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Running Head: Positive and Negative Effects of Globalisation on the Majority World


Positive and Negative Effects of Globalisation on the Majority World

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Human societies across the globe have established progressively closer contacts over many centuries, but recently the pace has dramatically increased. Jet airplanes, cheap telephone service, email, computers, huge ocean going vessels, instant capital flows, all these have made the world more interdependent than ever. Multinational corporations manufacture products in many countries and sell to consumers around the world. Money, technology and raw materials move ever more swiftly across national borders. Along with products and finances, ideas and cultures circulate more freely. As a result, laws, economies, and social movements are forming at the international level. Many politicians, academics, and journalists treat these trends as both inevitable and (on the whole) welcome. But for billions of the world’s people, business-driven globalisation means uprooting old ways of life and threatening livelihoods and cultures. The global social justice movement, itself a product of globalisation, proposes an alternative path, more responsive to public needs. Intense political disputes will continue over globalisation’s meaning and its future direction.

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Globalisation is a powerful real aspect of the new world system, and it represents one of the most influential forces in determining the future course of the planet. It has many dimensions: economic, political, social, cultural, environmental, security, and others. The focus here will be on the concept of "globalisation" as applied to the world economy. This concept is one that has different interpretations to different people. Partly as a result of these different interpretations, there are very different reactions to "globalisation," with some seeing it as a serious danger to the world economic system while others see it as advancing the world economy.

The view taken here, representing the thesis of this paper, is that there are both positive and negative aspects to globalisation, that some of its positive features stem from the effects of competition that it entails, and that some of the negative aspects that could potentially lead to conflicts could be offset by international or global cooperation through agreements on policy or through the development of new international institutions. Thus, while globalisation can cause international conflicts, it can also contribute to their containment through the beneficial effects of competition and the potential of global cooperation to treat economic and other threats facing the planet.

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Whether one sees globalisation as a negative or as a positive development, it must be understood that it has clearly changed the world system and that it poses both opportunities and challenges. It is also clear that the above technological, policy, institutional, ideological, and cultural developments that have led to globalisation are still very active. Thus, barring a radical move in a different direction, these trends toward greater globalisation will likely continue or even accelerate in the future. One important aspect of these trends will be the growth in international trade in services that has already increased substantially but promises even greater growth in the future, especially in such areas as telecommunications and financial services. The result will be continued moves toward a more open and a more integrated world as it moves closer and closer to a planet without borders and to a more integrated, open, and interdependent world economy. The result will be even greater worldwide flows of goods, services, money, capital, technology, people, information, and ideas.

It has already been noted that globalisation has both positive and negative effects. This section will focus on its positive effects of globalisation, stemming from competition, while the next will focus on its negative effects, which could lead to potential conflicts. Finally, the last section will consider the potential for international cooperation to diminish or to offset the negative effects of globalisation.  

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Globalisation has led to growing competition on a global basis. While some fear competition, there are many beneficial effects of competition that can increase production or efficiency. Competition and the widening of markets can lead to specialization and the division of labour, as discussed by Adam Smith and other early economists writing on the benefits of a market system. Specialization and the division of labour, with their implications for increases in production, now exist not just in a nation but on a worldwide basis. Other beneficial effects include the economies of scale and scope that can potentially lead to reductions in costs and prices and are conducive to continuing economic growth. Other benefits from globalisation include the gains from trade in which both parties gain in a mutually beneficial exchange, where the "parties" can be individuals, firms and other organizations, nations, trading blocs, continents, or other entities. Globalisation can also result in increased productivity as a result of the rationalization of production on a global scale and the spread of technology and competitive pressures for continual innovation on a worldwide basis.

Globalisation has had significant impacts on all economies of the world, with manifold effects. It affects their production of goods and services. It also affects the employment of labor and other inputs into the production process. In addition, it affects investment, both in physical capital and in human capital. It affects technology and results in the diffusion of technology from initiating nations to other nations. It also has major effects on efficiency, productivity, and competitiveness. 

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Several impacts of globalisation on national economies deserve particular mention. One is the growth of foreign direct investment (FDI) at a prodigious rate, one that is much greater than the growth in world trade. Such investment plays a key role in technology transfer, in industrial restructuring, and in the formation of global enterprises, all of which have major impacts at the national level. A second is the impact of globalisation on technological innovation. New technologies, as already noted, have been a factor in globalisation, but globalisation and the spur of competition have also stimulated further advances in technology and speeded up its diffusion within nations through foreign direct investment. A third is the growth of trade in services, including financial, legal, managerial, and information services and intangibles of all types that have become mainstays of international commerce. In 1970, less than a third of foreign direct investment related to the export of services, but today that has risen to half and it is expected to rise even further, making intellectual capital the most important commodity on world markets. As a result of the growth of services both nationally and internationally, some have called this "the age of competence," underscoring the importance of lifelong education and training and the investment in human capital in every national economy. 

Overall, these beneficial effects of competition stemming from globalisation show its potential value in improving the position of all parties, with the potential for increased output and higher real wage levels and living standards. The result is a potential for greater human well being throughout the world. Of course, there is the distributional or equity issue of who does, in fact, gain from these potential benefits of globalisation.

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It is important also to appreciate that the economic aspects of globalisation are but one component of its effects. There are potential noneconomic impacts of globalisation involving great risks and potential costs, even the possibility for catastrophe. One is that of security, where the negative effects of globalisation could lead to conflicts, as suggested above, or the very process of globalisation leading to integration of markets could make conflicts escalate beyond a particular region or raise the stakes of conflict, for example, from conventional weapons to weapons of mass destruction. A second noneconomic area in which globalisation could lead to catastrophic outcomes is that of political crises, that could escalate from local to large-scale challenges and, if unresolved, to a catastrophic outcome. A third such area is that of the environment and health, where the greater interconnectedness stemming from globalisation could lead again to catastrophic outcomes, such as those stemming from global environmental impacts, such as global warming, and pandemics.

Some could see globalisation as a very dangerous negative development by focusing on the costs and the potential for conflict while others could see it as a positive development offering unprecedented opportunities. Both of these views contain some elements of truth, but each should be offset by the other in order to gain a full understanding of the impacts of globalisation. There are twin myths here, the optimistic one that globalisation leads to only positive outcomes and the pessimistic one that globalisation leads only to negative outcomes. Any objective treatment or net assessment, however, would have to recognize both the benefits and costs of globalisation.

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What is the net result of globalisation, when taking both benefits and costs into account? The answer depends crucially on the nature of the world system. In a world beset by conflicts, globalisation would probably have a net negative impact. Conversely, in a cooperative world, globalisation would probably have a net positive impact. Thus, globalisation represents a major challenge and at the same time an unprecedented opportunity in terms of the possibilities for conflict or cooperation. The challenge is to create a new world system in the aftermath of the cold war and the movements toward globalisation that would enhance its generally beneficial effects and that would minimize its actual or potential costs. The key to such a world system will be cooperation among the nations of the world and dynamic innovation, including the establishment of new institutions.

The challenge of the present globalised and post cold war economy is comparable to the challenge facing the winning nations in World War II. The old world had been destroyed and a new world had to be created. Not one, but two world systems were created, one in the West and the other in the East. Both involved the creation of new institutions that would replace the ones that had been destroyed in the war. Each side had its own ideology and organization, that in the West being market oriented and that in the East being socialist. Now, of course, the ideological divide has dissolved, where there is a convergence of ideology on the value of a market economy.

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Friedman, Thomas L., The Lexus and the Olive Tree:   Understanding Globalization, 1st Anchor Books Edition, New     York: Anchor Books, 2000

Giddens, Anthony, Runaway World: How Globalization is     Reshaping Our Lives, London: Routledge, 2000

Griffin, Keith, Studies in Globalization and Economic     Transitions, London: ICS, 1996

Hirst, Paul Q. and Graham Thompson, Globalization in Question: The International Economy and the Possibilities of  Governance, Oxford: Blackwell Publishers, 1996

Hutton, Will and Anthony Giddens, Editors, Global Capitalism,     New Press, 2000

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