty and Security
While governments around the world have the option to turn away from the globalization process, there is a cost (ICC, 2000). These governments may choose the extent to which they wish to participate or to stay out. Globalization is a process, not a program driven by any country or group of countries. The sovereignty of nations is shared, not abandoned. But the degree of sovereignty sharing involved is far less than that required of members of the European single currency or of the NATO alliance.
Governments across the world are committed to developing and sustaining a market-based liberal economy, contributing to the development of a more open global marketplace and investment environment. These governments do so on a voluntary basis. Many of them are democratically elected, acting on the demands of their voters.
Despite their integration into the global economy, governments are still free to set their own rules in many areas of economic policy, including fiscal, budget and exchange rate policies. In addition, governments can decide on their degree of involvement in the globalization process.
As a country becomes more integrated into the global economy, it becomes more affected by international economic and political events (ICC, 2000). Globalization changes the debate about market mechanisms and competition from the national to the international level.
No one country or group of countries drives globalization but all countries have a vested interest in adapting and adjusting to this process. To do so, they must cooperate with like-minded governments.
National sovereignty as such is not threatened since there is no force in this process. There will undoubtedly be some sharing of sovereignty as governments conclude deals that may give each much of what it wants, but not all. The degree of sovereignty sharing involved is limited in comparison to the real pooling of sovereignty required of the governments that are part of the European Union. Membership of NATO involves a certain degree of curtailment of sovereignty, although in a well-defined and limited sector.
In the context of the global economy, governments are best served by a rules-based system where the rights and obligations of all parties are clearly laid out and where all have a fair chance of influencing the outcome of negotiation and decision-making (ICC, 2000). Governments can help retain local control over some aspects of economic decision-making by empowering companies or regional authorities to run their affairs with more freedom and flexibility by applying the principle of subsidiary, which enables decisions to be made at the level where they will be most effective. Governments can then limit their action more to making framework decisions, like ensuring a level playing field for companies and acting against anti-competitive behavior. In addition, when governments are restricted due to international commitments, companies may be able to act more freely to develop their business and pursue their international goals.
As the scope for individual action narrows, the need for leaner, stronger and more efficient governments focusing on important tasks will become greater. In this case, sovereignty may lose in quantity but gain overall through the increased quality of the actions all governments take.
Globalization has numerous implications for global and national security. Some are good and some are bad (Daly, 2001). Global markets can generate wealth and spread prosperity, but uneven development often results in increased political tensions and risks of instability, as recently seen after the East Asian financial crisis. In Western Europe, the logic of market…