Globalization Essay, Problems and Solutions (Final Final Final)

Globalization is one of the most important driving forces of today’s economic growth. The world has been integrated closer as interactivity increases between borders. Compared to the past, traveling across the globe is an effortless affair. With the aid of Information Communication Technology, people can even communicate without having to travel. Economic activities like business meetings, the trading of goods and financial securities, such as, stocks and bonds have been enhanced with the Internet. However, globalization has negatively affected the world too. The integration of countries has caused systemic risk, defined as the adverse effect of an interconnected market, which can lead to the breakdown of the world’s financial system (Bernanke, 2009). This can be seen during the 1997 Asian financial crisis and the 2008 global financial crisis. Even though globalization has undoubtedly improved inter-countries’ trading and financial relationships, countries have ironically become more vulnerable to negative impacts of the economic system due to the close ties they share. Singapore shows how good governance and economic fundamentals can mitigate systemic risk, through two main solutions "Better institution and government policies", and "Good economic fundamentals".

Good governance will be able to protect the economy from unnecessary risks by implementing good policies. Goldin (2012) states that regulatory institutions need to improve themselves with the ever-changing dynamics of globalization to maximize gain and minimize losses. Governments need to ensure that citizens are well protected, as they are the main victims during a crisis. For instance, increasing immigration due to the forces of globalization has caused Singapore's housing prices to rise drastically. Investors have taken advantage of this situation and raised the housing prices to gain profit. This results in a huge housing bubble in the market and a crisis may occur if the bubble were to burst. In fact, this happened in America during the global financial crisis of 2008. Hence, to stop the growing housing prices, the Singapore government implemented cooling measures policies to ease the situation. Additionally, a competent government should have good foresight to safeguard its country from crisis. Therefore collaborating and sharing perspectives of good institution and governance between government bodies, which allow the levels of governance to be comparable, are essential to reduce negative shocks from happening around the world. In order to minimize systemic risks, individual government needs to do its part in ensuring that the risk of negative impacts in its economy is at its minimum, to prevent other countries from being affected.

The inevitability of systemic risk makes good economic fundamentals important to countries as they can use them to take advantage of crisis situations. During the global financial crisis 2008, Singapore was the first country in ASEAN to be affected due to systemic risk. With good economic fundamentals, however, Singapore managed to recover quickly with a growth of 14.5% in 2010 (CIA World Fact book, 2011).  It also seized the opportunity during the economic downturn to retrain its workers and restructure new industries during this period, taking advantage of the low production cost (Thangavelu, 2009). One example is during the period of financial crisis, the Singapore government introduced the workfare training support scheme to retrain its workers. While fighting against systemic risk is definitely not an easy task, countries could work together in sharing information on how fundamentals like taxation, exports and imports structures and employments structure of the economy should be built. Therefore, summits like the East Asia summit in 2013 are very important. One good example is during the recent summit, APEC leaders agreed to increase the economic opportunities for women through skills building. It is important for individual countries to increase their transparency in terms of their economic health in order for other countries to learn from them. The sharing of information is important for countries to build strong fundamentals for the economy to take advantage of crisis situations so that economies do not need to face extended period of recessions.

In conclusion, systemic risk is unavoidable as globalization occurs and countries integrate. Good government policies could help prevent citizens from suffering in a crisis, and building up good fundamentals of the economy could potentially save it from being affected for prolonged periods of time. Individual governments should weigh the positive and negative effects of globalization and decide if certain restrictions like trade tariffs against the forces of globalization should be set up.

References:

Boles, C. (2009, November 18). Bernanke offers broad definition of systemic risk-real time economics-wsj. Retrieved from http://blogs.wsj.com/economics/2009/11/18/bernanke-offers-broad-definition-of-systemic-risk/

Goldin, I. (2012, April 10). Governing globalization: jobs, equity and the management of systemic risks. Retrieved from http://www.ilo.org/jobspact/resources/WCMS_177476/lang--en/index.htm 

Johnston, B. (2013, January). Identifying and mitigating systemic risks : A framework for macro-prudential supervision. Retrieved from http://siteresources.worldbank.org/FINANCIALSECTOR/Resources/Session3RBarryJohnston.pdf 

Siong, O. (2013, September 16). Property cooling measures necessary to avoid major price correction: Mnd. Retrieved from http://www.channelnewsasia.com/news/singapore/property-cooling-measures/815458.html 

Thangavelu, S. (2009, January 5). Riding the global economic crisis in singapore. Retrieved from http://www.eastasiaforum.org/2009/01/05/riding-the-global-economic-crisis-in-singapore/

Globaledge: Singapore economy. (2011, December). Retrieved from http://globaledge.msu.edu/countries/singapore/economy

Ian goldin: Navigating our global future. (2009, October). Ted Talks. [Video podcast]. Retrieved from http://www.ted.com/talks/lang/en/ian_goldin_navigating_our_global_future.html

The world factbook: Singapore economy. (2013, August 22). Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/sn.html 

Ministry of Manpower, (2013). Workfare income supplement. Retrieved from website: http://www.mom.gov.sg/EMPLOYMENT-PRACTICES/EMPLOYMENT-RIGHTS-