Globalization is a term frequently used to help developing countries to move to a global economy by raising the flow of trade and capital. While globalization grasp a complex set of dynamics that bring opportunities for growth; it also compromise significant threats. The main emphasis of this paper is to discuss the effects of globalization on governance and welfare. Thus, I used the following definition to clarify the influence of governance in globalization: governance is the 'establishment of a set of policies, and continues monitoring of their proper implementation, by the members of their governing body of an organization. It includes the mechanism required to balance the powers of the members, and their primary duty of enhancing the prosperity and viability of the organization (' http://www.businessdictionary.com/definition/governance.html#ixzz2zgcpvosh) Another aspects of globalization had to do with the economic opportunity and the pressures that impose it on the nation to cut welfare expenditures and its contradiction for economic expansion. While, globalization has been providing to Ecuador the opportunity to increase capital, it also forced the government to cut back social welfare to aligned with the demands of the global market.
Recent decades, Ecuador has been emerging into a new world of globalization driven by neoliberal reforms such as free trade agreements, increase of capital mobility, and expansion of exports in natural resources to enhance social and economic development in the country.
During 1979 to 1995, Ecuador lived a trajectory of political instability that generated challenges between the legislative and executive power due to the economic crisis of the 80's which gave place to the decline of the exportation of oil, adjustments to agrarian reforms and land distribution, and the liberalization of policies including market liberalization, deregulation of labor among others. Also, the development of neoliberalism policies in Ecuador gave the opportunity to the private sector to mismanage the public sector investments. This involve reduction of the economic power of the State by privatization of state enterprises, downsize of public employees, fragmentation of tariff barriers, and uncertainty of national economy to a global market. All of these aspects caused a disproportional social-economic system and stagnated distribution of goods and services.
The global operations of multinational corporations (MNCs) have played a major role in the expansion of international trade and the emergence of regional trading blocs since the 1980s. Yet, despite the record profits that these MNCs have made in the last few years, investment in Latin America has not grown as much as inequality has. If the objective of the MNCs is to maximize profits as some people claim, then, a national government must have the power to regulate these MNCs and be able to channel some of the profits to the benefit of its people. But, according to the neo-liberal policies, a government must play a minor role in regulating the market, because it is assumed that the market regulates itself.
In addition, the economic meltdown of the 90's was the result of the accumulation of the external debt, high interest rates, inflation and devaluation of currency. The large deficit and the impact of oil prices, natural disasters like El Nino that caused enormous economic damages, territorial conflicts with Peru, and undervalued exchange rates impacted the infrastructure and production of the country giving favorable conditions for foreign exchange flows. The vulnerability of the banking system was the most critical during the economic crisis and to prevent hyperinflation Ecuador adopted the U.S. dollar to eliminate exchange rate risks, reduce inflation rates, and decline of interest rates. However, dollarization also introduced new reforms that provided incentives to private institutions, encouraging privatization of state enterprises by taking away the power of the government to finance its fiscal deficit. In other words, the government loss a degree of control for economic dependence over monetary and exchange policy and was obligated to find other resources of capital to maintain economic stability.
Through the economic crisis of the petroleum and the collapse of the national currency 'sucre', neoliberalism policies intensified the private sector for a modern society and attracted foreign investment along with the creation of control and competition of domestic and international markets. This economy theory gave opportunities to capitalist enterprises to centralize economic activities and political repression on large business owners rather than smallholding peasants.
On the other hand, the economic theory of neoliberalism and the belief of economic health and political freedom caused inequality on welfare and exploitation of economic development of the State.
The idea behind neo-liberalism is that the market operating freely and unencumbered by regulations, will allocate resources more efficiently than the state is able to, and it is assumed that this ultimately will benefit everyone, including the poor. However, after almost thirty years that Latin America opened up to the neoliberal policies there is no evidence that the market is regulating itself, instead as it was stated before, there is polarization, poverty is growing, and resentment towards globalization and the policies implemented by the IMF, the WB and other international Organizations (IO) can be seen all over the region, to the point that in the last seven years a good part of the region has turn to the left, which has been promising to regulate the role of MNCs, and financial institutions in the region.
In addition, The free market reforms imposed by the IMF and the World Bank during the transition of dollarization opened up new markets and promote temporary economic and social recovery. The dollarization helped the country to improve its bank liquidity and asset liquidity. On the other hand, the integration of the Ecuadorian national market to the global market created competition against developed countries, including privatization, reduction of the state employment and financial liberalization.
The improvements and advances of the economy of Ecuador were at the expense of the State in particular from the working class and by non-capitalist farmers. it is evident that 'the economic restructuring, liberalization, technological changes, and fierce competition, both in the markets for goods and labor, that went with globalization have contributed to increased impoverishment, inequalities, work insecurity, weakening of institutions and social support systems, the erosion of social identities and values. Liberalization and reduced protection of agriculture, by reducing agriculture supplies, the price of food, and the amount of money that food importing countries pay for their imports has increased.
By understanding the social changes that cause the neoliberalism system and the global market, it is evident that the most of the population in the rural areas need to choose between living conditions of the current place, migration to urban areas, or devote their working time to the capitalist enterprises to overcome the difficulties of neoliberalism policies. For those who decided not to leave from the rural areas have been converted in the working class of the capitalist enterprises prevail under poor working conditions with low wages, occasional payments and uncertain employment offers. Therefore, income has been concentrated in the upper classes and neglected the growth of human capital for the non-capitalist population.
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