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Globalization
Globalization refers to the growing interconnection of nations' economies. It
represents the flow of financial products, goods, technology, information, and jobs
across national borders and cultures. In economic terms, it describes an
interdependence of countries around the globe fostered through free trade.

Key Takeaways

• Globalization is the spread of products, technology, information, and jobs

across nations.
• Corporations in developed nations can gain a competitive edge through
globalization.
• Developing countries also benefit from globalization as they tend to be more
cost-effective locations and therefore attract jobs.
• The benefits of globalization have been questioned as the positive effects
are not necessarily distributed equally.
• One clear result of globalization is that an economic downturn in one
country can have a domino effect on its trade partners.

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

What Globalization Means

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.
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• Globalization also represents a trend toward the development of a 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.

On the one hand, globalization has created new jobs and economic growth through
the cross-border flow of goods, capital, and labor. On the other hand, this growth
and job creation are not distributed evenly across industries or countries.

Specific industries in certain countries, such as textile manufacturing in the United

States or corn farming in Mexico, have suffered severe disruption or outright
collapse as a result of increased international competition.

Globalization's 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 has grown at an unprecedented pace, with public policy changes and
communications technology innovations cited as the two main driving factors.

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. Nations moved toward protectionism as
they launched import taxes to 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.1
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One of the critical steps in the path to globalization came with the North American
Free Trade Agreement (NAFTA), signed in 1993.2 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.3
NAFTA was replaced in 2020 by the United States-Mexico-Canada Agreement
(USMC).4

Governments worldwide have integrated a free market economic system through

fiscal policies and trade agreements in the 20th century. 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.

Pros and Cons of Globalization

Pros
• Proponents of globalization believe it allows developing countries to catch
up to industrialized nations through increased manufacturing,
diversification, economic expansion, and improvements in standards of
living.
• Outsourcing by companies brings jobs and technology to developing
countries, which helps them to grow their economies. Trade initiatives
increase cross-border trading by removing supply-side and trade-related
constraints.
• Globalization has advanced social justice on an international scale as well,
and advocates report that it has focused attention on human rights
worldwide that might have otherwise been ignored on a large scale.

Cons
• One clear result of globalization is that an economic downturn in one
country can have a domino effect on its trade partners. For example, the
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2008 financial crisis had a severe impact on Portugal, Ireland, Italy, Greece,
and Spain. All of these countries were members of the European Union,
which had to bail out debt-laden nations, which were thereafter known by
the acronym PIIGS.5
• Globalization detractors argue that it has created a concentration of wealth
and power in the hands of a small corporate elite that 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 or worse, globalization can reduce the cultural and social aspects
unique to people and geographic areas around the world and increase
product homogeneity. Starbucks, Nike, and Gap 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.
Pros

• A larger market for goods and services

• Cheaper consumer prices
• Outsourcing can benefit domestic firms and foreign labor
• Increased standard of living

Cons

• Concentrates wealth in richer countries

• Some poorer countries can be left behind
• Labor and the physical and intellectual resources of poorer countries can be
exploited
• Regions and cultures lose their uniqueness and products available around
the world can become homogeneous

Why Is Globalization Important?

Globalization is important as it increases the size of the global market, and allows
more and different goods to be produced and sold for cheaper prices. It is also
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important because it is one of the most powerful forces affecting the modern world,
so much so that it can be difficult to make sense of the world without
understanding globalization.

For example, many of the largest and most successful corporations in the world
are in effect truly multinational organizations, with offices and supply chains
stretched right across the world. These companies would not be able to exist if not
for the complex network of trade routes, international legal agreements, and
telecommunications infrastructure that were made possible through globalization.
Important political developments, such as the ongoing trade conflict between the
U.S. and China, are also directly related to globalization.

Is Globalization Good or Bad?

It depends. Proponents of globalization will point to the dramatic decline in

poverty throughout the world for more than two decades after around year 2000,
which many economists attribute in part to increased trade and investment
between nations.6 Similarly, they will argue that globalization has allowed
products and services such as cellphones, airplanes, and information technology
to be spread far more widely throughout the world.

On the other hand, critics of globalization will point to the negative impact it has
had on specific nations’ industries, which might face increased competition from
international firms. Globalization can also have negative environmental impacts
due to economic development, industrialization, and international travel.

How Does Globalization Impact Society?

Globalization has had a large impact on societies around the world, leading to
massive migrations from rural to industrial or urban areas and to the rapid growth
of cities and trade hubs. While this has meant an overall increase in incomes and
a higher standard of living in general, it has also led to problems such as crime,
domestic violence, homelessness, and poverty. Concepts of national identity,
national or regional culture, and consumption patterns also change as goods from
around the world become increasingly available and at low prices. The
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competitiveness of global capitalism may also lead to more individualistic ideals

that contradict the cultural orientations of certain, more collectivist societies.

What Is an Example of Globalization?

A simple example of globalization would be a car manufactured in the U.S. that

sources parts from China, Japan, South Korea, Sri Lanka, and South Africa. The car
is then exported to Europe, where it is sold to a driver who fills the car's gas tank
with gasoline refined from Saudi oil.

The Bottom Line

Globalization refers to the ongoing trend of increased interconnectivity of nations
across the globe, as enabled by advancements in transportation and information
technology, among others.

Globalization is facilitated economically by free trade agreements, which permit

barrier-free imports and exports across borders. While globalization brings many
advantages—including lower prices and higher standards of living to some—it
also has drawbacks, including wealth concentration and cultural homogeneity.