Globalization

REVIEWED BY BEVERLY BIRD AND CAROL KOPP

Updated May 9, 2019

What Is Globalization?

Globalization is the spread of products, technology, information, and jobs across national borders and
cultures. In economic terms, it describes an interdependence of nations around the globe fostered
through free trade.

On the upside, it can raise the standard of living in poor and less developed countries by providing job
opportunity, modernization, and improved access to goods and services. On the downside, it can
destroy job opportunities in more developed and high-wage countries as the production of goods moves
across borders.

Globalization motives are idealistic, as well as opportunistic, but the development of a global free
market has benefited large corporations based in the Western world. Its impact remains mixed for
workers, cultures, and small businesses around the globe, in both developed and emerging nations.

Globalization

Globalization Explained

Corporations gain a competitive advantage on multiple fronts through globalization. They can reduce
operating costs by manufacturing abroad. They can buy raw materials more cheaply because of the
reduction or removal of tariffs. Most of all, they gain access to millions of new consumers.

Globalization is a social, cultural, political, and legal phenomenon.

Socially, it leads to greater interaction among various populations.

Culturally, globalization represents the exchange of ideas, values, and artistic expression among
cultures.

Globalization also represents a trend toward the development of single world culture.

Politically, globalization has shifted attention to intergovernmental organizations like the United
Nations (UN) and the World Trade Organization(WTO).

Legally, globalization has altered how international law is created and enforced.

KEY TAKEAWAYS

Globalization has sped up to an unprecedented pace since the 1990s, with public policy changes and
communications technology innovations cited as the two main driving factors.
China and India are among the foremost examples of nations that have benefited from globalization.

One clear result of globalization is that an economic downturn in one country can create a domino
effect through its trade partners.

The History of Globalization

Globalization is not a new concept. Traders traveled vast distances in ancient times to buy commodities
that were rare and expensive for sale in their homelands. The Industrial Revolution brought advances in
transportation and communication in the 19th century that eased trade across borders.

The think tank, Peterson Institute for International Economics (PIIE), states globalization stalled after
World War I and nations' movements toward protectionism as they launched import taxes to more
closely guard their industries in the aftermath of the conflict. This trend continued through the Great
Depression and World War II until the U.S. took on an instrumental role in reviving international trade.

Globalization has since sped up to an unprecedented pace, with public policy changes and
communications technology innovations cited as the two main driving factors.

One of the critical steps in the path to globalization came with the North American Free Trade
Agreement (NAFTA), signed in 1993. One of NAFTA's many effects was to give American auto
manufacturers the incentive to relocate a portion of their manufacturing to Mexico where they could
save on the costs of labor. As of February 2019, the NAFTA agreement was due to be terminated, and a
new trade agreement negotiated by the U.S., Mexico, and Canada was pending approval by the U.S.
Congress.

Governments worldwide have integrated a free market economic system through fiscal policies and
trade agreements over the last 20 years. The core of most trade agreements is the removal or reduction
of tariffs.

This evolution of economic systems has increased industrialization and financial opportunities in many
nations. Governments now focus on removing barriers to trade and promoting international commerce.

Globalization Advantages

Proponents of globalization believe it allows developing countries to catch up to industrialized nations

Outsourcing by companies brings jobs and technology to developing countries. Trade initiatives increase
cross-border trading by removing supply-side and trade-related constraints.

Globalization has advanced social justice on an international scale, and advocates report that it has
focused attention on human rights worldwide.
Disadvantages of Globalization

One clear result of globalization is that an economic downturn in one country can create a domino
effect through its trade partners. For example, the 2008 financial crisis had a severe impact on Portugal,
Ireland, Greece, and Spain. All these countries were members of the European Union, which had to step
in to bail out debt-laden nations, which were thereafter known by the acronym PIGS.

Globalization detractors argue that it has created a concentration of wealth and power in the hands of a
small corporate elite which can gobble up smaller competitors around the globe.

Globalization has become a polarizing issue in the U.S. with the disappearance of entire industries to
new locations abroad. It's seen as a major factor in the economic squeeze on the middle class.

For better and worse, globalization has also increased homogenization. Starbucks, Nike, and Gap Inc.
dominate commercial space in many nations. The sheer size and reach of the U.S. have made the
cultural exchange among nations largely a one-sided affair.

Real World Examples of Globalization

A car manufacturer based in Japan can manufacture auto parts in several developing countries, ship the
parts to another country for assembly, then sell the finished cars to any nation.

China and India are among the foremost examples of nations that have benefited from globalization, but
there are many smaller players and newer entrants. Indonesia, Cambodia, and Vietnam are among fast-
growing global players in Asia.

Ghana and Ethiopia had the fastest-growing African economies in the world in 2018, according to
a World Bank report.

Globalization is a term used to describe how trade and technology have made the world
into a more connected and interdependent place. Globalization also captures in its
scope the economic and social changes that have come about as a result. It may be
pictured as the threads of an immense spider web formed over millennia, with the
number and reach of these threads increasing over time. People, money, material
goods, ideas, and even disease and devastation have traveled these silken strands,
and have done so in greater numbers and with greater speed than ever in the present
age.

When did globalization begin? Many scholars say it started with Columbus’s voyage to
the New World in 1492. People traveled to nearby and faraway places well before
Columbus’s voyage, however, exchanging their ideas, products, and customs along the
way. The Silk Road, an ancient network of trade routes across China, Central Asia, and
the Mediterranean used between 50 B.C.E. and 250 C.E. is perhaps the most well-
known early example. As with future globalizing booms, new technologies played a key
role in the Silk Road trade. Advances in metallurgy led to the creation of coins;
advances in transportation led to the building of roads connecting the major empires of
the day; and increased agricultural production meant more food could be trafficked
between locales. Along with Chinese silk, Roman glass, and Arabian spices, ideas such
as Buddhist beliefs and the secrets of paper-making also spread via these tendrils of
trade.

Unquestionably, these types of exchanges were accelerated in the Age of Exploration,

The web of globalization continued to spin out through the Age of Revolution, when
ideas about liberty, equality, and fraternity spread like fire from America to France to
Latin America and beyond. It rode the waves of industrialization, colonization, and war
through the eighteenth, nineteenth, and twentieth centuries, powered by the invention of
factories, railways, steamboats, cars, and planes.

With the Information Age, globalization went into overdrive. Advances in computer and
communications technology launched a new global era and redefined what it meant to
be “connected.” Modern communications satellites meant the 1964 Summer Olympics
in Tokyo could be watched in the United States for the first time. The World Wide Web
and the Internet allowed someone in Germany to read about a breaking news story in
Bolivia in real time. Someone wishing to travel from Boston, Massachusetts, to London,
England, could do so in hours rather than the week or more it would have taken a
hundred years ago. This digital revolution massively impacted economies across the
world as well: they became more information-based and more interdependent. In the
modern era, economic success or failure at one focal point of the global web can be felt
in every major world economy.

The benefits and disadvantages of globalization are the subject of ongoing debate. The
downside to globalization can be seen in the increased risk for the transmission of
diseases like ebola or severe acute respiratory syndrome (SARS), or in the kind of
environmental harm that scientist Paul R. Furumo has studied in microcosm in palm oil
plantations in the tropics. Globalization has of course led to great good, too. Richer
nations now can—and do—come to the aid of poorer nations in crisis. Increasing
diversity in many countries has meant more opportunity to learn about and celebrate
other cultures. The sense that there is a global village, a worldwide “us,” has emerged.