Ow Globalization Affect Our Economic System? (second draft)

Name: Kevin Soesilo

1st Draft Essay



How Globalization Affect Our Economic System?

The word  globalization is almost interchangeable with the term  economic liberalization . Standing almost at the end of the 21st century, a question may arise in our mind  whether this open economy, a direct product of globalization, has actually been a boon to the world s economy including the social and economic scenario. Careful thought brings out the consequences like recession, global financial crisis and other related impacts. However just like every problem has a solution this issue is also addressable. We have come too far to look back at the time of conquests and colonization. Hence globalization cannot be abandoned for sure, but a multidimensional approach might help in dealing with the economic problems associated with globalization.

Due to the enhancement of the technology and globalization the countries are able to increase the production basket in their economy. In addition to these the benefits that have been reaped from it are improved consumption choices, employment opportunities, and lifestyle patterns. (Thorsby, 2001, pp 155-156) However a more analytical view may be provided regarding the effect of globalization on the economy. To support this analysis the paper has focused on extensive secondary research and two primary sources.

The basic advantages that globalization brings in, are the improvement in the labour forces, better structuring of the organizations and the exchanges that takes place between various cultures of these laborers. Since labour forces are the human resources and sometimes the intellectual capital of the organization we need to access its impact on the organization as a whole. Globalization has caused workers to associate with other workers across vast geographical distances. In addition to these the changing needs of the consumers across the globe is a big issue. Organizations have to utilize their human resources in a meaningful way to get the optimum productivity and efficiency. This will only enhance the competitive advantage of an organization in this dynamic market. In relation to this the socio demography plays a very important role. People who belong from different communities do have certain mannerisms. Language and culture also play a very vital role in it. All the three elements (labor force, organization and social demography) are correlated to one other. Absence of any one of them can prove to be fatal for each. Sometimes lack of linguistic proficiency among workers from various geographies acts as a barrier to the organization. Hence organizations depend on the firsthand experience as it helps them understand the mutual likings and disliking of an employee regarding his colleagues. The advantage that firsthand experience brings is that it cultivates both direct and reflected knowledge. (Mortensen, 2009; Beyene, 2009)



With globalization the demand for various products are on the high except for financial services. Now the question is whether financial services are less in quality across the world? The answer is no, as it is been determined that demand for financial services are low in the emerging markets. The reason that has been projected is the lack of financial literacy and imagination towards the field of financial services. This has restrained the growth in demand for financial services. There has been another justification which states that demand for financial services are low due to two factors. First is the expensive nature of the services and secondly it does not add much value to the extreme poor society. However if we analyze rigorously we will find that financial services can be improved if the financial literacy programs are developed. An instance can be viewed in this light where the development of financial literacy programs has helped the uneducated and illiterate to open savings bank account. But on the contrary the cost associated with the financial training program is very lump sum. (Cole, 2009; Sampson, 2009; Zia, 2009)

 Recession is one effect which has decimated the growth of developing nations as well as the developed nations. Henceforth a question arises whether free markets are to be blamed for this? If a particular process brings lots of benefits for markets would it be justifiable to blame it when it is not doing too well? The governmental issues and regulations can also be questioned in this regard. However the blame game needs to stop and ways must be found out as the process of globalization cannot be held up due to one slip. The remedy lies in the development of the multidimensional model on markets which will give rise to a new global economy. The process must begin by involving new economic powers which are on the rise. The other key growth driver is the private financial market which will continue to be the strongest component in the worldwide development. The need for the multidimensional system arises as it is the best at this point of time through which the downslide of the economy can be countered. Some adjustments need to be made on this. The system should be of a flexible one and not a fixed one. A network must be built which will maximize the strengths of interconnections. It means that the system must be built based on political and economic factors. The traditional mode of thinking must be avoided and newer concepts such as energy and climatic changes must be prioritized.

I had interviewed one of my friends, Harry Santyoso who is into stock market and I instantly wanted to know how globalization affects the capital markets? He told me that listing of foreign companies stocks in the stock exchanges of other countries is defined as the globalization of stock markets. Now secondly I wanted to know that why stocks are traded in other countries? Harry replied that the basic reason behind such listing is the minimization of costs and the free flow of promotion for that particularly stock in the other country. Also it allows the country to invest its stocks internationally. H also told me that due to globalization markets are deregulated. The basic advantage from this is that it includes elimination of foreign exchange controls, reduction of taxes imposed on foreigners, relaxing norms for the foreigners to buy domestic securities, issuance of bonds by foreign borrowers and the involvement of the foreign investment banks in underwriting bonds and stocks in domestic stock markets. Finally I wanted to know the effect of recession on globalization from him. Harry told me that all the factors in the economy are closely related to one another. He gave me examples to justify his answer. He told me that if there are job cuts or reduction in the pay scale then general public will not be in the mood to make expenditure on purchase of products. Now if they do not buy products the demand for a particular product will not be there, the revenues of that particular company will hence fall which again will cause the reduction of pay scale or job cuts.

I also had the privilege of interacting with Peter who is working in the wells Fargo for the past 3 years. I wanted to know the effect of globalization on the overall banking system. He told me that due to globalization banks have been the heavily affected sector. He says so because the availability of deposits and granting of loans and advances have increased due to this process. It has now become easy for corporate houses to take loans from the banks at their convenient rate. A fair competition has evolved between the several banks and everyone is willing to woo its consumers by providing them loan at a cheaper rate. The foreign reserves of the banks have grown largely due to globalization. He also told me that if a bank in US is granting loan at say 5% while the same is available at Switzerland at 4% then corporate will move to Switzerland. However the corporate companies have to a bit careful with the fluctuation of the exchange rates so that they c