Globalization changes the world

Globalization and its economic prospects for Russia

Author:Fakhraddin AkhmedovSection:Economy

Issue:October 2010, Vol. 5, No. 9

Tags:GlobalizationCompetitiveness

Experts are divided over the exact origin of globalization as a ‘business concept’ as it is used today to denote ‘internationalization of industrial processes’ in economies. Some see its origins from the extreme antiquity dating back to the end of the first millennium, when there were various empires such as the short-lived Empire of Alexander the Great and the powerful Roman Empire. Others see the birth of globalization in the second half of the first millennium, seeing its hallmark signs in the ways of trade, expansion of world religions; the third group sees its beginning in the era of great geographical discoveries, while the fourth group says globalization started after the industrial revolution.

Modern globalization is a process of forming a uniform business space and involves economic internationalization of goods, capital, labor force, information, exchange of cultures, management skills, etc. As a powerful unifying factor, globalization forces people to reconsider their attitudes to traditional forms and technologies for development of industrial production. All these factors, taken together, should and can provide steady conditions for ecological, social, cultural development for all countries and continents.

Globalization is connected with transfer of new economic and technological processes across national borders as interdependence of different countries’ economies and merging/expansion of national economies into multinational integrated structures become a daily routine. One of the greatest advantages of globalization is that it eliminates the barriers that hinder the free movement of capital, technologies, information, qualified labor forces and intellectual properties across national borders, while one of its biggest setbacks is that the growing interdependence also increases the vulnerability of global economy to local and regional instability.

Globalization radically changes countries’ factors of social and economic development as it envisages the creation of a more liberal system of values, which fosters a new cultural and legal environment that promotes sustainable economic development. National sovereignty loses its ‘absolute value’ as globalization creates a new world order, where international obligations and norms assume precedence over national interests.

Russia and globalization

The future of Russia as a modern nation directly depends on its involvement in the globalization process. The greatest difficulty for Russia is in the information and communication aspect of globalization as its large territory makes the process of effective dissemination of information, including official orders from the center to the regions, a serious challenge. Consequently, most information loses its actuality or even become simply outdated by the time it reaches its addressees. Today, a country’s competitiveness depends on its capability to provide its citizens, especially the intellectual and political classes, with comprehensive local and international information.

“One of the greatest advantages of globalization is that it eliminates barriers hindering the free movement of capital, technologies, qualified labor forces and intellectual properties across national borders.”

In conditions of complete globalization, no single country can form or create all the external conditions that are favorable for it. On the contrary, it should be able to realistically assess its long-term needs, problems, prospects and search for development opportunities within the existing external circumstances. Russia occupies a very specific place in the global economy, participates along with the most advanced nations in an outer space exploration.

Russian culture continues to make a valuable contribution to the development of civilization; the huge potential and capability of its sciences are powerful forces of economic development. But at the same time, Russia is lopsidedly dependent on its natural resources and raw-commodity exports, lacks competitiveness in its domestic production, and has low living standards that exacerbate the country’s already catastrophic demographic trends in general and the quality of such parameter as human capital in particular.

Russia faces a series of extremely difficult dilemmas. Russia, by historical traditions and geography, but mainly because of its powerful nuclear potential, belongs to the class of superpower nations. The external attributes of this status is its membership of the UN Security Council, G8, G20, the Russia-EU summits, etc. However, in terms of economic potential, Russia is at the bottom part of the so-called ‘Second World,’ despite its possession of a number of unique technologies and still being the best in terms of education in this group.

However, in terms of participation in the information revolution and internalization of production processes and capital, Russia lags far behind the leaders of the ‘Second World.’ Strategically, Russia has historically always aspired to be among the advanced Western world. It is obvious that in order to maintain its core national interests in the increasingly globalized world, Russia needs to significantly boost its presence on the global arena that will enable it to play a much more crucial role in the definition of its prestige and influence than before. In this connection, the government should create and execute an information strategy to improve the country’s international image abroad.

The pros and cons of globalization for Russia

There are both positive and negative points of view on globalization processes in Russia. For instance, the ‘Agreement on Partnership and Cooperation’ signed between Russia and several countries envisages long-term cooperation in various spheres of activities and familiarization of Russia with general rules of international trade, and this, in turn, has opened up new opportunities and perspectives for the signatories to this pact. These include help from the EU in carrying out social and economic programs, creation of a unified legal space and joint bodies for solving common problems, etc. All this indicates the creation of preconditions to form an association at a macro-level, which though is very important, but it also inadequate.

It is necessary to adopt more steps at the micro-level as a basis for boosting globalization of processes. This is because globalization of international trade, especially if a country’s goods and services are very competitive, is, certainly, a positive trend. On the contrary, if such country does not produce competitive goods, then globalization of foreign trade activities becomes a threat not only to its economy, but also to its sovereignty as a whole. This problem is an actual one for today's Russia, especially in connection with its possible admission into the WTO. 

“Russia’s choice has never been whether ‘to be a part of’ or ‘stay outside’ of globalization. The choice was, and still essentially remains, how it can to do so consciously, with the full understanding of its interests and purposes, as well as its strengths and weaknesses in the globalization process.”

Some Russian experts also highlight the negative sides of globalization. Their basic idea is that a much broader capitalist system, built on the principle of a ‘center-periphery’ symbiosis, was created after the collapse of the Soviet Union. This symbiosis, in their opinions, is openly parasitic from the side of ‘the center,’ as the resulting mutual relationship is not based on an parity principle between those in the center and periphery of this relationship.

Analysis of the current globalization trends has definitely shown that Russia will not be at the center of the world economic system, but at the periphery, and this means its liquidation as a country, unique culture and most likely, also the physical destruction of the majority of its population. Forecasts of acute demographic declines in Russia continue to be negatively persistent, a fact confirmed by the negative dynamics of all the key empirical parameters in the last ten years.  

Full integration into the system of global market economy, even as an outsider, is possible only in the event that a country’s economy satisfies certain conditions. First of all, it should be able to produce an amount of additional products that exceeds a certain minimum level. For regions that are unable to reach this level, the concept of ‘a majority that does not need to be maintained’ will come into play.  In Russia, the cost of additional product and capitalist rent has always been low due to geographical and climatic conditions. Under such circumstances, experts fear that Russia’s participation in globalization could be reduced basically to the exportation of its abundant raw materials.    

Globalization was initiated and put into practice by some transnational business circles in Northern America, Europe and Japan and it, first and foremost, specifically meets the economic needs of these countries. The most effective application of globalization is being done by the United States that is actively tapping people, information, capital and other resources from across the globe for its economic prosperity. Russia’s goal is not to oppose the United States and other leading Western countries in their attempts to use globalization to maximally secure their national interests. Quite the contrary, Russia should focus the thrust of its foreign policy into seeking a niche in the globalization processes that can help foster its long-term, stable development as a nation.

Russia’s role as seen by the West in modern globalization

In terms of economic globalization, Russia is, first and foremost, seen in the West as a buyer and/or consumer of finished western-made products/services, whose aggregated revenue depends on two-three main commodity groups that are highly sensitive to price fluctuations and other negative trends on the world markets. From here, the main strategic goal for Russia’s foreign policies is to seek for ways for increasing the share of manufactured industrial goods in its export portfolios by using high technologies and innovative solutions.

This will not be a simple task, if taken into account the facts that country’s current industrial capabilities from the Soviet era have yet to be upgraded and updated, especially as their depreciation rates have long overshot 70% of their inbuilt potentials. Besides, Russia has irretrievably lost most of its Soviet-era industrial research potential and expertise. Indeed, according to estimations, only about just 6% of Russia’s gross industrial output in the manufacturing segments of its economy can fully compete on an equal footing on the world markets.

However, with the help of additional efforts and huge financial support, it is still possible to fully ‘reanimate’ a number of Russia’s industrial productions that have unique technologies and world-level inventions as well the required level of experts and other highly skilled workers. It is a known fact that in conditions of economic globalization the capability to create and generate intellectual rents from unique technological innovations that others don’t have has long become a major determining factor in a nation’s overall competitiveness and ability to extract maximal benefits from its participation in the international division of labor within the frameworks of economic globalization.

In this context, Russia’s foreign economic strategy should not be reduced to simply making exportation of raw-materials its main source of economic growth. This is why it is crucial for a country with a large population, territory and industrial potential like Russia to focus its attention on the development of its domestic market and constant growth in supply and demand of quality goods and services. It is only via the development of its domestic market and competitiveness that Russia can occupy worthy positions in global trade.

“The main thrust of Russia’s foreign policy in the process of globalization should be to seek such a niche that will enable it to achieve long-term, stable development as a nation in this global process.”

This competitiveness will be boosted, first of all, by successfully reforming all parts of the nation’s economic mechanisms, optimal combination of the state’s regulatory roles with the concept of market self-regulation. The success of such reforms will be determined by how the newly created economic mechanisms are capable of stimulating innovative activities, people’s creative energies to promote science, education, strengthening of health as well as opening accesses to information and culture. All this will help catalyze sustainable economic growth and significant improvement in people’s living standards.

To form such a strategy, it is necessary not only to recognize the key characteristic features, trends and advantages of globalization, but also to put them into proper use. Already, in the beginning of 21st century, some countries are leading these trends, while a number of others are currently ‘at the catching-up stage’ in their movement toward the ‘so-called point of irreversible changes’ or the ‘Tipping Point.’ Standing above this critical point are the new economy,  new society, new social relations, new level of political and economic management, while below it are the old ways of life - the old economy, old public relations, etc.

Russia’s position today is transitional, and therefore, could still miss the opportunity to pass this Tipping Point. According to economists, the opportunity for Russia to make up for the lost time can last only for 5-7 more years, which is a very much limited timespan, after which this chance will be lost forever. Therefore, Russia’s choice has never been whether or not to ‘to become a part of’ or ‘stay outside’ globalization. The choice was, and still essentially remains, how to join it consciously, with the full understanding of the interests and purposes, strengths and weaknesses of modern Russia in globalization. It is very important for Russia not to build illusions about the world and its international partners, and also for it to fully comprehend the timeframe for it to actively eliminate the existing systemic weaknesses in the country and its economy. The alternative to this will be for it to continue to go downstream and be involved in globalization by force of inertia and/or circumstances.

Therefore, being a part of globalization does not only envisage mere participation in its various parts and directions, but also the creation of such a society that would recognize and realistically evaluate globalization and its consequences, boost national self-consciousness and self-esteem, help attain the country’s goals, including drafting policy for measuring the fulfillment of the criteria of a globalized world. The general conclusion that can be made from the analysis of the contemporary situations in Russia is that objectively the country can participate in globalization, but subjectively, it is not yet ready to do so. Such position will not allow it to occupy a worthy place among today’s world leading nations.

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Globalization and Anti-globalization

Definition

Name for the process of increasing the connectivity and interdependence of the world's markets and businesses.

This process has speeded up dramatically in the last few decades as technological advances make it easier for people to travel, communicate, and do business internationally. Two major recent driving forces are advances in telecommunications infrastructure and the growth of the internet. In general, as economies become more connected to other economies, they have increased opportunity but also increased competition. Thus, as globalization becomes a more and more common feature of world economics, powerful pro-globalization and anti-globalization lobbies have arisen.

The pro-globalization lobby argues that globalization brings about much increased opportunities for almost everyone, and increased competition is a good thing since it makes agents of production more efficient. The two most prominent pro-globalization organizations are the World Trade Organization and the World Economic Forum.

• The World Trade Organization is a pan-governmental entity (which currently has 159 members) that was set up to formulate a set of rules to govern global trade and capital flows through the process of member consensus, and to supervise their member countries to ensure that the rules are being followed.
• The World Economic Forum, a private foundation, does not have decision-making power but enjoys a great deal of importance since it has been effective as a powerful networking forum for many of the world's business, government and not-profit leaders.

The anti-globalization group argues that certain groups of people who are deprived in terms of resources are not currently capable of functioning within the increased competitive pressure that will be brought about by allowing their economies to be more connected to the rest of the world. Important anti-globalization organizations include environmental groups likeFriends of the Earth and Greenpeace; international aid organizations like Oxfam; third world government organizations like the G-77; business organizations and trade unions whose competitiveness is threatened by globalization like the U.S. textiles and European farm lobby, as well as the Australian and U.S. trade union movements.