GLOBAL TRADE
How It Affects You
WHEN Peter lost his job with the multinational corporation where he had worked for 20 years, the dismissal notice put the blame squarely on "the globalization of the economy." When Thailand's currency, the baht, lost more than half its value, the finance minister of that country went on TV castigating "globalization." When the price of rice increased by 60 percent in a country in Southeast Asia, headlines at the news kiosk announced: "It's the Globalization!"
What exactly is the globalization of the economy? How and why does it affect your country as well as the money in your pocket? What is behind this trend?
What Is Globalization?
As an economic phenomenon, globalization is a shift from distinct national economies to a global economy. In today's "global village," the production of goods has been internationalized, and money flows freely and instantly across borders. It is virtually trade without borders. In this system multinational corporations wield vast power, while anonymous investors can foster material prosperity or cause devastating depression in any part of the world.
Globalization is both a cause and a result of the modern information revolution. It is driven by dramatic improvements in telecommunications, incredible increases in computing power, and the development of information networks, such as the Internet. These technologies are helping to overcome the barriers of physical distance. With what results?
Mixed Blessing?
According to its proponents, globalization can be a whirlwind of trade and investment that builds economies and spurs development in even the world's poorest countries. For example, during the 1990's alone, foreign investors have poured one trillion dollars into developing economies. This phenomenal increase in international investment has made the building of roads, airports, and factories possible in poorer nations. Globalization has indeed been a force that has raised living standards for some across the world. Peter Sutherland, chairman of the Overseas Development Council, says that "until recently, it took at least two generations for living standards to double, but in China, living standards now double every 10 years." Globalization is perceived as bringing unprecedented opportunities to billions of people. The staggering expansion of world trade has induced a wave of productivity and efficiency and has created new jobs.
Its critics, however, counter that globalization can also bring down economies overnight. A few clicks of a computer mouse can devalue a national currency very quickly, washing away the life savings of millions of breadwinners. Ominous words from the mouth of an influential Wall Street analyst can instantly cause a herd of panicked investors to sell their stocks in Asia, creating a huge capital vacuum that could eventually drive millions into poverty. A board of directors can decide to close a plant in Mexico and open up one in Thailand instead—creating jobs in Asia while condemning hundreds of families in Latin America to destitution.
Many point out that globalization has made life more difficult for large segments of human society and that it threatens to leave part of the world behind. "It is no coincidence that the disappointing economic performance in much of Sub-Saharan Africa reflects a failure to integrate into the world economy and, thus, to trade successfully and attract investment," said Sutherland.
Contagious Effects That
Can Make You Rich or Poor
Can Make You Rich or Poor
How does this concern you? Local, national, and regional economies have become interlocked and interdependent. Thus, disease symptoms in one economy may quickly spread to infect others—including your country's. For instance, the global financial storm that devastated Asia in 1997 and Russia and Latin America in 1998 and 1999 now threatens to inflict significant damage on the prosperity of the United States, countries in Europe, and many other financially stable nations. Economies that looked healthy one moment have become seriously ill the next—apparently not because of any new development within their own borders but because of a shock from abroad. Economists call this phenomenon "financial contagion." Says Lionel Barber of the Financial Times: "The financial shocks are occurring simultaneously and in many instances are mutually reinforcing. Contagion is no longer a risk; it is a fact of life."
All over the world, therefore, globalization has increasingly stitched lives into a single economic quilt. Regardless of where you live, such contagion affects you in more ways than one. Consider the following examples. When Brazil floated its currency in January 1999, Argentine poultry farmers were shocked to realize that Brazilians were selling chickens cheaper than theirs to supermarkets in Buenos Aires. Moreover, the international economic slump had already slashed the price of Argentine wood, soy, fruit juice, beef, and cheese. Low prices and reduced demand led to the closing of dairies there, leaving hundreds unemployed.
Meanwhile, hog farmers in Illinois, U.S.A., found that while they had enjoyed good pork exports to booming Asian countries in the past, now they had to lower their prices, since demand was low and competition was fierce. "We've never seen this heavy a loss in the pork industry, not even in the Depression," lamented one farmer. In the same country, steel workers were laid off, as their companies were facing a deluge of steel imports from China, Japan, Russia, Indonesia, and other countries—all of them with weak currencies that made their exported goods very cheap. Because of a lack of Asian buyers, unsold grain piled up in the United States, to the dismay of farmers in that country.
The implications of globalization are further compounded by the fact that banks and pension funds in wealthy countries have lent to or invested heavily in "emerging markets"—a euphemism for some economies in the developing world. Thus, when such economies collapsed during the 1997-99 financial crisis, this had a direct bearing on ordinary citizens who either were pensioners or had savings in banks that had suffered losses. Almost everyone has felt the cold shiver of loss, directly or indirectly.
