Another contributing factor to globalisation is trade liberalisation. After the Second World War the world trade organisation was made with the aim to reduce trade barriers and tariffs. They managed to reduce tariffs from 10% to 3.7%. This made it cheaper and easier to trade contributing to transnational companies setting up and making the world’s economies more integrated. However over recent years it can be argued that countries may be introduction protectionist measure after the 2008 financial crash in order to protect their domestic industries, such as the American steel industry which was subsidies by the government. This could be argued that there has been a decrease in trade liberalisation, yet there are still improvements from years ago.
Another contribution to globalisation is the reduction of costs and improvements of telecommunications such as the internet, phone lines and email. There has been huge developments in these areas such as the internet provides a 24 global shopping base in which consumers can buy products from the other side of the world without leaving their homes. They also allow transnational companies to run as they can contact each other via email and have conference calls without having to actually visit the country. Yet it could be argued such things as access to email leaves developing countries behind and prevents them from becoming part of the globalisation and integrated economy as they don’t have the infrastructure and access to such tools.
To conclude the increased significance of transnational companies is a factor which has contributed to globalisation which has contributed to globalisation but it not the main cause. Some companies would not be able to exist without things such as reduced transport costs, free trade and telecommunications. Therefore there are equally, if not more significant factors which have contributed towards globalisation.
To what extent do the costs of globalisation outweigh the benefits?
Globalisation has had both benefits to the world yet there have also been significant costs too. A benefit of globalisation is that world trade as a proportion of GDP has increased. The trade liberalisation and reduced transport costs which have contributed to globalisation have overall increased world output and therefore standards of living in many countries have improved.
Globalisation has also allowed countries to benefit from comparative advantage, where one country can produce a good or service at a lower opportunity cost than another. This means that there is more efficient allocations of resources and world output increases and therefore so does standard of living. However it may be argued that in some cases transport costs outweigh the benefits of comparative advantage and the need for supernormal profits distorts it.
Globalisation has also meant that producers have lower costs as they can benefit from cheaper unit labour cost from low wage economies, also further exploiting economies of scale. This can also mean consumers benefit from these low costs, through comparative advantage and reduction in transport costs via lower prices, this in turn increases consumer surplus and consumer welfare. However this depends on whether the companies pass on the lower costs to consumers through prices or choose to increase their profit margin.
Globalisation also allows more choice for consumers as it gives them access to products from all over the world which are not available in their own country. This again increases standards of living.
Despite these benefits of globalisation there are also cost which are associated with the process. For example with all the increased transport and trade there are severe external cost as they are with countries such as China which have become more and more industrialised. They contribute to global warming and depletion of fossil fuels, which is degrading to the environment. Yet some theorists argue that this won’t be the case as when countries grow wealthier from the process of globalisation they will invest in more efficient and green ways of producing.
It is also argued that globalisation increases exploitation and inequality as it takes advantage of low wage economies which are earning a lot less than economies in the west and wages won’t want to rise as this may have an adverse effect on international competition. However it can be argued that the situation for such workers may be worse if there was no demand for their goods i.e. they would be jobless.
Another cost is that increased globalisation can lead to increased instability due to the world’s economies becoming more closely integrated. This can be represented by the 2008 financial crash which began in America but dragged other countries such as the UK into a recession as they were its main exporting partners. Such a thing has caused some degree of deglobalisation where countries have begun to introduce protectionist measures.
Another cost is that there is increased inequality as developing countries don’t have access to the infrastructure and they may get left behind in the process of globalisation. Yet globalisation may help to improve this situation as the development of transnational companies mean that a company could set up in a less developed country to benefit from its rich natural resources and bring some infrastructure building with it.
To conclude there are cost associated with globalisation, yet there is also huge benefits which can overall increase world output and efficiency and increase standard of living. Therefore it is unlikely that the costs don’t outweigh the benefits, as more countries develop and grow through globalisation more precautions will take place to reduce costs and increase financial stability to prevent a reoccurrence of 2008.