When we talk about globalization, many people don’t seem to realize is that it’s not actually a man-made phenomenon but rather we evolved into these conditions. We live in a globally interconnected world that is mutually complementing. Because countries have always been interdependent, we cannot reverse the process of globalization. To have a thorough understanding of its effects, one must take a closer look at the different areas of society that are affected by this process.
What is globalization?
It is a process of interaction and integration where people, businesses, and governments of different countries come into increasing contact with one another. It is the growing interdependence of the world’s societies. This process is driven technology, international trade, and investment, and it has its impact on the environment, culture, economic development, political systems, and the general well-being of humans.
When did globalization start?
Globalization has affected people and communities across the globe and it has become a controversial issue that is widely debated in the public sphere. Depending on the interpretation of this phenomena, some historians argue that at least some form of globalization has been in existence since the trading between Sumer and the Indus Valley Civilization during the Bronze Age in the 3rd millennium BC. If we adopt a stricter definition of the concept, globalization started in the 15th century when Portugal and Castile sent the first exploratory voyages to the Cape of Good Hope and the Americas.
The history of globalization can thus be divided into three periods:
- 1.0 which spanned from 1492 to 1800 and involved the globalization of countries
- 2.0 from 1800 to 2000 which involved the globalization of companies
- 3.0 which started from 2000 until the present day and involves the globalization of individuals
Today, it has become a buzzword with mostly positive connotations such as the increase in the exchange of knowledge, trade, and capital around the globe that are driven by technological innovations such as shipping containers and more recently the internet. Globalization is considered to enrich the world both culturally and scientifically as well as benefit most people economically. The United Nations has gone as far as to predict that this process may have the power to eliminate poverty in the 21st century.
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Negative effects of globalization
But not everyone agrees with the positive impact of globalization. It has received harsh criticism, in particular from those who oppose the free market economy. The likes of Joseph Stiglitz and Ha-Joong Chan have claimed that globalization doesn’t reduce poverty but in fact preserves it. Even the International Monetary Fund (IMF) has stated that the introduction of new technology and investment of foreign capital in the developing countries may have increased the level of inequality. According to IMF, only a relatively small number of countries are enjoying the benefits of globalization. And the negative effects have been observed in developed countries as well. This mainly concerns companies that have moved their production to cheaper countries, a phenomenon that has resulted in a negative impact on employment in developed countries. The question that arises is whether the benefits outweigh these disadvantages.
What are the drivers of globalization?
In general, three factors have been identified as the main drivers of this process:
Technology has a special role in the globalization process. Many believe that technology is the number one driver behind it, making easier for people, goods, and ideas to move across borders. The development of transportation technology, for example, has made it possible to move vast amounts of products and people in a short period of time. Automation enabled an increase in the production and flow of goods and services, while telecommunications allowed people to exchange information in a matter of seconds. The effect of trade is mainly based on its ability to strengthen interdependence between different countries. In today’s world, it has become almost impossible to be completely self-sufficient. The global marketplace was built by eliminating trade barriers and reducing restrictions on foreign investment. But it was the international investment that drove globalization by increasing economic integration. Many countries have experienced the benefits of international investments, namely foreign direct investments, commercial loans, and foreign portfolio investments. These have created new companies, jobs, and sources of income.
Positive effects of globalization
If we look at the positive effects of globalization, there are four main benefits that it has brought us, and many people tend to take them for granted.
Main benefits of globalization:
- Increased competition
- Higher-quality products and services
- Efficient markets
- Stabilized security
The current level of competition in the market is one obvious result of globalization. Competition on a global scale leads to products and services of higher quality. When customers have more options to choose from, their demands also tend to grow, and companies have to react to these new expectations. Domestic companies who wish to survive in the market have to increase their standards to satisfy their customers and be on par with foreign competitors. In addition to increased competition, globalization has generated more efficient markets and stabilized security. Every market should strive to be efficient. In general, the market is efficient when there is an equilibrium between what buyers are willing to pay and what sellers are willing to sell for their goods and services. If companies can improve the way they produce a good or service by outsourcing their processes or by buying from a supplier that offers a discount, they can then lower their prices which increases demand and affordability. And even if some companies choose not to lower prices, they can reallocate these additional profits to increasing their employee’s wages or investing in expansion. Because in our globalized world countries depend on each other, they are unlikely to attack one another. In this way, the economic interdependence of globalization has resulted in stabilized security. In the same process, human rights have been improved. There is now wider media coverage and attention from all over the world when violations of these rights emerge.
Effects on developing countries
While economists don’t agree on the impact of globalization on inequality, it’s impossible to find examples of developing countries that were able to grow over a long period of time without opening up to trade. Globalization itself cannot be held responsible for the poverty in the developing world. It has more to do with poor governance and economic policies and ineffective reforms. There is also no evidence that trade can increase poverty or reduce growth. In contrast, when countries open up to trade, their growth tends to accelerate and their standards of living tend to increase. The benefits of the growth in developed countries also trickle down to the poor countries. However, it’s not always so simple to pinpoint how exactly the developing countries have benefited. This is because globalization has such a large-scale impact on different levels, changing, for example, technology and the macroeconomic conditions. There is also no data available about the general well-being of people in these countries.
Effects on developed countries
When it comes to the social effects of globalization, one must look at the environmental damage, insecurity of the job market, and fluctuating prices. Globalization leads to increased production which means increased utilization of natural resources. More trade also means increased transport and using more fossil fuels. All of this creates pollution and accelerates climate change which has become a serious threat to humanity. The increased competition in the markets has resulted in a fluctuation in prices. Developed countries have been forced to reduce their prices in order to remain competitive against countries such as China which can produce the same goods for a fraction of the cost. Globalization has also changed the job market, and now jobs in the global economy are more insecure and temporary. This has mostly affected developed countries where companies can outsource some of their processes, especially manufacturing but increasingly also functions such as customer support. As a result, many people in the western part of the world are losing their jobs. Globalization has pervaded cultures, too. Some claim that it has caused a loss of cultural boundaries. The increased interaction of western cultures with local cultures in developing countries has led to the melting of previously existing cultural barriers. The negative outcome is that the individuality of these local cultures starts to fade.
Based on this analysis of both positive and negative effects, it has become evident that globalization is a complex process that has large-scale impacts on both developing and developed countries. The positive side of it has to do with the efficiencies and opportunities that open markets create. Companies can sell their products in distant markets with the same ease as in their home countries. It also allows money to flow easily across borders and increases aggregate demand, thus resulting in substantial income growth. On the other hand, all of this creates new risks and uncertainties as markets become more integrated and competition is more intense. Prices and profits also experience more fluctuations and companies find themselves under constant pressure from new competitors and with no or little pricing power. While some of these effects pose serious challenges, globalization is not a phenomenon that can be reversed. We live in an interconnected world where countries depend on each other.
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