Globalization: the Good, the Bad, and the Uncontrollable
Globalization: the Good, the Bad, and the Uncontrollable
As national economies continually grow and begin to intertwine, they create a global system of international economies known as globalization. Due to its modernistic and complex nature this term is better described rather than defined, but for the sake of argument the United Nations Development program defines it as: "The growing interdependence of the world's people. It is a process integrating not just the economy but culture, technology and governance. People everywhere are becoming connected-affected by events in far corners of the world". Financial institutions continually gain leverage of multi-national assets causing a strong opposition in fear of a global monopoly, while the prominent nations involved are slowly beginning to assemble a generally accepted code of ethics and reporting standards to mediate these growing concerns.
The idea of international trade is not a new topic; in fact it goes back hundreds of years to the East India Trading Company which connected trade between much of Europe and the East Indies. The problems that arose back then are much like those we face today, in which two rival companies merged into the Honourable East India Company (HEIC) to gain monopoly of the trading industry, often exercising military power and functioning as a governmental body. After a brief hiatus in international trade in the early 1900's, due to World Wars I & II, the more developed countries began evolving at a rate unimaginable to the third-world countries that lacked the infrastructure, capital, and reporting standards to be competitive in this worldwide market.
Supporters of globalization tend to be macroeconomists when they look at the greater economical profits and tend to be impersonal in their assessments. The framework of our own United States economy, founded on small businesses, is showing hesitation because they lack the ability to compete against foreign competitors that operate with higher outputs allowing them to spread fixed costs thin to become incomparably competitive. George Soros, one of the leading advocates for globalization, has focused his attention on the need for reform through his "Open Society Foundation". This ideology works to strengthen the boarder ties and combat corruption and false reporting.
To fight against false reporting led by the International Accounting Standards Board (IASB), has been continually formulating an International system of generally accepted accounting principles known as the International Financial Reporting Standard (IFRS). This board aims to refine current accounting standards to reflect changes from national markets to that of the global markets. For this IFRS has formulated two accounting models; financial capital maintenance in nominal monetary units, and financial capital maintenance in units of constant purchasing power (IFRS framework Par 104). These two models can be broken down even further into deeper underlying accounting assumptions such as; historical cost accounting and stable monetary unit assumptions to name a few. IFRS is continually growing support from global nations as they fight to construct generally accepted principles.
As of August 2008, 113 countries, including all of Europe, require or permit the use of IFRS. Approximately 85 of these countries require IFRS reporting in all of their domestic business activities. The United States SEC itself is slowly shifting from only allowing US GAAP with the goal of eventually converting to IFRS to promote international business. The SEC published a "Work Plan" in February 2010 as to when and how the current system of reporting should be transitioned to that of IFRS. The boards have planned for completion of their joint projects as early as June of 2011, even suspending other projects until this date.
Although there is no clear cut answer as to whether or not the push towards globalized markets will benefit the general public, there have been numerous precautions taken to prohibit financial injustices. While third world countries debate that this transition will push them further below the poverty line, many supporters question whether it is in fact the lack of capital or just the lack of will on their part. Globalization is a functioning being of its own much like every other market that currently exists, and as it goes through the peaks and valleys of the common business cycle all we and the IASB can do is strive to alleviate the complications that arise. All in all, for every decision made there is an opportunity cost and not all institutions can endure the misfortunes of competitive markets, but we can strive for a level playing field and fairness in competition because uncertainty is the only thing that remains certain.
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