Essay on Globalization and development
To date, economic globalization has become one of the major trends in the global economy, which is manifested in the constant expansion of economic relations between states. The transnational-corporations (TNCs) play a significant role in the processes of globalization and are considered to be a critical factor in the global economy. Thus, the topic concerning the impact of economic globalization and the rise of the transnational-corporations (TNCs) on the developing world is of great interest to the study and is recognized to be very relevant.
The nature of economic globalization
The impact of economic globalization on the developing world cannot be overstated. As stated by Soomro, Nasar-ul-eman and Aziz (2012: 605) ‘the economic activity of producing goods and services and distributing them throughout world without any barriers of quotas’ is widely known as economic globalization. In fact, economic globalization is one of the regularities of the world development that is immeasurably increased in comparison with the integration and interdependence of the economies of various countries. It ‘means change in actual flows and restrictions imposed by the regulatory institutions in the country’ (Soomro, Nasar-ul-eman and Aziz, 2012: 606). In addition, it is associated with the formation of economic space, where the branch structure, the exchange of information and technology, and the geographic distribution of productive forces are determined taking into account the global situation, and the economic ups and downs acquire a planetary scale. The growing economic globalization is reflected in a sharp increase in the magnitude of capital movements, faster rise in international trade compared to the gross domestic product (GDP), the emergence global financial markets that are open a week around the clock. Created over the last decade, information systems immeasurably strengthened the ability of financial capital to the rapid movement that includes, at least potentially, the capacity to destroy the sustainable economic systems.
Factors driving economic globalization
Scientific and technological progresses, economic liberalization (the development of the market system) and changes in the political system at the national and international scale greatly contributed to the accelerated development of the processes of economic globalization. In fact, scientific and technological progresses globalize the world economy through the development of transport, communication and information technologies. The rapid introduction of information technology played a key role in the development of technological progresses. The development ‘in the technology of transportation and communication have reduced the costs of transporting goods, services, and factors of production and of communicating economically useful knowledge and technology’ (Mussa, n.d.: para. 2). The introduction of digital processing technologies and convergence (integration) of means of communications and computer technology allows us to transport huge amounts of information in the shortest possible time and at a low cost. The development of telecommunications has had a huge effect on the globalization of the production sector.
Thanks to the proliferation of the Internet and communication technologies, many countries almost completely reoriented their traditional production and engineering work in the field of information technology. The development of mass media and technology’s impact on people’s mass consciousness has led to this information revolution. Information technologies give the opportunity to profoundly restrict people’s mass consciousness. Information technologies first made an impact on people’s consciousness profitable from a commercial point of view. The second factor driving economic globalization is the liberalization of the economy. It follows from the general ideology and practice of economic liberalism that has demonstrated efficacy in Western countries, and later in a number of new industrialized countries. The third factor driving economic globalization is the transformation of the political system on a national and international scale. Firstly, it is the democratization of the political system in most developed countries based on freedoms of human rights, stability, external openness and liberal forms of competition. Secondly, it is related to changes in the geopolitical situation in the world (the global ideological and political confrontation, the development process of political dialogue, political integration, etc.).
Thirdly, strengthening the political unipolarity of the world also greatly contributed to economic globalization. Thus, economic globalization is a complex and contradictory process. On the one hand, it facilitates the economic interaction between states, creates the conditions for countries to access the advanced achievements of mankind, ensures resource savings, stimulates the world’s progress, and changes ‘the picture of World Economy, by increasing the cross-border trade, exchanges of currency, free flow of Capital, movement of people and flow of information’ (Akram, et al., 2011: 291). On the other hand, economic globalization has numerous negative consequences: strengthening the peripheral model of the economy, the loss of its resources to countries outside the ‘golden billion’, the ruin of small businesses, declining living standards, growing inequality across nations, environmental deteriorations, etc. (Singh, 2013). Hence, making the benefits of globalization available to the maximum number of people is one of the problems facing the whole world community.
The rise of the transnational-corporations
The rise of the transnational-corporations (TNCs) is a predefined process. As a result, transnational corporations (TNCs) have become a main driving force of economic globalization. Transnational corporations are ‘any enterprise that undertakes foreign direct investment, owns or controls income-gathering assets in more than one country, produces goods or services outside its country of origin, or engages in international production’ (Westaway, 2012: 65). Today, transnational-corporations are the most flexible organizations that greatly support economic globalization. Multinational corporations are a powerful economic force that binds the national economy and determines the economic development of the countries and the world as a whole. Furthermore, global, regional and intergovernmental agreements are very important elements that affect the development of corporations. The influence of transnational corporations in the global economy, regardless of their level of development increases. Indeed, foreign direct investment is an important mechanism through which savings are transferred from the advanced industrialized countries to the developing ones since they have the low savings. Transnational corporations are an important means of technology transfer and management experience in many industrial countries. Most of the countries that host corporate affiliates in its territory approve their activities and even compete with each other to attract foreign direct investments. Large company experience allows staff to organize the production and coordination of activities more effectively than, for instance, the leaders of the host country. Corporations are able to displace the domestic producers out of business. This occurs due to increased competition in the domestic market. The use of best management practices and modern technology allows a corporation to set the price lower than local firms, thereby driving them out of business. Also, the production of various goods and services from the imported component displaces the local suppliers. In addition, transnational corporations are beneficial in the fact that they engage the most advanced applications and technologies…and…have by far the largest geographical scale and scope in their data processing operations” (Roche, 1996: 130).
Hence, it is possible to point out that activities of transnational corporations greatly support economic globalization. However, their impact on the economies of developing countries is not always positive. Currently, the elements that support the placement of multinationals are as follows: 1) expanding the market; and 2) progressive migration of capital and technology from countries with high wages to other countries that are more favorable to corporations. There are many favorable factors that have a positive impact on transnational corporations. Corporations can migrate across national borders. The process is easy in those countries where the national border management is minimal. Given the dominance of their politics, economics and technology, it is not surprising that most of the corporations are involved in the most serious environmental crises in the world.
Countries can use special tools in order to monitor transnational corporations, to close national boundaries, or to implement the harmonization of national policies with the activities of corporations in order to support civil active groups for better living standards and environmental protection practices. Indeed, ‘greater access to developed country markets and technology transfer promised to improve productivity and increase living standards’ (Singh, 2013: 2).
The main feature of TNCs is global operations. As a result, the world market is very crucial to TNCs. Therefore, the expansion of TNCs is actually performed internationally. This is explained by the fact that TNCs are actually organized based on the type of state: the distribution of goods and services are concentrated in a few hands. The essential characteristics of transnational corporations are supranational activities that have an impact on all the quality processes in their host countries, primarily economic and political ones, which create and manage the supranational bonds and relationships. This fact allows them to follow their own economic line. A typical feature of ‘transnational economy’ is a contrast between the well-being of large TNCs and serious difficulties of the country as a whole: the unsustainable development of inflation, unemployment, etc. Hence, the economic growth of transnational corporations increases a confrontation between labor and capital.
TNCs and globalization of the world economy
Nowadays, transnational corporations are not only understood as a platform on which the economy of developed economy is actually based, but also as a major multinational group, including many overseas branches of production, research, supply and marketing that are the main force of the world economy. In such a case, TNCs are a determining factor in deciding the fate of a country in the international system of economic relations. Active production, investment and business activities allow TNCs to perform the function of the international regulation of the production and distribution of products.
The host country as a whole benefits from inward investments. The broad involvement of foreign capital flows using TNCs helps to reduce unemployment in the country. Companies that produce globally competitive products and focus mainly on exports, largely contribute to the strengthening of foreign trade positions of the whole country. Benefits that are subject to legal foreign firms are not limited by the quantitative indicators. The activities of TNCs force the local companies’ administration to make adjustments to the technological process, to spend more time on training and retraining of workers, and to pay more attention to product quality, design, and consumer properties. Also, the new technologies, new kinds of products, new management styles, using all the best practices of foreign businesses are often one of the major tools that benefit TNCs as a whole. However, it should be noted that along with the positive aspects of the functioning of TNCs in the world economy and international economic relations, there are numerous negative impacts on the economy of the countries where they operate: a) opposition to the implementation of economic policies of those states where TNCs operate, b) violation of the law of the host countries. Thus, by manipulating the transfer pricing policy, the subsidiaries of TNCs operating in different countries, skillfully evade the national norms and regulations sheltering income from taxation by transferring them from one country to another, c) the establishment of monopoly prices that are prejudicial to the interests of developing countries, and d) higher inequality (Herkenrath and Bornschier, 2003).
Conclusion
Globalization as a multifactorial phenomenon is characterized by the globalization of financial markets, the internationalization of corporate strategies, the international transfer of technologies, the transformation of consumer behavior, and the internationalization of the regulatory capacity of national economies. In return, international corporations are considered to be direct participants in the entire spectrum of global economic relations. TNCs, on the one hand, are the product of the developing economic relations. However, on the other hand, they are powerful mechanisms that greatly influence the world economy. Hence, actively working on international economic relations, TNCs form new relationships in the global world.
Based on the above-mentioned information, it is possible to conclude that direct international manufacturing business associations grounded on the international movement of capital flows are one of the main factors in the world economy. The rapid growth of foreign direct investment, the output process of division of labor outside the firm, industry and national borders is accompanied by giant international scientific and industrial complexes with branches in different countries and on different continents. TNCs transform the global economy into the international production with the help of providing the acceleration of technological and scientific progresses in all its directions: product quality, production efficiency, new forms of management, enterprise management.
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