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Many argue that "globalization" imposes constraints on the power and autonomy of the nation-state. How persuasive is this claim? Discuss the extent to which this is true with respect to trade and Foreign Direct Investment (FDI).
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The solution is a concise discussion of globalization as it relates t the power & independence of nation-states.
Globalisation is a term that can mean different thing to different people, and different individuals and interest groups invariably use the term to explain current situations or events. Be it groups such as the S11 blaming globalisation policy for being one major reason to rising economic and political power among large multi-national organisations, or top-end politicians praising globalisation policy for allowing nations better access to new advanced technology and communication tools, issues of globalisation are very often in the centre of attention.
In general, different branches of the social sciences stress different elements of globalisation. Economists define globalisation mainly as openness toward other countries with no or few barriers to investment flows, finance and transactions, trade and labour, and with fewer regulations for foreign inputs. Sociologists focus more on two groups of changes that indicate globalisation. Firstly, there are the structural changes: growing complexity of society, internal differentiation, and acceleration of the speed of change. Secondly, there are new types of social relations on distance, and cultural dissemination and unification. Finally, political scientists are focused on three groups of issues: Firstly, how democracy as a political phenomenon is influenced by globalisation as an economic phenomenon; secondly, how dramatic changes in the role of the nation-state are impacting on problems of sovereignty and autonomy; and thirdly, the necessity of world governance (Sporer 2000).
No matter what position one takes when discussing globalisation, it is evident that it is "not just a phenomenon or some passing trend" (Thomas Friedman, cited in James 2001:75). Rather, it is important to realise that globalisation more or less affects every individual, every firm, every nation, and in every part of the world. Additionally, it is a process and not an epoch such as 'modernism', 'post-Fordism' and other terms often used in social sciences to explain different periods following the industrial revolution. Therefore it is constantly changing face, and cannot accurately be described. Langhorne (2001:1) writes that: "the process and the results of globalisation are changing the way we live our lives on a personal basis and they are changing the institutions which we collectively use to give form and predictability to our economic, social and political relationship".
Globalisation is also not a new 'invention' of the late 20th century society. The early industrialisation period saw the world becoming more and more globalised, with improvements in transport and communication as well as development of international markets for goods and finance facilitating interaction and connection between people and nations in the world. However, one important way in which contemporary globalisation is different from this emergence of a globally interdependent economy, is the fundamental fact that the routine use of global communication has passed out of the sole control or regulation of governments and companies. As Langhorne (2001:15-16) puts it, "ordinary people have now joined the club", and by that he means that it its their people's activities, and not their authorities, who are the new beneficiaries.
Why then is it important for both global and local managers to comprehend the nature of the globalisation process in order to be effective in their jobs? It has already been argued that there are different ways of looking at issues of globalisation. One definition of globalisation is: "the accelerated integration of economic activity across national or regional boundaries" (TUAC 1997). It could also be defined as "the latest stage in a long accumulation of technological advance, which has given human beings the ability to conduct their affairs across the world without reference to nationality, government authority, time of day or physical environment" (Langhorne 2001:2). This means that globalisation is about increased awareness of, and access to, products, capital, and information. The flow of trade and information also creates a growing awareness among consumers everywhere about how other people live. This has huge implications for businesses and managers, because growing awareness arouses global wants that eventually lead to global products (Tapsell 1999).
Herein lies the main challenge to businesses and managers in today's global society: the onset of globalisation has thrown new challenges at the workplace; the rapid changes in technology and ownership patterns, the high mobility of capital, the arrival of multinational companies and the gradual withdrawal of state interventions in the economy have all complicated the management of businesses (Manandhar 2000). To be successful in their roles, managers must understand the forces and drivers of globalisation, and try to predict the outcome of them for effective decision-making. The following section shall discuss some of these forces and drivers in more detail and what implications they have for managers in both small and large organisations.
THE ELEMENTS OF GLOBALIZATION
Globalization is first and foremost apprehended in economic and financial terms.
In this sense, it may be defined as the broadening and deepening linkages of
national economies into a worldwide market for goods, services and, especially,
capital. As a result of changes in economic policy across a wide range of countries
and a revolution in telecommunications and information technologies, the
last fifteen years have witnessed dramatic increases in trade linkages and crossborder
capital flows, as well as radical changes in form, structure and location
of production. Furthermore, due to developments in media technology and communication, globalization brings with it a growing tendency towards the universal
homogenization of ideas, cultures, values and even lifestyles. In addition, running
parallel with and even overarching the economic dynamics, there has been a
growth of new supranational policy regimes such as the World Trade Organization
(WTO), the Global Environmental Facility (GEF), and various global
environmental conventions. There has also been a subtle realignment of older
ones such as the Bretton Woods Institutions, the Organization for Economic
Cooperation and Development (OECD), and even the United Nations.
Over the last 40 years, world trade in goods and services has consistently grown
more rapidly than world output. As a result, close to 20 per cent of the total volume
of world output is exported. These exports are worth $7 trillion, or about 23
per cent of the value of world output. Developing countries account for just
over 30 per cent of global exports. Manufactures now account for over 60 per cent
of developing country exports, compared to 40 per cent only ten years ago.
However, the secular buoyancy of trade is not enjoyed equally by all regions.
Asia and Latin America have had annual export growth rates of around 7 per
cent and 5 per cent, respectively, over the last 25 years. But Africa has suffered an
average annual decline of 1 per cent, and its share of world merchandise trade has
fallen to about 2 per cent from around 6 per cent in the early 1980s. Latin America
has maintained a share of about 5 per cent over this period, while Asia's share
has increased significantly from about 16 per cent to 27 per cent.
Perhaps the most prominent face of globalization is the rapid integration of
financial markets over the last decade. Innovations in communications and computer-
mediated technologies have made possible a vast array of new financial instruments
and risk-management technologies. In addition, fixed exchange rates were
abandoned in the early 1970s, and financial markets were subsequently deregulated.
The result has been a spectacular increase in cross-border capital flows.
Cross-border transactions in bonds and equities were generally less than 10 per
cent of GDP in 1980 for the major advanced economies; by 1996, they were
generally over 100 per cent. The average daily turnover in foreign exchange markets,
adjusted for local and cross-border double-counting, has risen sharply from
about $15 billion in 1973 to about $200 billion in 1986, to over $1,300 billion
in 1995.The last 25 years have seen a sharp rise in the growth of portfolio equity flows,
particularly to the so-called emerging markets. From nothing in 1970, portfolio
equity flows to developing countries were estimated at ...