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What is 'Globalization'

Globalization refers to the tendency of international trade, investments, information technology and outsourced manufacturing to weave the economies of diverse countries together. In business and finance, it primarily refers to the economic integration of global markets, but the term is also used to describe socio-cultural integration among countries. Altogether, globalization has had the effect of markedly increasing both international trade and cultural exchange.

Globalization has been credited with helping shift wealth to less-developed countries. However, globalization is also often blamed for the loss of employment in developed nations, as corporations ship manufacturing facilities and  jobs overseas in order to save costs; critics say it weakens national sovereignty as well.

BREAKING DOWN 'Globalization'

The goal of globalization is to provide organizations with a competitive advantage through lower operating costs and the gain of greater numbers of products, services and consumers. One of the key ways this is done is through diversification of resources, opening up additional markets and accessing new raw materials. And indeed, it has brought the entire world together, with multinational corporations manufacturing, buying and selling goods across the globe. For example, a car company based in Japan might have auto parts manufactured in several different developing countries, then ship the parts to another country for assembly, and then sell the finished car to nations everywhere.

Globalization is not an entirely new concept – as far back as ancient times, caravans traveled vast distances to obtain valuables like salt, spices and gold, then traded or sold them once back in their home countries. With the advent of the Industrial Revolution in the 19th century, every advance in communication and transportation helped lessen borders and increase economic ties between nations. But in the last few decades, globalization has been occurring at an unprecedented pace and scope.

What has Spurred Globalization?

Public policy and technology are the two main driving factors behind the current globalization boom.

Over the past 20 years, various governments around the world have integrated a free-market economic system into fiscal policies, monetary policies and trade agreements. This evolution of economic systems has stimulated domestic production potential and opened countries to increased financial opportunities abroad. World governments now focus on decreasing barriers to trade and actively promote international commerce in relation to investments, goods and services.

Technology has also been a major reason for the growth in globalization. Advancements in information technology (IT) and the flow of information across borders have helped people become more informed about economic trends and investment opportunities, and have made it easier for them to transfer financial assets and invest abroad. Technology has also increased the ability to communicate internationally, and made it easier and faster than ever to do so.

Broader Meaning of Globalization

Globalization has grown beyond economics to become a social, cultural, political and legal phenomenon.

In social terms, globalization describes an increased level of interconnectedness among the people of the world and their lives, work and families. As a cultural phenomenon, it means the exchange of ideas and values among cultures and implies, for some, a trend toward the development of a single world culture.

Political globalization refers to the shift of political activities from a solely national level to a global level through intergovernmental organizations such as the United Nations and the World Trade Organization.

As a legal phenomenon, globalization is, in part, a shift in the ways in which international law is created and enforced.

The Globalization Controversy

Debates continue as to the negative and positive effects of globalization in all its contexts.

Advantages of Globalization

Proponents say that globalization helps developing countries catch up to industrialized nations much faster, creating jobs, developing manufacturing, diversifying and expanding their economies, and increasing the overall standard of living. China is a good example of a country that has benefited immensely from globalization in this way.

In particular, the practice of outsourcing brings jobs and technology to developing countries – along with offering the outsourcing company the benefit of reducing reduce labor and production costs. Initiatives like the North American Free Trade Agreement (NAFTA), for example, encouraged U.S. car manufacturers to relocate facilities to Mexico.  Many U.S. companies have also outsourced call centers to India.

Another positive impact of globalization is the broadening of the notion of social justice from a national to an international scale to include the equality, human rights and dignity of all people of the world. Legally, advocates of globalization report that the trend has facilitated the promotion of human rights all over the world.

Some consider the spread of pop culture from country to country to be a benefit of cultural globalization in that the exchange of ideas, art, language and music fosters understanding among the different cultures of the world.

Disadvantages of Globalization

While globalization is often praised for having many positive effects, economists also observe negative impacts.

When countries’ economies are intertwined, economic downturns in one country can cross borders and affect the economies of other countries. Critics argue this interdependency threatens to weaken multiple countries and economies through a domino effect when a problem arises. For example, when Greece's economy nearly collapsed due to its debt crisis in 2009-10, the impact was felt throughout all of Europe, and many countries, such as Germany, scrambled to ensure their own economies would not also suffer.

Another common criticism of globalization is that it has disproportionately benefited corporations in the Western world, enhancing wealth disparity: the rich getting richer while the poor continue to get poorer. Certainly, the free trade trend means there a higher risk of failure for smaller, privately or family-owned companies that cannot compete in a global market. Then there is digital divide, between those with computer and internet access and those without, which critics charge has resulted in the concentration of information, and therefore power, in the hands of a small elite. Thanks to globalization, opponents say, certain groups have acquired resources and power that exceed those of any single nation, which allows them to pose new threats to human rights on an international scale.

Other critics concede that global standards of living have risen overall as industrialization takes root in third-world countries, but maintain that living standards have fallen in developed countries.  Some politicians even argue the middle class is diminishing in the United States thanks to globalization. Outsourcing is often cited as the chief culprit here: U.S. companies often move jobs – and sometimes even their entire headquarters – abroad in an effort to save wages and American payroll taxes, and avoid negotiating with unions. In effect, critics say, globalization means U.S. workers have to compete not just nationally but internationally for jobs – a competition they cannot win.

Still others cite global warming and climate change, due to greenhouse gases emitted by expanding industrial facilities, as negative political effects of globalization. The overuse and abuse of natural resources are other harmful consequences of increased demands for a country's goods

And while globalization has helped economies and societies expand and broaden, it's also made them more homogenized, critics charge. Case in point: The growth of international chains that results in the same restaurant – a Starbucks or a Shake Shack – on every corner, or the same retailers – Apple, Nike, The Gap – in every town. As these examples suggest, the so-called cultural exchange has been largely one-sided: American goods and culture have spread to other countries more than those of any other nation, often to the detriment of smaller, indigenous brands and outfits that can't compete with global giants, as mentioned above. So, countries end up with societies very similar to one another.