Impacts of Global Recession on Globalization Internationalization and Neo-liberalism - Case Study Example

Impacts of Global Recession on Globalization, Internationalization and Neo-liberalism Name: Institution: Course: Lecturer: Date: Economic Recession Economic recession is defined as a period associated with economic decline especially in the stock market, increase in unemployment levels and a declined related to housing market. In general terms, recession is associated with decline in Gross Domestic product of a country in a span of two more successive quarters. However recession is less severe when compared to global depression. Globalization Economic globalization is an increase in interdependence of the national economies which has resulted out of increased levels of trade amongst such nations. The economic integration is caused by technological advancement which allows quicker communication within the globe. Moreover, integration is caused by improved transportation system and reduction of cost coupled with transfer of products (Hirst & Thompson 2000). Impact of Global Recession in processes of Economic Globalization The current recession period has had a share of devastating effect both on world economy as well as globalization. By the year 2007, globalization has had an unprecedented growth. However, economic recession which commenced in the United States has stalled the process of globalizing worldwide, raising queries about functionality of the entire process. In the early period of recession, analysts believed that globalization had taken a retreat and that the trouble period was over, basing on the trend during the period. Based on this fact, world governments began to develop doing away with stiff regulations such as banking and the auto-industry in country like the United States, United Kingdom as well as Ireland (Sobotka, Skirbekk & Philipov 2011). In regard to the fact that the priority related to the early crisis was based on government’s national interests over international interests, it proves that economic crisis resulted to a decline in globalization. In the present times, many countries have taken extra protectionist measures to curtail their spending within the national borders. For instance, the United States recommended it citizens to buy American products by enacting a law which aimed at stimulating the economy. However, the essence of the law was changed with the argument that such a law would exists in the absence of international agreements to check such discrimination (Prasad, Rogoff, Wei & Kose, 2005). According to researchers, the current economic crisis continues to affect engines of rapid globalization. This includes private property, multinational firms, global logistic chain as well as the open market. In the year 2008 and 2009, there was a sharp rise in levels of public participation within the private sector. According to the data surveyed form biggest banks in the United States and the European Union, most of these banks received public funds injections. Other sectors such as insurance and auto mobile received state aid. However, despite that economic integration within the last quarter century occurred due to active participation of multinational firms, these firms were the first to be affected by the crisis (Scholte, 2005). The firms were therefore put into task of identifying specific governments that could offer assistance. According to study, national response to economic crisis can highly cause both financial and the economic fragmentation. In the past, world governments had requested banks to continue with their operations of lending domestically and thus streamlining credit within the foreign markets. For instance, Dutch government requested ING bank to have an expansion of domestic credit with an aim of reducing overall balance (Hirst & Thompson 2000). This kind of measures put emerging markets as well as developing countries into vulnerable position of financial protectionism. This is because such market depends highly on external credit. Furthermore, G20 countries committed not to increase tariffs in the years 2008. However, such measures were not taken into account by countries like China, India and Argentina who raised the tariffs. In the view of these risks, researchers assert that global governance together with global economic picture is bound to emerge from the entire crisis reshaped. Study further shows that depending on policies adopted by world governments, globalization will be stronger or ‘frail’ after the current recession crisis (Prasad, Rogoff, Wei & Kose, 2005). Further study shows that despite the attempts of governments to take a detour towards the financial sector as well as other productive economic sectors, their presence and involvement is less felt. This is because neoliberal institutions guided by rules and procedures were the foundation of global economy in decades (Scholte, 2005). What this means is that, alternative principles have not been there as core of new consensus but rather, free market as well as international economic integration operates as default. The early phase of the economic crisis oversaw different countries especially developed ones coming up with new programs and regulations. However, in the second phase of the crisis, more effort has been geared at harmonization as well as coordination of necessary policies within the global economy (Sobotka, Skirbekk & Philipov 2011). One major effect of economic recession is the decline of trade as well as direct foreign investment on a global scale. In this context, current studies use the term globalization as the aftermath of the whole crisis. According to research, major signs given by the trend emanates from stock trends in the market, financial flows, market segmentations and devolution of capital (Prasad, Rogoff, Wei & Kose, 2005). Further research asserts that the dynamic processes related to economic globalization has occurred in waves in a span of 250 years. Therefore, the recent crisis has spread in the entire world very fast leading to a transformation of global economy and promotion of globalization policies. In other words, the recession has lead to the emergence of a worldwide discussion of globalization policies (Hirst & Thompson 2000). The fact that the current recession has destabilized globalization never means that it is the end of it. It is a fact that countries are endowed with unequal levels of resources and technology. Therefore, different countries have different capabilities and potential of producing goods (Hirst & Thompson, 2002). In the presence of these circumstances, while the requests of specific products from various countries go beyond the ability of others to obtain the products, the overall economic dependence among states will remain (Sobotka, Skirbekk & Philipov 2011). This means that globalization will continue. According to researchers, the current crisis means an increase in global integration at an international level. This means that the crisis lead to a boost of globalization process. Impact of Global Recession in processes of Economic Internationalization Internationalization – this can be defined as a process of planning as well as implementing global products and services with a view of making them adaptable to identified cultural environment. In economic terms, internationalization is the growing tendency of firms to operate across the national boundaries. The complexity of the current global economic environment has necessitated the need to recognize as well as encourage both qualitative and quantitative facets of growth, integrating concepts of social as well as environmental sustainability providing a picture of what works and what is needed. The overall adaptation to the emerging conditions is the qualification to survive. The economic crisis has pinpointed lack of confidence within the business as well as economic activity. In most cases, recession periods results to ‘destruction’ in which non-modern technologies, products and great ideas elapse after the emergence of new ones (Hirst & Thompson 2000). The period of recession pose a great negative impact to businesses but also provide significant opportunities. The key thing in this case is for companies to survive. In order to survive, all the entities must adapt. Destructive forces need not be understood a source of failure, but rather should be perceived as an opportunity for corrective measures to companies’ philosophy. It is important to note that every global entity cannot avoid evolutionary process that is yielding incremental changes reacting to external environmental development (Dicken, 2003). The overall impact of recession on global companies can be analysed into two ways. First is about vulnerability and next is about resilience. Vulnerability is directly associated to external shocks within the business environment. Difficult situations cause instability and curtail the global firms to address changes adequately without finding appropriate reaction. The firms lack adequate resources because of a number of external influences beyond their control. This means that the performance of the firms becomes volatile both in the medium and in the long run. Resilience refers to the ability and speed of the firms to return to the favourable conditions. The flexibility of most global firms to adjust their resources, products as well as processes has enabled them exploit existing opportunities or else create new and or innovative ways to conduct their business. Recession has posed great threats to firms but on the other hand their flexibility end up providing other opportunities. The major dilemma often faced by such firms is either to cut cost and or to innovate (Dicken, 2003). Economic recession compel organisations to rethink about their business strategies. As aforementioned, cutting cost and investing to innovate are some of the major decisions that firms strive to make in order to adapt to the crisis. Cutting cost normally produce required outcome with a view of maintaining survival but in the short term. Alternatively, investing to innovate in new processes and products normally creates opportunities for the firm to survive in the long-run. It is always hard to make a decision on whether to reduce cost or create some resources geared at innovating. For instance, deciding to reduce the number of staff may pose a threat since the firm may be unable to mobilize vital resources for its survival. This is because the firm maybe put at a precarious position of inadequate human capital to carry out crucial changes in the recovery process. Moreover, the employees’ trust towards the employer erodes. In addition, it is quite often that investing to innovate may drain the companies’ vital resources. The firm may also fail to make sufficient sales to shield costs. Studies of multinational companies in regard to cost cutting measures as well as revenue generation during recession times are quite important. The performance of global firms is directly linked to the major actions undertaken during the crisis period. Thus, the particular type of adaptation is dependent on overall circumstances as well as individual company’s situation and possibilities (Smith & Swain 2010). The current recession has been caused by the global crisis. There has been a change to the business climate since 2009. The European nations are investing their resources to research on ways that would save them out of the crisis. Developing nations are on the verge of modest recovery out of the crisis which is causing jitters in firms. In Europe, less GDP growth has been experienced which has resulted to limited production, lower consumption levels and increased levels of unemployment (Dicken, 2003). The ability of multinational companies to implement adaptation practises is constrained by inadequate financial, managerial as well as human resources. In such a case, companies are compelled to cut cost rather than invest to innovate. Nevertheless, adaptation decisions depends on various factors, especially in regard to industry and the products features. The various actions undertaken during the crisis period relates to adjustment of product strategies, labour market conditions and cost optimisation. The recession period compel firms to look for growth elsewhere. For instance, the third country markets, which contain favourable markets as well as prospects for recovery, act as a good target for European firms. The emerging markets also provide opportunities which range from the undeveloped sectors to the significant size of internal markets. Notwithstanding, expanding to these markets is prone to multiple barriers such as bureaucracy and cultural differences. However, their demographic as well as economic potential act as a convenient platform of implementing the business strategy desired for performance (Smith & Swain 2010). In conclusion, recession period acts as a threat as well as an opportunity for global firms to adapt. This normally occurs to small multinational companies which are prone to external shocks as a result of their limited resources. One possible strategy that firms adopt with an aim of surviving the crisis is merging with foreign firms. Such cooperation provides both an avenue for growth and survival (Hirst & Thompson, 2002). Impact of Global Recession in processes of Economic Neoliberalism Neoliberalism can be defined as an economic ideology which is based on promotion of rational self-interests via policies such as privatisation, deregulation tax cuts as well as globalisation. According to researchers, neoliberalism often favours free market capitalism. The effects of global recession in right of neoliberlaim are discussed below. A new right was introduced in Australia which promoted fundamentalist view of global markets. This was known as rationalism in Australia. In general terms, this is referred to as neoliberalism. Neoliberalism advocated replacement of majority of government functions with activities of the private sector in the market, deregulation of both financial as well as the labour markets, deregulation of business practices and free trade. The policies got promoted in the auspices of free markets, public interests as well as economic growth (Saad-Filho & Johnston 2005). The right of Neoliberalism argued that unrestrained selfishness coupled with competition would benefit the whole society. The right advocated that as the country get wealthier, such wealth will be obtained by the poor society since it will be reinvested and used to create jobs for the poor yielding prosperity. The global economic recession has communicated that global markets provide investment opportunities with fewer extra jobs whereas such prosperity can elapse in days (Saad-Filho & Johnston 2005). In right of the global economic crisis, and with the implementation of neoliberalism, world disparities both in wealth, poverty and income surfaced. The levels of income increased whilst poverty increased. For instance, economic rationalism was implemented in Australia with a view of reducing government deficits; reduce taxation levels related to high income earners, reduction of tariffs, deregulation of the financial institutions, privatisation, and import restrictions as well as business deregulation. The implementation process which was referred to as restructuring was geared at enhancing economic efficiency, productivity as well as industrial competitiveness. However, the profit generated was not used to spur productivity. Rather, the money was used to increase executive salaries, fund luxury consumptions and conduct unproductive investments. This led to hike of wealth disparities within the Australian nation (Saad-Filho & Johnston 2005). The same policy which was known as Washington Consensus was applied on developing nations at the global level. This was necessitated through the use of strict loan conditions as well as structural adjustments packages conducted by both World Bank and IMF. Washington Consensus yielded benefits to large global corporations over small businesses. This led to prioritising of economic goals over social goals leading to destruction of socially beneficial traditions as well as the most desired cultural aspects. Progressive taxation system across the globe was dismantled while world governments’ social services got decimated (Ohmae 1989). The nations that followed IMF prescriptions never prospered. A substantial number of these countries have sunk into profound economic crises, low and declining growth rates, higher debt margins as well as economic stagnation which perpetuate systemic poverty. In the last decade upon introduction of Washington Consensus, various government spending were scrutinised while income were ascertained via GDP. A 73 percent GDP growth was experienced in Latin America while 34 percent was witnessed in Africa. With further application of the consensus in both Africa and Latin America, income levels reduced by 23 percent in Africa, while Latin America’s growth improved by only 6 percent. There was a widen gap between the rich and the poor. About 44 percent of residents in the developing world live in poverty while unemployment levels doubled in the previous decade (Scholte 2005). Financial deregulation resulted to world economic crisis. This practise occurred in three major ways; that is, eradication of restrictions as well as regulations on financial institutions functioning in a country, eradication of political controls mainly from central-bank and freeing capital-flow into and out of a country. In this regard, nations’ financial sectors formed part of international financial sector instead of being part of domestic economy. The nation’s financial sectors therefore served the interests of the global financial institutions, instead of their local citizens and or national governments (Saad-Filho & Johnston 2005). The financial deregulation forced world governments to fall prey of international financial markets. The deregulation thus exposed economies to speculative capital movements. For instance, slightly less that 10 percent of all transactions within currency markets are actual trade, while the remainder is speculative (Scholte 2005). The inflow and outflow related to speculative finance caused a major economic crisis to national economies. In the context of neoliberal policies, riches accumulated to a few individuals who searched for different ways to invest in the financial deals. The financial sector provided an opportunity for lucrative investment opportunities, worsening volatility of markets that was prone to massive speculation (Birch & Mykhnenko 2010). The neoliberalism policies regarding opposition to governments’ interference in business and markets as well as financial deregulation led to complexity of markets as traders strived to generated profits in the volatile markets while applying derivatives, credit faults and other complicated mechanisms. The financial experts, gurus and a number of politicians benefitted from the ‘scum’ leaving majority of the nations poorer (Saad-Filho & Johnston 2005). The gross inequalities in many nations resulting from neoliberalism resulted to an imbalance between consumer demand and production capacity. As a consequence, production profits levels declined whilst economic growth slowed. The governments would have fed the consumer demands but neoliberalism policies prohibited this. Instead, consumer demand was ‘sorted’ out through bank credits. This was a temporal remedy to oversee continuation of economic growth in nations. For instance in the United States, interest rates were reduced aimed at sustaining economic growth. References Sobotka, T., Skirbekk, V. and Philipov, D., 2011. Economic recession and fertility in the developed world. Population and development review, 37(2), pp.267-306. Hirst, P. and Thompson, G., 2000. Global myths and national policies. Global democracy: key debates, pp.47-59. Prasad, E., Rogoff, K., Wei, S.J. and Kose, M.A., 2005. Effects of financial globalization on developing countries: some empirical evidence. In India’s and China’s Recent Experience with Reform and Growth (pp. 201-228). Palgrave Macmillan UK. Hirst, P. and Thompson, G., 2002. The future of globalization. Cooperation and conflict, 37(3), pp.247-265. Dicken, P., 2003. A NEW ‘GEO-ECONOMY’. Companion Encyclopedia of Geography: The Environment and Humankind, p.370. 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