"Globalization is simply opening the free marketplace to encompass the entire world."

P. J. O'Rourke, Comedian

Globalization: Causes, Pros & Cons

causes, chances and dangers of globalization

Globalization can be defined as the process of interaction of people on a global scale.

 

It is characterized by an increased interconnectedness of people and whole countries.

 

Globalization led to more open and liberal trade policies and made it easier for companies to open branches or settle down in foreign countries all over the globe.

 

Globalization often leads to an increase in overall living standards for people, however, it also has some downsides.

 

In this article, the causes for globalization are examined. Moreover, the pros and cons of globalization are analyzed.

Audio Lesson

Causes for Globalization

  1. Improvements in technology
  2. Internet on global scale
  3. Improved human transport facilities
  4. Improvements in the transport of goods
  5. Pressure from private sector companies
  6. Global trade agreements
  7. Financial markets
  8. Tax opportunities for international companies
  9. Improved access to media
  10. Mobility of labor
  11. Mobility of money
  12. Increase in tolerance towards other countries
  13. Research evidence that globalization has positive effects

Improvements in technology

Advancements in technology made it easier to communicate on a global scale. For instance, with the global introduction of phones, people could communicate with other people all over the world. What seemed impossible only a couple of centuries ago became reality. The introduction of phones and other technologies that facilitated global communication have been big contributors for the globalization progress.

 

Internet on global scale

The internet can be regarded as one of the biggest technological achievement of the human race. It facilitates local and also global communication to such a degree that a world without internet would not be thinkable for most people in our nowadays society.

 

The internet also vastly improved the access to global information from different media channels. Thus, the internet gives people the opportunity to get a more comprehensive view on the world in general.

 

Moreover, through the use of the internet, people can educate themselves for free through a variety of education channels. All this contributes to global interconnectedness and can improve the living conditions for millions or even billions of people worldwide.

 

Improved human transport facilities

In our nowadays society, it is quite common to use planes to travel over quite long distances for a relatively low price. This leads to a facilitation of transport and mobility in general, which made it easier for people to travel on a global scale. Therefore, improvements in human transport facilities also contribute to globalization.

 

Improvements in the transport of goods

Not only human transport facilities are crucial for globalization, also the transportation of material goods contributes to the globalization phenomenon.

 

Before the globalization period started, goods have mainly been traded in the countries in which they had been produced. However, with the introduction of more liberal trade policies, the transport of food and other goods across borders has been facilitated.

 

Therefore, the demand of people for foreign food or other things increased, which lead to a more interconnected trade behavior across countries and therefore contributed to a higher level of globalization.

 

Pressure from private sector companies

Some companies also understood that there would be a huge business opportunity for them through more liberal trade policies. These companies had been confident that their goods have not only been valuable for local markets, but would also sell on a global scale.

 

Therefore, the pressure of companies on policy makers regarding the introduction of more liberal trade agreements increased, which eventually led politicians to a more open approach regarding global trade policies.

 

Global trade agreements

It seemed unavoidable for countries to commit to trade agreements in order to strengthen their industries and to protect their companies against the global competition. Therefore, international trade agreements like NAFTA and many other agreements had been introduced.

 

These trade agreements also contributed to globalization since trade became easier and cheaper, which gave companies all over the world the incentive to expand from local into international trade activities.

 

Financial markets

Our financial markets also played a big role in the globalization process. Before international stock exchanges have been introduced, the trade of commodities and several other goods had been much more costly and complicated. However, with the introduction of global stock markets, barriers to trade have been greatly removed and the interconnectedness of the whole global financial market has increased dramatically.

Tax opportunities for international companies

Companies which engaged in global trade and other international activities soon realized that they are able to avoid tax payments to a major extent if they relocate their headquarters and open branches in countries with low corporate tax rates. By figuring out these tax benefits, companies also increased the level of globalization since their company structure became much more international and globally interconnected.

 

Improved access to media

With the invention and distribution of radios and TVs on a global scale, people had a better access to information, which lead to the desire to explore the world. For instance, many people saw documentaries of beautiful parts of our planet in TV and wanted to see those places in real life. Therefore, they wanted to foreign countries of our planet, which in turn led to a higher level of globalization.

 

Mobility of labor

Through the expansion of companies on a global scale, people all over the world got more opportunities to work in international companies and also to work abroad in foreign countries. Therefore, the mobility of labor has been increased, which also contributed to the globalization process since our global work environment became much more interconnected.

 

Mobility of money

Through the invention of stock markets, wire transfer or modern crypto currency, it is quite easy to send and receive money on a global scale. Therefore, our financial markets have become much more complicated and interconnected over time, which contributed to an overall increase in globalization.

 

Increase in tolerance towards other countries

Through the access to several media channels, the tolerance towards other cultural and ways of life has increased over the past decades. People usually become more open-minded since they are able to get different opinions and views on life.

 

Travelling further contributes to a more open mindset, which in turn enforces the globalization process since an increase in tolerance also increases the interconnectedness and internationalization of our relationships.

 

Research evidence that globalization has positive effects

Most research findings support the thesis that globalization has many positive effects for our global society, not only in terms of financial success but also in several other parts of our life. This in turn also contributes to globalization since people are more confident that globalization is a good thing and therefore take actions that are in line with an international mindset.

Advantages of Globalization

  1. Globalization facilitates trade
  2. More open information flows
  3. Better job opportunities
  4. Better access to highly qualified people for companies
  5. Global research collaborations
  6. Increase in global GDP
  7. Collaboration to reach our global goals as humanity
  8. Reduction in labor exploitation
  9. People wake up
  10. Changes in value systems
  11. Globalization facilitates global communication
  12. Decrease in chances for tax fraud
  13. Avoidance of wars
  14. Reduction in currency manipulations
  15. Better election controls

Globalization facilitates trade

One important advantage of globalization is that it facilitates global trade. Due to climatic conditions and several other factors, countries usually specialize in the production of certain goods.

 

Therefore, through the optimization and specialization on certain goods, every country can produce in the most efficient manner and in turn produce large amounts of goods.

 

In turn, these goods can be traded with other countries, which can improve the income and wealth levels of several countries worldwide.

 

More open information flows

Globalization also facilitates the information flow. In our nowadays world, you can basically look up all the information you need through the internet. Most of the information will even be free.

 

This means that while you had to pay large amounts of money for courses in the past, you can now watch these courses while laying on your couch for free.

 

Especially in poor countries where children often do not have access to schooling, the availability of free information in the internet could vastly improve the education levels of those children.

 

Better job opportunities

Especially for poor people in developing countries, globalization gives them the huge opportunity to escape poverty since these people may be able to work for international companies and to move to rich parts of the world due to their jobs.

 

The internet further facilitates the application process for these people since it is basically free to apply for international job opportunities through their job platforms.

 

Therefore, millions of people around the world have much better job opportunities due to globalization.

 

Better access to highly qualified people for companies

Not only workers in poor countries profit from globalization, also companies which are looking out for highly qualified people will have it easier to find suitable candidates for their vacancies since they do not have to solely rely on the local labor market but can also employ candidates that have a high level of qualification from abroad.

 

Global research collaborations

Globalization also favors the exchange of global research findings and ideas. This could be beneficial in all kinds of areas, including medical progress in order to fight deadly diseases like cancer.

 

By sharing the latest research findings, scientists all over the world can benefit from each other’s ideas and the research progress will be much faster compared to isolated local research programs where each countries’ researchers will solely work on their own.

 

Moreover, globalization not only improves the collaboration regarding global research, it also makes it much easier to share research findings through the internet so that everyone can be updated in a real time manner.

 

Increase in global GDP

Studies have shown that the global GDP is positively correlated with the level of globalization. Globalization contributes to an increase in global GDP since trade activities can be done in a more efficient manner and also the efficiency of information flows increases due to globalization.

 

However, this doesn’t mean that there are only winners from globalization. Although the GDP of most countries increases due to globalization, there are some countries which lost in economic power due to globalization.

 

Collaboration to reach our global goals as humanity

There are some goals that each country should have an interest in. For instance, we should all strive to ensure the survival of our human species. In order to accomplish this goal, we have to work together on a global scale. It could also mean the global collaboration of companies and politicians.

 

For instance, there are companies which aim to explore the possibilities to settle down on planets like Mars. As a global species, we should support those experiments to ensure the survival of our human species and to avoid extinction in case of catastrophic events.

Reduction in labor exploitation

With a more open society where information can flow in real time, companies may be more reluctant to exploit people in poor countries since they know about the shitstorm and the loss in image they would face once this exploitation becomes public. Therefore, globalization may also lead to a higher level of fairness regarding labor conditions, especially in poor developing countries.

 

People wake up

Before globalization took place, people have been manipulated on a regular basis through unobjective journalism in order to favor a certain interest group of people and to accomplish certain political goals. This is not only true for politics, but also for the erosion of religious beliefs.

 

Slowly but surely, people are deconditioning from the one-sided journalistic propaganda and flawed religious beliefs since through the invention of the internet, they simply have access to more different and independent information sources.

 

Therefore, whole belief systems become eroded, which is a quite good thing since people will no longer have to rely on flawed arguments or beliefs. They can simply observe what happens in the world and can come to their own conclusion.

 

Changes in value systems

Globalization also changes our value systems. For instance, while a few decades ago, women’s rights had been quite confined and women have not been regarded as equally important as men, this greatly changed in recent times. Today, in many countries worldwide, women have equal rights and are free to do whatever they want.

 

Globalization lead to a state where people become more open-minded and are more likely to question the flawed beliefs in the past, which can lead to a higher living quality for many people worldwide.

 

Globalization facilitates global communication

At our current state of technology, it would not even be necessary to go for business trips since everything that can be talked about in person could also be presented through virtual platforms with the help of the internet. This process will even be enhanced through the invention and progress of virtual reality.

 

Thus, through globalization, global communication is facilitated, which not only contributes to better information flows but also saves our natural resources and mitigates global warming since business trip will become obsolete in the near future.

 

Decrease in chances for tax fraud

Through global tax agreements, companies and private persons all over the world have to fear to become exposed and sentenced regarding tax fraud. In the past decades, it had been quite easy to disguise monetary flows and profits by transferring money to countries which low tax rates.

 

However, since these countries nowadays often collaborate with other countries in order to fight tax fraud, it becomes much more difficult to continue to take advantage of tax fraud activities.

 

Avoidance of wars

With more global agreements and alliances, the chances for wars decreases since countries are more eager to work together since their economies often benefit from each other through open trade agreements. Thus, globalization may also contribute to decrease the number of conflicts worldwide.

 

However, there are still some wars in our nowadays world. Therefore, it is crucial to further enhance globalization and to include as many countries as possible in global agreements so that the chances for future wars can be decreased even further.

 

Reduction in currency manipulations

In former times where information flows have not been that sophisticated, there has been plenty of currency manipulation.

 

For a country, it is usually quite tempting to depreciate their own currency so that goods from this country become cheaper for other countries, which in turn would benefit the country’s exports.

 

However, through globalization, it is quite hard to artificially depreciate currencies without other countries noticing and reacting to it.

 

Better election controls

Through more sophisticated information flows, it is easier for international institutions to detect election manipulations and to react accordingly.

 

Therefore, while in former times, the manipulation of elections had been on a regular basis, politicians often refrain from these manipulations since they fear to get caught and sentenced.

 

Thus, globalization can also lead to more objective election outcomes and may strengthen democratic developments.

Problems of Globalization

  1. Increase in globally organized illegal activities
  2. Exploitation of poor developing countries
  3. Global health issues and spread of pandemics
  4. Some country alliances may become too powerful
  5. Job losses in high-wage countries
  6. Food speculation
  7. Commodity speculation
  8. Land speculation
  9. Increase in migration
  10. Social security exploitation
  11. Frustration for the losers of globalization
  12. Increase in consumption per capita
  13. Increase in average pollution levels
  14. Globalization favors environmental dumping
  15. Facilitation of legal tax avoidance by international companies
  16. Dependence on other countries regarding specific goods
  17. Facilitation of money laundering
  18. Global financial crisis situations

Increase in globally organized illegal activities

Although the invention of the internet has brought many advantages for humanity, it also facilitates the communication of organized cartels. Thus, globalization may also lead to the spread of illegal activities across country borders.

 

Exploitation of poor developing countries

Although trade increases the overall living conditions for people in many countries, there are also countries that are exploited by the developed Western world. Some companies in developed countries only pay quite low wages and do not engage in fair labor conditions at all.

 

They often just exploit workers in poor countries since they know that these people do not have an alternative. Thus, globalization can also contribute to an exploitation of poor countries if there are no global agreements which aim to prevent this kind of exploitation.

 

Global health issues and spread of pandemics

Through the facilitation of trade and the shipping of large amounts of food to foreign countries, also a spread of serious diseases or pandemics becomes more likely.

 

Moreover, since travelling the world became quite easy due to global agreements, people carrying a disease may infect people in other countries.

 

Therefore, in our global world, diseases can be spread much easier and may turn into pandemics on a global scale with many people dying from it.

 

Some country alliances may become too powerful

Globalization also implies the danger that some alliances of countries may become far too powerful and may exploit countries which are not part of these alliances. If alliances are too powerful, they can dictate world market prices for many goods.

 

This is especially harmful when it comes to an increase in world market prices for food or other commodities that are vital for a healthy life.

 

If those items become too expensive due to the power of an alliance, many people may suffer from serious levels of hunger and starvation.

 

Job losses in high-wage countries

As the globalization process continues, there may also be a loss of jobs in high-wage countries. For instance, many jobs may be outsourced to low-wage countries.

 

This can already be observed for call centers of big U.S. companies which are often outsourced to India or other countries where the average wage is quite low.

 

Thus, unemployment rates in high-wage countries may increase, especially for jobs for which only a low level of qualification is needed.

 

Food speculation

Nowadays, on stock exchanges, all kinds of commodities can be traded. This not only includes precious metals like gold or platinum, it also includes food commodities like wheat or corn. However, this can lead to serious problems, especially if world market prices for basic food like corn increase.

 

Due to speculations on food commodities, many people in poor countries may no longer be able to afford basic food and may suffer from serious hunger due to those speculations. Therefore, globalization and the possible food speculations may also have their downsides.

 

Commodity speculation

Commodity speculations in general can lead to serious issues. For instance, if the world market price for crude oil increases drastically, our global economy will be significantly hit since many industrial processes rely this fossil power source.

 

Although companies can buy certificate in order to mitigate swings in commodity prices, big jumps or drops can still lead to serious issues, especially for small companies which are not able to hedge against commodity price swings.

 

Land speculation

Due to globalization and the increase in mobility of labor, people are also more eager to invest in properties all over the globe. However, this also implies that property prices in some regions will increase significantly. This in turn implies that some locals may no longer be able to afford housing in their home town, which may force many people to leave their home.

 

Increase in migration

Increases in property prices and other factors which are a result of globalization may also lead to an increase in migration. Through the availability of the internet, people in poor countries all over the world see pretty pictures of rich cities and often aspire similar lifestyles.

 

However, once they come to those rich cities, they often realize that life is not too much better there. Especially if they do not find a job, their situation might even be worse compared to staying in their home country.

Social security exploitation

Some people from poor developing countries may also try to migrate to other countries due to better social security. Imagine you live in a country where there is a high level of unemployment and no social security.

 

You may be quite desperate since you do not know how to provide for your family and may take the risk to migrate to a country with better social security in order to ensure the survival of your family.

 

Although this is quite understandable, it may still lead to severe economic issues for countries with high levels of social security since the social security system may eventually collapse.

 

Frustration for the losers of globalization

Although globalization is a chance for many people, some people may also lose due to globalization since they may lose their job. This can in turn lead to high levels of frustration for the losers of globalization which may in turn result in extremist political behavior.

 

In many cases, not even globalization is the problem for the issues of those people, but these people might generally blame others for their own shortcomings rather than to take efforts to improve their situation instead.

 

Increase in consumption per capita

As globalization increases the average income and wealth level, it also implies an increase in consumption. However, this in turn can lead to many adverse environmental effects, including an excessive amount of waste. Therefore, as humanity, we should adjust our consumption behavior in order to confine these adverse effects to make our behavior sustainable in the long run.

 

Increase in average pollution levels

With an increase of global income due to free trade as a result of globalization, also our global pollution levels are likely to increase. In turn, this implies a contribution to several environmental issues, including global warming.

 

Therefore, although an increase in average incomes seems to be a good thing, it can also lead to vast environmental problems if people are not spending this additional income in a responsible manner.

 

Globalization favors environmental dumping

Since transportation becomes much easier and cheaper due to globalization, also the problem of environmental dumping is likely to increase due to that. In our current state of the world, rich developed countries ship significant amounts of their waste to poor developing countries in order to get rid of it. However, this often leads to serious environmental problems in the waste-receiving countries.

 

Facilitation of legal tax avoidance by international companies

Although on the one hand illegal tax fraud had become harder due to better information flows, on the other hand, it has become much easier for big companies to reduce their taxes in an entirely legal manner. Through the construction of offshore firms and other constructs, international companies often pay almost no taxes in a fully legal manner.

 

Therefore, globalization can also contribute to significant unfair economic outcomes, since normal workers have to pay large amounts of taxes while big companies can avoid paying these taxes.

 

Dependence on other countries regarding specific goods

Since globalization led to a specialization of countries on specific services or goods, this implies significant dangers for countries whose goods or services might become obsolete in the near future since those countries will lose almost all of their economic power and locals will suffer from high levels of unemployment and poverty due to that.

 

Facilitation of money laundering

Although the mobility of money can be regarded as a good thing in general, it also implies the facilitation of money laundering. Especially through the use of crypto currency, it may be easy to engage in money laundering activities without having to fear consequences since the trade with crypto currency is still not entirely regulated throughout the world, which may imply plenty of loopholes for illegal activities.

 

Global financial crisis situations

The more interconnected the world and also our financial markets are, the higher the chances for global stock market crashes and financial crisis situations. We have already seen what can happen if our financial markets collapse in the global financial crisis 2008.

 

Since our financial markets are currently quite inflated due to the excessive supply of cheap money from central banks, chances are that we will experience even much bigger global financial crisis situations than the one in 2008.

Conclusion

Globalization has plenty of upsides and can be regarded as a major contribution to the development of a tolerant and economically strong global society. However, it also has some serious downsides.

 

Thus, it is our responsibility to globally observe the implications of globalization and to take measures in order to support people and countries which may be harmed from globalization in order to improve the living conditions of all people on our planet.

Sources

About the author

 

My name is Andreas and my mission is to educate people of all ages about our environmental problems and how everyone can make a contribution to mitigate these issues.

 

As I went to university and got my Master's degree in Economics, I did plenty of research in the field of Development Economics.

 

After finishing university, I traveled around the world. From this time on, I wanted to make a contribution to ensure a livable future for the next generations in every part of our beautiful planet.

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