Consequences Of Globalization Within The Gcc Countries Economics Essay

Introduction

Globalization is a phenomenon that has resulted from years of technological process, societal advancement, economic development and innovation. Essentially, this process entails the interaction of economies through the channels paved by trade and capital movements across international borders. Where the globalization phenomenon primarily reflects strong trade relationships, it also brings concepts of technology transfers, labor migration, political cooperation and cultural exchanges alongside. In the 1980s, the world saw revolutionary technological advances that enabled economies to enhance bi-lateral trade and financial flows to the extent that trade within global markets attracted the attention of numerous policy makers all over the world. High-geared competition, specialization and efficiency mechanisms were all linked to this growing phenomenon of globalization. Today, three decades later, we can build up an effective analysis to determine the exact impact of globalization on countries that have long been part of its processes.

For this analysis, we look at the countries within the Gulf Cooperation Council, which includes member countries UAE, Qatar, Bahrain, Kuwait, Oman and Saudi Arabia. The GCC is an example of trading blocs like the European Union, which essentially invites regional cooperation by countries located in a close geographical proximity with similar cultures, economic conditions and trading practices. It is interesting to analyze the effects of globalization on these economies because of their political structures, nature of trade activities and multicultural societal structures. In general, the GCC countries are oil-exporters, with a very low level of diversification into producing other goods and services for trade; the population of natives in these countries is lower than the migrant population and their political structures are skewed towards non-democratic arrangements. It is often said that these economies are still transitioning from traditional societies to modern ones, but in the process have taken huge advantages of technology improvements in the world by investing in huge infrastructures and technology centers for their respective countries. Given this cultural and economic background, we look at the specific impacts that globalization has had on the GCC countries.

GCC and the World Economy

Despite a limited mix of goods and services for export, the GCC countries have well-integrated themselves in the world market. While they export crude oil, these countries are heavy importers of machinery, capital goods and consumer goods, which have increased their share of foreign trade in GDP substantially. According to Yousif (2009), the openness ratio (that measures imports and exports collectively, of a country) of the GCC bloc was an overwhelming 78%, approximately. The reigning governments of the member states of the GCC council have not limited the scope of investments to importing machinery or other capital goods. They have explored world markets for good investment opportunities, and invested their petro-dollars all over the world, especially in industrialized countries. We have already determined that globalization not only brings increased trading activities, but also heavy prospects of labor migration. The GCC bloc is a good example of labor migration; as high as 72% of the entire labor force of these countries constitutes of international migrants according to Yousif, (2009). This high level of integration, however, has not been able to realize significant gains for the GCC countries in terms of major economic indicators.

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In the 1970s, following the price hike of oil products in the world market, the GCC countries benefitted and experienced high levels of economic growth. However, they were not able to sustain this level of growth to an extent that their real GDP did not increase at all in the following two decades. The point to note here is that growth prospects of the GCC countries are in sync with prices of oil in the world market, and nothing else. This is alarming because these countries have accepted integration mechanisms into the world market, and yet have not been able to take enough benefit out of them.

1.3 Trends in Trade and Investments and Unemployment

Although rising trends in globalization have substantially increased the volume of trade between the GCC bloc and the rest of the world, the GCC countries have lagged behind in the field of diversification. Nevertheless, over the past few decades, these countries have taken some measures to diversify their economies and not relying only on oil and gas products. A lot of these economies, especially the UAE and Qatar have invested heavily in health and education systems by encouraging foreign universities and hospitals to open campuses in their countries. Many manufacturing industries have also been set up, complemented by newly built heavy infrastructures, which produce manufactured goods for the international market. Some GCC members have taken policy measures to attract other forms of foreign investments in their respective countries. Despite all these measures and a general diversification strategy, there is much evidence on the fact that these countries still remain dependant on oil and gas products to an extent that these economies are not likely to sustain if they run out of fossils. Despite efforts, the level of foreign direct investment in these economies is not substantially large, which can be attributed to weakly drafted policies for foreign businesses. For instance, property rights are not correctly defined; macroeconomic stability is not consistent and there are several restrictions on the ownership of businesses by foreign businessmen. These discouraging elements have obviously corroded the possibility of heavy investment flows in the country, which is unfortunate for countries like the GCC, which seem to be heavily integrated in the world economy. The employment situation in these economies also needs to be looked at for the purpose of this analysis. The effects of globalization in terms of labor migration are highly prominent in the GCC trading bloc. This in turn has an adverse affect on the employment prospects of the nationals of these countries. The 1970s oil price hike resulted in mega developmental schemes by the rulers of the GCC countries. In order to be able to complete these plans, these countries required a huge chunk of international labor force, which started to pour in from all corners of the world. The educational conditions at home were not too promising. Most of the local labor force eventually ended up getting government jobs, and could not adopt new skills due to a lack of exposure of working in private enterprises. This caused growing unemployment among GCC nationals, starting the 1990s and continuing forward in the following decade. This flow on international migrants through mechanisms of globalization is not so beneficial for the local labor force, and policy measures need to be taken to train and educate the locals, so that they can contribute to the economy effectively in the future.

1.4 Globalization and Socio-Cultural Influences in GCC Countries

The socio-cultural impact of globalization has been massive for traditional societies like those of the Gulf Cooperation Member States. For starters, the effects of consumerism are evident in these areas with the inflow of goods like modern televisions, cell phones, latest cars, designer wear, etc. For societies that have historically been heavily influenced by cultural and religious traditions, these countries are now in states of transition to a more modern way of living. While some GCC states welcome a modern era in their country’s history, others remain rigid. Not only has technology and the media influenced the societal structures of these societies, the large inflow of migrant workers has also had its share of influences. It goes without saying that young migrant workers have been absolutely imperative for the growth of the GCC economies, but their cultural influences have brewed debates about their impact on the traditions of these traditional societies. It can be safely assumed that this transition has generated an identity challenge, where the governments are struggling to find a balance between old traditions and modern day practices.

1.5 Impact on Political Structures

The spread of capitalism complemented by improvements in communication technology, education and the media have had a social and economic impact on the societies of GCC countries. Where these cultures of globalization are being adopted by the GCC population, there is an obvious pressure on governmental institutions to change their existing political systems. Some of the countries within the GCC have attempted to introduce a controlled democratization process as a part of the political reformation process; however, the nature of the political regimes in these countries remains “Sultanistic”. Despite absolute control lying with the ruler, these countries have had to witness a two-way effect of increasing globalization. At one end, modern values through the extensive use of media and information technology are being inflicted amongst the GCC population, which is raising the question of democracy and the existing authoritarian structures of these countries. On the other end, growing technology and increased foreign interactions have sparked the views of fundamental traditionalists. This conflict is alarming for the ruling governments, which are already facing issues due to the non-sustainability of the “no taxation” scheme. Due to increased globalization and consequent information technological advances, people are becoming more politically aware of the state’s promise to fulfill the “no taxation” slogan. On the other hand, increasing population mixed with stagnant oil prices is constantly making it hard for governments to fulfill their promises with. The states are thus moving towards the notion of privatization for the purpose of providing a stimulus to the employment and GDP levels of their economies. Privatization in turn has put pressure on the ultimate might of the ruling government, due to the emergence of strong business forces. The economy of Dubai is an example of the domination of private enterprises in an economy. Thus, it is not entirely ambitious to conclude that the trends of globalization are re-defining the political structures of many GCC countries today.

1.6 Concluding Remarks

Globalization has had a notable impact within the countries of the Gulf Cooperation Council. Growing integration of these economies with other economies of the world has enhanced educational standards, improved women participation in the labor force, increased access to newer forms of technologies and given the GCC population an open access to the markets of the world. Globalization has largely revolutionized trading practices of the world, and the GCC countries are now on board to make necessary changes to remain in lieu with this changing environment. However, the GCC countries are still largely dependent on oil and gas exports around the world, which can be an alarming notion in the future. Diversification into other portfolios is not large enough to support these economies in the long run when fossil products are finished. Some states are making viable efforts to bring in foreign investments and businesses into their countries, but in order for foreign investment to be substantial enough; these states need drastic policy changes that are conducive with a sound business environment. These Gulf economies need to re-define development strategies and simultaneously educate the local labor force so that local unemployment is not seen as a major problem. Given the socio-cultural effects of rapid globalization, there is a growing dilemma among these traditionalist societies of adopting modern way; but to stay at par with other economies in this globalized world, these GCC countries need to inflict some degree of flexibility in their mechanisms and prioritize the changes that they are willing to accept.