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HOW WILL AFFECT GLOBALIZATION IN THE FUTURE TO ADVANCED COUNTRIES?

ANDREA SELVI HERVS


GEOPOLITICS AND GLOBALIZATION. ARA GROUP

INDEX DEFINING GLOBALIZATION............................................................................................................ 2 STARTS OF GLOBALIZATION .......................................................................................................... 2 PRESENT SITUATION...................................................................................................................... 3 FUTURE EVOLUTION IN ADVANCED COUNTRIES .......................................................................... 3 Foreign investment. .................................................................................................................. 4 TNCS ......................................................................................................................................... 4 Human capital, unemployment and diversification. ................................................................. 5 Higher Inequality. ...................................................................................................................... 6 The welfare State ...................................................................................................................... 6 Resources .................................................................................................................................. 7 Potential superpowers .............................................................................................................. 7 CONCLUSION ................................................................................................................................. 8 Bibliography .................................................................................................................................. 9

DEFINING GLOBALIZATION As we have seen, globalization is a term difficult to define because of its novelty and confusion between it and other existing terms. Here, I want to give my own perspective of the word globalization according to what I read before. Adam Smith in 1776 La riqueza de las Naciones, underlined the advantages of a planetary market without barriers that would make benefits from the work division and the free movement of capital and labor. This assumption laid the basis for the future globalization. For me globalization is much more than the increment of transactions and relations between countries, organisms, and companies. There is a process with more profiles that has converted the world in a network, although not everybody is linked and of course not every issue is global; but this process of connection and shared values has affected in multiple aspects the activity of the whole economy (and much more aspects of life, but Im focusing in the economic approach): the production, the market and the finance. Globalization also determines new ways of production, new strategies and what is more important, the spread of them around the world trough imitation, comparison and learning. In these pages, Im going to talk about how globalization has affected the developed countries until nowadays, in different aspects: tourism, labor, migration, transport, finance etc. Focusing in the changes that it has provoke on them, and then I will try to develop my own vision about what are the expected effects of globalization in a developed country using as example different countries. STARTS OF GLOBALIZATION To talk about globalization lets have a quick look into the past to understand how it will determine our future, that is the central issue of this paper. Globalization starts to be more evident in 90s when the global PIB grew between 3 and 5 % and the international exchange doubled. In Spain, in 1960 exportations represented 8.9 % of PIB and import the 7.4%, the total market represented 16.3% of PIB. Since 1960 Spanish economy started to be more open to the rest of the world in terms of market of goods and services; in 1990 the total market representation in the PIB was 37.5%. But globalization has its base much time before, when the set of innovations in transport and in communication in combination to the industrial revolution and the technology advantages provoke that the world made a big jump. Industries started to be more productive, thanks to the innovations that make them more efficient, and they have surplus, this situation promotes the specialization and the creation of markets to sell

this surplus and to buy what they dont produce; facilitated by the reduction in cost and the evolution of transport. This situation provokes inequality because some countries had the resources needed or best know-how, or best technology or organizationetc. and were more competitive than others. Prices started to converge and world started to be more unified, even the third world has benefited in some ways of the globalization they didnt form part in the same way as the developed ones. An issue that is present still nowadays, and has more relevance with the current crisis, is the protectionism. To avoid the lack of competitiveness in some sectors the government could put some barriers in form of taxes for foreign products, laws and so on. Because a completely free market doesnt exist and some experts said that it will be useful only between countries with similar level of development. When markets and transactions of people, goods and services started to growth, there were necessary to create new institutions to regulate them, in a superior level than the national: OMC, FMI and also the creation of alliances between regions or countries to set advantages or favors between them, in order to have stronger presence in the world or be more competitive as the European Union for example that shares the same currency, some laws and some monetary funds. PRESENT SITUATION This brief comment about the globalization in the past lets us to make an idea of what is our present situation and what could be our future. Globalization promotes the free market, non-barriers and liberty to trade. In this sense, banks are more powerful, finances also turn into more global market and every decision taken in these international markets affects those who participate in it. Its obvious that we are living a worldwide crisis, if we were not a network world maybe the crisis had only affected those countries individually, where the subprime mortgages started, or where the over borrowing has happened; but as we know assets are sell and buy with origin and destination almost any part of the world. But economy is a cycle and there were other crisis before, as the crack of 1929.There are countries more affected by the recession as Spain or Greece in the European Union or United States, and countries that almost didnt notice in comparison, as China. So, knowing these inequalities and taking into account the current situation, what can we expect of globalization in the future? FUTURE EVOLUTION IN ADVANCED COUNTRIES

Foreign investment. In the near future, 25 years forward more or less the situation in the world will change completely. As we know nowadays countries depend on each other, in the future if it is possible this will be more remarkable. Countries as they were in debt and borrow from others will depend on foreign investment more than before to continue growing, and to turn back the money they borrowed. According to this, be a reliable country will be very important for the economy, attract new investors (as it is happening today) will depend on the rate of risk of your country. As we can see in the graph the foreign investment in Spain was reduced during the crisis because the rate of risk of investing in this country was high. And the same happen with others in the same situation. Figure 1: Foreign investment in Spain (1999-2009)

(Ministerio de industria, energa y turismo)

For this reason, in the future will exist a higher difference in development between those countries who didnt have much foreign investment and the ones who have it during these years, because they had less opportunities to use foreign investment to develop their industry and made it more efficient. Also a lot of investors preferred to invest in countries in development looking at the future as the BRIC, for this reason in the future we can expect that these countries will be more developed and with more possibilities than they are today. TNCS Transnational corporations have been the center of economic activities and potentiate the division of labor. They are based in foreign investment and in the future they will have more and more importance in the economic scenario.

TNCs seek to improve their own competitiveness, not to develop host economies. Their needs and strategies may differ from the needs and objectives of host countries. In this sense, in future politic and law regulations will be more open for TNCs because the advantages are greater than the disadvantages for the host country, and many advanced countries will be looking for foreign investment, for this reason if there are similarities, the ones who have more permissive laws or rules will be more attractive. Advanced countries will want to invest more in foreign countries, because TNCs can move their activities abroad more easily, use internal channels not open to national firms, they have greater access to a whole range of resources TNCs are the best option to the future economies. Human capital, unemployment and diversification. The big problem is that most of the countries that were more affected by the crisis used to dedicate to the construction that was a sector that reports high level of benefit, but when the housing bubble explode this countries had to specialize in other sector, because there were a lot of unemployed people like builders, glaziers, architects that migrate to other countries, but also the crisis impact in the whole economy and unemployed people of multiple sector migrate. So in the future we have to take into account that these countries were losing human capital, both skill and unskilled that went to other countries in order to find new opportunities. If the origin country has overcome the crisis 25 years later some of them go back to their origin country if they think that they could have possibilities there, but most of them after 25 years will be establish in the host country; and if we are talking about young and skilled migrants from Spain to German, for example, in a brain drain, it will be even more difficult that they come back. Therefore, the countries that were more developed will be even more because of the foreign investment, new human capital precedent of the countries with more difficulties, and so on. This situation will leave the countries as Spain with a less productive and efficient industry working and producing under their possibilities, scarcity of workers, lack of investment, lack of research and development, delays in technology, that would made them less competitive. In the graph, Spain would be producing in A that is a non-efficient point in which not all resources are working because the rate of unemployment is really high and we are not using the resource of human capital, or in this case could mean also that our technology is not the appropriate. Meanwhile Spain or Italy will be producing in A point, other economies as Germany or China will be in efficient points as B, D, C.

Figure 2: Production possibilities frontier

Higher Inequality. The inequality will be accentuated, the most competitive countries will be looking for skilled employees because they will be specialized in tech sectors that requires employees with high skills that will came from any part of the world, but also unskilled employees will be needed to make routinely activities non specialized. The difference of wages between these two groups will be larger and the companies will be more and more exigent with the skilled employees that will need higher and higher preparation and experience, this justify the augment on the difference of wages. In Europe, countries that have still high presence of agriculture in their economy will not count with much help of the PAC that will reduced the pays, so the people dedicated to this will have to diversify and work in other things at the same time or leave the agriculture sector, because it will not report benefits from the people who work on it. New help will be needed or agriculture will be in danger. As we could see in Gapminder, or International Human development indicators, the education is related with per capita income; therefore individuals and countries will have more interest in investing in education, what could make that they dont have to import human capital and to have better prepared professionals. The welfare State The Welfare State,will be reduced in some aspects. The cuts in education, health service, social security, housing subsidies, etc. Will made disappear some of them, driving to an increasing of the privatization in sectors as health or education, or making them half property

of the state and half private. The age of jubilation will be higher because young people didnt found job and couldnt participate in the social security system, for this reason older people has to work more years, in order to equilibrate this lack of income of the young people. Privatization and disappearance of some social services will happen in the near future, this could help the country to recover money but in the detriment of the low-middle income population and the welfare of everybody. Resources Globalization has made that every resource in the world, doesnt matter where is it found could be used or consumed by people in the other side of the planet. The world needs more energy since industrial revolution started and year by year we need more and more energy and resources; the population is growing, we are now more than 7.000 million people; and what is more significant in economic terms is that urban population is growing, were the consumption is greater( transport, shops, companiesetc.) Countries that now control part of the petrol available can explode it and get benefits but it doesnt last forever, so what is important is to invest these benefits to extend the effect and assure the economic future. In my opinion 25 years is too early to talk about the end of some resources but 50 years forward the situation will be much more critical, those countries who find efficient and attractive alternatives will be in the head of the evolution, because there are many alternatives or options; but some of them are not attractive and marketable. I agree in part with the affirmation of Michael Klare- analyst of the strategic doctrine of USA- in Resource Wars: The New Landscape of Global Conflict: The result is a new strategic geography, defined by the concentration of resources and not by political boundaries . But in part this scarcity could provoke a national sentiment where they remark to whom belong the existent resources producing and exaltation of the identity. Potential superpowers Todays superpower is United States, but is common listening that will be joined or even surpassed as a superpower by another nation, such as China. China has some very smart people, a vast land area, and over four times the population of the US. In 1978, China ranked number 23 in world trade. By 2006, China was the third largest trading nation in both imports and exports, with a total trade volume of $1.8 trillion, generating a surplus of $177.8 billion. China had little foreign direct investment (FDI) before

1992 but has been competing with the US in recent years as the worlds largest host of foreign capital. China planned huge investments for the next 30 years to improve the countrys human capital, research and innovation capability in the strategic areas of space, energy, environment, computer and internet, biology and medicine, military affairs and defense, transportation and telecommunications, etc. If all policies are effectively implemented, China will be able to solve its problems (social difficulties, political and environmental problems, inequality, corruption, absolute poverty) and China will also become a world leader. In my opinion by 2037( 25 years further) China can equal the US power, but in what Im sure that they could not compete is with their spread of costumes and culture; American style will continue being more welcome than China style. In part because of films, food and costumes that we have already adopted, and also because communism is making that the image of China that most of us have is related with censure, exploitation and privation of liberty. CONCLUSION The crisis of 2008 made that in the future depending on the decisions taken today, the countries who didnt affect in a big way the crisis will be in the head of the economy, and the others will need more time than this to reach the level of production, efficiency, employment, etc. that have their neighbors. Historically, globalization has not affected every country or region per equal, but what is clear for me is that is an irreversible process and we are walking into a higher globalization. As Mike Moore- director of the OMC said in 1999: The alternative for globalization would not be other thing that going back to the cold war; with all its consequences of inter-bloc tensions, militarist revival and large investments in armaments.

Bibliography
Ministerio de industria, energa y turismo. (s.f.). Ministerio de industria, energa y turismo. Obtenido de www.mityc.es/

Five Major Scale Effects of Chinas Rise on the World Hu, Angang (2007), paper presented
to the 18 th Annual Conference of Chinese Economic Association (UK), April, University of Nottingham.

Globalization. A critical introduction. Jan Aart Scholte. Palgrave Macmillan, 2005.


Gapminder database International Human Development Indicators database.

Comprender la globalizacin .Guillermo de la Dehesa .Alianza Editorial, 2000.


http://194.30.12.92/rep_ficheros_web/a9dc9f7aa804d2e7dfdda979bd9b5d6f.pdf. about the future of the Spanish economy. Notes taken during "geopolitics and globalization" classes, in the UV. Paper