What does globalization mean?
Globalization refers mainly to the expansion of trade, investment, and other business interactions among the countries of the world. It also refers to the growing standardization of culture around the world.
Is globalization good or bad?
That depends on your situation. For unemployed Americans whose old jobs are now being done by lower-paid workers in other countries, it’s disastrous. For investors seeing increases in the value of their stocks, it seems a healthy form of progress. For shoppers who can buy their clothing at lower prices than before, it looks like a good deal. For the low-paid workers who make the clothing, it’s not as good a deal—though their factory jobs may give them a higher standard of living than they had before.
Whatever your point of view, globalization is a powerful force that many consider inevitable and irreversible.
Benefits of globalization
• Increased prosperity for many. Supporters of free trade argue that it creates new opportunities in both poor, developing nations and wealthy ones. By letting each country offer its resources in the global marketplace, free trade leads to lower prices, more employment, and improved standards of living overall.
• Because increased competition results in lower prices, Americans today can afford more consumer goods (computers, electronics, etc.) than their parents or grandparents ever imagined owning.
• For poor people in countries without many resources, globalization creates opportunities to earn a living, often through employment in new factories.
• Exposure to culture and ideas from other parts of the world enriches everyone, and promotes understanding and peace. Globalization has the potential to spread the ideals of democracy, freedom, and tolerance to the countries where they are most needed.
The downside of globalization
• Critics have called globalization a new form of imperialism: powerful countries and corporations exploiting the labor and resources of poorer countries.
• The pursuit of cheaper labor and other ways to cut costs drives companies to close factories in the U.S., raising unemployment here. More than one-sixth of American factory jobs disappeared in the first decade of the 21st century. Many laid-off factory workers accept lower-paying jobs because they can’t find better ones.
• The reason why it’s cheaper to produce things in other countries is that impoverished workers accept low wages and long working hours. Without the protection of unions, many of them also endure unhealthy or dangerous working conditions. Child labor is widespread in poor countries. (According to UNICEF, about 158 million children, ages 5-14, are engaged in child labor.) If these countries impose regulations to protect workers, manufacturers are free to close up shop and move elsewhere.
• Developing countries generally have few regulations to protect the environment. Eager to attract new investment, they welcome companies from wealthier nations to come and build factories, with few or no restrictions on hazardous waste and emissions. As a result, industrial pollution has become a growing problem in the Third World—especially in China and India, as manufacturing expands in these densely populated countries.
• Income inequality has grown during the era of globalization. By the year 2000, the richest 1% of the world’s adults owned 40% of the world’s assets, and the richest 10% owned 85%; the bottom 50% owned about 1% of the world’s wealth. (From a 2006 study by the World Institute for Development Economics Research.)
• In many poor countries, the main export is agricultural products, but the farmers can’t compete with the prices of subsidized products—from the U.S. and the European Union, for example. When the North American Free Trade Agreement went into effect, Mexican corn farmers hoped to sell their corn in the U.S., but instead, our corn exports to Mexico tripled, forcing 2 million Mexican farmers out of business.
• The lending policies of the World Bank and the International Monetary Fund (see below) have forced poor countries to make painful choices between economic development and the welfare of their citizens. In order to qualify for loans, governments have agreed to strict rules, often compelling them to cut spending on services such as schools, health clinics, and drinking water.
Here is a critical overview of economic globalization from Global Policy Forum:
“Northern countries want to open world markets to their goods and take advantage of abundant, cheap labor in the South, policies often supported by Southern elites. They use international financial institutions and regional trade agreements to compel poor countries to ‘integrate’ by reducing tariffs, privatizing state enterprises, and relaxing environmental and labor standards. The results have enlarged profits for investors but offered pittances to laborers, provoking a strong backlash from civil society.”
An extremely brief history of globalization
One could say that globalization has been going on since the Middle Ages, when merchants traveled the Silk Road from Europe to China to buy and sell fabrics, perfumes, spices, jewels, glassware, and slaves. With every technological breakthrough bringing faster communication or more efficient transport of goods, the countries of the world have become more closely connected.
The modern era of globalization began just after World War II, when world leaders acted on their belief that interdependence would help prevent war, and that breaking down barriers to international trade would spread prosperity. At the Bretton Woods Conference in 1944, representatives of 44 nations laid the foundations for the International Monetary Fund and what would become the World Bank.
In the 1950s, multinational corporations based in the U.S. and Europe grew tremendously. International trade mushroomed during the second half of the 20th century. The past two decades, especially, have seen more and more countries moving toward free-market economies and lowering barriers to trade.
National economies have now become so tightly interconnected that a problem in one country can affect the rest of the world—as we saw in the financial crisis that began in 2007.
Opponents of globalization include those who are concerned about the exploitation of cheap labor; those who want to preserve jobs in their own countries; those who want to protect the environment; and those who want to protect diverse local cultures from being replaced by commercial mass culture. (For a witty cartoon illustration of this cultural invasion, go here.)
What opposition groups have in common is resistance to the unrestrained power of multinational corporations. In 1999, protesters disrupted the meeting of the World Trade Organization in Seattle. Many other protests have followed. For more on organized opposition to globalization, see Wikipedia’s article.
Globalization in the news
The earthquake, tsunami, and nuclear crisis in Japan have interrupted manufacturing there, and industries around the world that rely on Japanese parts have come to a grinding halt. For more on this, see the New York Times.
Organizations, agreements and terms
WTO (World Trade Organization): Created in 1995 to mediate trade disputes, the WTO seeks to promote free trade by reducing trade barriers, e.g., tariffs.
World Bank: Affiliated with the U.N., the World Bank makes loans to developing countries. Those who fund the Bank vote on its policies; votes are proportional to the amount of funding given, and seven countries (the U.S., Germany, Japan, Great Britain, Canada, Italy and France) account for 45% of voting power. Loans usually include requirements that the borrowing countries lift restrictions on imports and exports, reduce government spending, and balance their budgets.
IMF (International Monetary Fund): Also affiliated with the U.N., the IMF’s mission is to keep currency exchange rates stable. The IMF also makes loans designed to help developing countries restructure their economies, with the aim of increasing exports and attracting foreign investment.
GATT (General Agreement on Tariffs and Trade): An agreement in effect from 1947 to 1994; it was replaced in 1995 by the WTO. The main objective of GATT was to reduce barriers to international trade, such as tariffs, quotas, and subsidies.
NAFTA (North American Free Trade Agreement): This agreement, which took effect in 1994, calls for the U.S., Canada and Mexico to lower and eventually eliminate trade barriers. As a result, trade with Mexico has expanded hugely—and many U.S. manufacturing jobs have been lost to Mexico.
G-8 (Group of Eight): The leading industrialized countries, i.e., the U.S., Great Britain, Germany, Japan, France, Canada, Russia, and Italy. At annual summit meetings, the heads of G-8 governments discuss global challenges and consider new policy initiatives. The meetings have attracted anti-globalization protests. (In 2009, G-8 leaders announced that the G-20, a larger group of wealthy nations, would replace the G-8 as the world’s main economic forum.)
The Doha Round: The current round of WTO negotiations, begun in 2001 in Doha, Qatar. On the agenda: helping the world’s poor share the benefits of globalization, especially by reducing subsidies to farmers (mainly in the U.S. and the European Union) that make it impossible for farmers in developing countries to compete. As of this writing (March, 2010), agreement had not been reached on this contentious issue.
debt burden and debt relief: Many of the world’s poorest countries, especially in Africa, owed so much money on loans made in the 1960s and 1970s that simply paying the interest on these loans consumed most of their resources, making it impossible for them to spend on development. Activists called for lenders to reduce or even cancel this debt, so these countries could begin to lift themselves out of poverty. According to the IMF, as of February, 2010, a total of $51 billion in debt relief had been provided by lenders to 35 “Heavily Indebted Poor Countries,” 29 of them in Africa.
fair trade: A movement based on the strategy of persuading customers in wealthier countries to pay higher-than-market prices so that producers in developing countries can earn a living wage. Fair trade goods commonly sold here include coffee, chocolate, and crafts. For a more detailed discussion of fair trade, go here.
What do Democrats and Republicans say about free trade?
Each party has both advocates and opponents of free trade. Traditional Democrats, defending the interests of unionized supporters, have opposed free trade agreements as a threat to American jobs. Other Democrats (Bill Clinton, for example) have strongly supported agreements such as NAFTA, seeing globalization as an engine of economic growth. Most Republicans support free trade because it helps businesses expand, but some see globalization as a threat to America’s autonomy.
The trade deficit
Since the late 1960s, the U.S. has been importing more goods than it exports. This is connected with the loss of American manufacturing jobs: rather than making things here, we’re buying them from abroad. For the year 2008, the trade deficit was $677 billion. Economists disagree on how this impacts our economic health, but in 2006, investor Warren Buffett said, “The U.S trade deficit is a bigger threat to the domestic economy than either the federal budget deficit or consumer debt and could lead to political turmoil.”
Noam Chomsky: “The term globalization has been appropriated by the powerful to refer to a specific form of international economic integration, one based on investor rights, with the interests of people incidental.”
In the 1990s, while the loss of manufacturing jobs was controversial, American consumers and businesses seemed to regard globalization and free trade as net positives. The integration of China and the former Soviet bloc into the trading system lowered inflation, opened new markets and brought billions of workers into the labor force…
But in this decade, rampant growth in emerging markets has mercilessly boosted prices for energy and commodities; competition from foreign workers has tamped down wage growth, and the weak dollar has made U.S. companies vulnerable to foreign buyers… As a result, Americans are now more inclined to see themselves as victims of globalization—rather than as beneficiaries of it.
Ready to learn more? Start with these links
Thomas Schmitt, “Meet the Losers of Globalization,” Der Spiegel, 3/8/06: an article about India, where the economy is soaring, but many are suffering in new ways.
Philip H. Gordon, “Globalization: Europe’s Wary Embrace,” Global Policy Forum, 11/1/04: an article about the European Union and globalization.
(From the Publishers Weekly review of Globalization and its Discontents: “Stiglitz, a Nobel Prize winner and Columbia University economics professor, sees globalization’s unrealized potential to eradicate poverty and promote economic growth… Stiglitz asks how a public institution [the IMF] can ignore growing evidence of a flawed policy and not take action or be held accountable. In answering his own question, Stiglitz blames the ‘market fundamentalism’ that endorses the view that a ‘free’ market solves all problems flawlessly. As Stiglitz authoritatively indicates, one-size-fits-all economic policies can damage rather than help countries with unique financial, governmental and social institutions…”)
Thomas L. Friedman, The Lexus and the Olive Tree, 1999
David Smick, The World Is Curved: Hidden Dangers in the Global Economy, 2008
Naomi Klein, No Logo, 2000
Think we’ve left out an important point or gotten the facts wrong?
Do we need to update this page? Click here and explain. (If possible, send a link to a news article or reliable web page that summarizes what we’ve left out.)
Last updated 11/28/11