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Globalization: Understanding and Improving this System

Updated on April 9, 2018

While the effects of globalization continue to be debated amongst economists and policy makers alike, there can be no doubt that this contemporary way of doing business is here to stay. Modern technology has allowed businesses to reach all corners of the globe, creating new opportunities and spurring growth. That is not to say that the effects of globalization have been unanimously positive, in fact, that is far from the truth. However, what it does say is that globalization is adding value to the global economy in some capacity, and the idea that we will move away from this system seems like an impossibility. With that being understood, perhaps it is time to shift the focus of this great globalization conversation. Instead of debating whether or not this modern phenomenon is good or bad for the global community, maybe we should be asking ourselves, “How can we identify and improve weaknesses in this system in an attempt to make it work better for all?”

Creating value is a great thing. Value is what makes businesses work and what allows us to build wealth. However, the number that we see on a business’s bottom line is not representative to value that that company has created. Oftentimes, these businesses exploit vulnerable people and damage the environment in an attempt to increase the bottom line. Unfortunately, globalization has led to an increase in this trend. For example, we constantly hear about companies in advanced countries such as the Untied States outsourcing jobs to countries with extremely low labor standards. This represents a two-fold issue. First, workers in developing countries earn pennies on the dollar compared to the same work completed in the United states, and the working conditions are often much worse. Furthermore, this has led to wage stagnation in the United States. William Shaw and Uri Dadush, scholars at Carnegie’s International Economics Program, illustrate this point by explaining, “Labor income fell as a share of GDP by 3.5 percentage points from 1993 to 2009. And Gini coefficients, which provide an aggregate measure of income inequality, rose from the mid-1980s to the mid-2000s in all G-7 countries except France.” Workers in advanced countries have seen the cost of living increase at a much more rapid pace when compared to the average income. This negatively effects the low-middle income workers the most, which in turn, has contributed to the deterioration of the middle class.

To further complicate the conversation about Globalization, we are seeing how Foreign Direct Investment (FDI) has not lead to the benefits that were expected. Many supporters of globalization point towards (FDI) as one of the biggest benefits of globalization. The idea is that FDI helps developing countries train workers to become more competent and productive while also improving technology. This is supposed to lead to increased wages and worker value in developing countries. In essence, the system can be seen as “trickle-down economics”. Corporations invest in developed countries and are able to earn a greater profit due to the decreased labor cost. Workers in the developed countries see increased wages combined with better training, thus making them more valuable. And the money coming into the developing countries strengthens the economy as a whole through economic stimulation and tax dollars. In a perfect world, this is a fantastic concept that creates value for all parties involved. But as we have seen time and time again, most of the time, the interests of the corporation get placed before the interests of those in developing countries. Published aurthor Jeff Gates has this to say about FDI, “It's simply not true that the benefits of development are trickling down; they are gushing upward. Nor have multinational corporations become the employers economists promised. The world's 200 largest corporations account for 28% of global economic activity while employing less than one-quarter of 1% of the global workforce. These statistics only add to the unbalanced income distribution that seems to negatively affect so many, while benefiting so few

To make this issue worse, Corporations have gained so much influence around the globe, that they can “bully’ developing countries into affording them preferential treatment. An example could include a company only promising FDI to countries that will allow them massive tax breaks. If the developing country says “no”, then the corporation will simply move on to the next country willing to support their interests. In this sense, companies from developed countries are crippling developing countries by sucking up all of their resources and creating an unfair playing field within that developing country.

It is clear that globalization is here to stay. Advanced technology has allowed us to create value in extraordinary ways across the globe. However, there can be no denying that there is a dark side to this new way of doing business. Globalization presents vast opportunities for all across the world, but we need to understand the implication of our actions. If we can inject a new sense of morals, and change the focus from the “bottom line”, and instead measure success based off of how our business positively affect the world as a whole, we can truly start to make a difference.



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