The Perception Of Globalisation In The World Economy

Published Date: 02 Nov 2017

Department of Business Administration

Chair of Foundations of Business Administration and Theories of the Firm

Dipl.-Vw. Anselm Schneider

Globalisation: A Concept with True Potential or Just another Fa�ade in the Interest of the Multinational Corporations and Designated Nation States?

Corporate Governance in a Globalised Economy

Seminar Paper

Discipline of Study: Wirtschaftsinformatik

Semester: HS2012

Author: Sonika Coomar

Weberm�hle 16 - 495

CH-5432 Neuenhof

Telephone: 056 406 0221

E-Mail: [email protected]

Matrikel #: 12-730-354

Submission Date: 22.01.2013

Table of Contents

1. Introduction 3

2. The Perception of Globalisation in the World Economy 5

2.1 The Economic Impact of Location and Distance 6

2.2 Changes in Trade and the Organisational Structure 7

2.3 A Potential for Growth with Challenges 9

3. Impacts of Globalisation on National Economies 10

3.1 Employment in Developing Countries 10

3.2 Globalisation and Poverty Mitigation 11

4. The Costs and Benefits of Globalisation 12

4.1 The Benefits of Competition 13

4.2 Potential Conflicts and the Costs of Globalisation 13

4.3 The Sovereignty and Legitimacy of the Nation States 14

5. Second Thoughts - Curtailing from Globalisation 16

5.1 Alternatives for a �Better� Globalised World 16

5.2 The Concerns of the Developed Nations 17

6. Conclusion 18

7. Works Cited 20

8. Eidesstattliche Erkl�rung 23

1. Introduction

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According to Joseph Stiglitz, Nobel Prize winning economist, globalisation can be defined as follows:

"(�) is the closer integration of the countries and peoples of the world ...brought about by the enormous reduction of costs of transportation and communication, and the breaking down of artificial barriers to the flows of goods, services, capital, knowledge, and people across borders" (Stiglitz, 2002, pp. ix).

If we look at today�s world we see that it is progressively getting more united both politically and socio-economically. The concept of economic globalisation or just globalisation is incorporating the whole world and we see an increasing adjustment of the world financial markets, production and consumption with a simultaneous homogenization of culture worldwide. If we look back in history, we can see that the globalisation of the world economy has been especially noticeable and distinct after World War II and the Great Depression of the 1930�s in the USA.

Theoretically speaking, when we look at globalisation from the economic point of view, it is the integration of labour wages, product prices, interest rates and rates of profit toward developed country standards. Some of the key issues of globalisation are the rise in the volume of trade between the developed and the developing countries, rise in cross-border transactions, increase in immigration and allocation of technology. On the other hand, globalisation has its downsides as well. Some examples are erosion of sovereignty, the lodging and integration of a large number of immigrants to the developed countries of Europe and the United States etc., which has led to the arrival of cross-culture, inequality in the worldwide distribution of income and environmental degradation. However, even with all the negative effects, globalisation has some desirable outcome which would have been a challenge to achieve otherwise. For example, the reduction of political and economic barriers to different countries, have ensured companies worldwide can reap the advantages of economies of scale by hiring in cheap labour and raw materials which are not produced domestically. China is a prime example in this case. The country has reduced its tariff rate to about 13% at present after its admission to the World Trade Organization (WTO) in 2001 (EconomyWatch.com).

Furthermore, globalisation has led to increase in production capacity of different companies across the world which now supplies to consumers worldwide. Large quantities of flow of goods and services from the developed to the developing countries and vice versa have made Indian textiles and Chinese electronic goods more popular across the world. The economic globalisation allows people to gain from comparative advantage which has led countries to produce goods in which they are most efficient in terms of lowest production costs. This in turn has led to increased volumes of world output. However, the formation of Multi-National Companies (MNC�s) or Trans National Companies (TNC�s) is a controversial characteristic of globalisation. The reason for this is that when big companies of the developed world opened their businesses in the less developed countries, on one hand they have allowed transfers of improved technologies to these developing countries but at the same time these businesses have also led to exploitation of workers of the third world (EconomyWatch.com).

Continuing, if we look at the environmental effects due to globalisation we can see that more industrialisation and movement of goods and services across the world has produced large quantities of greenhouse gases which have resulted in environmental degradation. With globalisation, ecological concerns such as climatic changes, global warming and excessive fishing of oceans can be addressed jointly and effectively by all the nations. So this means that globalisation can not only be used economically but it could also be used to save the environment. As a result, economic and social integration can promote international peace and harmony among nations as countries might stop pointing fingers at each other trying to make the other responsible for environmental degradation. That being said, the process of globalisation could also have an eccentric outcome where English might be replaced by �Chinglish� (China-English) or �Spanglish� (Spanish-English) and Chicken Curry and Rice may become the primary diet of Britain (EconomyWatch.com). As Prof. Intriligator of the Milken Institute mentioned:

�Globalisation is a powerful real aspect of the new world system, and it represents one of the most influential forces in determining the future course of the planet. It has manifold dimensions: economic, political, security, environmental, health, social, cultural and others� (Intriligator, 2004, pp. 485).

This seminar paper will focus on the concept of "globalisation" as applied to the world economy. Previously it has been mentioned that the term and concept of �globalisation� is not a new one. However, over the years globalisation has had different interpretations to different people around the world. Because of these interpretations it does not come as a surprise that there are some substantially different reactions to "globalisation". For example, some policymakers, scholars, and activists see "globalisation" as the force for advancing the world economy while others see it as a serious danger to the world economic system. The purpose of this paper is to explore three things. Firstly, the perception of "globalisation" as applied to the world economy. Secondly, to evaluate the potential costs and benefits of globalisation and thirdly, to investigate how the dangers curtailing from globalisation could counterbalance through wider international cooperation and the development of new global institutions.

This paper will show some of the positive and negative aspects of globalisation in a nutshell. Some of its positive features emerge from the effects of competition that globalisation necessitates. Conversely, the negative aspects resulting from these competitions could potentially lead to conflicts that could be balanced out by mutual cooperation through agreements on policy or through the development of new international institutions. This paper aims to show that while globalisation can cause international conflicts, it can also contribute to their repression through the advantageous effects of competition and the potential for global cooperation to treat economic and other coercions facing the planet such as the environment.

2. The Perception of Globalisation in the World Economy

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Globalisation is a term that has been in use ever since early 20th century. Over the years the term became an increasingly protruding feature of economic, social and political dialogues. At some point not only was this term used within the academic community, but also became popular in the press and in the world of policy making. However no matter how popular the term became, it is anything but straightforward. As the popularity of globalisation grew so did its debates and definitions about how to characterize globalisation. Gradually, there came a point where everyone decided to agree that they live in a �globalised� world. None the less, an agreement may have been met, but the views on globalisation and whether it is a trend for the good or worse exists even today. For example, the ones on the neoliberal right could be considered to be pro-globalisation for the most part. They claim that globalisation has opened up markets across the world that has helped spread opportunity and wealth across nations. They also argue that the intensification of competition through globalisation stimulates innovation and productivity. Conversely, people on the political left could be claimed to be against globalisation as they argue that the concept is only in the interest of global corporations and nation states. They argue that it is a process controlled by global corporations that have become more powerful than nation states. They also dispute that globalisation increases inequality within developed economies and weakens the ability of the world�s poorer nations to improve social welfare or protect their natural environment (Christopherson et al., 2008). Moreover one of the most questioned aspects of globalisation is about its geographies and in particular whether globalisation is rendering the significance of location and place redundant and irrelevant.

2.1 The Economic Impact of Location and Distance

Thomas Friedman�s recent assertion about consequences of globalisation in �The World is Flat� (Friedman, 2006) could be considered to be one of the most provocative yet vivid claims about globalisation. In this book he claims that the communication technology revolution, the deregulation of markets by states and the increasing economic combination have contributed to a �marked time�space density� of economic processes. Because of this, Friedman claims that there is no longer any �friction of distance� in economic relationships (Christopherson et al., 2008). Furthermore, in The World is Flat, Friedman identifies 10 structural changes or, rather as he calls it the 10 flatteners (see Table 1) in the world economy that have all come into play over the past two decades.

Friedman claims that these changes that have been driven by the revolution in information and communications technologies will guarantee that globalisation will have a �flattening� impact on the world economy in the years to come. Hence it could be interpreted that based on Friedman�s �flat world� theory, a global information-communications platform exists that connects users anywhere, irrespective of their location and surpasses distance, location and geography altogether. However, assuming that Friedman�s �flat world� theory is correct in terms of information and communications technologies it definitely does not mean that the global economy is becoming a flatter landscape as well (Christopherson et al., 2008). The closest Friedman comes to acknowledging this is when he admits that:

�(�) not everyone has access to this new platform, this new playing field�.When I say the world is being flattened, I don�t mean we are all becoming equal. What I do mean is that more people in more places now have the power to access the flat world platform�to connect, compete, collaborate� (Friedman, 2006, pp.205-206).

If we move away from technology, it can be seen that globalisation resulted in bigger openness in the international economy which resulted in the integration of markets on a worldwide basis and also toward a borderless world. All of these have led to increases in global flows. Technological advances have significantly lowered the costs of transportation and communication. Furthermore, it has also lowered the costs of data processing and information storage and retrieval. Trade liberalisation and other forms of economic liberalisation that have led to decreases in trade protection and to a more liberal world trading system have also been possible because of globalisation. After the General Agreement on Tariffs and Trade (GATT) was made that has evolved into the World Trade Organization (WTO), there have been significant reductions in tariffs and other barriers to trade in goods and services. Other aspects of liberalization through globalisation have led to increases in the movement of capital and other factors of production (Intriligator, 2004).

2.2 Changes in Trade and the Organisational Structure

Changes have occurred in institutions due to globalisation, where organisations have a wider reach, due to technological advances and to the more wide-ranging horizons of their managers, which have been empowered by advances in communications. Without globalisation this would not have been possible. For example, corporations that were mainly focused on local markets have extended their range in terms of markets and production facilities to a national, multinational, or even global reach.

Furthermore, globalisation have led to changes in the industrial structure which in turn has led to increases in the power, productivity and profits of those firms that have the capacity to choose among many nations for their sources of materials, production facilities. Markets, are quickly adjusting to changing market conditions. However, if one looks in more closely, it can be seen that almost every major national or international organization and enterprise has such a structure or relies on subsidiaries or strategic alliances to obtain a comparable degree of influence and flexibility. Almost a third of total international trade now occurs solely within these multinational enterprises (Intriligator, 2004). Overtime, as the global firms, continued to grow, the international conflict has, to some degree, moved from the nations to these firms. The competition changed and the battle is no longer among nations over territory but rather among firms over their share of world markets. Some see these global firms as a threat to the scope and autonomy of the state, but as Prof. Michael D. Intriligator of UCLA puts it, while these firms are powerful, the nation state still preserves its traditional and dominant role in the world economic and political system. Even then, multinational enterprises and other such public and private organisations have become the central agents of the new international globalised economy that we have today.

Furthermore, globalisation has been the global agreement on ideology, with a merging of beliefs in the value of a market economy and a free trading system. It can be argued that the former division between market economies in the West and socialist economies in the East have been replaced by a near-universal reliance on the market system. This was done through the merging of ideology after the political and economic changes in China�s 1978 reforms and the series of revolutions in Eastern and Central Europe starting in 1989 that ended with the dissolution of the Soviet Union in December 1991. This merging of beliefs in the value of a market economy which was possible through globalisation has led to a world that is no longer divided into market-oriented and socialist economies. A major aspect of this conjunction of beliefs is the attempt of the former socialist states to make a shift to a market economy.

Unfortunately, if we look into the former Soviet Union and in Eastern and Central European Countries, it can be seen that these attempted transactions have not necessarily been a total success. Going back to Prof. Intriligator�s view on this issue he says,

�The nations involved and their supporters in international organizations and advanced western market economies have tended to focus on a three-part agenda for transition, involving: 1) stabilization of the macroeconomy, 2) liberalization of prices, and 3) privatization of state-owned enterprise. Unfortunately, this �SLP� agenda fails to appreciate the importance of building market institutions, establishing competition and providing for an appropriate role for the government in a modern mixed economy� (Intriligator, 2004, pp. 5).

However, globalisation has not been established based on trading and multinational corporations only. It has also included cultural developments which have led to globalised and homogenized media, the arts, popular culture and the widespread use of the English language for global communication. Because of these cultural development some countries, especially in Continental Europe see globalisation as a try at American cultural as well as economic and political control. Hence in their eyes, globalisation is seen as a new form of imperialism or as a new stage of capitalism in the age of electronics. Other countries see globalisation as a new form of colonialism, where the United States is the new �dominant� power and most of the rest of the world is its colonies and the world supplies the United States not only with raw materials and markets on a global basis, but also with technology, production facilities, labour, capital, and other inputs which contribute to the production process (Intriligator, 2004).

2.3 A Potential for Growth with Challenges

Based on the facts mentioned in the previous sections, what needs to be noted is that no matter whether globalisation is seen as a positive or negative development, it is imperative to note that the concept and idea of globalisation has clearly changed the world system and like any other system it poses both opportunities and challenges. The technological, institutional, ideological, policy and cultural developments that have led to globalisation are still very active. Therefore, without a drastic approach in a different direction, these trends which will lead towards greater globalisation will likely continue or even accelerate in the future.

Furthermore, it is to be noted that these trends will not only accelerate globalisation, but they will also result in the growth of international trade in services. The growth has already increased substantially but has the potential of even greater growth in the future, especially in the areas such as telecommunications and financial services. As this growth will continue, there will be a more open and a more integrated world as it moves closer and closer to a planet without borders and to a more unified, open, and reliant world economy. Globalisation will allow greater worldwide flows of goods, services, money, capital, technology, people, information and ideas (Intriligator, 2004).

3. Impacts of Globalisation on National Economies

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Globalisation has had significant impacts on all economies of the world, with multiple effects. Among other things, one of the main areas that were affected is production of goods and services. Globalisation also affected the employment of labour and other inputs into the production process. Furthermore, it affected investment, both in physical capital and in human capital as well. Also, it affected technology and results in the dispersion of technology from introducing nations to other nations. Finally, globalisation has had major effects on efficiency, productivity and competitiveness around the world. While certain countries like the United States have managed to flourish due to globalisation, it can be argued that the less developed countries have not been so lucky. This section will primarily focus on the impacts of globalisation on some of the less developed countries.

3.1 Employment in Developing Countries

As seen in the previous sections, decreasing transportation costs and the distribution of information and communication technologies have considerably relativized the concept of "distance". At the same time gross trade, foreign direct investment (FDI), capital flows and technology transfers have increased significantly. However, in most countries especially the developing ones, the current wave of globalisation has been accompanied by increasing concern about its impact in terms of employment and income distribution (Lee et al., 2006).

If we take the theory of comparative advantage into account, then both trade and FDI should take advantage of the richness of labour in developing countries and thereby activate a trend of specialization in domestic labour intensive activities which would eventually lead to a growth in local employment. Yet as many studies have shown, that is not necessarily the case. As Kathuria�s work indicated, in a developing country, the final employment impact of increasing trade depends on the interaction between productivity growth and output growth both in traded-goods sectors and in non-traded sectors. The final result cannot be calculated a priori for various reasons (Kathuria, 2001). What this means is that export in developing countries may involve demand-led economic and employment growth. However, imports may relocate previously protected domestic firms which would then result in unemployment. Moreover, one needs to keep the presence of supply constraints in the developing countries in mind. Due to the lack of infrastructure, scarcity of skilled labour, under-investment and labour market inefficiencies, the productivity growth may exceed output growth even in the exporting sectors, which is nothing but a disadvantage for job creation. Finally, sheltered sectors of the domestic economy which include agriculture, public administration, construction and non-traded services may act as labour sinks, but are often inferring to hidden unemployment and underemployment in the informal labour market (Lee et al., 2006).

3.2 Globalisation and Poverty Mitigation

Theoretically speaking, trade and FDI are supposed to be beneficial to the economic growth of developing countries. However, if that was the case and if we took the expected overall neutrality of trade and FDI�s impact on income distribution, then globalisation should help to reduce poverty. Undeniably, most developing countries have experienced a significant reduction in the proportion of their population living below the poverty line, particularly fast-globalising countries like China, India, and Vietnam. On the other hand, many slow globalisers in sub-Saharan Africa have displayed the opposite trend (Collier et al., 2003; Rodriguez, 1999). The exceptional growth of China has been possible because of globalisation. However, on the other hand absolute poverty has increased in sub-Saharan Africa and relative poverty (inequality) has increased in the majority of countries (Milanovic 2002; Reddy, 2006).

Globalisation deeply influences a variety of factors. Lee et al. list them as:

�Labour productivity which may imply higher wages on the one hand but job losses on the other. The demand for skills, with a possible dismissal of low-skilled people concentrated below the poverty line. The need for macroeconomic stability - since stability implies low inflation, trade should affect the poor positively because the poor tend to be the hardest hit by increasing inflation. Tough liberalization may also involve cautious and restrictive macroeconomic policies with the opposite effect. Relative prices, with possible adverse or positive effects on the purchasing power of poor households depending on the focus of tariffs reductions and changes in the terms of trade. The relative competitiveness of domestic firms (possibly crowded out by more efficient multinationals), government revenues and expenditures, etc.� (Lee et al., 2006, pp. 176)

Generally speaking, indeed globalisation supports economic growth and in turn economic growth aids poverty reduction. However it is important to note that the poverty reduction does not occur unconditionally. At the end poverty reduction can actually be either increased or reduced by the accompanying economic factors and policies which come into play. Dollar and Kraay (2001a and 2001b) argue that there is no assurance that the relationship between globalisation and poverty alleviation has a one-to-one nature as implied. They say that �trade is good for growth, growth is good for the poor and so trade is good for the poor� In their research they show that show that the incomes of the poor rise proportionally with average incomes and that globalisation does not have any systematic effect on domestic income distribution and thereby concluding that �growth is good for the poor�.

If we look at the big picture, it can be argued that the level of economic and human development does matter in determining the direction and the impact of the current wave of globalisation. For example, a developing country's physical infrastructure and human resource grants play a critical part in maximizing the positive employment and distributional effects of increasing trade and FDI in that country. On the other hand, blockages in the supply of educated and skilled labour and in public and private investments may doom a country to marginalization, exploitation and high levels of domestic unemployment and income inequality (Lee et al., 2006).

4. The Costs and Benefits of Globalisation ________________________________________

In the previous sections it has been noted that globalisation has both positive and negative effects. Globalisation has led to growing competition on a global basis. On one hand competition can have negative effects but at the same time it can lead to an increase in production and efficiency.

4.1 The Benefits of Competition

The competition that occurs due to globalisation can lead to the widening of markets which can then lead to specialisation and the division of labour. Increases in production, now exist not just in a nation but also on a worldwide basis. Moreover, economies of scale and scope that can potentially lead to reductions in costs and prices and are conducive to continuing economic growth are also additional benefits which have happened due to globalisation. Globalisation has also resulted in increased productivity as a result of the rationalisation of production on a global scale. It has spread technology and competitive pressures for continual innovation on a worldwide basis. The advantageous effects of competition through globalisation demonstrate its potential value in improving the position of all parties, with increased output and higher real wage levels and living standards. The result is a potential for greater human well-being throughout the world. However, as discussed before, there is the distributional and equity issue of who does in fact gain from these potential benefits of globalisation.

4.2 Potential Conflicts and the Costs of Globalisation

Along with the benefits, globalisation also comes with its conflicts not only nationally but also internationally. One of the most debated conflicts is who gains from its potential benefits of globalisation. Many studies and the previous sections in this paper have shown that there can be considerable equity problems in the distribution of the gains from globalisation among individuals, organizations, nations, and regions. It is no secret that many of the gains have been going to the rich nations or individuals. This has been creating greater inequalities and has been leading to potential conflicts nationally and internationally. Currently, there is a possibility of convergence of incomes globally based on the observation that the poor nations are growing at a faster rate than rich nations. However, according to the data found in the World Bank, in reality only a small number of nations, the so called "tiger economies" of East Asia, have been growing at rapid rates. On the other hand, the least developed nations of Africa, Asia, and South and Central America have been growing at a slower rate than the rich nations and hence they are becoming increasingly marginalized. According to Prof. Intriligator:

�The result has been not a convergence but rather a divergence or polarization of incomes worldwide, with the rapid-growth economies joining the rich nations, but with the poor nations slipping even further behind� (Intriligator, 2004, pp. 9).

Therefore, the increasing disparity eventually leads to dissatisfaction and possibly international conflicts as poor nations try to join the club of rich nations. At the end it is the poor nations who struggle with the rich nations for their share of world output. Conclusively, globalisation faces one of its biggest challenges through the distribution inequality. Eventually, the inequality of distribution can possibly lead to local or global instabilities which arise from the interdependencies of economies around the world because there is always the probability that local economic fluctuations or crises in one nation could have regional or even global impacts. A vivid real life example of this is the financial crisis in the United States in 2008 and the collapse of the Euro in 2011 which affected the global economy in a very large scale where two years later various countries are still trying to recover. Based on this, it can be concluded that the linkages that occur through globalisation and the potential instabilities indicate great potential mutual susceptibility of interconnected economies. As history has shown in the 1930s during the Great Depression with competitive devaluations, escalating tariffs and various types of protectionism, a worldwide recession or depression could result in breaking the interdependencies that have been formed through the globalisation process. Such economic conflict could lead to economic warfare and possibly even to military conflict, and we would be repeating the history of the interwar period of the 1930s that led to the largest war in human history (Intriligator, 2004).

4.3 The Sovereignty and Legitimacy of the Nation States

Various economists including Stiglitz have argued that globalisation have resulted in the control of national economies to shift from sovereign governments to other entities, including the most powerful nation states, multinational or global firms, and international organizations.

This means that the national sovereignty of certain nations is being undermined by the forces of globalisation which in turn could lead to a belief among national leaders that they are helplessly in the grip of global forces. The danger here is that an attitude of disaffection among the people could occur and as a consequence extreme nationalism and xenophobia, combined with protectionism could arise. Eventually the growth of extremist or fundamentalist political movements would lead to nothing but potential conflicts. Therefore, it is important to note that the economic aspects are not the only things that contribute towards the positive and negative sides of globalisation. The noneconomic impacts of globalisation can be just as catastrophic as the economic impacts (Dean, 1998).

It is a known fact that globalisation has led to a significant rise of multinational corporations. Many economists argue that this has damaged the ability of states to manage their own economies. Because the Multinational Corporations have integrated national economies into global networks, the nation states no longer have total control over their economies. Corporations such as Standard & Poors, are admired but also feared by nation states for their immense power. Coca-Cola, exert great global power and authority as they effectively 'place a claim' on the host nation state (Rushbrook). Moreover, trade blocs, such as NAFTA, reduce nation state's management over their economy. The World Trade Organisation and the International Monetary Fund have a huge impact on a nations' economy, therefore weakening its security and independence (Dean, 1998).

Generally speaking, globalisation has diminished the nation state's ability to manage its economy. The neoliberal agenda has provided nation states with a new, minimalist role. It could be argued that nation states have little choice but to give away their independence to the demands of globalisation, as a ruthless, competitive environment has now been formed because of globalisation. Furthermore, it can also be argued that the strong, efficient nation states help 'shape' globalisation. Some believe nation states are 'pivotal institutions' and argue that globalisation has not led to a reduction in nation state power but has altered the situation under which the nation state power is executed (Held and McGrew, 1999).

Therefore, it could be argued that the nation states� power is diminishing in order to manage their economy due to the effects of globalisation. But, the next question that one could ask is at what point in time has a nation state has ever been totally economically independent. There is no straight cut answer to this but as Held and McGrew argue globalisation has not lessened the power of nation states but changed the conditions under which their power is executed (Held and McGrew, 1999).

"The process of globalisation, in the form of both the internationalisation of capital and the growth of global and regionalised forms of spatial governance, challenge the ability of the nation-state effectively to practise its claim to a sovereign monopoly" (Gregory et al., 2000, pp. 535).

Indeed it is the increased powers of multinational corporations that defy the nation state's power. Conclusively, even if most people believe that the nation state's power has diminished, it is still incorrect to state that the nation state's power no longer has an influence over the impacts of globalisation (Rushbrook).

5. Second Thoughts - Curtailing from Globalisation________________________________________

Globalisation could be argued to be not necessarily the best solution but it is not the worst either. Some economists have been blamed for playing down the costs of global integration, while nationalists deny its benefits. However, if nations are having second thoughts about globalisations, would curtailing from it be the optimal solution or is there a compromise in the middle ground? Economists mostly pour over the statistical link between trade and wages, but what about the broader effects of trade on labour markets.

If we are obsessed with the idea that globalisation threatens the social contract in rich countries, at the end of the day, both rich and poor countries stand to benefit enormously from trade regardless of the kind. Without trade the entire global economy will come to a halt. Hence even of nations are having second thoughts about globalisation, curtailing from it may not be the best solution. The question in the rich world should not be whether there are gains to be made because clearly there are and whether some people will lose which they will, but how the gains from trade are shared out. For example, how did the Americans and Europeans decide on trade-union rights, prohibitions on child labour and so forth as �fair�, if not by getting rich enough to afford them? We live in a capitalistic world and not in a charitable society. If the world did not trade, perhaps the most important source of growth in poorer countries would diminish. As a result the workers in developing countries would never be on the same decision making platform like the Americans or the Europeans. If we pay too much attention to rich-world worries regarding the differences in social norms, we may run into the risk of preserving them at all (�Second Thoughts about Globalisation�).

5.1 Alternatives for a �Better� Globalised World

Clearly, at this point it can be concluded that nations cannot necessarily live without globalisation. However, an alternative to curtailing from globalisation could be to limit the costs of globalisation. As Rodrik suggests, broadening the World Trade Organisation's rules on �safeguards� against sudden surges in imports may be a step towards a �better� globalised world. In his proposal he suggests that countries should be allowed to impose protection if there is a �broad domestic support� that imports are causing social disruption too. Such a support would be judged by convincing a country to gather testimony from all relevant parties (Rodrik, 1997). However, while this may be a solution, there is always the danger of abuse and whether the consumers' voices can really be heard above producers' cries for help.

Furthermore, if we take global tax on physical capital into account which is intended to reduce the international mobility of employers that would ultimately make investment less profitable, it would do nothing but harm economic growth. If this is the situation, then the question needs to be asked that why poor countries, which need foreign direct investment should sign up.

5.2 The Concerns of the Developed Nations

With the rise of China and India, the developing countries are not the only ones who are having second thoughts about globalisation. Developed nations are questioning whether globalisation has gone too far. One of the main concerns that the current economic superpowers have is about control of oil and other resources being exhausted by China's demand. However, this may be a concern but as Mark Thirlwell, head of economics at the Lowy Institute says (Thirlwell, 2007):

"Globalisation did what it was supposed to do - what it said on the tin if you like - and what it did was, we told developing countries if you integrated, if you do trade liberalisation, you let in foreign capital, you tie into global markets, it's going to make you richer, it's going to make you bigger and more successful economies. That's exactly what it's done, but the economies in the rich world are turning around and thinking, 'well, we sort of knew it was going to do this, but we didn't know it was going to do this quite so successfully - and wait a minute, this is having some unforeseen implications that maybe we're not that comfortable with'" (Ryan, 2007, para. 5)

At this point, there could be a risk of a return to isolationist policies from the US and Europe. Ironically, the policymakers in the developed world have spent years preaching to the developing countries that the path to greater prosperity lay in closer integration with world markets. It has been two decades during which policymakers in the developed world have largely pursued pro-globalisation policies. Currently there is a growing probability that the policy pendulum may be beginning to swing in the other direction. It could be argued that the main reason for this change is that voters, and politicians, in some of the world�s leading economies are having second thoughts about globalisation. As Thirlwell puts it, they are frightened by globalisation�s success in creating new economic and geopolitical challengers (like India and China) and they are uncomfortable by a rise in inequality and by the apparent competitive pressures arising from trade with low income developing countries. Energy security and environmental are two additional items which add to their list of concerns As a result, there is a growing pressure for policymakers to act, not necessarily to reverse the process of international economic integration, but to moderate it or reshape it to deal with some of its consequences. The swing of the policy pendulum is certainly not a done deal, but the odds of such a move are on the rise (Thirlwell, 2007, pp.47).

6. Conclusion

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According to Rodrik, globalisation is not occurring in a vacuum. It is just part of a broader trend that we may call marketization. Even with retreating governments, deregulations, and the withdrawal of social obligations, at the end they are the domestic counterparts of the interlinking of national economies. Globalisation could not have advanced this far without these complementary forces. The bigger challenge for the 21st century is to find a new balance between market and society, one that will endure to release the creative drives of private entrepreneurship without corroding the social basis of cooperation (Rodrik, 1997).

Granted that there are tensions between globalisation and social cohesion and no one expects them to disappear on their own because there is no magic formula which can be applied for that. The global challenge is that some of the basic analytical and empirical work on the consequences of globalisation remains to be done. And for that to happen, we need the full understanding of how globalisation works which most of us do not have (Rodrik, 1997).

"What is actually required to make progress with novel problems a society encounters, is political entrepreneurship, imagination, patience here, impatience there, and other varieties of virtu and fortuna" (Hirshman, 1994, pp.25).

To actually overcome the challenges of globalisation and increase it benefits, the society needs the list given by Albert Hirshman and a large quantity of pragmatism.