HOW GLOBALIZATION WORKS: PROS AND CONS OF
GLOBALIZATION
Written by MasterClass
What Is Globalization?
In international economics, globalization is the web of relationships between
economies worldwide by way of international trade and investments. While the
history of globalization dates back to ancient times, the modern era of globalization
began in earnest in the early nineteenth century. Starting with the Industrial
Revolution, advancements in transportation (like railroads and steamships) and
communication (like the telegraph) allowed increased economic interaction and
cooperation across country borders.
The opposite of economic globalization—or free-market trade across borders—is
protectionism, an economic policy that attempts to protect domestic businesses
from foreign competition and labor markets, usually by imposing trade barriers like
tariffs.
3 Examples of Globalization
Examples of globalization include:
1. Intergovernmental organizations. Globalization has made it possible for
international organizations to be created through treaties between many different
countries. Examples include the European Union, the United Nations, the World
Bank, the World Trade Organization (WTO), and the International Monetary
Fund (IMF).
2. Intergovernmental treaties. Many governments across the world have engaged
in treaties or trade policies to make it easier for international investment and trade.
These treaties, called free-trade agreements, include the North American Free
Trade Agreement (NAFTA) and the Comprehensive Economic and Trade
Agreement (CETA).
3. Multinational corporations. A multinational corporation is an organization
that does business in many different countries. Globalization is the reason that
multinational businesses exist. For example, globalization allows major US
corporations to sell their products to Mexico, Europe, and China.
What Are the Benefits of Globalization?
Globalization can benefit a country’s economy in many ways:
Increases economic growth. By increasing the international exchange of goods,
technological advances, and information, globalization increases economic
development for any country participating in the global economy. An increase in
economic growth means better living standards, higher incomes, more wealth in a
country, and, often, less poverty—in short, the overall well-being of a country.
Makes production more affordable. A global market allows businesses wider access
to production opportunities and consumers, meaning that there are more goods
available at a wider range of price points.
Promotes working together. When different countries come together to engage in
trade and investments in a global financial market, they become interdependent
and often come to rely on one another for certain goods and services.
Brings opportunities to poorer countries. Globalization allows companies to
move their production from high-cost locations to lower-cost locations abroad—this
means bringing jobs, information technology, and other economic opportunities
to countries with fewer resources.
What Are the Disadvantages of Globalization?
While it can benefit nations, there are also several negative effects of globalization.
Cons of globalization include:
Unequal economic growth. While globalization tends to increase economic
growth for many countries, the growth isn’t equal—richer countries often benefit
more than developing countries.
Lack of local businesses. The policies permitting globalization tend to advantage
companies that have the resources and infrastructure to operate their supply chains
or distribution in many different countries, which can hedge out small local
businesses—for instance, a local New York hamburger joint may struggle to
compete with the prices of a multinational burger-making corporation.
Increases potential global recessions. When many nations’ economic systems
become interdependent, the likelihood of a global recession increases
dramatically—because if one country’s economy starts to struggle, this can set off a
chain reaction that can affect many other countries simultaneously, causing a
worldwide financial crisis.
Exploits cheaper labor markets. Globalization allows businesses to increase jobs
and economic opportunities in developing countries, where the cost of labor is
often cheaper. However, overall economic growth in these countries may be slow
or stagnant.
Causes job displacement. Globalization doesn’t result in an increased number of
jobs; rather, it redistributes jobs by moving production from high-cost countries to
lower-cost ones. This means that high-cost countries often lose jobs due to
globalization, as production goes overseas.
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cons-of-globalization
