Globalization risks and impacts

Globalization has brought tremendous benefits to human society, in terms of quality of life, but as with anything, it comes with costs. Many authors have argued that there are both positive and negative effects of globalization, and to evaluate the merits of globalization is simply to balance these effects. Do the benefits outweigh the costs? This ends up being a matter of perspective, and it also often compels one to analyze the existing state of the world vs. An imaginary non-globalized state. Globalization is cited for increasing the wealth of many -- living standards have increased for billions. It is also criticized for increased wealth inequality. This paper will demonstrate that the costs of globalization do indeed outweigh the benefits. The costs are not trivial, but they are also overstated in a few key respects. A lot of these costs reflect flaws in the system design of globalization, but since perfect system design is utterly unrealistic, we have to take those flaws for what they are, and evaluate them in order to understand if the great globalization experiment is truly worthwhile. The evidence will show that globalization brings with it more problems than it solves, and bigger ones, too.

Definition

Globalization is a complex set of interrelated processes involving the facilitation of greater interaction on communication, transportation, trade, politics, cultural and capital exchange than was ever possible before. It originates from advances in technology -- combustion engines being a key one -- and in communication. The processes by which globalization has spread are much criticized. International institutions formed in the middle of the 20th century bring with them a neoliberal outlook that promotes progress though cooperation and understanding -- a far cry from the violent realism of days past. Globalization has created a world where people have more in common with each other than ever before, and we are better able to see and understand out key similarities and differences.

Benefits

Beware the straw man of rampant consumerism. The trope that the main outcome of globalization is the rise of the consumer society, opiated on hamburgers and blinded by banal luxury brand bling is a falsehood. Most of the products that have spread rapidly throughout the world are beneficial. Consider the rapid diffusion of new communications technology to bring people together, or the use of drugs developed in the West to manage illness around the world. People's lives have improved the world over -- standards of living almost everywhere are higher. More people have access to clean water, to education, to health care and to upward mobility under globalization, because there is more opportunity.

This is the fundamental benefit of globalization. Where there is opportunity, there is hope, and both of these are powerful transformative forces in human society. A person in sub-Saharan Africa or the mountains of South America is not condemned to a life of poverty in a world where there is hope. Foreign direct investment, fostered by the institutions of globalization and their policy of trade liberalization, creates jobs in countries that otherwise lacked the capital to create their own. China's economy skyrocketed, for example, after it joined the World Trade Organization. That is direct evidence of how globalization works -- hundreds of millions of people in China and India have been lifted out of poverty in recent years because of the opportunities that have been created with the easy movement of capital and goods around the world.

There is a natural criticism here, which is that wealth might be created, but it is also distributed unequally. Inequality remains a major issue in many societies. Those who have wealth are, after all, better equipped to gain more. The issue with this criticism is that it ignores two realities. The first is that people are not born with a right to equal wealth -- many factors contribute one's opportunity to gain a financially-secure life. Globalization was never intended to instantly life billions out of poverty. Poverty is their default, they were born into it, and every society needs to work its way out of it. Societies that have high birth rates, high corruption, low levels of natural resources and high barriers to trade and investment flows are not going to see a large spike in wealth nor an even distribution pattern either. Globalization is not a magic wand to be waved and magically lift people out of poverty, but a framework and you still have to build out that framework and work within it in order to enjoy its benefits. Complaints about inequality not only miss the big picture of the billions already lifted out of poverty, but they also grossly misunderstand the nature of globalization as both a process and a tool, judging it against outcomes it never promised to deliver on its own.

Costs

The benefits of globalization, primarily related to growing economies and improved quality of life, are impressive, but the costs can be quite steep.

One such category of cost is environment. Globalization makes it easier to transport goods around the world, but this results in more rapid depletion of natural resources (Rees, 2002), and exacerbates the conditions for climate change. The latter in many cases creates double exposure, where countries negatively affected by climate change also face negative economic consequences (O'Brien & Leichenko, 2000). The feedback loop will eventually bring down the economies of all nations, unless dramatic solutions are found.

Climate change is also creating the conditions for resurgent diseases, with predictably negative implications for human health (Epstein, 2005). Another major environmental impact is with respect to water, where economic globalization encourages the globalization of water resources -- have countries are unaffected by many nations find themselves unable to meet their water needs as the result of increasing globalization of water sources and the stresses that economic growth places on water resources (D'Odorico, Liao & Ridolfi, 2010).

The environment is basically an externality -- it is not priced into the cost of goods and services. This is one of the structural flaws of globalization. The way it is implemented does not account for all of its costs. What this really means is that the economic wealth that is created represents a trade-off; the profits are possible because the costs have not fully been paid. Somebody does end up paying those costs, however, associated with environmental degradation, and ultimately through climate change that bill is going to be rather high, and paid by all.

There are also costs associated with income inequality. While many of the costs associated with globalization are felt by everybody around the world, the benefits only accrue to a small segment of humanity. Some nations have seen good development as the result of globalization, but other nations seem to fall further behind, their human development indices flatlining (Cook & Kirkpatrick, 1997). Many developing nations, in particular those devoid of any meaningful competitive advantage, will suffer a decline in real income in a world where all countries compete with all others -- only those with absolute competitive advantage will be able to compete (Krugman & Venables, 1995). In particular, poor nations that are unable to compete in terms of education -- a critical input in the globalized world for economic success -- are at a perpetual disadvantage (Lauder, et al., 2006). As it happens, many of these nations are the same ones that are going to feel the environment impacts of globalization as well.

This might just mean that the system by which globalization has been implemented is fundamentally flawed, in fact that is the case. Globalization is a great tool for creating wealth; what it is not is a great tool for distributing wealth. Nations come together to create wealth, but then they leave the distribution to each nation on its own, and unfortunately the standard of governance in most parts of the world is not all that high. The flaw here is probably in the wealth distribution design, because the people driving globalization are only really structuring the global system in line with their interests, and not the interests of everybody. Many people, as has been noted by almost every globalization critic, simply do not have a seat at the negotiating table. Can this flaw be remedied? It is entirely possible that it can, but that vision has yet to be given serious consideration by the architects of globalization.

A further cost of globalization is that economic liberalization was always going to come with costs attached. Karl Marx predicted that, as have most halfway intelligent economists since then. Liberalization of capital flows only exacerbates the problem, especially when there is a correlation between the lack of regulation and the amount of capital flows. Countries like the United States that have weak regulatory regimes also happen to be champions of globalization and attract capital flows. The result is an intertwined financial system where multiple parts of the world can all be susceptible to the same contagion, bringing down multiple economies at once (Calvo & Mendoza, 1999). Most people, unfortunately, do not see enough of the benefits of globalization to withstand such shocks, and ultimately suffer when markets crash, through no cause of their own. Again, this has a lot to do with the design of the system.

The fact that so many problems with globalization can be traced to design and implementation rightly draws people to evaluate whether globalization has any merit at all. Technological advances would have happened anyway, albeit at a slower pace. A slower pace might have given us time to get it right. A slower pace would have allowed many of these problems to be identified, and solutions found. More interests could have been heard at the bargaining table; instead only those who seized the opportunity and moved quickly have their interest recognized. Is there a better system? Closed systems stifled the sort of growth that improves quality of lives -- that was most of human existence. Poor countries would still be poor, so on that point globalization looks like a win because rich and middle income countries at least are much better off. But of course that does not tell the whole story because the costs of globalization are not all known, and it appears that they are quite significant, and will be paid by all.