The pros and cons of globalization - SmartAsset (2023)

The pros and cons of globalization - SmartAsset (1)

Some praise globalization for opening up borders and connecting cultures and politics. Others blame him for disrupting local economies and eliminating jobs. The fact is that globalization has been around since ancient times and is fully integrated into various aspects of modern life. As a consumer, your clothing, food, and electronics are often manufactured by multinational companies around the world. And as an investorfinancial advisorcan help you diversify your portfolio with emerging market funds and other foreign investments.

What is globalization?

Globalization is defined as a process that moves companies, organizations, workers, technologies, products, ideas and information across borders and national cultures. Proponents say this boosts countries' confidence in free trade. However, critics say it also concentrates wealth in the corporate elite, disrupting industries and making local economies more vulnerable.

This process has roots in ancient civilizations that traded in valueThey werethat were not available in their home countries. But today you can also see large corporations thriving in the same way as multinationals with offices and supply chains that span the globe.

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In recent economies, trade agreements have become cornerstones of globalization, creating and expanding trade networks and infrastructure. This is the case with NAFTA, which was renegotiated by the Trump administration in 2020.United States-Mexico-Canada Agreement (USMCA). Originally, NAFTA gave US companies incentives to partially relocate to take advantage of cheap labor in Mexico. However, the USMCA has introduced additional protections for US workers against this type of competition.

Globalization is also under scrutiny under recent President Joe Biden.$2.3 trillion infrastructure and jobs plan. Many large multinational companies such asamazonaswere singled out by Biden for exploiting tax loopholes to avoid payingfederal income tax. The president said he will raise corporate taxes and close those loopholes, as well as foreign tax credits to fund his plan.

While governments are focused on removing national barriers to encourage global trade, they are also working to protect local economies that can be easily affected. Let's discuss the pros and cons of globalization.

advantages of globalization

The pros and cons of globalization - SmartAsset (2)

Globalization can give countries around the world better access to goods. It also offers some economic benefits that financially benefit people who would otherwise not have enough opportunities where they live. Here are the four biggest benefits of globalization:

1. Globalization expands access to goods and services

It's hard to argue that globalization makes more goods and services available to more people, often at lower prices. If you have disposable income and buy a product that comes from abroad, you benefit to some extent from globalization. Business owners also benefit by having access to a larger market for their products and services.

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2. Globalization can lift people out of poverty

The argument that globalization has lifted people out of poverty in developing countries is somewhat controversial, as opinions differ on the quantity and quality of jobs that globalization creates. But the general view is that globalization is reducing employment opportunities in capital-poor and labor-rich countries, i.e. h developing countries.

3. Globalization increases cultural awareness

Advocates of globalization say it has improved understanding and exchange between cultures. A globalized society increases the rate at which people are exposed to the culture, attitudes and values ​​of people in other countries. This exhibition can inspire artists, strengthen ties between nations and curb xenophobia.

4. With globalization, information and technology spread more easily

Not only art and culture spread more easily in a globalized society. The same applies to information and technology. Take, for example, the rise of mobile banking in Kenya or the practice of microcredit. Civil society groups can be inspired by other countries and good ideas can spread more easily.

Disadvantages of globalization

Globalization can benefit many, but it also has some important drawbacks to consider. From negatively impacting some economies to only benefiting the biggest companies, this is not a perfect solution. These are the four biggest disadvantages of globalization:

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1. Workers can lose their jobs in countries with cheap labor

This first argument against globalization appears most frequently in US policy debates.NAFTAand other commercial agreements. When the United States competes with less developed countries, its great advantage is access to capital, while the great advantage of less developed countries is cheap labor.

Generally speaking, globalization increases the return to capital in rich countries like the United States and reduces the return to labor in the same countries. That's a fancy way of saying that low-skill jobs in the US may disappear as a result of globalization (although technology does play a role). play an important role in this change). The result may be a reduction in inequality between countries, but an increase in inequality within countries.

2. Globalization has not protected labor, environmental or human rights

In theory, globalization can be an opportunity to spread values ​​and practices such as environmental protection and labor rights around the world. In practice, this propagation was slow and imperfect. For example, rather than exporting the labor protections a company may need to comply with to the US, it could seek lower standards in another country where labor is not protected.

Some argue that globalization has created a "race to the bottom" with companies actively seeking out countries with the weakest labor and environmental protections and lowest wages. And although globalization has increased the flow of goods, services and capital, many tax havens still exist, meaning that much of the value created by globalization is not captured or redistributed by governments.

3. Globalization can contribute to cultural homogeneity

Globalization can lead to greater cultural homogeneity as people's preferences converge and products cannot compete with cheaper multinational products. If everyone wears jeans, learns English and watches Hollywood movies, we may miss out on valuable cultural practices and languages. Some critics of globalization worry that it will create a dominant monoculture, while others will drive diverse cultures underground.

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4. Globalization strengthens multinational companies

Another criticism of globalization is that it has empowered multinational corporations at the expense of governments and citizens. This reduces state sovereignty and the ability of citizens to hold their leaders accountable for conditions in their countries. This is another reason why workplace safety and environmental protection are more difficult to enforce than many critics of globalization would like. Multinational corporations can also defend favorable provisions in trade agreements (this has been an argument against theTPP).

final result

The pros and cons of globalization - SmartAsset (3)

Supporters and opponents of globalization generally agree that the phenomenon has brought great benefits and several negative effects. Proponents argue that the pros outweigh the cons, while critics seek to improve the terms of world trade or, in some cases, reverse globalization. Regardless, globalization will remain in many industries and countries, so it's important to understand how it can affect you and your business.

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Amelie JosephsonAmelia Josephson is an author with a passion for financial education topics. His areas of expertise include retirement planning and home buying. Amelia's work has appeared across the web, including on AOL, CBS News and The Simple Dollar. He has degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.


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