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Globalization Advantages Disadvantages

Essay by   •  January 20, 2016  •  Research Paper  •  2,186 Words (9 Pages)  •  1,386 Views

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1 Introduction

"No two countries that both had McDonald's had fought a war against each other since each got its McDonald's.” This quote of Thomas L. Friedman, a well-known US-American foreign affairs and globalization expert, shows two of the main results of globalization: Companies that are becoming more international and a world in which the countries start cooperating more and more instead of fighting wars. People start in-teracting borderlessly and politicians and newspapers mention the “world community.”

There are mainly three forces that are contributing to the process of globalization: the liberalization of capital movements, the opening of global markets to trade and invest-ment, and the increasing use of information and communication technologies.

If you want to define globalization you have to emphasize that Globalization is a multi-dimensional phenomenon that not only touches political, economic, social and cultural spheres of any society but also reshapes the traditional way of studying the “social world and human nature” first. At political and economic level, globalization is the process of denationalization of markets, politics and legal systems, it is the rise of global economy. Good examples for this development are e.g. the European Union or the negotiations of the European Union with the United States to create the biggest trade zone of the world. At the business level, globalization is when companies decide to take part in the emerging global economy and establish themselves in other countries’ mar-kets. They adapt their products or services to the linguistic and cultural requirements of foreign nations. One of the best adapting companies is McDonald’s. It adapts its menu to different cultures by for example offering rice in Asia or the Big Maharaja in India. Besides the wealth of a country can be measured with the “Big Mac Index”, that first first published in 1986 by “The Economist”. At social and cultural level globalization means that countries all over the world become more and more interdependent in many possible ways. There is probably no area of human activities left that is not affected by globalization. People listen to the same music, eat the same food, wear the same clothes, and decide ecological and war and peace issues together.

2 Results of Globalization

This chapter is the assignment’s main chapter and deals with the results of globalization. To have a better structure the chapter is divided into two parts: the advantages and the disadvantages of globalization.

2.1 Advantages of Globalization

Many proponents of global business argue that mutual benefits derive from the global specialization of products and services. The general stance is that the benefits of global-ization outweigh the economic and social costs by achieving higher efficiency and by providing GDP growth in underdeveloped regions.

The thesis of increasing wealth for developing countries is often supported by the de-velopment of the per capita GDP growth rates in these countries. In the 1960s, non-globalized economies grew at an annual rate of 1.4% while globalized economies grew at 4.7%. Another relationship between globalization and GDP was seen in the 1990s when developing countries had 5.0% annual growth compared to only 2.2% annual growth in economies that had been globalized for longer. Since developed countries have usually been globalized longer than developing countries the percental growth of developing countries is higher. This correlation between globalization and annual growth demonstrates benefits to international trade, economic development, and standards of living. A good example for a developing country that benefited from globalization is South Korea. From 1962 to 1989, South Korea's GDP growth averaged over 8%, year-on-year. Exports and international trade grew enormously, along with the purchasing power of South Korean individuals, supporting the argument that international exchange creates opportunities for developing countries.

Another advantage is the free trade. Due to globalization there is a higher variety of products which leads to competition at supply side. This makes products cheaper and cheap imports keep a lid on prices, so inflation is less likely to derail economic growth. Free trade is furthermore a way for countries to exchange goods and resources more easily. So countries can concentrate on producing goods where they have a comparative advantage. This approach is justified by the Ricardian Model and will generate several gains like bigger export markets and economies of scale through being able to specialise in certain goods. Besides it leads to increased availability of diverse products, services, and technology. Through pooling knowledge and exchanging more goods and services, domestic economies expand and benefit from technological and medical developments. This increase in variety, even in basic goods, allows someone in Spain to drink Italian wine and eat French cheese while typing on a Chinese keyboard. Global exchange can allow the best of all worlds through specialization and maximizing various comparative advantages that involve quality or efficiency.

The last advantage that will be mentioned in this chapter refers to the opening quote of the introduction. The statement of McDonald’s as a guarantee for peace between two countries was Friedman’s foundation for his “Golden Arches Theory of Conflict Pre-vention”. And although there have been some wars between two countries that had McDonald’s at this time, the central idea behind the “Golden Arches Theory of Conflict Prevention” stayed alive and Friedman developed it into the “Dell Theory of Conflict Prevention” which stipulates: “No two countries that are both part of a major global supply chain, like Dell’s, will ever fight a war against each other as long as they are both part of the same global supply chain.” Because of some criticism Thomas Friedman also warns in his book “The World Is Flat” that the Dell Theory should not be in-terpreted as a guarantee that nations who are deeply involved in global supply chains will not go to war with each other. It rather means that the governments of these nations and their citizens will have very heavy economic costs to consider as they contemplate the possibility of war. These costs include the long-term loss of the country's profitable participation in the global supply chain. So finally globalization is also a phenomenon that has the potential to make the world more peaceful.

2.2 Disadvantages of Globalization

Along with arguments supporting the benefits of a more globally-connected economy, there are

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