The Blessings of Globalization
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THE BLESSINGS OF GLOBALIZATION
A strong argument can be made that globalization and the unrestricted flow of capital, goods, and services lead to the creation of wealth and prosperity among all participating nations. Comparative advantage allows both the industrially advanced nations and developing countries to maximize their gains from trade. Industrially advanced countries make better use of their technology and capital by exporting it to less developed or poorer countries, which in turn make better use of their cheap and abundant labor by exporting their lowtech and labor-intensive products to the richer countries! Globalization also leads to economic integration and convergence in economic policies around the world. Economic integration leads to economic growth through reform and harmonization in the countries fiscal and monetary policies, tax systems, ownership patterns, and other regulatory arrangements.
But there are costs as well. There have been waves of globalization in the past: in the United States (1870-go and circa 1970), Western Europe (189o-1913 and 1950-92), and Japan (1913-38). Most of these waves eventually petered out because of their adverse impact on the social infrastructure of the countries involved. These adverse impacts included greater income disparities and unequal sharing of the gains of globalization between countries and among different groups within countries, and the dislocation or dismantling of the “social safety net.” In the current round of globalization, the distribution of gains from international trade and investment has been skewed strongly in favor of those who control capital and against those who contribute human labor. According to the World Bank, the disparity between rich and poor countries has grown ten times wider during the last thirty years. As Jeffrey Sachs and Andrew Warner point out:
Long-held judgments about the development process, as well as the workhorse formal models of economic growth, suggest that the poorer countries should tend to grow more rapidly than richer countries and therefore should close the proportionate income gap over time. The main reason for expecting economic convergence is that the poorer countries can import capital and modern technologies from the wealthier countries, and thereby reap the “advantage of backwardness! Yet in recent decades, there has been no overall tendency for the poorer countries to catch up or converge with the richer countries.2
Large multinational corporations (MNCs) play an increasingly critical role in the growth and development of the economies of emerging nations. MNCs have become an engine of change through their injection of capital, technology, organizational skills, and a competitive environment. Foreign corporations not only bring