Globalisation and its impacts on the politics of authority

Globalization and the Impacts in the Politics of Authority

Does globalization impact in triggering recent economic recession?

The current financial crisis will be remembered as one of the most serious in the history of world capitalism. The increasing difficulty experienced by the financial authorities of the major economies and by international financial bodies in limiting the most devastating effects of events on the world economy makes it difficult, in turn, to handle banking and financial crises. The current institutional composition of the markets, the deregulated nature of those markets and the vast liquid assets in private hands have even placed limits on concerned action by national governments. This does not allow anticipating stabilization, but, on the contrary, it might be alleged that episodes of large volatility or even crises might follow, whether these are limited to consortia, national or international spaces. Since the mid nineties, repeated deep financial instability and detriment in the quality of financial assets have occurred, as well as decline in prices, and breakdown and rescue of financial and non- financial enterprises, attached to economic spaces or presented and revealed as an international financial crisis (Giron, & Correa, n.d).

Globalization has been blamed as the main reason for the severe effects of recent financial crisis in a number of developing countries. It is argued that the size and speed of capital flows' movements in international financial markets have led to disturbing consequences for these countries. For many politicians and journalists, these events have been a crisis of globalization (Globalization and Recent Financial Crises in Developing Countries, n.d). Globalization frequently has the effect of generating an industrial revolution in some regions; it is this, and not globalization itself, that produces both wealth and poverty. but, there is another side. Globalization is generating super profits for large companies, but is making the market for labor more viable. As a consequence, it seems the rewards from wealth formation are drifting away from labor to business (Globalisation and the Economic Crisis, 2010).

Despite the financial liberalization in many emerging economies throughout the 1990s, their institutional and regulatory infrastructure continued seriously underdeveloped. Rather than an excessive confidence on international capital markets, it was the lack of confidence that led to financial crises around the world. In previous crises as today, it was frequently the flow of short-term and portfolio investors that set off events, but in none of these cases have they been the fundamental cause of the crises. Financial crisis can be always located at the peak of business cycles with particularly high growth and/or expectations. High expectations lead to speculative excess, and a change in expectations then leads to a stampede out (Globalization and Recent Financial Crises in Developing Countries, n.d).

Opponents of globalization, who claim that it causes poverty, fail to understand that in reality what it really does is expose poverty that already exists. The workers laboring in dreadful conditions in sweatshops frequently take these jobs because their previous jobs were even worse. But just because globalization generates wealth, it doesn't mean it is all good. Every positive comes with a negative. One powerful reason why globalization truly may have caused the current economic crisis and why recent data may show this underlying downside of globalization has not gone away (Globalisation and the Economic Crisis, 2010).

Wealth is being generated, but the profits from this wealth are not being dispersed. Globalization is producing a big gap between capital and labor. One may or may not think this is unjust, but it does seem that, from a financial growth point-of-view, it is counter productive (Globalisation and the Economic Crisis, 2010). Several elements of the ongoing process of globalization, especially the unfettered markets, (including the labour market) and the growing inequality (resulting for many households to indebt themselves in order keep up spending on basic needs), have given cause to the current crisis (van der Hoeven, 2010.

The dominant view during the current process of globalization was that unfettered markets were judged sufficient to ensure economic efficiency. The best role for government was a limited one, and somehow the benefits of the growth that this would engender would trickle down to everybody in society. Added to that was the view of a dominant strand of economists arguing that the problem in the market economy was rigid wages, and that if it were not for wage rigidities, the economy would work in the way that classical economics predicted. The implication of this theory was very invidious but very pervasive: Get rid of the rigid wages, and let labour markets be more "flexible." That has been the basis of a whole set of doctrines undermining job protections and labour rights. But as was found out wages are not rigid. The problem is though, that wages can be too flexible. Accordingly, imposing more wage flexibility can result in exacerbating the underlying problem of lack of aggregate demand. The people in the global economy have the same skills as before the crisis, and the machines and real resources are the same as before the crisis. The problem is that there is an organizational failure, a coordination failure, and a macroeconomic failure (van der Hoeven, 2010.

The current wave of globalization is characterized by widespread adoption of policies for financial openness. Over the past two decades, many countries have liberalized their capital accounts and almost all policy measures related to foreign direct investment favored a more open regime. These measures have been adopted autonomously by some countries, and also as conditions of adjustment loans. The major expected result from financial openness was that it would allow developing countries to better utilize resources and to increase capital formation by stimulating foreign direct investment (FDI) and other international capital flows such as private portfolios investment. A more open national financial system was seen as a necessary complement to the lifting of impediments to international capital flows (van der Hoeven, 2010.

Capital has become more globally mobile as a result of these policy changes, especially since the mid-1990s. Worldwide gross private capital flows (the sum of the absolute values of foreign direct, portfolio, and other investment in- and outflows) have exceeded 20% of world GDP every year since 1998 and reached a new record of 32.3% of GDP in 2005 -- compared to less than 10% of world GDP before 1990. Worldwide FDI flows, a sub-category of private capital flows, also rose substantially during the 1990s. They peaked at 4.9% of world GDP in 2000 and declined when with the downturn of the early 2000s, but strongly rebound before the current global financial and economic crisis. On average, global FDI flows doubled between the 1980s and the 1990s, and again in the years from 2000 to 2007 (van der Hoeven, 2010.

In spite of this substantial increase in capital flows, the expected benefits have not materialized for many countries. During the surge in foreign capital flows since the mid-1990s, actual investment into new infrastructure and productive capacity stagnated. This can in part be attributed to the fact that much FDI was spent on mergers and acquisitions, rather than on investment into new factories or equipment that would have added productive capacity. Gross fixed capital formation (the most commonly used measure for physical investment) averaged 21.6% of GDP in the 1990s and 21.0% in the years from 2000 to 2006. Hence, it fell well short of the level reached in the 1970s and 1980s). Moreover, despite much excitement about the promise of 'emerging markets', cross-border capital flows are still largely a phenomenon of developed countries. In 2005, gross private capital flows equaled 37.2% of GDP in high-income countries, but only 12.7% of GDP in low- and middle-income countries (WID 2009). While there was a positive balance between in- and outflows for developing countries as a group, these flows by-and-large bypassed the poorest countries since the early 1990s as middle income countries accounted for more than 90% of the total. FDI, as well, is highly concentrated among industrialized countries and a small group of middle-income countries (van der Hoeven, 2010.

When the economic crisis started in the United States, many people thought that since United States started the crisis, it should stop the recession. However, the United States showed that it is powerless to stop the crisis from spreading to other parts of the world.

The near bankruptcy of Greece and Dubai highlighted to us the far reaching effect of the crisis which started in the United States. That is one of the disadvantages of globalization. Due to globalization, the problems in one country spread throughout the world. As a result, many people from different parts of the world lost their jobs (Disadvantages of globalization, 2012).

Globalization has reduced the power of the governments to cope with the economic situation. The government of China and United States cannot stop the recession. They do not have much power over the economy. Even though the various governments tried hard to prevent their people from losing their jobs, they were not very successful. Globalization empowered the multinational companies. These companies are getting bigger and bigger. Some companies have such huge assets all over the world that they are worth more than many small countries. If you compare the GDP of many countries, you can see that the GDP is even less than the earnings of those big companies (Disadvantages of globalization, 2012).

The governments do not have the power to stop the multinational companies from closing a factory here, and setting up another factory in other parts of the world. They do not have the power to stop the big companies from retrenching workers. As a result, the governments have to deal with the jobless people, while the big companies are still making money. That is why the disadvantages of globalization are so frightening. The big companies will continue to get bigger and more powerful, while the governments of the world grow less powerful. The problem from one country easily enters the international realm, and affects the lives of so many people. The most annoying fact is that nobody has the powerful to do anything. Nobody can stop globalization despite its many disadvantages. Nobody can even contain the disadvantages, and enjoy the advantages of globalization (Disadvantages of globalization, 2012).

Globalization encompasses a wide assortment of facets such as economic, politics, social and cultural. Globalization is a unique and noteworthy characteristic of recent world history. The facets in globalization, while being wide, both affect and are associated to each other. Therefore, it is reasonable to say that, amongst other things, political globalization entails economic globalization as actions of both aspects are related and therefore, to some degree, overlapped. Fundamentally, politics and economics are indivisible within social associations whereas politics (the attainment, allocation, and exercise of power) is in essential to economics (the manufacture, swap, and utilization of resources), and at the same time economics is essential to politics, helping to establish where power lies and how it is exercised. Political Economy necessitates examination of both views -- political and economy -- in which politics forms the economy and of the way in which the economy shapes politics (My Work on These Things: What Impact Has Globalization Had on the Nation-State, 2006).

Economic globalization refers to what takes place in the world in which the moving flows of goods, capital, labor, and information and technology seem to simply advance across national boundaries which quickly expands the political and economic interdependence. Political globalization is what takes place in world politics as a consequence of the growing economic activities within that of numerous processes. Nevertheless, the connection between economic globalization and wearing away of the democratic nation-state is more political than economic in nature. Even though, what seems rather less controversial is that the political processes, events and activities these days appear more and more to have a global or global measurement (My Work on These Things: What Impact Has Globalization Had on the Nation-State, 2006).

Globalization generally comprises four fundamentals namely extensity, intensification, velocity and deepening impact. Extensity refers to social, political and the economic activities stretching across national areas. This is more than likely due to the greater quickness resulting from the progression in technology and communication. The flow of ideas and goods around the world leads to greater interdependence like intensification. That means a local development can lead to a big global outcome. The discussion of global politics is to recognize that political activity and the political process is extending, deepening, and augmentation of the process itself. Connected with this is such that developments at even the most local level can have worldwide implications and vice versa. An expansion of political process refers to the mounting collection of issues which surface on the political outline combined with the extremely diverse assortment of agencies or groups involved in political decision making procedures at all levels from the local to the international (My Work on These Things: What Impact Has Globalization Had on the Nation-State, 2006).

2) in what ways do the 2008 financial crisis and recession signal that contemporary has-or has not- produced new and dispersed sites and sources of power?

While the accurate causes of the current global crisis, and the burden to be attached to them in particular national contexts, carry on to be debated, a number of points are widely accepted. The immediate trigger for the recession was the financial crisis, embracing banks and other organisations in a lot of nations, provoked by the extensive default of subprime mortgage holders in the U.S.A. but, critics argue, for such defaults to produce widespread harm to the global financial system and the world economy, a range of causal conditions had to be in place. Causes of the current recession have been said to include: the limited reach of the regulatory structure, that required banks to weight assets according to their risk but also allowed the creation of new, structured finance products to flee regulatory requirements; the accessibility of funds to Western capital markets, including substantial amounts from China, aiding lending; low interest rates, motivating the demand for credit for investment and utilization, and resulting high levels of indebtedness; the appearance of a shadow banking system facilitating financial organisations to take on assured banking functions and loosening the regulations governing borrowing and lending; the financialization of debt, facilitating the alteration of consumer debt into tradable securities, including mortgage-backed securities whose value, and related risks, were hard to establish; the international trading of such securities, that conveys problems globally; finance providers' payment systems that support extreme risk-taking with little apprehension for borrower default, partly stimulated by traders' beliefs that Government will intercede in the case of market instability; the failure of credit rating agencies and auditors to measure the value and risk of financial assets and products suitably; and the housing and asset bubbles, that confident investors, businesses and consumers to take on debt. Instability in energy prices during 2008 also added to the environment of economic doubt (Kitching, Blackburn, Smallbone, & Dixon, 2009).

Each of these issues has arguably added to the current crisis, first by impacting finance providers' balance sheets and, second, by swaying the demand for, and supply of, credit to businesses and individuals. Defaults on subprime mortgages caused defaults on other financial products, as payments to creditors holding derived products could not be made. This encouraged investors to recover their investments, inspiring a run on a number of institutions. Fear of exposure to what have become known as damaged or toxic assets caused banks to decrease lending to each other and this inspired a general reduction of liquidity in the wholesale finance markets. The international nature of the financial services industry led to troubles originating in the U.S. subprime mortgage sector being conveyed all through the world. "The crisis has led to the collapse, Government bail-out or partial nationalisation of major financial institutions in the U.S. And Europe; to major programmes of fiscal and monetary reform; and to support for businesses and homeowners in the UK and elsewhere to combat the crisis" (Kitching, Blackburn, Smallbone, & Dixon, 2009).

Previous recessions can provide pointers as to probable responses by UK businesses and policy makers but, given the specificities of the present crisis, it is hard to forecast trends exactly or to prescribe courses of action with a high amount of confidence in their likely success. One key characteristic of the current situation with strong inferences for business reactions, and one which renders it diverse from previous recessions, is the mounting globalization of economic activity. "Globalization refers to the numerous forms of interconnectedness between people and places via flows of goods, services, finance, people and information, including the cross-border value-chains of multinational enterprises. Such processes have been encouraged by the declining costs of transport and communications, reduced barriers to trade, the collapse of command economies and the influence of liberal market ideologies" (Kitching, Blackburn, Smallbone, & Dixon, 2009).

Globalization processes are difficult to understand, and even trickier to administer, as business activities and outcomes are prejudiced by the actions of distant others and, equally, local action influences those far away. Globalization creates new occasions and pressures, adds considerable complexity to business decision-making, and generates widespread instability and doubt in market processes that augments the risks of deciding on and putting into practice particular strategies. Market unsteadiness has been particularly obvious in the finance sector, where the extent and rapidity of financial movements across national borders has augmented the susceptibility of national Governments to unexpected shifts. Currency speculators can have a grave impact on national Government aims and policies, as happened in the UK in 1992. "Even large, powerful multinationals may find it difficult to manage global influences that inevitably shape business adaptation and performance under recession conditions, whether or not business owners/managers are even aware of them"(Kitching, Blackburn, Smallbone, & Dixon, 2009).

The current crisis has promoted interest in alternative modes of financial governance. It has stimulated the expansion of existing institutions and arrangements and the emergence of new ones in the global South. Collectively these innovations suggest the emergence of a multi-nodal, dense, and heterogeneous financial arena. This may be true even if, as we expect, some of the new arrangements prove to be untenable in the long run. I conclude that the current crisis has been far more productive than the Asian crisis in terms of propelling institutional innovations that may ultimately lead to more decentralized, pluralist, inclusive, and developmental financial architectures that can respond to the myriad, diverse challenges facing developing countries (Grabel, 2012).

Changes in patterns of global economic growth and reserve accumulation since the Asian crisis have provided the resources necessary to scale up some older Southern and South-South institutional arrangements and to provide funding for newer ones. These changes in the financial architecture of the global South both substitute for and complement the Bretton Woods institutions, while also having the potential to create pressure on them to change in ways that can increase their legitimacy, efficacy, and inclusiveness. In some policy and institutional innovations we see the emergence of financial architecture that is far less U.S.- and IMF-centric than has been the norm over the past several decades. Moreover, the growing economic might, self-confidence, and assertiveness on the part of policymakers in some developing countries (and, at the same time, the attendant uncertainties surrounding the economies of the U.S.A. And Europe) are disrupting the traditional modes of financial governance and dispersing power across the global financial system (Grabel, 2012).

It is too early, of course, to be certain whether the crisis will yield lasting, radical changes in the global financial architecture. Moreover, not all regions of the developing world enjoy the opportunity or means to participate in the process of reshaping the global financial architecture. Nevertheless, there are now real opportunities for policy and institutional experimentation, and there are clear signs that these opportunities are being exploited in a variety of distinct ways. As compared to any other moment over the last several decades, we see evidence of fissures, realignments, and institutional changes in the structures of financial governance across the global South. It has been characterized that this current state of affairs as one of productive incoherence. This term captures the proliferation of institutional innovations and policy responses that have been given impetus by the ways in which the current crisis has started to erode the stifling consensus that secured and deepened neo-liberalism across the developing world over the past several decades (Grabel, 2012).