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Monday, Feb. 21, 2005

JAPANESE PERSPECTIVES

Globalization is a trend fraught with both positives and negatives


It's been a while since the word "globalization" came into widespread use. But its meaning isn't always clear, perhaps because each person uses the term in his own way.

As for me, I understand it as a condition in which cross-border movements of not only money and goods, but people and even land, effectively, become possible, thereby accelerating the integration of the world's economies into one.

Of course land does not move across national borders. National borders were drawn over land against the backdrop of accumulated history. Similarly, people are bound by their nationalities, which are not so easy to change.

The purpose of economic activity is to bring together limited productive elements -- such as raw materials, capital, labor and land -- to fulfill human desires to the maximum extent possible.

In a market economy, the priority goes to maximizing profits. To attain that goal, people look all over the globe for the cheapest productive elements possible and use them.

During the Cold War, such efforts were hampered by limits on movement of technology and capital, even though people knew cheap land and labor were available in other countries.

The end of the Cold War eliminated those restrictions, making it possible to integrate the technology and funds of advanced economies with the labor and land of developing countries. The mass exodus of people from the eastern side of the former Berlin Wall to the western side is still fresh in our memory.

Even without the actual physical movement of people, increasing production in other countries can create the same economic effect as human resources and land "moving" across national borders. And it is this movement that is having positive -- and negative -- impacts on our daily lives.

The first impact of globalization had the positive effect of invigorating world economies and expanding the volume of trade.

Developing countries, of course, welcome foreign firms who expand local production. The influxes of technology and funds lead to job creation and greater use of land, with the added benefit of higher tax revenue.

On the other hand, the developed countries from which these kinds of investments originate are then hit by reduced economic activity, fewer jobs, competition from cheaper products made by the recipients of the investments, and a drop in tax income.

The second impact is that the influx of cheaper products effectively boosts consumer purchasing power in advanced countries. In addition, changes in demand-supply situations, due to increased output capacity in the developing nations, make advanced economies less vulnerable to inflation, giving their governments wider options in monetary policy.

Here again, the negative aspect of this is that increased competition means greater risk of corporate bankruptcies and unemployment.

The third factor is the widening income gaps between individuals -- a phenomenon taking place both in developed and developing countries.

An expansion in market opportunities gives some individuals a better chance to realize their potential, but those unable to improve performance are exposed to greater risk of wage cuts and unemployment because they have to compete with other low-income players newly entering the arena.

To sum up, globalization, by ushering in new competition, creates various conflicts of interest among states, corporations and individuals, between producers and consumers, and between corporations and labor unions. Even national governments are not immune. Taxation is the symbol of a state's sovereign rights, but unless a national government takes globalization into account, it may end up seeing its tax revenue flow overseas.

But it is also true that globalization expands the aggregate economic pie.

A Group of Seven finance ministers' meeting held earlier this month in London launched a new forum for emerging economic powers China and India -- an indication that the global economy can no longer be controlled by the rich club of advanced nations alone.

It would be rather difficult to stop globalization. Instead, nations, corporations and individuals should focus on how they will ride out this market-driven trend because the stakes are getting increasingly higher.

Teruhiko Mano is a professor at Seigakuin University.


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