Loading the player...

What is 'Globalization'?

Globalization represents the global integration of international trade, investment, information technology (IT), and cultures. It is driven by government policies designed to open up economies domestically and internationally to boost development in poorer countries and raise standards of living for their people. However, the international free market that has been created as a result of these policies has mainly benefited multinational corporations in the Western world to the detriment of smaller businesses, cultures and common people. 

BREAKING DOWN 'Globalization'

Through globalization, corporations can gain a competitive advantage from lower operating costs and access to new raw materials and additional markets. In addition, multinational corporations can manufacture, buy and sell goods worldwide. For example, a car manufacturer based in Japan can manufacture auto parts in several different developing countries, ship the parts to another country for assembly, and then sell the finished cars to any nation.

Globalization is not a new concept. In ancient times, traders traveled vast distances to buy rare commodities such as salt, spices and gold, which they would then sell in their home countries. The Industrial Revolution of the 19th century brought advances in communication and transportation that have removed borders and increased cross-border trade. In the last few decades, globalization has occurred at an unprecedented pace.

Public policy and technology are the two main driving factors behind the current globalization boom. Over the past 20 years, governments worldwide have integrated a free market economic system through fiscal policies and trade agreements. This evolution of economic systems has increased industrialization and financial opportunities abroad. Governments now focus on removing barriers to trade and promoting international commerce.

Technology is a major contributor to globalization. Advancements in IT and the flow of information across borders have increased the awareness among populations of economic trends and investment opportunities. Technological advancement such as digitalization has simplified and accelerated the transfer of financial assets between countries. 

The Broader Meaning of Globalization

Globalization is also a social, cultural, political and legal phenomenon. In social terms, globalization represents greater interconnectedness among global populations. Culturally, globalization represents the exchange of ideas and values among cultures and even a trend toward the development of a single world culture. Politically, globalization has shifted the political activities of countries to the global level through intergovernmental organizations such as the United Nations and the World Trade Organization. With regard to law, globalization has altered how international law is created and enforced.

The Globalization Controversy

Proponents of globalization believe that it allows developing countries to catch up to industrialized nations through increased manufacturing, diversification, economic expansion, and improvements in standards of living. China is a good example of a national economy that has benefited immensely from globalization.

Outsourcing by companies brings jobs and technology to developing countries. Trade initiatives increase cross-border trading by removing supply-side and trade-related constraints. The North American Free Trade Agreement (NAFTA), for example, encouraged U.S. car manufacturers to relocate operations to Mexico where labor costs are lower, and many U.S. companies have outsourced call centers to India.

Globalization has advanced social justice on an international scale, and advocates of globalization report that it has drawn attention to human rights worldwide. In addition, some consider the spread of pop culture across borders to advance the exchange of ideas, art, language and music.

Disadvantages of Globalization

Economic downturns in one country can affect the economies of other countries through a domino effect. For example, when Greece experienced a debt crisis in the years 2009 and 2010, the impact was felt throughout Europe. In addition, globalization may have disproportionately benefited Western corporations enhancing wealth disparity.

Free trade implies a greater risk of failure for small, private or family-owned companies competing in a global market. There is also a digital divide because not all populations have internet access. Some suggest that globalization has created a concentration of information and power in the hands of a small elite, and certain groups have acquired resources and power that exceed those of any single nation posing new threats to human rights on an international scale.

Standards of living have risen overall as more third-world countries experience industrialization. However, some politicians argue that globalization is detrimental to the middle class and is causing increasing economic and political polarization in the United States. Outsourcing, where U.S. companies transfer their facilities abroad to lower labor costs and avoid negotiating with unions, means that workers in the United States must now compete internationally for jobs.

Globalization has contributed to global warming, climate change and the overuse of natural resources. An increase in the demand for goods has boosted manufacturing and industrialization. Globalization has also increased homogenization in countries. For example, international chains, such as Starbucks, Nike and The Gap, dominate commercial space in every U.S. town and many towns in other nations. Cultural exchange has been largely one-sided because U.S. goods and culture have influenced other countries more than those of any other nation.