The Pros and Cons of Globalization

Inequality-backgrndBefore we can analyze the pros and cons of globalization we need to have a reasonable definition of what we’re talking about. The International Monetary Fund defines globalization as being characterised by the following attributes:

  • Increased economic interdependence between countries.

  • Increased volume and variety of international exchange in goods and services.

  • Increased cross-boarder flows of capital and international financial investment.

  • Increased global distribution of technology and innovation.

The theoretical effect of these factors is to move towards a single, unified, global system of prices, products, wages, interests rates and profits.

Furthermore we could state that for globalization to occur there needs to be free movement of individuals (a global, mobile, labour force,) international trade and investment (free movement of capital) and close cooperation between financial and commodity markets. There is clearly evidence that all of these factors are in place. We need only look at the global nature of banking, for example, to recognise that our economies are increasingly intertwined.

So, if we accept this definition what are the pros and cons of globalization?

The Pros of Globalization.

Different countries will have a comparative advantage in producing certain goods. For example Brazil’s rich agriculture give it an advantage in producing surplus food for export. Similarly India’s education infrastructure and liberal investment regulations have given it an advantage in technological development and expertise which they export. Because both Brazil and India have free access to a global market they can each take advantage of their respective advantages. This theoretically allows for both to improve living standards more rapidly than would be possible without access to the global market.

Another positive of globalization is that no single producer can profiteer (again theoretically.) The international markets set the price of goods and services thus reducing inflationary pressure. For example vehicle manufacture in the UK is growing rapidly but the export value of the vehicles is set by international markets. Should the UK increase the price of exported vehicles overseas importers will simply buy their vehicles elsewhere. Prices are constrained by the markets if this mechanism works effectively.

Another perceived benefit is that access to international markets spurs innovation and technological development. For example, whilst there is little or no market for anti-malarial drugs in the UK, access to foreign markets makes their research and development, and subsequent production for export, profitable. Furthermore inward investment by foreign companies (often called FDI – Foreign Direct Investment) brings wealth and jobs into the economy. For example the car assembly plants in England are predominantly owned by Japanese manufacturers. Whilst the profits belong to these companies the investment, wages, the supporting industries (parts manufacture for example) and required infrastructure investment all benefit the UK economy. In addition the free movement of investment (capital) maintains the respective currency values (within reason) thereby placing further limits upon inflation.

The Cons of Globalization.

Free access to imports can often mean that it is cheaper to buy products from overseas, where labour costs may be lower, than to manufacture at home. Therefore this can place downward pressure upon wages and actually drive investment away from a country. For example developed nations such as the UK or the U.S can not compete with the wage costs offered in developing nations such as India. This can lead to both increased unemployment and lower wages in the more developed country.

Workers can often be forced into accepting worsening pay and conditions in order to compete with foreign labour markets. The implicit threat of the employer is often that, unless labour costs are reduced, they will be forced to relocate operations overseas simply to compete “in the global market.” The knock on effect of this is often that the labour market loses it’s comparative advantage as a result. Long term unemployment and loss of skills base can further impede a countries ability to recover economically from downturns. A recent example of this is the loss of 1,170 steel worker jobs Scunthorpe and Lanarkshire in the UK.

Another problem is the control of the markets. The deregulation of financial markets around the globe led to wild speculation by huge financial institutions. The resulting credit crisis almost crippled the global economy. Because all nations are increasingly interdependent, failure in one can lead to contagion in another. Add to this financial uncertainty, fluctuating commodity prices, increasing resource depletion and political interference and globalization starts to look somewhat precarious.

However, perhaps the single biggest problem associated with globalization is the emergence of supreme capitalist corporations such as Nestle, Royal Dutch Shell, Vitol and others. These private companies are motivated only by profit and can have GDP’s that outweigh many nations. The power they wield in the global market can make it impossible for local businesses to compete. For example local stores cannot survive when one of these multinationals establishes itself nearby. The smaller companies get driven out of business by these massive corporations due to the fact they cannot match their buying power. Local suppliers find their margins squeezed as the large corporations seek to maximise their own and their shareholders profits.

Conclusion – Pros and Cons of Globalization.

If you consider the pros and cons of globalization it is clear that it offers great potential benefits but is systematically flawed. Whilst the possible benefits of globalization offers an unprecedented opportunity to improve the lives of millions of the worlds poorest people this will only be achieved within a purposeful, policy framework. Currently control of the forces of globalization lies with non accountable, profit driven multinationals not states or governments. This is a consequence of the world wide deregulation of markets.

The free market theory suggests that the market will regulate itself through the competing pressures of supply and demand and resource availability. However, so powerful are the biggest multinationals, they are free to manipulate the markets as they see fit solely in the pursuit of profit. This is certainly not in the best interests of either the markets or the consumer (you and I.)

Globalizations ability to deliver potential equality is further undermined by the monetary system upon which it is based. Again, because the creation of money has been privatised to the banks, the international financial institutions are also free to manipulate markets in pursuit of profit. The concept that “free markets” exist is a myth. What we have is a global network of manipulated markets that are engineered to serve the profits of an unelected elite, financial oligarchy.

This is blatantly evident with the near secret negotiations driving the Transatlantic Trade and Investment Partnership negotiations. This emerging trade agreement is being drawn up by large corporations and financial institutions in both the U.S and Europe. Amongst its aims are the further deregulation of the banking system, reducing food safety standards, opening up healthcare systems to private finance and a downward pressure on the value of labour. However these anti-humanitarian, profit driven initiatives are, almost unbelievably, not the worst aspect of this pernicious attempt to undermine democracy.

Hidden within this apparently neo-fascist initiative lurks a monster. The Investor-State Dispute Settlements (ISDS) will create the legal framework to enable corporations to sue governments if those governments’ policies impact on their profits. Basically this will mean that elected governments policies will be dictated entirely by global corporations. If enacted the TTIP will literally be the death of democracy

Globalization could be a great boon to the global economy that could benefit all. However, in order for it to be so, elected governments need to produce a structured policy framework that protects the interests of the people they are supposed to represent. The problem is that the dominant political parties in most developed nations are bankroled by the corporations that seek to amass profit at any cost.

If there are those with the political will to challenge this iniquitous status-quo the chances of them effecting decision making, under the current political system, is remote to none existent. In the absence of any such political will all that Globalization lends itself to is effectively feudalism on a global scale.

Wake up.

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