Globalization has closely intertwined economic, political, cultural and institutional dimensions whose social impact is often not easy to disentangle. Notwithstanding the breadth and complexity of the process, its principal elements are well known. Technological advancements, especially in the field of information and communication technologies, have had the effect of connecting and bringing the world closer together in time and space, making possible new ways of doing business and profoundly altering social interactions. The proportion of trade in goods and services relative to national income and consumption has expanded, and now includes trade in such services as banking, telecommunications and even education and culture. Domestic deregulation and liberalization of external capital controls have propelled a vast increase in the volume and speed of capital flows of all types, ranging from foreign direct investment (FDI) to short-term banking flows, worldwide. Competition has catalysed a reorganization of production networks, and a wave of mergers and acquisitions have fostered the restructuring of corporations on a global scale, giving them unprecedented size and power. At the same time, venture capital-financed "start ups" are burgeoning in "high tech" sectors in several developed as well as some developing countries. New mass media, such as satellite television and the Internet, have contributed to globalization and the spread of a culture of consumerism.
Some of these processes are driven by the logic of new technologies or market forces which are difficult to control, while others may be more amenable to management. Policy decisions oriented towards liberalization, deregulation and privatization have been at least as important as market forces and technology in the spread of globalization in both its positive and negative aspects.
As a result of greater access to markets, new technologies and new ways of doing business, many aspects of globalization have stimulated growth and prosperity and expanded possibilities for millions of people all over the world. At the same time, it has been accompanied by anxiety about its disruptive effects and a sense that the opportunities provided by the process of globalization have not been accessible to many. It has enhanced choices for some people but diminished prospects for others and reinforced inequalities within and across nations. Perceptions of globalization depend a great deal on the ability of people to take advantage of the opportunities offered by it. Typically, it is most positive for people with adequate education and access to financial resources.
For various reasons, the liberalization of trade and capital flows has been a dominating theme in the economic policies pursued by developing countries and countries with economies in transition during the last 10 to 20 years. As a result, nearly all countries at all levels of development have taken steps to remove or weaken policy instruments that direct and control cross-border transactions. They have also given market mechanisms greater scope internally and reshaped or restructured institutional frameworks, including labour and financial markets and taxation systems, to enable the freer play of market forces.
The actual experience of globalization has, to a great degree, varied with the level of development at which a country has engaged with it. Some developing countries and countries with economies in transition have been well positioned to take advantage of the new opportunities for trade and investment, and building on domestic savings, foreign investment and capital inflows, technology transfers, human resource development and export orientation, have achieved rapid economic growth.
Others, particularly the least developed countries, have not been able to achieve the same levels of foreign investment or access to world markets, primarily due to an inadequate economic and social infrastructure. Not only have they been unable to grasp the opportunities offered by globalization but they have also had to cope with its impacts, particularly the volatility of international commodity prices, the reduction of effective preferential treatment for their exports owing to falling overall tariffs and the decline of official development assistance (ODA).
The degree and nature of participation of different categories of countries in global markets varies substantially. For most developing countries, trade in a limited number of goods and services constitute the major form of international economic activity. For others, private capital inflows supplement their foreign exchange earnings, either through FDI or through portfolio investment. In only a few developing countries, mostly in Asia and Latin America, have domestic companies joined the integrated networks of transnational corporations and, in some cases, forged strategic alliances to exploit dynamic trade and investment inter-linkages. Most developing countries, particularly the least developed countries and most of Africa, remain outsiders to that process.
A study conducted on behalf of the Department of Economic and Social Affairs on the experience of nine countries (Argentina, Colombia, Cuba, India, the Republic of Korea, Mexico, the Russian Federation, Turkey and Zimbabwe) as a result of liberalization of trade and capital raises several concerns about its social impact. In general, liberalization has led to greater inequality of primary incomes. In all but one case, household per capita income growth was negative or just above zero. While the participation rate or share of the economically active population increased, the employment situation in most countries was characterized by reduced wages, underemployment, informalization of labour and adverse impact on unskilled labour, particularly in the manufacturing sector. Virtually without exception, wage differentials between skilled and unskilled workers rose with liberalization. Most countries experienced an erosion of the tax base and a fiscal squeeze, which was reflected in static or reduced social spending. In some cases, social services were privatized or there was increased recourse to user fees. Fiscal and administrative limitations made it difficult to put in place countervailing social policies. In terms of the enabling economic environment, though most countries achieved moderate growth rates, at least three fared poorly. Capital flows increased substantially, in some cases prior to crises. While exports did tend to rise with liberalization, the export stimulus for growth was weaker than expected partly because of an increase in imports.
Although globalization raises particular concern for developing countries, apprehensions regarding it abound and have been vocally expressed even in developed countries. Concerns in the industrial world revolve around employment insecurity as firms respond to competitive pressures and technological advancements, which are to some extent also reflected in the frequent restructuring of firms and corporations. The growing power and global reach of mega-corporations has also raised questions regarding economic governance in a global economy.
The experience of countries with economies in transition has been mixed. In general, when these countries began their transition, they faced an abrupt deterioration of their previously elaborate social support systems, as well as the handicap of competing in a more open global economy with incomplete and underdeveloped market institutions. Some countries in Central and Eastern Europe have traversed the transition more rapidly spurred by prospects of integration to the European Union. In others, social disruption, sudden poverty and vulnerability to economic change along with the dissolution of barriers to trade and capital mobility have led the development of a parallel shadow economy and a criminal underworld of transnational proportions.