Is Globalization to Blame for the Economic Crisis ?

The global economic crisis that started in 2008 has engulfed the entire world and has laid waste to the process of globalization that was blamed by many as being the root cause of the crisis. After the American Investment Bank, Lehmann Brothers filed for Bankruptcy in September 2008, the entire global financial system was at the risk of collapse because of the integrated and interconnected nature of the global economy. This prompted questions as to whether this heralded the end of globalization.

Many experts pointed to the fact that the crisis that was made in the US had impacted all the countries merely because the processes of globalization have meant that if the US sneezes, the rest of the world catches a cold. Hence, the backlash against globalization grew in many countries across the world since the phenomenon was widely seen as contributing to the impoverishment of many at the expense of a few.

However, it would not be fair to say that globalization alone is responsible for the crisis and individual governments had a role to play in ensuring that their economies were well regulated and insulated from global shocks. This line of thinking holds the view that though the global economy is integrated, a mixture of policies designed to keep the flows of hot money and capital in check and ensuring proper regulation would have gone a long way in insulating the economies of the world from the aftershocks of the global economic crisis. Further, instead of kneejerk reactions, governments across the world could have seen the crisis coming as it was building up since early 2007. Hence, the point here is that instead of blaming globalization alone, individual culpability could be blamed as well.

However, the rise of protectionist tendencies in many countries in the world point to the fact that globalization has contributed to some aspects of the crisis. For instance, the trading of derivatives that are modeled on risk and return algorithms coupled with excessive greed and risk taking has meant that the countries that allowed global financial flows were affected once the derivative market collapsed. Indeed, this is definitely a drawback of the global financial system as it exists today because the close connections between the economies of the world has meant that disturbance in one part of the global economy rapidly spreads to the other parts of the system.

Finally, while it is true that globalization played a major role in spreading the effects of the global economic crisis across the world, it is also the case that once steps were taken to prevent the crisis from accelerating, the global economy pulled back from the brink. If there is a lesson for all of us in this experience, it is that we should open our doors to the winds from all countries but we should refuse to be swept away by them. Hence, while welcoming globalization, we should also insulate ourselves from the pernicious aspects of the phenomenon.


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Globalization