Last Updated 10 May 2020

Effect of globalisation

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To many people globalisation is a very recent phenomena, no one had really spoken about it in terms of it being a global issue, or problem. However, the term and definition of it have only come to light recently, as the spread of western ideas have transfixed much of the globe. Globalisation is more of a process than an occurrence, it is not so much that it is the cause of the issues in this essay, but a term used to describe the spreading of a trend, that of capitalism. Fundamentally, the term is about increasing levels of connectivity, integration and interdependence between different parts of the world economy, politics, society, and culture.

As I have said views on the benefits or drawbacks of this effect vary greatly, as is shown by Singapore's Deputy Prime Minister Lee Hsien Loong, "Globalisation, fostered by free flow of information and rapid progress in technology, is a driving force that no country can turn back. It does impose market discipline on the participants, which can be harsh, but is the mechanism that drives progress and prosperity". However, other opinions are held, mainly from groups who believe that it is destroying culture, and widening the poverty gap, as well as de-stabilising world economies. "If globalisation has not succeeded in reducing poverty, neither has it succeeded in ensuring stability".

The East Asian experience with globalisation has been very mixed due to the changing economies in the region. It is not only an economically dynamic region, but also very diverse culturally and ethnically, which is why the region is susceptible to change and external influences. With countries such as Japan encountering stronger influences of capitalism through integrated markets, while transitional economies such as Cambodia, Laos, and Myanmar have not yet opened up their economies to the external markets.

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In this essay I will look first at the effects globalisation has had on helping the region progress quickly through a short industrialisation period, with the aid of FDI (Foreign Direct Investment), technology, MNCs, economic policy, and international finance. I will then focus on the crisis the region experienced, the effect globalisation had, and the implications of such an event. This essay will also briefly take a look at the effects globalisation has had on society and culture, while later addressing the environmental issue and the impacts globalisation has had on poverty, and inequality.

The benefits of an inevitable and irreversible globalising world are clearly illustrated by the management of economic and political policies in the majority of Southeast Asian countries, most notably the tiger economies. The areas in discussion are comprising economies, all of diverse size and resource endowment. As they have proved in the past two decades, they have used the spread of globalization as a tool to become a dynamic region, having achieved high and sustained economic growth. The Philippines are an example of a reformed economy as of the 1980's, due to previous political instability, which had adverse effects on its economy.

Prominence was placed on deregulation, privatization, export manufacturing, and foreign direct investment. With a mainly export led economy, the Philippines, and other ASEAN members recoiled their economy, to achieve remarkable economic growth until 1997. Other factors of growth in the ASEAN region came in the form of high FDI development strategy, with the involvement of foreign multinationals. These MNC's capitalized on the opportunity to enhance their manufacturing productiveness and efficiency within the region, taking advantage of low labour, and relocation costs.

One aspect of the development achievement within Asia is the impressive way in which they have attained a high degree of trade orientation, and low intra-ASEAN trade, much of which was aided by capitalist ideas spread through globalisation. Positive economic policies, coupled with the influx of western technology have allowed East Asian countries to develop their own industries, especially in electronics. This is seen in Korea, Japan, Taiwan, Singapore, and even Malaysia. "As globalisation of information and communications fuelled demand for semiconductors, PCs, cellular phones, and other telecommunications equipment. Electronics came to dominate ASEAN exports, accounting for about half the exports of Singapore and Malaysia".3

The trade/GDP ratios have risen for most countries in the region, which is at a higher level than most countries in the world. "Singapore's combined imports and exports are more than double the size of its GDP, while Malaysia's amounted to 160 per cent. Only Indonesia and Myanmar have ratios of less than 50 per cent, which are still much above world average".4 Other indicators of economic openness show that as of 1996 Singapore's export and import/GDP ratio was 261.1 per cent, Thailand's was 67.7 per cent and Vietnam's was 76.1 per cert. With much of the region going through a rapid stage of industrialization, it is helping the economy churn out far more value added goods to mainly western markets, at a high rate of return.

As a result of the fast industrialization period, export structures have been able to shift away from primary sectors, such as agriculture, and towards more dynamic secondary industries such as labour intensive manufacturing. It was a very much needed rapid shift, as the region experienced depressed commodity and energy prices. "The collapse of oil and commodity prices in the early 1980s compelled these countries towards export manufacturing to develop new sources of export earnings".5 Much of the shift is attributable to FDI, which has facilitated the capital transfer, and technology upgrade. "The growth of FDI and globalisation strategies of MNCs have led to growing intra-firm trade, both between parent and affiliate, and among affiliates based in different countries in the East Asian region".

Whilst protectionist measures where still in place in many of the regions economies, the spread of capitalist ideas where unable to have much effect on them. Therefore, many economies adopted export processing zones (EPZs), which allowed free importation for export production, though only in controlled geographical regions of the country. China is one example of this, where the government allows these zones to be set up in areas such as Shenzen, and Xiamen.

FDI has been a main source of development aid in Asia, and has helped the more open economies pull quickly through their industrialisation period. Since the mid 1980s FDI has grown faster than trade for Asian economies, and the primary mechanism of integration has shifted to it. What is important here, and a common element is the importance of MNCs. They bring in to a country much needed foreign exchange, and build new facilities, which are known as 'Greenfield investment'. Furthermore, by MNCs merging or acquiring firms in host countries, they spread managerial, marketing, and technological expertise.

"In the case of developing countries as a whole, inward FDI is twice as significant to the domestic economy as in developed countries".7 With the decrease of outward FDI in the primary sector, and consequently an increase in FDI in service sector, it has led to faster rate of development. Although "until the early 1980s, the bulk of FDI was in manufacturing industry and was an integral part of the rapid growth and internationalisation of economic activity

Finally, South Korea has been one example of how Asian countries can expand beyond their own markets. This is seen through Korea's 'segyahwa' (globalisation) policy, where the chaebol have pursued investment in European markets. In the long term, what this achieves is the growth of Korea's domestic firms, and enables them "to acquire an independent technological capability, based on the notion of overseas investment acting 'as a bridge over which necessary, advanced technology can enter the domestic arena' (Korean Ministry of Finance and Economy 1995)".8

A possible understanding of globalisation is that it is the process of creating a single global financial market. In order to achieve the homogeneity, differences in national financial markets must be minimised. Differences in financial markets are often due to differences in regulations regarding their operation. Deregulation of national financial markets that seek to harmonise regulations with those of other nations is therefore an important aspect of the globalisation process.

The euro-market has helped the stem of this financial globalisation which has transpired to Southeast Asia over the last several decades. With Europe experiencing high influxes of 'hot money', it is easy to see why economic fundamentals have allowed for trillions of dollars to be exchanges in one economy over the time period of one day. This is mainly due to investors not paying deposit insurance, economies not having any interest rate regulations, and either low or no taxes. Contrary to this, Asia began to experience waves of 'hot money' which is what leads us to the collapse, and reform of many financial institutions in the region, as a result of globalisation, which has shifted control increasingly away from the national governments to the MNCs and financial institutions.

The immediate implication of this has been the "increase of relative importance of the external compared to the internal or home market in almost every nation".9 This has had an impact on the handling of the financial institutions, with governments keeping a much tighter control on their fiscal and monetary policies, aiming to maintain low budget deficits and interest rates high. What had happened in the region was a severe blow of confidence to a region which was developing at a miracle rate. Moreover, what this does is discourage future investment and inflow of capital into these nations which have adopted new economic policy following the crisis. In the long run harming the ability of potential economic growth and stabilisation.

Further to the shift in economic policy, many nations in Southeast Asia have begun to resemble strategies of multinational corporations. Countries are now attempting to cut labour costs in relation to productivity, and so try and gain a competitive advantage over other nations. "With demand management policies abandoned by governments, the focus of national policies has also shifted away from the size of the market. Since the size of the external market lies largely beyond the control of individual national governments, macroeconomic policy now focuses on capturing a bigger share of the external market"10, by gaining competitive advantage.

What financial globalisation has done in effect is reduce government control over its financial markets due to the spread of capitalist markets and speculators. As I will explain further in this essay, the effect of foreign speculators, and investors in Asian markets was one of the more prominent reasons for the Asian financial crisis. One of the main players to voice a concern about the financial trends in Asia was Dr Mahatir Mohamad by pointing out that he felt his government had lost control of their own financial institution, and that control was placed in the hands of Wall Street speculators.

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Effect of globalisation. (2018, Jul 24). Retrieved from

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