You’ve already learned about globalization as it applies to culture and technology, stratification, and inequality. In this context, you’ll examine its application as it connects to a global economy, as well as the benefits and drawbacks to globalization.

Often the countries that fare the worst are those that depend on natural resource extraction for their wealth. Many critics fear globalization gives too much power to multinational corporations and that political decisions are influenced by these major financial players.

Figure 1. Instant communications have allowed many international corporations to move parts of their businesses to countries such as India, where labor and production costs are lower, and where environmental laws are weaker or non-existent. (Photo courtesy of Wikimedia Commons)

What Is Globalization?

Globalization refers to the process of integrating governments, cultures, and financial markets through international trade into a single world market.

Often the process of globalization begins with a single motive, such as market expansion (on the part of a corporation) or increased access to healthcare (on the part of a nonprofit organization). But usually there is a snowball effect, and globalization becomes a mixed bag of economic, philanthropic, entrepreneurial, and cultural efforts. Sometimes the efforts have obvious benefits, even for those who worry about cultural colonialism, such as campaigns to bring clean-water technology to rural areas that do not have access to safe drinking water.

Other globalization efforts, however, are more complex. Let us look, for example, at the North American Free Trade Agreement (NAFTA). The agreement is among the countries of North America, including Canada, the United States, and Mexico and allows much freer trade opportunities without the kind of tariffs (taxes) and import laws that restrict international trade. Often, trade opportunities are misrepresented by politicians and economists, who may offer them up as a panacea for economic woes. For example, trade can lead to both increases and decreases in job opportunities. This is because while more lax export laws mean there is the potential for job growth in the United States, more imports can mean the exact opposite. As the United States imports more goods from outside the country, jobs here typically decrease, as more and more products are made overseas.

Many prominent economists believed that when NAFTA was created in 1994 it would lead to major gains in jobs. But by 2010, the evidence showed an opposite impact, including 682,900 U.S. jobs lost across all states (Parks, 2011). While NAFTA did increase the flow of goods and capital across the northern and southern U.S. borders, it also increased unemployment in Mexico, which spurred greater amounts of illegal immigration motivated by a search for work. Most economic analyses indicate that NAFTA has been beneficial to the North American economies and the average citizen, but harmed a small minority of workers in industries with the greatest exposure to trade competition. Economists hold that withdrawing from NAFTA or renegotiating NAFTA in a way that reestablishes trade barriers will adversely affect the U.S. economy and cost jobs. However, Mexico would be much more severely affected by job loss and reduction of economic growth in both the short term and long term. This remains a controversial topic, especially since the election of Donald Trump and a heightened concern about border crossings into the United States. On September 30, 2018, it was announced that the United States, Mexico, and Canada had come to an agreement to replace NAFTA with the United States–Mexico–Canada Agreement (USMCA). The USMCA is the result of the renegotiation of NAFTA that the member states undertook from 2017 to 2018, and though it was signed by each nation’s leader, as of May 2019, it was not yet ratified. 

There are several forces driving globalization, including the global economy and multinational corporations that control assets, sales, production, and employment (United Nations, 1973). Characteristics of multinational corporations include the following: A large share of their capital is collected from a variety of nations, their business is conducted without regard to national borders, they concentrate wealth in the hands of core nations and already wealthy individuals, and they play a key role in the global economy.

Another impact of globalization is the emergence of global assembly lines, where products are assembled over the course of several international transactions. For instance, Apple designs its next-generation Mac prototype in the United States, components are made in various peripheral nations, they are then shipped to another peripheral nation such as Malaysia for assembly, and tech support is outsourced to India.

Globalization has also led to the development of global commodity chains, where internationally integrated economic links connect workers and corporations for the purpose of manufacture and marketing (Plahe, 2005). For example, in maquiladoras, mostly found in northern Mexico, workers may sew imported precut pieces of fabric into garments. Furthermore, globalization also brings an international division of labor, in which comparatively wealthy workers from core nations compete with the low-wage labor pool of peripheral and semi-peripheral nations. This can lead to a sense of xenophobia, which is an illogical fear and even hatred of foreigners and foreign goods. Corporations trying to maximize their profits in the United States are conscious of this risk and attempt to “Americanize” their products, selling shirts printed with U.S. flags that were nevertheless made in Mexico or elsewhere.