Global market mechanism
Globalisation effectively aims to create a ‘global market mechanism’ by increasing international interdependence and integration through such means as tariff reductions and trade liberalisation. In theory, globalisation attempts to promote higher levels of equality and greater access to world markets by ‘opening up’ more economies, thereby creating a trading environment with an increased number of nations actively engaged in higher levels of exporting and importing. Such practices should indeed increase efficiency and create greater global market participation.
However, it is manifest that commodity dependant nations (particularly developing nations) encounter difficulties when engaging in global trade with more industrially and technologically advanced economies such as America and other G7 nations. Whilst globalisation endeavours to create a situation characterised by a higher level of free trade, national interests and lobbying power within the World Trade Organisation invariably influence the level of tariff reduction by respective nations.
Thus whilst globalisation does, theoretically, support actions to reduce the global gini coefficient, it is nevertheless evident that trade liberalisation and tariff reduction must be undertaken universally, with respect for developing economies, to achieve higher levels of international equity and increased efficiency. The increased push for globalisation is predominately driven by the expansion of market specialisation to gain comparative advantage in international trade, consequently increasing both efficiency and domestic activity, which invariably has a ‘drip on’ effect to the global economy.
Similarly, a greater reliance on technology has helped to characterise the nature of globalisation, with communication becoming increasingly effective and cost efficient. As such, international relations are enhanced, leading to greater freedom and opportunity to engage in trade. Globalisation is also aimed at increasing nations’ terms-of-trade which is also addressed by individual economies domestically through microeconomic, monetary and sometimes budgetary policy to increase the volume of exports whilst simultaneously attempting to reduce the CAD.
In this way, Australia’s Gross Domestic Product is forecast to grow by 3. 4 per cent during 2003-04. 1 The movement of capital or intangible resources throughout the global economy creates interdependence and international relationships without direct government intervention; foreign investment is almost impossible to stop and 2. succeeds in increasing the level of international reliance and connection.
Globalisation is driven predominately by the World Trade Organisation, the members of which, especially those with greater economic and military bargaining power, attempt to increase market equality through a focus on tariff reduction to increase international trade and the ability of all nations to engage in these transactions. Globalisation is motivated by forces such as an increase in nations seeking comparative advantage (an offspring of specialisation), a greater utilisation of technology and improved international relations along with a long term view of increasing productivity and efficiency on a global scale.
Globalisation is palpably weighted to benefit economies with embedded and efficient infrastructure: those which have already established relatively stable economic growth and low inflation (between 2-3 per cent as an Australian government objective)2 within their domestic market. Thus developing nations with insufficient GDP to acquire the level of savings needed to improve infrastructure are much more susceptible to highly variable terms of trade and real shocks within, relying much more heavily on lower-scale production commodities such as agricultural products.
Because of the nature of international trade and the trend of trade liberalisation, countries struggling to establish their domestic economies rely heavily on these tangible exports. As evident in the agricultural sector, African nations often face a ‘closed-door’ market when dealing with America and much of the European community, with such nations lowering their tariffs too slowly, or even raising them in some instances to allow for sufficient international competition.
Whilst tariffs protect the large agricultural industry in the US for example, which is a major political support base, making the reduction of tariffs highly contentious it does have the effect of limiting the domain in which globalisation can occur. Whilst economically advanced nations can persuade less developed economies to ‘open up’ to free trade it is clear that the converse does not always occur.
Globalisation allows developed economies to increase their market share and their export volumes whilst, generally, creating a situation where developing economies struggle to compete with the large-scale and highly technology based economies. Similarly, in nations with inefficient industry and work practices, the cost of production will inevitably be higher than in developed economies (excluding wage levels, which must be looked at in relation to the cost of living with each respective nation). Thus “Many of the poorest commodity-
3. dependant developing countries would benefit greatly, in terms of overall economic growth and poverty alleviation, if they were granted better access to developed-country markets. “3 Developing nations are therefore disadvantaged when competing on the international stage, for whilst G7 and other dominant economies are able to define efficiency as their target and foremost goal, many developing economies are forced to concentrate on merely producing, not promoting the best conditions of trade or efficiency.
Conversely, China has developed to become a major economic power within a short period of time under the system of Special Economic Zones that are an attempt to encourage foreign investment and capital. Whilst China’s economic growth has expanded significantly, it is evident that wealth is concentrated in certain areas of the country, predominately along the coast creating “narrowing income equality”4, which is becoming a major economic problem for China and many other developing economies.