The Problem and Challenges of Globalization

The Problem and Challenges of Globalization

If globalization is a non-stoppable train, as, any argue, it seems to be a rather selective one in admitting passengers abroad. Economics possessive of skilled and educated manpower and endowed with well developed production and marketing capacities can get on board to reap significant benefits if they have developed financial systems and assess to technology. It is a system where the benefits accrue only to the capable and prepared. Those who do not have the products and services to sell or the means to market them will assuredly be left in the station.

The same is also true for individuals who have not invested in their human capital and in obtaining the requisite skills for global jobs. Thus, we are faced with the phenomenon of marginalization of people, of firms and of countries; the global system confers a large rent differentials upon the participants and applies exclusion to the non- participants. Unless the means to spread around wealth and prosperity are built into globalization, it will become the domain of the already established, of the capable and skilled. Consequently, enabling capacity – building in trade technology and human – capital is an important issue in the debate on globalization. Unlike export – orientation, globalization involves the entire resource base and know-how of the economic agents. Thus, participatory capacity is an important issue.

Faced with the reality of the requirements of the global economy, nation states confront a host of problems: they have to accept the relative loss of sovereign control and the erosion of the fiscal base if they want to keep up with competitors who grant tax holidays and wave of social charges. At the same time, they are forced to increased their expenditure on infrastructure and education to enter into or keep their presence in the global system. To all that must be added the system consequence of accepting global openness: national governments must extend safety nets for taking care of the casualties of globalization, be it firms, banks or workers, if they are to maintain the social compact and preserve domestic civil peace.

These are contradictory demands on national governments. Another problem concerns the timing and location of the short run benefits and losses in the trade sector. While the countries with higher wages and more exigent environmental standards stand to lose jobs as business shifts some branches of industry to cheaper locations abroad, higher paying jobs have not followed the lost ones in the short run. The theory of international trade asserts that higher value added jobs would replace the last ones. But the theory does not have a clear time – line for the working out of comparative advantage; it has always assumed that the replacement technology is available and the costs of conversion, in particular labour retaining, are insignificant. Obviously, this is not so when replacement technologies are the private property of businesses, which no longer have national allegiance and will use the technology and locate the jobs where they make the highest profits. In today’s world, the major concern of business is the overall global bottom line and the increase in the wealth of the stock holders. The empirical evidence of the industry replacement is hardly clear-cut in the short run. In the US, the evidence over 1992-2004 shows that the number jobs lost has been less than the number newly created jobs.

This is true over a decade but not necessarily true for a particular year. In the short run, job replacement seems to carry migration born for some time by the displaced workers. There are also costly structural impediments to the transition to new jobs. The risk of creating significant constituencies in democratic countries opposed to globalization, as witnessed in Genoa and Seattle, is becoming quite high. Even when international firms own or have access to new technology; the relative cost difference between different locations might tempt them to relocate some jobs abroad. There is evidence on that in the low white collar jobs such as soft wear and high information skill jobs.

India has invested in education and developed a large and surplus stock of skilled manpower, have succeed in attracting lost jobs from global businesses on account of their low wages. Traditionally, wage levels and productivity gains have moved together. However, with openness it is possible that higher productivity might be associated with lower wages for skilled unemployed workers in a different country. We have therefore a break in the observed historical association between wages and productivity across countries with different cost of living.

The historical pattern of investment in education is now playing a large role in the working out of the law of comparative advantage. Second, the new job generated in the US have an average hourly pay lower than the lowest ones. In fact, quite many of the new jobs are in services with lower productivity and lower wage rates than lost manufacturing jobs; for example the average hourly wage in some of the fastest growing service jobs, the food industry is $10.64 with a median of $8.98 per hour, as compared to $18.07 and $17.10 median hourly wages for the lost jobs in production, construction and extraction occupations.

Finally, the asymmetric distribution of benefits across countries is breeding theories about disguised and new forms of economic domination under globalization. Even though such views are often not empirically demonstrated, nonetheless, they are voiced by important segments in openness societies, which have become permanent and non-discrimination opponents of WTO and globalization.