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Globalisation
National
Perspective
Corporate
Perspective
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Three aspects of globalisation:
Finance
Free international capital flow
Abolition of fixed exchange rate regime
Developing technology for easier cross-border movement of fund
Emergence of new financial instruments and hedging mechanism
Trade
Removal of quantitative restrictions on imports
Reduction of import tariff
Current account convertibility
InvestmentCapital account convertibility
National Perspective
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An extensive liberalisation in Finance
A spectacular growth in financial flow
An increased danger of fragility and vulnerability
A moderate degree of liberalisation in Trade
Reasonable growth in world exports with significant reduction intariff
High tariff persist even in developed countries
A moderate degree of liberalisation in FDI
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Globalisation Trans-nationalisation ??
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Last three decades witnessed a shift from the UN model of
globalisation to Bretton Woods model of globalisation
The UN model envisaged a partnership of the countries in developing
poor nations utilising contributions from the rich nations
A greater role of the government in development
An emphasis on peoplesopinion in national policy making
The Bretton Woods model put emphasis on the role of market forces
in a nations development
Laissez-faire market model
Greater emphasis on commercial interests
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Globalisation had differing impact on different countries with
uneven process and unequal distribution of benefit and losses
For example:
The gap between the average per capita income of G7
countries and that of poorest 7 countries doubled
The income share of rich 20% have risen almost
everywhere, whereas that of poorest 20% fell (in some
countries, it fell below one-tenth of the richest 20%)
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Gini Index = Area A / Area (A+B)
A B
Percentage of Population
P
ercentageofGNI
100%
100%
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Country
2002
2007
Swaziland 60.9 50.4
Brazil
60.7
57.0
South Africa 59.3 57.8
Lesotho 56.0 63.2
Zambia 52.6 50.8
Niger 50.5 50.5
Pakistan
31.2
30.6
Austria 31.0 29.1
Bulgaria 26.4 29.2
Finland 25.6 26.9
Sweden
25.0
25.0
Hungary 24.4 26.9
Slovakia 19.5 25.8
Gini Index for few select countries
IndiaRural 30.6 India-Urban 37.6
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In the world,
78 per cent are poor (earning less than $3470 in PPP termannually),
11 per cent are middle income group ( earning between $3470and $ 8000 annually in PPP term)
11 per cent are rich ( earning more than $8000 annually in PPPterm)
Richest 1 per cent of the world earn as much income as the bottom57 per cent of the population
1.3 billion people get less than one dollar a day
More than 80 countries had lower per capita income at the end oflast decade than that at the end of 1980s
In 1960, the richest 20 per cent had 30 times the income of that ofthe poorest 20 per cent; in 2000, the same went up to 75 times.
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In short,Globalisation has led to
Concentrat ion of weal th in few hands
worldwide
and thus
Has given rise to an acute level ofinequal i ty
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Reasons:
Growing wage inequality between North-South and skilled-
unskilled workers
Increase in capital intensity
High debt servicing led to redistribution of income from
poor to rich
Growing uncertainties led to stagnant investment in LDCs
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Why should business be concerned about inequality?
Friedman (1970) proposed,
Business of Business is to do business only
Does this proposition make business sense?
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5
5
5
5
5
5
5
5
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Country A Country B
Which country is more prosperous?
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The optimal path
Studies show that
A combined role for both the State and the market led to quite a
few success stories among late industrialisers
Fundametalism in belief either in State or market could be
disastrous
State should create initial conditions for industrialisation, whereas
market forces should determine efficiency of operation
Corporate, while focusing on their primary objective of earning
profits, should also take social concerns into consideration,
particularly the issue of Inequalityas higher inequality leads to
contraction of demand base, that eventually adversely affects the
corporate profitability.
