Globalization and the Economy

What Is Globalization?

Globalization refers to the process of integrating governments, cultures, and financial markets through international trade into a single world market. Often, the process begins with a single motive, such as market expansion (on the part of a corporation) or increased access to healthcare (on the part of a nonprofit organization). But usually there is a snowball effect, and globalization becomes a mixed bag of economic, philanthropic, entrepreneurial, and cultural efforts. Sometimes the efforts have obvious benefits, even for those who worry about cultural colonialism, such as campaigns to bring clean-water technology to rural areas that do not have access to safe drinking water.

Other globalization efforts, however, are more complex. Let us look, for example, at the North American Free Trade Agreement (NAFTA). The agreement is among the countries of North America, including Canada, the United States, and Mexico and allows much freer trade opportunities without the kind of tariffs (taxes) and import laws that restrict international trade. Often, trade opportunities are misrepresented by politicians and economists, who sometimes offer them up as a panacea to economic woes. For example, trade can lead to both increases and decreases in job opportunities. This is because while easier, more lax export laws mean there is the potential for job growth in the United States, imports can mean the exact opposite. As the United States import more goods from outside the country, jobs typically decrease, as more and more products are made overseas.

Many prominent economists believed that when NAFTA was created in 1994 it would lead to major gains in jobs. But by 2010, the evidence showed an opposite impact; the data showed 682,900 U.S. jobs lost across all states (Parks 2011). While NAFTA did increase the flow of goods and capital across the northern and southern U.S. borders, it also increased unemployment in Mexico, which spurred greater amounts of illegal immigration motivated by a search for work.

There are several forces driving globalization, including the global economy and multinational corporations that control assets, sales, production, and employment (United Nations 1973). Characteristics of multinational corporations include the following: A large share of their capital is collected from a variety of different nations, their business is conducted without regard to national borders, they concentrate wealth in the hands of core nations and already wealthy individuals, and they play a key role in the global economy.

We see the emergence of global assembly lines, where products are assembled over the course of several international transactions. For instance, Apple designs its next-generation Mac prototype in the United States, components are made in various peripheral nations, they are then shipped to another peripheral nation such as Malaysia for assembly, and tech support is outsourced to India.

Globalization has also led to the development of global commodity chains, where internationally integrated economic links connect workers and corporations for the purpose of manufacture and marketing (Plahe 2005). For example, in maquiladoras, mostly found in northern Mexico, workers may sew imported precut pieces of fabric into garments.

Globalization also brings an international division of labor, in which comparatively wealthy workers from core nations compete with the low-wage labor pool of peripheral and semi-peripheral nations. This can lead to a sense of xenophobia, which is an illogical fear and even hatred of foreigners and foreign goods. Corporations trying to maximize their profits in the United States are conscious of this risk and attempt to “Americanize” their products, selling shirts printed with U.S. flags that were nevertheless made in Mexico.

Aspects of Globalization

Globalized trade is nothing new. Societies in ancient Greece and Rome traded with other societies in Africa, the Middle East, India, and China. Trade expanded further during the Islamic Golden Age and after the rise of the Mongol Empire. The establishment of colonial empires after the voyages of discovery by European countries meant that trade was going on all over the world. In the nineteenth century, the Industrial Revolution led to even more trade of ever-increasing amounts of goods. However, the advance of technology, especially communications, after World War II and the Cold War triggered the explosive acceleration in the process occurring today.

One way to look at the similarities and differences that exist among the economies of different nations is to compare their standards of living. The statistic most commonly used to do this is the gross domestic product per capita. This is the gross domestic product, or GDP, of a country divided by its population. The table below compares the top 11 countries with the bottom 11 out of the 228 countries listed in the CIA World Factbook.

There are benefits and drawbacks to globalization. Some of the benefits include the exponentially accelerated progress of development, the creation of international awareness and empowerment, and the potential for increased wealth (Abedian 2002). However, experience has shown that countries can also be weakened by globalization. Some critics of globalization worry about the growing influence of enormous international financial and industrial corporations that benefit the most from free trade and unrestricted markets. They fear these corporations can use their vast wealth and resources to control governments to act in their interest rather than that of the local population (Bakan 2004). Indeed, when looking at the countries at the bottom of the list above, we are looking at places where the primary benefactors of mineral exploitation are major corporations and a few key political figures.

Other critics oppose globalization for what they see as negative impacts on the environment and local economies. Rapid industrialization, often a key component of globalization, can lead to widespread economic damage due to the lack of regulatory environment (Speth 2003). Further, as there are often no social institutions in place to protect workers in countries where jobs are scarce, some critics state that globalization leads to weak labor movements (Boswell and Stevis 1997). Finally, critics are concerned that wealthy countries can force economically weaker nations to open their markets while protecting their own local products from competition (Wallerstein 1974). This can be particularly true of agricultural products, which are often one of the main exports of poor and developing countries (Koroma 2007). In a 2007 article for the United Nations, Koroma discusses the difficulties faced by “least developed countries” (LDCs) that seek to participate in globalization efforts. These countries typically lack the infrastructure to be flexible and nimble in their production and trade, and therefore are vulnerable to everything from unfavorable weather conditions to international price volatility. In short, rather than offering them more opportunities, the increased competition and fast pace of a globalized market can make it more challenging than ever for LDCs to move forward (Koroma 2007).

The increasing use of outsourcing of manufacturing and service-industry jobs to developing countries has caused increased unemployment in some developed countries. Countries that do not develop new jobs to replace those that move, and train their labor force to do them, will find support for globalization weakening.

Corporations as Institutions of Globalization

One of the most important but controversial features of modern capitalism is the corporation, a formal organization that has a legal existence, including the right to sign contracts, that is separate from that of its members. We have referred to corporations several times already and now discuss them in a bit more detail.

Adam Smith, the founder of capitalism, envisioned that individuals would own the means of production and compete for profit, and this is the model the United States followed in its early stage of industrialization. After the Civil War, however, corporations quickly replaced individuals and their families as the owners of the means of production and as the competitors for profit. As corporations grew following the Civil War, they quickly tried to control their markets by, for example, buying up competitors and driving others out of business. To do so, they engaged in bribery, kickbacks, and complex financial schemes of dubious ethics. They also established factories and other workplaces with squalid conditions. Their shady financial practices won their chief executives the name “robber barons” and led the federal government to pass the Sherman Antitrust Act of 1890 designed to prohibit restraint of trade that raised prices (Hillstrom & Hillstrom, 2005).

More than a century later, corporations have increased in both number and size. Although several million U.S. corporations exist, most are fairly small. Each of the largest 500, however, has an annual revenue exceeding $4.6 billion (2008 data) and employs thousands of workers. Their total assets run into the trillions of dollars (Wiley, 2009). It is no exaggeration to say they control the nation’s economy, as together they produce most of the U.S. private sector output, employ millions of people, and have revenues equal to most of the U.S. gross domestic product. In many ways, the size and influence of corporations stifle the competition that is one of the hallmarks of capitalism. For example, several markets, including that for breakfast cereals, are controlled by four or fewer corporations. This control reduces competition because it reduces the number of products and competitors, and it thus raises prices to the public (Parenti, 2007).

The last few decades have seen the proliferation and rise of the multinational corporation, a corporation with headquarters in one nation but with factories and other operations in many other nations (Wettstein, 2009). Multinational corporations centered in the United States and their foreign affiliates have more than $18 trillion in assets and employ more than 32 million people (U.S. Census Bureau, 2010). The assets of the largest multinational corporations exceed those of many of the world’s nations. Often their foreign operations are in poor nations, whose low wages make them attractive sites for multinational corporation expansion. Many multinational employees in these nations work in sweatshops at very low pay and amid substandard living conditions. Dependency theorists, discussed in Chapter 9 “Global Stratification”, say that multinationals not only mistreat workers in poor nations but also exploit these nations’ natural resources. In contrast, modernization theorists, also discussed in Chapter 9 “Global Stratification”, say that multinationals are bringing jobs to developing nations and helping them achieve economic growth. As this debate illustrates, the dominance of multinational corporations will certainly continue to spark controversy.

Another controversial aspect of corporations is the white-collar crime in which they engage (Rosoff, Pontell, & Tillman, 2010). As we saw in Chapter 7 “Deviance, Crime, and Social Control”, price fixing by corporations costs the U.S. public some $60 billion annually (Simon, 2008). Workplace-related illnesses and injuries that could have been prevented if companies obeyed federal regulations kill about 50,000 workers each year (AFL-CIO, 2007). An estimated 10,000 U.S. residents die annually from dangerous products. All in all, corporate lawbreaking and neglect probably result in more than 100,000 deaths annually and cost the public more than $400 billion (Barkan, 2012).

In sum, corporations are the dominant actors in today’s economy. They provide most of our products and many of our services and employ millions of people. It is impossible to imagine a modern industrial system without corporations. Yet they often stifle competition, break the law, and, according to their critics, exploit people and natural resources in developing nations. The BP oil spill in 2010 reminds us of the damage corporations can cause. BP’s disaster was the possible result, according to news reports, of many violations of federal safety standards for oil drilling (Uhlmann, 2010).