Use appropriate analytical tool(s) discuss the costs and benefits of globalization in the context of India

Globalization has also led to increased competition on a global basis, which gives rise to the competition aspect. This competition and the opening up of economies has led to “specialization and division of labour” as discussed by Adam Smith. Now that countries have learnt to specialise in producing the products they are best at producing, they need other goods and services from different countries. This has led to most countries adopting the absolute advantage (of international trade) approach. This leads to increases in productivity as a result of ‘rationalization of production’ on a global level and the spread of technology as well as competitive pressures worldwide.

The financial aspect of globalizations refers to the emergence of financial institutions and markets and the easy access that borrowers now have to these. It basically refers to the free movement of money as well as assets around the globe.

“By the early part of the 21st century more than $1.5 trillion in national currencies were traded daily to support the expanded levels of trade and investment.”

Another aspect of globalization is the economic aspect which implies how every economy is now aware of a global common market “based on the freedom of exchange of goods and capital.”  The political aspect is linked with this piece. Due to globalization, countries have come together and formed alliances, such as the EU is part of the globalization process. An example could be the influx of labour from Poland to the UK as soon as it became a part of the European Union. Also, a very major political benefit of globalization is the improvement in Indo-Pak relations, which was initiated by the media. Artists from Bollywood, India’s film industry, started working in Pakistan’s film and music industry and vice versa. This led to the governments interacting on a different level than war and nuclear issues.

Globalization has also led to the growth of cross-cultural contacts. People, all around the world, are now more aware of the minorities and their customs, leading to them being more open-minded than they used to be. The increase in migration and tourism has reduced racism in many countries because people are getting used to the existence of other races around them. A very big example is that of Indian food now becoming so popular all over the world, especially the United Kingdom. Consumers are well aware of traditional Indian dishes and customs of eating. Another example can be of how Bollywood movies, from India, are spreading awareness about India’s culture all over the world. Cross-cultural contacts are also formed through the internet and social networking sites, as well as big television events such as Cricket world cup and FIFA world cup tournaments.

A very major benefit of globalization is that of technological progress. “Technology has been the other principal driver of globalization. Advances in information technology, in particular, have dramatically transformed economic life.”

The development of a Global Information System, global communications system and transborder interflow through sources such as the internet, satellites and telephones are all due to freedom of movement, in other words, globalization.

Another benefit of globalization is the existence of multinationals. Multinationals, one of the major contributors of globalization, establish customer bases in other economies. They build foreign factories and carry out production in each country separately, mainly to reduce their costs. What this does for the host countries is that it increases movement of goods and services. These multinationals import raw materials and sometimes even labour from other countries. They pay taxes to the host country’s government and the managers that they bring from other countries train the local workers. Examples include McDonalds opening up in India along with other franchises such as Café Coffee Day, KFC, etc.

“A defining feature of globalization is an international industrial and financial business structure.”

Globalization is also very beneficial as it brings about economies of scale to a very large extent. Due to the greater freedom of movement of goods and services, many countries have now started outsourcing work to companies in countries where labour is cheaper. (Lal, 1988, 2003) has drawn attention to “more than a doubling of India’s industrial production between 1886 and 1914, and to the fact that by 1914, India had the world’s fourth largest cotton textile industry, and the second largest jute manufacturing industry.”  India has become very well known for its cheap labour because of which it has become a popular choice for companies that are trying to cut down costs. An example could be that of clothing companies such as Nike that get all their products made from India. Another example is that of the British mobile network, 3, that has its call centre in India, along with other networks.

According to (Maddison, 2002) “India’s per capita income rose by about 25% between 1870 and 1913. Clearly, contrary to common perception, India did gain in the first period of globalization boom during the colonial era.”

“The liberalisation of the domestic economy and the increasing integration of India with the global economy have helped step up GDP growth rates, which picked up from 5.6% in 1990-91 to a peak level of 77.8% in 1996-97. Growth rates have slowed down since the country still has to be able to achieve 5-6% growth rate in three of the last six years. A Global comparison shows that India is now the fastest growing just after China.”

Globalization is deeply controversial, however. It has costs or potential problems that some critics see as great menace.  The conflicts that these costs could lead to can be at the regional, national, or international level. Who gains from the potential benefits of globalization is one of the costs. The distribution of the gains from globalization can be unequally distributed among individuals, organisations or nations. Indeed, the case has been that most of the gains have been going to the richer economies, creating further inequalities internationally.

 (Barro, 1997) says that “Some have suggested the possibility of convergence of incomes globally based on the observation that the poor nations are growing at a faster rate than the rich nations.”

An evidence, according to (Quah, 1996), is that “a small group of nations, the ‘tiger economies’ of East Asia, especially China has been growing at rapid rates, while the least developed nations of Asia, and South and Central America have been growing at a slower rate than the rich nations, leading to a bimodal “twin peaks” distribution of incomes.”

This growing disparity leads to dissatisfaction and possibly, even international conflicts as countries seek to join the club of rich nations and the have-not nations struggle with the have nations for their share of world output. This issue of distribution is a major challenge in the process of the globalization of the world economy.

Due to the inequality created by globalisation, the rich nations are becoming richer while the poor are becoming poorer. “The three richest people possess more financial assets than the poorest 10% of the world's population, combined.” This inequality can be seen as affecting India as it is a well known fact that poverty in India reaches a higher level every year. “Nearly half of all Indian children are undernourished.”

At the same time, globalization makes the opportunities in richer countries drive the talent away from poorer countries. Workers from less developed countries look for jobs in well developed countries in order to get better value for their talent. Even students want higher education from the developed countries as the degrees from these countries will get them better jobs in the future. “Indian students going abroad for their higher studies costs India a foreign exchange outflow of $10 billion annually.”

Another problem stemming from globalization is that many opponents see it as taking the power from sovereign governments and giving it to corporations such as multinationals or global firms. Thus, globalization can make national leaders and governments feel helpless and give rise to an attitude of dissatisfaction which, in turn, could lead to extreme nationalism and xenophobia as well as protectionist measures.

The competition created by globalization can also prove to be a cost. This is because the relatively less rich economies get overtaken by the richer ones in some product markets due to imports. The small businesses in these poor economies sometimes go bankrupt because all their potential customers get driven towards better quality products offered by multinationals. For example in India, as all the international fast food chains have taken over, many of the local restaurants have gone out of business. “The multinational segment of Indian fast food is up to Rs. 6 billion, a figure which was expected to zoom to Rs. 70 billion by 2005. Because of the availability of raw material for fast food, global chains are flooding into the country.”

It is sometimes believed that another cost of globalisation is unemployment, mostly in countries that use outsourcing, as their workers lose their jobs because of the availability of cheap labour elsewhere. This has contributed to the deterioration of the middle class in many countries, as workers are forced into lower positions. This cost also links up to the fact that the availability of cheap labour in less developed countries enables big corporations to exploit these workers. Child labour is a form of exploitation that originates from these globalization pressures. India, for example, is known for its child labour. Many sports companies outsource their production to India because of the children working there and how they work for very less amounts of money. This helps corporations to reduce costs and make bigger profits, which is usually their main aim.

“As India's economy continues to boom, children are increasingly being exploited to meet the country's hunger for global success.”

Globalization has both costs and benefits and the implications for a national economy are many. Globalisation has intensified competition between economies in the world market. As a result, economic developments are not determined entirely by domestic policies and market conditions. In fact, they are also influenced by international policies and economic conditions. So it is clear that a globalising economy, while formulating and evaluating its domestic policy cannot afford to ignore the possible actions and reactions of policies and developments in the rest of the world.

With reference to (Stiglitz, 2002), “In many countries, globalization has brought huge benefits to a few with few benefits to the many. But in the case of a few countries, it has brought enormous benefits to the many”.

In a world beset by conflicts, globalization probably has a net negative impact; conversely, in a cooperative world, globalization probably has a net positive impact. Thus, “globalization represents a major challenge and at the same time, an unprecedented opportunity in terms of possibilities for conflict or cooperation.”

In relation to India, I believe that globalization has brought more benefits than costs. This is because it has put the country in the limelight and has opened up new opportunities in terms of fast food chains, sports equipment, call centers and software – according to Bill Gates in 2002, “India was on course to become a global hub for 'mission critical activity' in software”. The costs incurred from globalization can be minimized with the help of efficient management of the economy as the benefits outweigh them. According to (Stiglitz, 2002) “the problem is thus not with globalization but with how it has been managed.”

Bibliography

Barro, R. J. (1997). Determinants of economic growth: A cross-country empirical study. Cambridge.

Lal, D. (1988, 2003).

Maddison, A. (2002).

Mukhopadhyay, A. K. International institutions, globalization and the inequality among nations. New York & Notre Dame.

Quah, D. T. (1996). Twin Peaks: Growth and convergence in models of distribution dynamics. 

Stiglitz, L. J. (2002).

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