Globalization and Its Economic, Political, and Humanitarian Gains

Written in 

Abstract: 

As argued by Hayek, economic progress depends on humility about one person’s ability to produce economic progress by design. Individuals should recognize that their limit to knowledge is constrained by circumstances of time and place. In the same way should institutions and laws recognize their limited capacity and should allow for “utilization of this decentralized knowledge” (Hayek, 1960). This argument echoed with Adam Smith and other advocates of globalization that countries are limited in their natural endowments and should be open to the idea of free trading to take full advantage of their competitive edges. These ideas paved the way in favor of globalization. Without a doubt, globalization is a positive force to participating countries in terms of three dimensions: economic gains, political gains, and humanitarian development. Based on these three dimensions, this paper will take an outcome approach to examine the demonstrable benefits of globalization using theoretical arguments and empirical evidence. The paper also recognizes potential opposing arguments in each dimension, such that globalization is not the solution to but the cause of poverty and inequality, or that domestic institutions reformation should be the priority concern. However, I will rebut these by showing that globalization is a way to improve domestic institutions, decrease world poverty, and enrich diversity and culture. And lastly, how UNDP should navigate through the challenges of globalization given both the advantages and disadvantages.

The last thing to point out is that the essay will mainly focus on the period after 1970s which marks the most important decade for globalization. While many scholars and economists have examined periods such as mid 1800s or the Great Depression in 1930s, 1970s and onward is when many advanced economies and most developing countries started to get exposure to international trade, move toward trade liberalization, and has more relevance to contemporary analysis.

To begin with, the Smithian and Ricardian advocates of globalization would argue that the benefit from an open global commerce environment is economic gains. These economic gains take the forms such as greater productivity, alleviation of poverty and income inequality, greater efficiency of production due to greater competition, and free flow of capital. In terms of greater productivity, it is because commerce encourages specialization within countries and thereby enriches production by allowing countries to produce in areas of their greatest comparative advantages (Calomiris, 2002). According to World Bank data, merchandize trade as a share of the world GDP increased from 30 percent in 1988 to around 50 percent in 2013. Corresponding to improvements in productivity is the large-scale improvement in global income level. During the period of 1988 to 2013, average income level grew by 24 percent globally, with the global poverty headcount ratio declined to 10.7 percent from 35 percent, and the income of the bottom 40 percentiles of the world population increased by 50 percent (Revenga, Gonzalez, 2017). As immigrants freely flow from lower-wage countries to high-wage countries, globalization was able to increase integration of labor markets and therefore close the wage gap between workers in advanced and developing economies, especially through the spread of technology. In the case of Israel, immigrants such as scientists and engineers has brought with them significant human capital. In short, economic globalization is manifested in the way as increased productivity, increased foreign direct investment, joint ventures between domestic and foreign companies, greater volume of migration and therefore income growth. By integrating one country’s economic activities into the multidimensional dynamic process of the world, the acceleration in economic growth is unstopped and irreversible.

However, anti-globalization arguments might claim that labor integration is nothing but a force exacerbating poverty and income gap. This argument is not entirely wrong. On one hand, in advanced industrial countries, the demand for more-skilled workers has increased at the expense of less-skilled workers, and the income gap between the two groups has grown. In the United States, the average real wage has grown since the 1970s while the real wage for unskilled workers has fallen. Between 1979 and 1988, the average wage of a college graduate who possess more demanded skills has 20 percent more income than a high school graduate who only possess labor-intensive skills (Slaughter, Swagel, 1997). On the other hand, in poor countries, workers might not always hold the skills demanded by importing countries due to inherent lack of education, or that they do not have the access to maximum mobility. From early 1990s to mid-2000s, of the 28 developing countries, 21 experienced increased income inequality (Slaughter, Swagel, 1997).

To rebut the first part of this counterargument which pointed out the increasing income inequality between the poor and the rich in developed countries, previous scholars and economists have predicted the problem and addressed it. According to the Kuznets curve theory, industrializing nations will experience a rise in income inequality as rural labor migrates to urban areas. But as certain level of income level is reached, inequality would decline as a social welfare. This argument is supported by Calomiris, who argued that over time, the poor in richest economies would eventually catch up with their rich counterparties, shrinking the income gap within the countries (Calomiris, 2002). Driven by various outcomes of globalization including the transfer of labor from agriculture to manufacturing, expansion of education and healthcare, and great political pressure for greater social transfers, the US and the UK both experienced lowest income inequality. Therefore, potential higher income inequality in developed countries is just one of the inevitable steps that would happen in globalization. The long-term result is still declined income inequality. For the second part of the counterargument that poor countries do not gain as much benefits as developed countries, it only further justifies that globalization serves as an important incentive for developing countries should come up with adjustments in their economic, social, and political structure to gain from free trade and labor integration. Some of the measures should include reduced structural rigidities, more transparent information regarding labor market conditions, more supportive immigration policies, standardizing professional certification procedures, and enhancing training and education programs so that low-skilled labor could upgrade their skillsets to match with the demand of the changing global economy. In short, income inequality is only a short-short result in the long-term benefits of globalization. And such short-term setbacks work as incentives for developing countries to reform their economic and political structures encouraging trading and social mobility.

The second benefit of globalization is that it promotes better political changes and institutional improvements. These include legal protection of property and enforcement of contracts, absence of corruption, proper monetary policies avoiding inflationary budget deficit, avoidance of too much market intervention and so on. Globalization helps realize a well-established government, reduce propensity for war, enhance individual liberty and security, promote equality by lessening servile dependency of individuals on their superiors. These positive changes are the result of incentives faced by inefficient and corrupt government to “share political power and reform the economic and legal system” (Calomiris, 2002). For example, as a way fixing the rent-seeking activities of many Mexican domestic banks and firms, the Mexican banking system undergone a significant reform into an outward financial orientation. It forced its domestic banks to modernize and compete against foreign financial institutions as a means of improving economic performance after the 1995 financial collapse. Now, its financial system has a majority of foreign banks and institutions, which largely promoted the efficiency of banking system, property right, healthy partnerships and legal decision makings. Furthermore, a healthy institution system would in turn contribute to economic growth. According to the index of freedom constructed by the Heritage Foundation and the Wall Street Journal suggests a positive correlation between the quality of the legal and political environment and economic efficiency. Economic prosperous countries such as the USA, the UK and Japan also have greater number on indices of rule of law, judicial efficiency, economic freedom, and least score of corruption. In comparison, countries such as Korea, Indonesia and Zimbabwe have a lower score on each metric. Such evidence shows that those countries who are more prone to globalization also tend to have better political environment, which in turn contributes to economic growth.

One of the potential arguments would be that domestic institutions reformation should be the priority concern as it is a much more effective solution to political issues. However, to address this, Friedrich Hayek argued that the foundation for a healthy institution and government should be an open mind to learn from each other about “ethical percepts and institutional history”, which is what endowed by globalization. Hayek called the institution reformation as the “product” of learning, instead of the end goal (Hayek, 1960). Furthermore, other globalists such as David Landes have argued that it is the limited acknowledgement of cultural and institutional learning that have limited the domestic political and economic developments over the past millennium (Calomiris, 2002). For example, China had an inward orientation and interfered too much with private enterprise compared to the western. In contrast, an outward orientation encourages institutional changes that expand the frontiers of economic achievement and individual rights. Through an outward orientation, countries are better entitled with benefits such as exploration, entrepreneurship, emigration, and technological dynamism. Competition and the pressure of forming a better economically dynamic country would foster direct improvements in domestic legal and political institutions.

Last but not least, globalization is an engine promoting humanitarian developments. John Stuart Mill summarized such benefits as the additional “indirect” gains from of the flow of information that accompanies with trade. Commerce enhances the transfer of technology and the cultivation of refined tastes, improvement of education, moral sentiments, and individual characters. According to the World Values Survey cited in Jonathan Haidt’s article, industrialized and globalized economies exhibit two trends of value change as they gained wealth in the 1980s (Haidt, 2016). Firstly, they moved away from “traditional values” such as religion, ritual, and deference to authorizes towards “secular values” such as an open mind to change, progress, and rationality. Secondly, citizens put a stronger emphasis on economic and physical security, individual rights, and protections. Both trends prove that globalization has fostered the transition from autonomy to authority, freedom over survival, diversity over uniformity, creativity over discipline. Furthermore, globalization contributes largely to the promotion of human rights and civil rights. Consider Black Lives Matter that originated in the United States or the most recent wide-spread covid-zero protests that originated in China, both exemplify how domestic civil rights issues were brought into light and got improved thanks to worldwide attention. Globalization enabled vehicles such as social media to help ordinary people voice their concerns and to shape the “global visions of freedom.” Just as Blain argued in his Civil Rights International, civil rights issues are never just contained in any country. Instead, they are “global scourges” and addressing them requires a global effort (Blain, 2020).

However, nationalists might disagree with globalists by arguing that, instead of enriching the global communication of culture, globalization leads to the erosion of national identities and dominance of western ideas over other cultures. For example, the American consumption patterns, technology, culture, and tastes have the strong tendency to overrule other parts of the world. Jonathan Haidt is likely to join such counterarguments by saying that the world’s many local, national and other “parochial” identities and moral orders have been “diluted or crushed” instead of respected and protected (Haidt, 2006).

In response to this argument, Rodrik pointed out in his work The Globalization Paradox that flow of information, communication and technologies would not necessarily “lead us down the path of global consciousness or transnational political communities” (Rodrik, 2014). In contrast, citizens of the country have significant local attachment to their respective culture. By citing the World Values Survey result of people’s attitudes and attachments to their local, national, and global identities, Rodrik further proved that “attachment to the nation state” and sense of patriarchy overwhelms all other forms of identity. Even as the economic and political activities integrate, people still perceive themselves as the citizens of their own country primarily, next as members of their local community, and last as global citizens.

As the world continues to become flatter thank to the improvement in technology and communication, globalization is irresistible and irreversible. Given the economic, political and human development benefits, it should be UNDP’s priority goal to maintain and further encourage globalization along with the current efforts in poverty reduction, democratic governance and peacebuilding, climate change and disaster risk, and economic inequality. Globalization helps manifests economic growth through higher production level reflected by GDP, decrease in unemployment rate, lower income inequality, free trading, and capital flow. It promotes positive political changes and foster domestic institution and policy reforms. It encourages humanitarian improvements and further solidify citizens’ national identity. Nevertheless, it is important to recognize the opposing voices regarding globalization. By taking these voices into account, we conclude that an efficient growth should be the result of a combination of both domestic institutions orientation such as rule of law and inceptives to work and innovate, and an outward economic orientation.

References:

Blain, Keisha N. "Civil rights international: the fight against racism has always been global." Foreign Aff. 99 (2020): 176.

Calomiris, Charles W. "A globalist manifesto for public policy." IEA Research Paper No. OP124 (2007).

Haidt, Jonathan. "When and why nationalism beats globalism." Policy: A Journal of Public Policy and Ideas 32.3 (2016): 46-53.

Rodrik, Dani. The globalization paradox: Democracy and the future of the world economy. WW Norton & Company, 2011.

Slaughter, Matthew J., and Phillip L. Swagel. "Does globalization lower wages and export jobs?." Does Globalization Lower Wages and Export Jobs?. International Monetary Fund, 1997.