The idea that globalization encourages both producers and consumers to benefit from trade based on division of labor and specialization on comparative advantage theory. So, globalisation can lead to cheaper goods and services for consumers which increases their real incomes and increasing profits from businesses who can exploit economies of scale. In other words, there could be some significant welfare gains from globalization.
Globalization can also make domestic markets more contestable. Contestability reduces the scale of monopoly, supernormal profits and also keeps businesses on their toes to incentivize them, to seek cost reducing innovations.
Globalization has been associated with contributed to a significant fall and extreme poverty percentage of the world’s population living on less than one dollar. 90 per day PPP has now fallen below 10%. There are significant gains from specialization of factors of production.
Essentially the idea that you build deeper division of labor and you build global supply chains to optimize factors of production worldwide. In the things that they’re best at globalisation has brought some dynamic efficiency gains flowing from the sharing, the diffusion, the transfer of ideas, skills and technologies and that stimulates a process of innovation the gains also from the movement of labor between countries, between nations, cross-border labor migration increasing the stock of labor in different countries and also making the labor force more diverse which again can lead to an increase in innovation.
Considering some of the drawbacks, some of the risks and the disadvantages of this process of globalization, let me pick out a few. First of all, trade imbalances we are seeing in the world economy, increasing imbalances in trade, some countries like Germany and South Korea and Norway and the oil-rich countries generating huge current account surpluses, other country is suffering from persistent structural trade deficits and those trade imbalances are leading to increased protectionist tendencies because tariffs and non-tariff barriers as well as a move towards manipulating, managing exchange rates,dominant transnational corporations and less cultural diversity.
There’s a case, there’s an argument for saying that we’re seeing the emergence of dominant global brands; businesses which have significant brands; superior technologies- perhaps and scale and they could squeeze out local producers of perhaps movers more towards a standardized to modulus world of global branded products.
There is a move back towards local produce, local provenance, local brands, there’s always some contest ability. But, it is a concern. I think of even greater concern is the issue of corporate tax avoidance in a world where corporations are finding canny ways to avoid paying tax. For example, to shadow pricing through manipulating their cash flows to countries where taxes- corporate taxes in particular or lower and ofcourse massively important globalization and the challenges, the threats to the environment.
The extent to which global growth can lead to greater exploitation of the environment, extraction of raw materials, increased pollution, the trading of toxic wastes, the collapse in by diversity, really the massive challenge of increased concentration of co2 and no2 emissions, these are huge issues of the age.
Has globalization contributed to that or can it actually help provide solutions? The so-called paradox of globalization, what we have seen an increase in many countries, not all, but many countries in relative poverty, extreme poverty has come down. Relative poverty or inequality has gone in many countries and there’s also disadvantages for some countries who lose population.
So, they may suffer a depopulation effect; the loss of younger often more skilled workers looking for better work, better pay in other countries also.
Globalization is a double-edged sword, that’s good phrase to use. The benefits of globalization are uneven. Some people, some regions, some countries benefit more than others. But, there has been a backlash from those communities. Left behind and you’ve seen their jobs and the economic security threatened.
Globalization raises important issues of equity, fairness as well as efficiency.