This quest for economic efficiency had led to the rise of huge multinational corporations like Niké. It has based its production of sportswear in the developing countries such as Sri Lanka and Bangladesh to benefit from cheap labour. This means that the production of sportswear is productively efficient and it also guarantees the workers in the developing economies an income, which is generally higher than they would otherwise get by taking up local employment.
Recently, Dyson, the vacuum cleaner manufacturer has shifted its production to Indonesia for the same reason of cheap labour. The same reason is also behind the sporadic rise of call-centres in India. Hence, living standards in developing countries go up.
Globalization also leads to competition between countries with a comparative advantage, in order to become the favoured supplier of goods and services. This means cheaper imports for other countries, resulting in a lid on prices, so inflation is less likely to derail economic growth. Also, there is room for innovation for an open economy, with fresh ideas coming from abroad.
The major disadvantage of globalisation is the loss of jobs in the developed nations, resulting from “job exports” to developing countries. For example, many Dyson employees have lost their jobs due to the production of vacuum cleaners being relocated to Indonesia. Many employees in UK call centres have also lost jobs because UK companies are increasingly transferring their call centres to India. This leads to unemployment in the developed nations. Many employees also face pay-cut demands from their employers with a threat of exporting jobs if they do not comply. Many others are very anxious about their jobs, as companies are having to face intense competition. This results in companies being forced into becoming more efficient, meaning job exports to places of cheap labour or even job cuts.
Many anti-globalization supporters argue that globalization is leading to the rich getting richer and the poor getting poorer. But this increase in the rich-poor divide is being caused, not by globalization, but by international trade barriers and protectionism in areas such as the EU. It is also being caused by “dumping” of subsidised food by the EU into African countries, resulting in local farmers being out-competed by unusually low food prices.
Most people agree that the benefits of globalization have been un-equitably shared. But, the countries that are getting poorer are those that are not open to world trade, notably many nations in Africa. China’s opening to world trade has brought t growth in income from $1460 a head in 1980 to $4120 by 1999. In 1980, Americans earned 12.5 times as much as the Chinese, per capita. By 1999, they were only earning 7.4 times as much. The gap between the rich and the poor is also shrinking with most nations in Asia and Latin America.
Many people believe that exports create jobs, and imports cost jobs and that it therefore makes sense to have barriers against imports. This thinking led to the Great Depression in 1930, because so many countries had erected barriers against imports that global trade fell with catastrophic consequences.
Most exports also use some imports. To take a simple example, a country might export packaged sugar, but import the packets. Lowering import barriers makes export industries even more efficient and competitive in world markets. Countries that lower trade barriers concentrate their national energies in industries they are good at, where they have an international advantage. Import barriers encourage countries to focus efforts in industries where they do not have any advantage. It leads to wasteful and lazy investment. There is evidence that developing countries that erect barriers to imports have slower growth in incomes than those that are open to trade.
Globalization leads to improved efficiency, lower prices, more jobs and improving standards of living in developing economies. But globalization can only be of economic advantage to countries that embrace it with open arms, like China. Globalization can truly make the world a better place to live if trade barriers and protectionism are made a thing of the past and the concept of a global free market economy is adapted in its entirety.
