Though the globalization has already become an integral part of the global economy, many questions in the field of its impact on the socio-economic development of countries still cause heated debates. From these readings of the course, it is evident that the effect of globalization on countries with different levels of economic development remains controversial and requires further study. The analysis of contemporary free trade assessment models and the definition of key factors of the globalization assessment reveal many shortcomings and limitations relating to clarification of the role of globalization in the world economy.
Social Aspects of Globalization and Free Trade
Globalization has become an essential feature of the modern world economy. The contemporary level of the development of infrastructure and communication technologies creates conditions for further economic integration of states, especially in the field of international trade. A gradual increase in the mobility of factors of production caused by the usage of modern technologies leads to the intensification of trade relations between countries. In these conditions, discussion of social changes that accompany the process of liberalization of foreign trade relations between countries is particularly helpful. From this point of view, the scholar should pay attention to the scientific researches of Nita Rudra, Ronald Rogowski, as well as Edward Mansfield and Diana Mutz. These authors discuss issues relating to the society’ reactions to international trade liberalization processes and talk about the possibility of using different models to assess social aspects of the introduction of free trade rules. The selected authors also analyze the perspectives of the free trade rules implementation for the specific state with respect to its level of socio-economic development.
Free Trade for Developing Countries: Possible Social Problems
The question of finding a compromise between the demands of international business and social obligations of the state is quite an urgent problem and its relevance only increases with time. Globalization skeptics, including Nita Rudra, state that current globalization processes make developing countries experience the Race to the Bottom (RTB) phenomenon. According to their position, free trade rules allow investors to move around the world, searching for business opportunities with a high rate of returns level. Developing countries face a dilemma of providing high social standards for their citizens or creating attractive conditions for the business, which will negatively affect the state of the population due to the reduction of social welfare expenses (Rudra, 2008, p. 2). Another feature of developing countries in the globalized world is the lack of interest in the RTB issue in these countries among researchers.
In addition to the discussion of the RTB issue in developing countries, Nita Rudra expresses criticism towards international regulators. The activity of international regulators like the International Monetary Fund does not create opportunities for the universal welfare state with advantages for all of its citizens. The problem of the RTB processes in developing countries, which is caused partly by the international regulators’ activity, is a clear proof of this argument.
From the point of the RTB issue, there are significant differences in the positions of developing and developed countries in the conditions of globalization. First of all, the race-to-bottom issue is not so serious for developed countries. The reason for such situation is the high level of the labor institutions’ development in these states as compared to developing countries. In this respect, Rudra (2008) refers to the results of Garret’s research, which stated that “if the workforce is highly mobilized and coordinated, the economic demands of globalization can be effectively balanced with redistribution policies” (p. 22). The low level of labor institutions in developing countries creates an environment in which workers are completely defenseless against representatives of the foreign capital.
At the same time, the position of developing countries has been deteriorating due to the fact that the government cannot provide effective tools of social protection of the labor force. In addition to existing requirements to ensure free trade, the government often resorts to the reduction of taxes on capital, which allows it to avoid capital flight and effectively compete for foreign investments. In this case, a significant proportion of the tax burden falls on individuals and the monetary base used to provide social benefits gets reduced.
As a result, globalization negatively affects economic performance of low-skilled labor in developing countries. Though developing states possess a significant volume of labor resources, workers are mostly low-skilled and are not able to form effective unions, which could provide the protection of working class interests at the state level. Such state of affairs seriously contradicts theoretical discoveries in the field of social processes in the open market and will be discussed later in this paper.
Contradictions between Rudra’s Conclusions and the Existing Findings
The situation that was described in the Rudra’s research contradicts the opinion of other researchers of this issue. For instance, Ronald Rogowski in his work “Political Cleavages and Changing Exposure to Trade” discusses the practical relevance of the Stolper-Samuelson theorem. According to this theorem, trade liberalization brings benefits to owners of factors, which are available in abundance in the society (Rogowski, 1987, p.1122). Liberalization also harms owners of deficit factors. In case of implementation of the policy of protectionism in international trade, the opposite phenomenon takes place as owners of rare resources gain benefits and owners of abundant goods feel the harm of this policy. Rogowski (1987) describes the applicability of this approach to the assessment of social change for a variety of historical periods. At the same time, he mentions that the presented theorem cannot be used for the simulation of social change as it does not take into account the variety of factors that have an impact on the society at different periods of time.
With respect to the results of Rudra’s research, the application of the Stolper-Samuelson theorem is completely inappropriate. Since the low-skilled labor is the abundant factor in most developing countries, which is also indicated in the research by Rudra (Rudra, 2008, p. 32), this stratum must occupy a leading position in the society and have the possibility of exerting political influence on the government’s decisions. In reality, the low-skilled labor cannot secure a leading position as a result of disunity and a low level of education. Presumably, the most significant part of the society becomes the victim of the free trade policy as a result of the foreign trade liberalization.
In this case, the opposite process takes place. Owners of the capital, which is a scarce factor in most developing countries, become the leading power in the society and can obtain political support of their interests. Foreign investors become key players in developed countries, increasing the level of capital presence in the economy. As a result, the capital ceases to be a scarce resource and becomes a resource in excess.
The inability to use the Stolper-Samuelson theorem to explain the current situation in developing countries can be explained by the presence of two limitations. First, the theorem considers only quantitative features of the analyzed factors and does not take into account their qualitative characteristics. For the estimation of labor factor in developing countries, the most important features are its quality characteristics, namely the low level of skills and education. This circumstance does not allow workers in these countries to form unions and promote their political interests. Second, for the determination of the most significant forces in the society the theorem relies on the amount of resources that is present inside the country. Rogowski does not discuss an example in which the flow of resources into the country from outside can dramatically change the position of powers in the society. In modern developing countries, foreign investments have provided owners of the capital with major political positions in the society.
Assessment of Factors of the Globalization Results in the Society
Another important question is about which factors define personal assessment of globalization and the free trade effect. Mansfield and Mutz have conducted a research aimed at determining these factors. First of all, they examine the Stolper-Samuelson and Ricardo-Viner models of the free trade results evaluation. Since the Stolper-Samuelson model has been described in the previous section, it is necessary to explain the Ricardo-Viner or specific factors model. The basic assumption of this model is that production or factors are not mobile and cannot quickly move between sectors of the economy. As a result, personal preferences are based on the perspectives of the industry in which the person is currently employed. In contrast to the opinion of Rogowski who considers the Stolper-Samuelson model to be highly descriptive, Mansfield and Mutz (2009) criticize both of these models in terms of their adequacy to real estimations of the free trade by the society (p. 429).
Mansfield and Mutz highlight three key factors that affect personal estimations of the free trade policy: the person’s level of education, the character of the ideology in the community to which the person belongs, and assessment of the open market policies impact on the overall state of the economy. The level of education among workers is an important value in determining the open market influence on the economy and life of an individual citizen. In this respect, opinions of Mansfield and Mutz as well as Rudra are identical. Mansfield and Mutz (2009) also state that not only the education level affects personal estimation of the free trade policy, but also the “ethnocentricism, out-group hostility, or isolationist foreign policy tendencies” (p. 430).
It is also important to indicate that another logical connection between the works of Rudra and Mansfield and Mutz is based on the allocation of factors of education and impact of communities as a key variable. Since Rudra defines the education level as a necessary condition for the formation of labor unions, both of these factors are closely related and interdependent. It leads to the conclusion about the correct selection of them in one group.
Nevertheless, even though there are several contradictions and inaccuracies in the results of the discussed researches, the results are valuable in terms of finding relevant issues relating to the impact of globalization and free trade policies on the socio-economic situation of countries.
In summary, the reviewed studies contain many interesting conclusions and contradictions that can push on the right solution of the question presented in the study. Differences in the impact of globalization on developed and developing countries are objective and require further research to find ways to resolve negative influences of globalization in economically weak countries. Most of the issues raised in the selected researches are relevant and require further discussion to define the role of globalization in the modern world.