What Is Economic Globalization?
By Rachel Summers
, last updated July 22, 2011
Economic globalization is a widely discussed and very controversial subject that has a lot of political and economic importance. At its most basic, it is when there is an increase in worldwide trade and capital transfers across national boundaries. Here is some basic information about what economic globalization is, its causes, its impacts on the world, and some of its cited pros and cons.
Economic globalization is when transfer of capital and trade across national boundaries increase worldwide. In this definition, "trade" means the buying and selling of goods and services. "Transfer of capital" means investing in companies or speculating (anything that involves direct transfer of money). "Across national boundaries," in this case, applies to international trade, trans-national companies, and companies that operate in a different country than they are owned/managed.
This era of globalization first began, arguably, in the early 1980s when the International Monetary Fund (IMF) and the World Bank offered to buy bad debt and offer low interest rates to countries in the depth of the third-world debt crisis. In exchange, the economies of the third-world countries were restructured, allowing for increased global trade and companies from wealthy countries to move their production abroad to save money.
There are many key characteristics of the current economic globalization movement. In order for it to occur, economic globalization requires the privatization of government-owned businesses. This allows for international free trade, which many see as a defining characteristic of globalization. During economic globalization, markets are also opened up, and limits on trade and capital transactions are lifted. Tariffs, quotas, and other restrictions are lifted, leading to a more even "playing field" for global companies.
Pros, Cons, and Implications
There is a lot of argument about whether economic globalization is a good thing, and how it affects individual countries. Many people view globalization negatively for several reasons. First, they argue that it shifts many jobs overseas, raising the unemployment rate in the United States. The shift of jobs to foreign countries puts pressure on competing companies in the US, causing them to either lower wages for their workers or to also move their work abroad. Economic globalization also causes strictly US-based companies to lose their advantage to companied overseas, which can produce the same amount of good at a lower cost because of lower minimum wage laws.
Despite these negative aspects of globalization, there are many proponents of it who make a strong case for globalization as a good thing. They argue that when countries produce goods and services for which they have a comparative advantage, production increases, which also raises the standard of living. Global competition also keeps prices down, theoretically preventing inflation from destroying large economies. Free trade and global markets also keep interest rates low and allow foreign investment as well as innovative ideas from around the world.