Globalization Issues

by Darren

February 21, 2009 – 10:15 am

Globalization is currently a pressing issue because it affects billions of people worldwide. The concept of globalization pushes people of all cultures closer to a one world government type of structure. If people all over the world are much more reliant on purchasing goods and services from other countries, their inter-connectedness prevents isolation. The effect globalization has on countries is profound. With the current global economic crisis, an examination of globalization issues is at hand.

Globalization and high energy costs

Globalization probably caused the record energy prices, especially in transportation fuel, we saw in the 2007 and 2008. In fact, transportation costs became so high that the threat of de-globalization became a distinct possibility.

The impact of rising transportation costs, driven significantly by high oil prices, is already being seen in capital-intensive manufacturing that carry a high ratio of freight costs to the final sale price. But a new report has determined that higher energy prices are affecting transport costs at such an unprecedented rate that “the cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today.

As transportation costs rose, the one main advantage of continued wage arbitrage with China began to evaporate. Even though the Chinese could build the products cheaply, what good would it do foreign companies who were spending exorbitant amounts on shipping?

Transportation fuel costs have dropped significantly since 2008, but the discussion about globalization has taken on a negative turn in 2009. The recent Davos forum saw a number of high-ranking financial industry and political leaders questioning the future of globalization and unconstrained capitalism.

“Defenders of free markets find ourselves in the unusual position where we have to accept and acknowledge that unconstrained capitalism is actually destructive,” said Leo Tilman. “How do we balance need for economic dynamism with a viable economy and proper regulation?”

One factor fueling the debate about the problems of globalization relates to the tough time western workers are currently experiencing. Wage arbitrage has made enormous profits for companies, but had done little to improve wages or the standard of living of workers in developed nations.

The gap between rich and poor has never been greater than it’s become during the age of globalization, which took flight in earnest in the 1980s. In that time, the divide between haves and have-nots has become canyone-esque. Of course other factors are at play also, but the effects of globalization on certain countries as been demonstrably negative.

Of course inequality is nothing new, and globalization isn’t the sole cause of it, but it can’t be overlooked as a factor. For Americans, globalization has been a mixed bag.

The main benefits of globalization for Americans are in the areas of cost and choice. You can shop in any American store and find a dizzying array of products, with many at extremely cheap prices. However, with unemployment at extraordinarily high levels, these cheap prices have come with a high price tag for the American worker. With more unemployed people, low cost products aren’t exactly flying off the shelves.

Barack Obama and a new era of protectionism

President Barack Obama has already been accused of espousing protectionist views. China protested about a “Buy American” clause in his Stimulus plan. The statement was later watered down to appease critics.

Even Canada, America’s largest trade partner, is worried about protectionism from the new administration. Although Canadian leadership left a recent meeting with Obama convinced that he wasn’t planning on re-drafting the NAFTA agreement, there are still concerns that American companies are seeking protectionist help under the guise of “security and safety concerns”.

“One of the things I’m beginning to learn in trade matters is one of the tricks of the trade. You can get an industry … come forward to their government and say, ‘As a safety issue, or as a security issue, we need to demand this from Canadian products coming in.’ Sometimes that can be a bona fide safety and security issue. A lot of times it’s what we call a non-tariff barrier and they will use that,” Mr. Day said.

Obama has only been in office for less than a month, so his position on the issues of globalization aren’t particularly clear. One thing is certain, though. He won the election in large part due to his appeal to American workers who are hoping his administration will protect their interests. Whether that happens at the expense of globalization remains to be seen. Workers in the U.S. and around the world are extremely interested in what happens next with the global economy. One thing is clear, never before have the fortunes of so many people worldwide been so intertwined economically. When things are going bad, that doesn’t necessarily feel like a great thing.

Tags: Globalization