Economics 3114---- International Finance Lakehead University Fall 2006 Hamza Ali Malik Sample for Introduction with Annotated Bibliography Sample Topic: Globalization and the Role of State: Social and Political Implication of the East Asian Crises In the wake of the recent East Asian crises, "Globalization" has become an even bigger buzzword than it has ever been before. It encompasses a whole range of issues from the social, political, economic and of course the technological arena. The obvious question then is what constitutes globalization and what are its benefits and consequences, if any? Simply put, globalization is defined as the internationalization of goods and services, which includes the dismantling of trade barriers and the de-regulation of the flows of goods and finance. It constitutes capital and financial mobility across the world and rapid technological advances in terms of high-speed digital communication networks, satellite channels, and of course the increasing use of the internet. The consequences of globalization include falling transport costs and efficient communication networks, which allows firms to locate different parts of their production processes in different countries. Firms can therefore take full advantage of the lower costs of production and thus overcome geographic barriers. Whether this is beneficial in terms of cheaper commodities available to consumers worldwide, or harmful, in terms of growing wage inequalities and outsourcing, is still a highly debatable issue. With the onset of this global phenomenon, there is also debate about the challenges that state sovereignty faces in this highly globalized world. Do governments still have control over their economy in this highly integrated world? It is generally believed that governments are now scrambling to maintain their international competitiveness. They are, in this process, loosening their grip on their economies and retreating from their traditional role of providing social safety nets and moderating negative outcomes of the market. Once again, whether this is beneficial in terms of letting market forces determine its own efficient equilibrium, with no government intervention, or harmful in terms of reduced social welfare programs for the unemployed, is again a highly debatable issue. 1
For the purpose of this essay however, the main issue is globalization, the state and their role with respect to the East Asian crises. The object is twofold; the essay will argue that it was in fact the very essence of globalization that left the East Asian countries vulnerable to the financial crises. It will also discuss the role of the state, in particular, the issues surrounding the theory of 'crony capitalism' in facilitating the crises. Lastly, in order to gain a complete insight into the crises, it is also important to note the effects of the economic crisis spillover and worsen into a social crisis manifested by the increase in unemployment and poverty. The essay then, will begin by giving a brief overview of globalization and its consequences, and will also provide the alternative view that globalization has not had as big of an impact as is generally perceived. It will then go on to describe the East Asian crises, which occurred due to the inherent vulnerabilities in the face of globalization. Section II will discuss the role of the political state in facilitating the crises, and will provide the alternate view that there is no rigorous proof that 'crony capitalism' was the main cause of the crises. Finally the essay will conclude with a discussion of the resulting social impacts of the crises. 2
Annotated Bibliography 1) - Wiess, Linda, (1999), "State Power and the Asian Crises", Working Paper in the Institute of Globalization and the Human Condition. McMaster University. Hamilton, Ontario. The above paper provides a comprehensive and detailed analysis of the political and economic issues involved in the East Asian crises. It discusses the role of the state, in the two theories of too much and too little government intervention, it discusses the Thailand, Indonesian and Korean crises in detail and the role of the international power actors (US and IMF) in deepening the crises. I will derive most of my information from this paper as it directly pertains to my topic. 2) - "The Hitchhikers Guide to Cybernomics", (Sept. 28`',1996), The Economist. This paper provides useful statistics and facts about the impact of globalization on the world today. It discusses the role of Information Technology, the growing wage inequality between the skilled and unskilled workers, and the comparative disadvantage of developing countries with respect to education and infrastructure in this globalized world. I will be using most of the statistics and facts from this article when describing "globalization". 3) World Bank (1998), "East Asia: The Road to Recovery", (1998). Washington D.C. This World Bank publication about East Asia gives a brief overview of the East Asian currency crises. It gives numerous statistics about the growth rates of loans, debt, poverty and other social indicators such as life expectancy. It examines the way in which the economic crises spilled over into a social crises and this will be extremely relevant in my discussion of the social impacts of the crises. 4) - Krugman, Paul (1999), The Return of Depression Economics, New York: W.W. Norton and Company. This book discusses in detail the East Asian financial crises, together with the role of the International Monetary Fund during the crises (negative). It also has a comprehensive discussion about the role of the state during the crises, especially with respect to the Malaysian Prime Minister, Dr. Mahathir. With regard to my paper, this book will be helpful as it provides a comprehensive analysis about the vulnerability of the Asian economies to speculation and contagion. 5) - Rodrik, Dani (1997), "Sense and Nonsense in the Globalization Debate", Foreign Policy, Summer. The above article debates about various issues pertaining to globalization. It discusses whether it is a source of economic growth, or whether it is a threat to social stability or 3
whether national governments a powerless in the face of globalization. For background information about the issues surrounding globalization this article will prove to be extremely helpful. 6) - Lee, Eddy, (1999), The Asian Financial Crises: The Challenge for Social Policy, Geneva: International Labour Office. This book analyses the social impact of the Asian financial crises and its policy implications. It discusses the massive rise in unemployment and poverty in Korea, Thailand and Indonesia, together with the ways in which various policies can be used to contain these social costs. This book will prove to be extremely useful to me especially in the section about the social impacts of the crises. 7) - James, William, E. et al, (1989), Asian Development: Economic Success and Policy Lessons, London: University of Wisconsin Press. This book gives a comprehensive and detailed analysis about the development performance of South Asian countries, amongst others. It discusses trade policies, financial development, external debt and human resource development. Although this book does not pertain directly to my topic it will provide important background information about the state of the East Asian economies before the crises. 8) - Rodrik, Dani (1997), Has Globalization Gone Too Far, Washington D.C.: Institute for International Economics. This book provides necessary background information about the debates surrounding globalization. It discusses the consequences of trade for labour markets, in that, while increasing trade and capital and financial mobility, there is growing tension between globalization and social stability, especially the maintenance of social welfare systems by the government. Regarding my introduction about globalization, this book will prove to be very useful. 9) - Soros, George, (1997), Speech: Towards A Global Open Society. The above reference is a speech given by the financier George Soros. His speech outlines the negative impacts of globalization in terms of inequality in the benefits of globalization across the world, financial instability, and the rise of monopolies. He also discusses the role of the state, and condemns Dr. Mahathir for his role in the Asian crises. For direct references and quotation, this will be a relatively useful resource. 4
10) International Monetary Fund, (1997), World Economic Outlook Interim Assessment, December, http://www.imf.org/extemal/pubs/ft/weo/weo1297/index.htm The above publication by the International Monetary Fund provides an analysis of the Asian crises. It examines the background to the difficulties that arose and discusses the states of the growing contagion within Asia. It gives a detailed chronology of the evolution and onset of the crises, beginning in Thailand and spilling over into Hong Kong and Singapore. Once again, I will derive most of my facts from this publication. 11) - International Monetary Fund, (1998), "Global Economic Prospects and Policy Considerations", May, World Economic Outlook, http://www.imf.org/extemal/pubs/ft/weo/weo0598/index.htm This publication discusses the financial turmoil in Asia, outlining internal and external factors that led to the spillover and contagion among the countries involved. It discusses factors such as external debt, long maintenance of fixed exchange rate regimes, excessive exposure to foreign exchange risk in both the financial and corporate sectors, and weak government directed lending practices. For my discussion about the causes of the crises this publication will prove to be extremely useful. 12) - Williamson. John, (March 1998). "Learning From East Asia's Woes". Institute For International Economics. http://www.iie.com/testmony/jwlearn.htm This article discusses the major factors that lead to the Asian crises, including the issue of "crony capitalism", which is the favouring of particular enterprises controlled by the friends or relatives of the politically powerful. With respect to the role of the state in the crises, the issue of crony capitalism is extremely important and thus this article will prove to be extremely beneficial for my essay. 5