For years globalization has been a buzz word mentioned in a variety of contexts. Some people use the phenomenon as an explanation for most of the recent economic and political catastrophes. Others refer to globalization as an ultimate development path for the contemporary world. This ambiguity arises from the large numbers of areas affected by globalization and by the diverse impacts that it may have. The current paper aims to explore effects of globalization and to suggest whether its net impact is mostly positive or negative.
Globalization can be broadly defined as the process of world compression and consciousness intensification of the world as a whole (Waters 2001). It results in a larger interdependence among countries and nations that goes beyond economic and political ties, but also covers social and cultural aspects of lives. The globalization is accelerated by the recent developments in technology, communication and transportation as well as by the more favourable political climate (Brömme 2010). The process is also self-reinforcing: as consumer preferences across the globe become more uniform, it gets easier and more lucrative for companies to internationalize and to expand into new markets. This leads to further homogenization of products and services across the world, thus reinforcing customer preferences harmonization and cultural convergence. Globalization in this sense generates welfare for several parties by opening new opportunities and markets for companies, fostering competition, lowering prices, enhancing knowledge transfer and expanding customer choice. It is largely based on the concept of the “free market”, where price regulate demand and supply for a product or service. Free economy that is fostered by globalization is presented as the most effective system that maximizes global welfare and uses resources most efficiently.
However, the gains from globalization are not distributed uniformly and some of the parties suffer the consequences of global integration much more than enjoy its benefits. Poor nations are often referred to as the main victims of globalization. Surprisingly, some countries that largely welcomed global integration, are now struggling to keep their economies afloat. Thus, Latin America has opened its economy and capital markets, however until now the benefits of this strategy are often outweighed by the increased income inequality, market volatility and low growth rates (Rodrik 2002). This phenomenon can be explained by the inability of poor countries to keep up with their richer counterparties. Small and almost always relatively inefficient economies that often rely on agriculture cannot match the price offer of large multinationals that exploit scale economies and have access to cheap inputs globally. Furthermore, globalization exposes poor nations to the volatility and crises of international markets that their economies cannot always resist. Additionally, as global multinationals use poor countries as a source of cheap labour, there is hardly any chance for these economies to develop more sophisticated and knowledge-intensive industries. At the same time rich countries maintain a near monopoly in R&D and technology development, setting prices too high for poor countries to freely access them.
The negative effect of globalization on poor economies should by no means become the reason for closing economies and erecting barriers for economic integration. Instead, more tailored strategies should be designed to incorporate the interests of less developed economies. Thus, fair trade rather than free trade should be used as a guiding principle. Fair trade concept describes a set of principles behind organizing trade relationships that aim to assist local producers. Fair trade organizations are supported by consumers, who are willing to pay extra to ensure that farmers receive a fair share of profits ("What is Fairtrade?" 2011). Unlike free trade, the objective of fair trade is support of producers based on the principle of fairness and not efficiency. Although this approach may result in higher prices and potentially lower efficiency, in the long run it would help local producers to remain competitive in the world market and to ensure that even poorest economies are able to embrace the benefits of globalization and not only to pay its costs.
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