The BRICs and Global Imbalances

According to Thomas Friedman(2005), globalization is how the world has flattened. A global economy has provided all economies a chance to win in a game where the main rule is to survive.

Globalization discourages countries from creating policies that would protect their domestic economic interest.

It has created a self-help system where countries can no longer rely on the arbitration of international and equality-based institutions. Globalization has given a new twist to the ‘ survival of the fittest.’ To be among the fittest, one must cope with the fast changes, increased competitive standards, and diversified options that the global economy offers.

When looking at the globalization model, living in a globalized economy is the perfect haven for economies to work in. It is a world where very little politics is involved, and many economic theories, like product specialization, are proven. (Brennan, 2005) However, what many critics have said time and again is that with the removal of economic regulations comes country-specific ad-hoc survival tactics that have long-term negative implications. Before delving into this further, let us first revisit how and why globalization became the kernel of the world’s economy.

Globalization was put into the economic spotlight when the United States of America (US), led by the Clinton administration, pushed for the institution of the World Trade Organization (WTO), whose leading cause would be to promote free trade among its members. (American Foreign Relations, 2001) While joining the WTO is voluntary, non-membership means that a country misses out on trading with 95% of the world’s population. (Lao and Yueh, 2006)

Free trade, the US argued, is the best way to usher in a global democracy without direct political intervention. (American Foreign Relations, 2001) By implementing WTO-led initiatives and standards, the world will start to equalize, with the US playing a distinct yet invisible role in controlling the global economy. (Ikenberry, 2007)

With all these in mind, does globalization create a world where everything is equal, or does it exacerbate global imbalance? I believe it is the latter.

In theory, globalization is the perfect way to allow economies to work. In practice, however, globalization just further promotes regional imbalances. Take the case of China, which joined the WTO to remain a progressive player in the global economy. Its membership in the WTO pressured China to create reforms that it was not prepared for. For example, regulations imposed by the WTO’s major players like the EU and North America have led the Chinese Yuan to deregulate public institutions that were otherwise not ready for it. (Lao and Yueh, 2006) The short-term changes China has implemented may have helped it continue doing trade as usual, but it forces it to act to the detriment of its long-term and sustainable progress.

China’s case is just one clear example of how globalization promotes imbalances in the global economy. While globalization has made solid economic players out of countries like Brazil, Russia, India, and China, their role will never equal the one the US plays. They are merely economies that help push forward globalization, but they will never be the ones dictating where the global economy will be headed to. I say this because these countries have become major economic players only because big economies like the EU or the US allowed them to through production outsourcing and market expansion. Though these countries strengthened their domestic economies, they depend on other economies. They have remained poor. (Standard and Poors, 2009)

When economies are this intricately dependent on each other, many states fail to protect their people. (Kuper, 2007) A global economy with a high dependence that markets will always work is pushing its luck and facing extreme failure. The recent global downturn triggered by the US recession shows a need to regulate economies and that the states should be trusted to come up with decisions on what is best for their people. When a global player, such as the US forces other economies to play according to its arbitrary rules, it creates an economic imbalance where the poorer economies suffer the most. (Pogge, 2007)

One of the most significant flaws of a global economy is that it treats all economies equally. In reality, however, there are financially rich countries and those with half of their population living below the poverty line. Logic dictates that creating fair universal trading laws among extremes like this is impossible. One would always stand to gain more, no matter how noble the contracting parties’ intentions may be.

If the world continues to operate like it is operating now, it is clear that it will further delve into a spiral of imbalance. This is because the stable economies alternate between recession and long-term financial booms while developing countries will remain (i.e., creating) with short-term progress as their mediocre goal.

References

American Foreign Relations (2001). Globalization – American-led Globalization: 1990-2001. Encyclopedia of New American Nation.

Brennan, Geoffrey (2005). “Globalization and Varieties of Democracy.” Ruth Zimmerling (ed). Globalization and Democracy. Vol. 1. Finland: Tampere University Press, 2005.

Friedman, Thomas. (2005) The World is Flat. United States: Farrar, Straus and Giraux.

Ikenberry, G. John. (2007) “Globalization as American Hegemony.” David Held and Anthony Mc Grew (eds.) Globalization Theory: Approaches and Controversies. United Kingdom: Polity Press.

Kuper, Andrew. (2007) “Reconstructing Global Governance: Eight Innovations.” David Held and Anthony Mc Grew (eds.) Globalization Theory: Approaches and Controversies. United Kingdom: Polity Press, 2007.

Pogge, Thomas. (2007) “Reframing Global Economic Security and Justice.” David Held and Anthony Mc Grew (eds.) Globalization Theory: Approaches and Controversies. United Kingdom: Polity Press.

United States. Standard and Poor’s (2009). BRIC by Name, BRIC by Nature. United States: Standard and Poor’s Ratings Direct.

Yao, Ying and Linda Yueh, eds. (2006) Globalisation and Economic growth in China. Vol. 1. United Kingdom: World Scientic Co.