Table of Contents
- Introduction 3
- Background 4
- Globalization Controversies 5
3.1. Globalization and environmental sustainability controversy 6
3.1.1. Bhopal Gas Tragedy Case Study 8
3.2.Globalization, Multinationals, Culture and 10
Small Businesses Controversy
3.2.1. McDonalds Globalization Case Study 12
4.0. Conclusion 13
5.0. References 14
6.0. Appendix 15
Since the fall of the Breton- Woods in the mid seventies, global economies have taken a path of interdependence, liberalization, deregulation and modernization. There has been a rapid internalization of markets across the world accentuated by the development of international regimes that have assumed powers to make and enforce rules of trade. This phenomenon is what many economists and international relations specialists refer to as globalization. From an international relations perspective, globalization is process of fast global change which has an effect on all parts of the world, with the effects being felt in sectors like the economy, politics, media and technology. These changes have occurred as a result of the increased interconnectivity of people across the world. Globalization can also be seen as a process that widens, deepens and speeds up the interconnectedness in every aspect of modern life all over the world. There has bee a long standing debate about the consequences of globalisation. Some people feel that globalisation has done more harm than good in the world while others believe otherwise. In many cities across the world, there have been both peaceful and violent confrontations between the supporters of anti globalisation movement and those who support the expansion of the worldwide marketplace. Though increased cross border flow of people, goods, ideas and capital has created economic growth, anti globalisation crusaders believe that globalisation has only benefited the developed countries while the developing ones have been exploited and left struggling. They also feel that globalisation is a capitalistic tool used by the transnational corporations and fiscal institutions to gain control of the weak nation states, thus abusing their sovereignty. This paper will focus on the controversies that have marred the process of globalisation. It will use two case studies to reinforce the theories explored in the research.
Globalization is one of the most common buzzwords of the 21st century. It refers to a process of integration and interaction among people, nations and businesses. Globalization can also be seen as a process that widens, deepens and speeds up the interconnectedness in every aspect of modern life all over the world. Globalization affects all aspects of social life from the cultural to the financial. Political Science analyst, Anthony Giddens defines globalization as the intensification of the social relations across the world (Baghmati, 2005). These intensifications link far flung localities in a manner in which events in those localities are shaped by things happening thousands of miles away. Jan Aart Schulte, an international economics scholar suggests that globalization is synonymous with internationalization and the term is used to describe the cross-border activities that take place between different nations (Nels, 2005). He also asserts that the term is synonymous with liberalization. Liberalization is a process that removes sanctions imposed by governments on movement between different states. According to Schulte, liberalization creates an open and borderless global economy, free of bureaucratic restrictions. He also equates globalization with universalisation, a process of spreading things and ideas to the entire world without limit. Schulte also asserts that globalization is synonymous with westernization and modernization (Noels, 2005). This definition denotes the influence of the western world especially united states of America on the rest of the world because the concept of globalization rose from the western world. From a geographical perspective, globalization entails a reconfiguration of geography in way that social space is not mapped in terms of territorial distances, spaces, borders and places any more.
It is a process that is driven by investment and international trade. It is catalyzed by advents in information technology. Globalization has affected political, social, environmental, economic and cultural structures positively and negatively around the world (Noels, 2005). Though globalization is not a new phenomenon, it has gained momentum in the summative years of the 20th century and the 21st century. The current wave of globalization can be attributed to policies that have opened up global economies.
During the past two decades, most countries in the world have moved towards free market economies. This has increased the production potential of many countries vastly. Also it has created many opportunities for international investment and trade. Barriers to trade and commerce have also reduced due to the sweeping wave of globalization. International agreements aimed at promoting trade have also increased. To take advantage of the new opportunities that have been created by globalization, corporations have started operating in multiple countries (Noels, 2005). They have built factories, production plants and distributorships in foreign countries. Also, they have made marketing arrangements with partners in foreign countries.
Apart from free market policies, technological revolution has been another driver of globalization. Technological advances have made transformations in the economic life. This revolution has given economic actors at all levels valuable tools for pursuing and identifying economic opportunities. They have also provided faster platforms of analyzing economic trends around the word, for easy asset transfer and for collaboration with partners allover the world.
Despite its attractiveness, globalization has remained one f the most controversial issues in the world. Proponents and opponents of globalization have always given contrasting view points about globalization. Opponents of globalization have held protests in many places around the world, condemning the practice as exploitative and an element of western hegemony. They claim that globalization, benefits the developed countries which are enabled by the process to exploit the poor countries (Mohamed, 2009). They claim that multinationals from developed countries, use the free market conditions created by globalization to set their bases in developing countries where they exploit cheap labor and resources. On the other hand proponents of globalization assert that poor countries benefit more from globalization because it helps these countries to develop economically and improve the living standards of the people in those countries. This controversy has heightened resistance at both popular and governmental levels as both the governments and the people try to manage the flow of goods, ideas, capital and labor, due to the wave of globalization (Noels, 2005). This paper will investigate the controversies surrounding globalization using two case studies of international companies.
Globalization and Environmental Sustainability Controversy
One of the controversies regarding globalization is its impact on environmental sustainability. Proponents of globalization assert that the process has been responsible for creation and exporting of technologies that use few natural resources (Baghmati, 2005). The use of these technologies has reduced the harm on environment. However, opponents of globalization view it as the most environmentally unsustainable practices in the world. They claim that the harms globalization does onto the environment far outnumber the gains the environment makes from globalization.
Opponents of globalization assert that globalization enhances more consumption through marketing of more goods to more people. This creates artificial needed that utilize more natural resources. Opponents of the process still argue that globalization encourages countries to specialize in certain products so as to take advantage of the economies of scale. This creates scarcities and surpluses at the same time leading to a less than perfect utilization of resources. Globalization has increased global travel by workers seeking jobs. Employees of multinational organizations also travel widely. According to the opponents of globalization, these travelers utilize a lot of fossil fuels that contribute to global warming. Globalization encourages transport of raw materials using resources which are not renewable (Steger, 2002). The rapid spread of factories and production plants across the world has increased the use of infrastructure, which exploits substances from the earth. These factories also degrade the environments through their emissions, according to the opponents of globalization; there are some multinational corporations who have shifted their operations to the poor countries, after being lured by the lenient safety and environmental regulations. They take this advantage to deplete the environment in poor countries. The Bhopal gas tragedy is a classic example of an environmental disaster caused by a corporation that adopted safety standards that were lower than the standards in the corporation’s home country
Case Study: Union Carbide and the Bhopal Gas Tragedy
The Bhopal Gas Tragedy epitomizes the controversy surrounding the issue of globalization. It signifies the failure by the legal systems and international agencies to address the challenges of a globalised world. The Bhopal’s disaster is a product of the wave of globalization. The multi national company involved in this disaster was Union Carbide. The Bhopal gas tragedy occurred on December 3 1984, in Bhopal India after a gas leak incident, considered to be one of the worst industrial disasters in the world (Cassel, 2003). Union Carbide India Limited, an Indian subsidiary of global pesticide manufacturer, Union Carbide Corporation exposed dangerous gases accidentally to more than half a million people in that Indian district leading to over 3,500 instant deaths and more than 20,000 subsequent deaths. There were more than 500,000 permanent and temporary injuries suffered by the affected people.
What is the relationship between this tragedy and globalization? Union Carbide Corporation is an American multinational that has subsidiaries in different parts of the world. Globalization has created a free market economy that has enabled multinationals to establish themselves freely across the world. Multinationals prefer setting factories and production plants in poor and developing countries because of several factors. First, the regulatory environment in these countries is not strict. Even in cases where the regulations are strict, these companies can bribe the ruling elite so that they can have their own special regulatory standards. Secondly, the cost of raw materials in these countries is cheap. Therefore, the multinationals go there to exploit natural resources. Thirdly, labor is cheap in developing countries. The multinationals can have its employees working for many hours under poor working conditions and at very low wages (Noels,2005). This enables them to save a lot of money, unlike in their mother countries where strict environmental and labor regulations make sure that these multinationals spend a lot of money to fulfill them.
The cost saving strategies that Union Carbide (India) adopted within a globalised context chiefly contributed to this environmental disaster. First, the company used to switch of several safety systems to save on costs. Due to limited industrial inspection in India, the production plants were poorly maintained (Kitching, 2001). Secondly, the company set it plants in a highly populated area. Such companies dealing with dangerous chemicals are not supposed to be set in highly populated areas. However, to save on costs, the company got cheap land near a slum and set up a factory. Lax regulations on establishment of factories in India encouraged the company to set base in such a dangerous environment.
To make further cuts on costs, the company halved the number of its supervisory staff. There were no night shift supervisors. Similarly, instrument readings at night would be made after two hours instead of the recommended one hour due to lack of manpower to carry out that role. At a certain point before the disaster, an employee was fired for sticking to the internationally recommended safety regulations that were being ignored by the management. Sticking to the recommended safety regulations would be costly to the management. Increased compromise on safety standards ultimately led to this magnanimous disaster which had far reaching implications on the lives of Indians and the environment. Opponents of globalization argue that without the free market economic environment created by globalization, Bhopal tragedy would not have happened. First, they argue that Union Carbide would not have set its plants in India. Without a free market economy, international expansion of multinationals would be limited due to the existence of expensive barriers. Secondly, globalization encourages putting profit on the frontline and other human and environmental issues on the periphery. Therefore, multinationals move to those countries where they know they can make maximum profits by ignoring safety standards and exploiting cheap labor. This combination of factors encouraged by globalization ultimately led to the Bhopal gas disaster.
Globalization, Multinationals and Local Business Controversy
The second controversy surrounding globalization is its effect on local companies and cultures when multinationals start expanding allover the world. Proponents of globalization argue that globalization and the rise of multinationals have helped to provide consumers with cheap products thus improving their standards of living. Multinational companies enjoy the economies of scale. Due to their outsourcing abilities and scope of operation, they are able provide high volumes of products at reduced prices. This is an advantage to the consumers. However, the opponents of globalization and the multinationals look at the impact of globalization on the small businesses. There is a common story told by opponents of globalization to highlight the impact of the process on the small local businesses “ When Wal-Mart, establishes in a certain town or city, the existing businesses, regardless of their friendly relations with the customers, are brought to their knees because they cannot match the low prices that Wal-Mart gives (Ingram & Lori, 2010). Wal-Mart can sacrifice margins to wipe out the local competitors and still make profits due to its volumes and its sprawling amounts of resources”.
Unlike Wal-Mart, McDonalds, Starbucks and other leading multinationals who have the capacity to forge outsourcing partnerships, small local businesses cannot forge such partnerships. This puts them at a disadvantage especially in terms of pricing. Therefore, the multinationals tend to take advantage of the outsourcing business model to the maximum, so as to provide cheap products. They are able to sell high volumes to offset the low profit each product earns. This easily undercuts local competitors who cannot provide goods in volumes and at lower prices. After killing the competitors, the multinationals go on to raise prices again due to the monopolistic environment they create using their capitalistic business model.
Opponents of globalization claim that such competition created by multinationals can decimate local companies overnight. Destruction of local businesses leads to several implications for a country (Stigliz,2002). First, the death or paralysis of local companies leads to the loss of the local culture. For example, the urban landscape in China is full of Starbucks, MacDonald’s, Wal-Marts, KFCs, Pizza Huts and many other American multinationals. These multinationals have brought American culture to China en-mass, eroding the Chinese culture. This has not happened in China alone, the scenario is the same in Japan, Australia, Malaysia, Brazil , Mexico and many other countries where these multinationals set base. However, proponents of globalization do not agree that multinationals have perpetrated cultural erosion (Mander, 1996). They argue that multinationals always localize their brands with a view of accommodating local tastes. They argue that domestic governments put rules for the multinationals to abide by to ensure that they do not mess with the interests of the local people (Baghmati, 2005). These multinationals take their profits back home. After killing local businesses that support local economy, multinationals enrich their mother countries. This leads to economic stagnation and increased poverty in countries where these multinationals operate since the locals cannot compete with the multinationals in business. Therefore, opponents of globalization feel that globalization has led to imperial capitalism.
Case study: McDonalds and Globalization
American fast food restaurant, McDonald is one of the faces of globalization, alongside, Wal-Mart, Starbucks, KFC and many others. According to Gould,1996, Introduction of McDonalds overseas has led to cultural erosion and crippling of restaurants in foreign countries. McDonalds was the first corporation to export fast foods outside America. Arrival of fast foods changed dietary habits in these nations. McDonalds is present in more than 120 countries around the world. Globalization of this fast food restaurant has raised positive and negative debates. Though pro-globalization scholars argue that McDonalds conforms to the tastes of local cultures in countries where it sets franchises, there is evidence that McDonald has exported American eating cultures worldwide (Bergers,1997). Anti-globalization crusaders on the other hand argue that McDonald introduces non traditional foods into foreign countries leading to loss of values (Derdak, 2005). Foods are cultural symbols of a given community. When communities abandon their foods due to influx of foreign foods, there are adverse effects on the culture that community is trying to uphold. Globally, McDonalds has become a symbol of cultural erosion due to Americanization of diets around the world. McDonalds, which has been accused of spreading obesity across America, is spreading the same condition around the world through globalization, Gould, 1996 argues that nutritionists have had issues with the content of the foods sold by this restaurant. Therefore, globalization of unhealthy eating cultures by McDonalds has not only eroded traditional dietary values, but has also led to prevalence of dietary conditions like obesity around the world (Gould, 1996).
Secondly, the dominance of McDonalds in foreign countries has affected local restaurants. Local restaurants cannot effectively compete with McDonalds. McDonalds can offer a wide variety of foods in high volumes at cheaper prices. This unfair competition practices have impacted negatively on local restaurants, some of which have been forced to close down, while others have been forced to offer different diets to survive the competition. Death of local businesses has an impact on local economy. Collapse of local restaurants due to the arrival of McDonalds has led to increasing rates of unemployment and poverty in the country (Friedman,2005). However, proponents of globalization argue that McDonalds has stimulated economic growth in countries it operates due because it encourages competition within the restaurant industry.
Multinational companies such as Wal-Mart, McDonalds, Starbucks and KFC have become targets of hate, criticism and even violence because they have become faces of globalization, a process that is becoming increasingly controversial (Smith, 2007). During United Nations and World Trade Organization meetings, there have been protests by anti-globalization crusaders who accuse the capitalistic west of engendering poverty, economic inequality and environmental degradation in developing countries through globalization (Glyn, 2006). One of the most notable protest occurred in Vienna, Austria, ahead of a WTO summit. Despite the controversies surrounding the process of globalizations, the gains made through this process cannot be underestimated. The free movement of goods, capital, services, cultures, ideas and labor has led to economic prosperity allover the world. All countries have benefitted from globalization. The main issue is that the developing world feels the developed world has gained more from globalization at their expense.
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