Liberalization and Globalization are the terms used in the context of a country opening up or relaxing certain restrictions with respect to the country’s terms of trade with other countries of the world. Globalization and liberalization are two of the main pillars on which the country’s economic growth and development are dependent as in today’s world where due to technology everything is interconnected no country can afford to neglect both these economic terms, however, there are many differences between the two. Let’s look at some of the differences between liberalization and globalization –
Liberalization VS Globalization
Meaning
Liberalization refers to that method or process by which the government of the country eases restrictions on doing business by private companies by systematically reducing government stake in the various business while globalization refers to that process by which the country opens up its economy for foreign companies and investors so that country can have increased participation from foreign investors and funds.
Reason for Doing
Liberalization is done primarily to reduce the bureaucracy and red-tapism which is associated with government handling the companies as private companies tend to have a more professional approach when it comes to running a business which in turn results in an increase in efficiency while globalization is done with the objective of increasing the foreign exchange reserves, greater employment opportunities and ensuring that people of the country get goods and services from across the world at competitive rates.
Example
An example of liberalization is when suppose the government is handling the telecom sector and it gradually allows the private companies to bid and enter into telecom sector or banking sector where the government allows private and foreign banks to operate in the financial sector while an example of globalization is when the government allows multinational companies to operate and compete with domestic companies or reduce restrictions on foreign institutional investors investing into real estate or stock markets of the countries.
Competition
In the case of liberalization, the competition is between the private companies and government companies and it is up to the consumer whether it wants to avail services from government companies or private company but when it comes to globalization the competition is between domestic companies and global companies and hence one can say that while liberalization has less fierce competition due to presence of fewer competitors while globalization has more fierce competition due to presence of multiple players.
Internal and External
While liberalization is more of an internal matter as it involves the government relaxing restrictions on doing business by private companies in sectors that are wholly owned by the government while globalization is more of an external matter as it involves the government allowing foreign and multinational companies to operate as well as compete with domestic companies.
Negative Impact
The negative impact of liberalization is that government control over strategic areas in which it has decided to liberalize falls and private companies control rises leading to an increase in wealth of few individuals which in turn widens the gap between rich and poor besides private companies unlike government companies always work for profit rather than fulfilling social responsibility when it comes to globalization its negative impact is the exploitation of developing nations by developed nations in the name of technology and foreign investments, besides it also poses risks to domestic industries and companies as foreign companies due to their size and operations have better margins which cannot be matched by small local companies.
As one can see from the above that liberalization and globalization aim is to improve the country’s gross domestic product as well as per capita income of the country but at the same time there are many differences between the two and that is the reason why any country should first look at the above differences and then only should decide whether it wants to go for liberalization or globalization or both.