Globalization has been hugely beneficial to Asia.

Japan, South Korea, Taiwan, Malaysia,

Singapore, Hong Kong, Thailand, and China have reaped lasting benefits from worldwide
investment flows, knowledge exchanges, and rapid economic growth. And while globalization
undoubtedly made the rich even richer, the poor also benefitted.

Several Asian economies saw the emergence of a large middle class and the virtual elimination
of poverty. The rural poor received higher wages after finding better quality manufacturing jobs
in urban centers. And with improvements in technology and expanded trade, there was optimism
about job prospects. In ethnically diverse societies such as Malaysia, globalization contributed
significantly to the reduction of racial tensions rather than exacerbate them, contrary to what is
happening in the West.

There is no question that the West has also benefited from globalization. The United Kingdom
and the United States have seen huge gains in the services sector, especially in financial services.
However, the accompanying income inequality is of a different hue than in Asia. Younger, better
educated workers located in cosmopolitan urban centers such as New York and London have
seen a phenomenal increase in their income. On the other hand, older, less educated workers in
the rusting industrial belts of northern England and America have lost their jobs to manufacturers
overseas. Instead of jobs with good growth prospects enjoyed by several generations in the past,
the quality of jobs has deteriorated and there is little hope among the rust belt’s working class
that this situation can be turned around. Worst, there is a perception that politicians don’t care.
The recent voting patterns in the U.S. and the U.K. are a clear reflection of this despondence.

How did Asia achieve a shared prosperity from globalization with consistent domestic political
support while the rich countries have struggled and are suffering the political blowback?

The answer may lie in the heavy investment made by Asian governments in human capital
(education and health) to prepare the workforce to take advantage of the high wage
manufacturing jobs created by globalized investment. This was complemented by public
investment in infrastructure to continue to attract foreign investment. The fiscal deficits
associated with large public investment in human capital and physical infrastructure were
tolerated because the political and economic benefits of preparing the workforce for new jobs
were considered worthwhile objectives.

Both the U.S. and the U.K, in contrast, have underinvested in infrastructure and in “skilling up”
the labor force to make the transition to new and better jobs from the ones lost to lower wage
workers in Asia. In the U.K, it happened under the watch of the incumbent conservative
government. While presenting to Parliament the result of the recent referendum to the European
Union, Prime Minister David Cameron spoke proudly of leaving behind a sound economy
resting on the pillar of a sharp fiscal retrenchment—low taxes and even lower public
expenditure. One result of this “sound” economy is that a large number of people are stuck in
dead-end jobs and are looking for opportunities to vent their frustration.

In the U.S., the Obama administration has been hemmed in by the recalcitrant Republican
Congress. Badly needed public investment in health and education to prepare workers and an
overdue upgrade of infrastructure to attract investment have been thwarted by a Congress
wedded to fiscal austerity. This has prolonged the pain of transition to new jobs.

The long and painful transition to productive jobs has resulted in the clamor for reneging on
globalization commitments. This is misplaced because protecting jobs that are best done
elsewhere is not possible without putting curbs on investment. That would be moving towards a
world that globalizes misery. There is thus no alternative to a proactive government that eases
the transition to new jobs in rich countries.

Of course, Asia had the advantage of preparing its work force for known job streams. Rich
countries, on the other hand, have to discover new productive jobs. However, we do know that
discovery is more likely if education standards improve, physical infrastructure is cutting edge,
and science and research are well-funded.

Rich countries don’t have to give up on manufacturing as a source of employment. Germany has
shown the way to creating high-end manufacturing jobs in a rich-country setting. It has a highly
skilled work force that produces technology-intensive products which generate a large trade
surplus. There is little support in Germany for reneging on global commitments.

Dying cities, dead-end jobs, and a seemingly uncaring government feed into the perception that
living standards will continue to fall. Demagogues exploiting ethnicity point the finger at
immigrants and have succeeded in directing rich-country worker ire at them. This is a far cry
from the democratic vision rich democracies should aspire to and is not in any away a solution to
these problems. The protest should be aimed, instead, at elected governments to play their role
in facilitating the transition to the next generation of jobs.

The world has paid heavily for Europe’s nationalistic ambitions—colonial subjugation of Africa
and Asia and the two world wars are the most egregious examples. The EU is an attempt to tame
those impulses by seeking to cooperatively address common challenges instead of competing for
narrower nationalistic objectives. The dissolution of the EU and the weakening of other
multilateral institutions because of rich countries’ failure to rise up to the globalization challenge
would be truly retrogressive.

How Globalization Affects Developed Countries

Key Takeaways

 Globalization is a process through which businesses or other organizations create influence, or

develop operations around the world.
 Globalization is a combination of gross domestic product (GDP), industrialization, and the
Human Development Index (HDI).
 Developed nations benefit under globalization as businesses compete worldwide, and from the
ensuing reorganization in production, international trade, and the integration of financial
markets.
  Some economists argue globalization helps promote economic growth and increased trading
between nations; yet, other experts, as well as the general public, generally see the negatives of
globalization as outweighing the benefits.
 Critics say globalization is detrimental for less wealthy nations, for small companies that can't
compete with the bigger firms, and for consumers who face higher production costs and the
risks of jobs being outsourced.

What Is Globalization?

Globalization is defined as a process that, based on international strategies, aims to expand

business operations on a worldwide level, and was precipitated by the facilitation of global
communications due to technological advancements, and socioeconomic, political and
environmental developments.

The goal of globalization is to provide organizations a superior competitive position with lower
operating costs, to gain greater numbers of products, services, and consumers. This approach to
competition is gained via diversification of resources, the creation and development of new
investment opportunities by opening up additional markets and accessing new raw materials and
resources. Diversification of resources is a business strategy that increases the variety of business
products and services within various organizations. Diversification strengthens institutions by
lowering organizational risk factors, spreading interests in different areas, taking advantage of
market opportunities, and acquiring companies both horizontal and vertical in nature.

Industrialized or developed nations are specific countries with a high level of economic
development and meet certain socioeconomic criteria based on economic theory, such as gross
domestic product (GDP), industrialization and human development index (HDI) as defined by
the International Monetary Fund (IMF), the United Nations (UN) and the World Trade
Organization (WTO). Using these definitions, some industrialized countries are the United
Kingdom, Belgium, Denmark, Finland, France, Germany, Japan, Luxembourg, Norway,
Sweden, Switzerland, and the United States.1

Components of Globalization

The components of globalization include GDP, industrialization, and the Human Development
Index (HDI). The GDP is the market value of all finished goods and services produced within a
country's borders in a year and serves as a measure of a country's overall economic output.
Industrialization is a process that, driven by technological innovation, effectuates social change
and economic development by transforming a country into a modernized industrial, or developed
nation. The Human Development Index comprises three components: a country's population's
life expectancy, knowledge and education measured by the adult literacy, and income.2

The degree to which an organization is globalized and diversified has bearing on the strategies
that it uses to pursue greater development and investment opportunities.
The Economic Impact on Developed Nations

Globalization compels businesses to adapt to different strategies based on new ideological trends
that try to balance the rights and interests of both the individual and the community as a whole.
This change enables businesses to compete worldwide and also signifies a dramatic change for
business leaders, labor, and management by legitimately accepting the participation of workers
and the government in developing and implementing company policies and strategies. Risk
reduction via diversification can be accomplished through company involvement with
international financial institutions and partnering with both local and multinational businesses.

Globalization brings reorganization at the international, national, and sub-national levels.

Specifically, it brings the reorganization of production, international trade, and the integration of
financial markets. This affects capitalist economic and social relations, via multilateralism and
microeconomic phenomena, such as business competitiveness, at the global level. The
transformation of production systems affects the class structure, the labor process, the application
of technology, and the structure and organization of capital. Globalization is now seen as
marginalizing the less educated and low-skilled workers. Business expansion will no longer
automatically imply increased employment. Additionally, it can cause a high remuneration of
capital, due to its higher mobility compared to labor.

The phenomenon seems to be driven by three major forces: the globalization of all product and
financial markets, technology, and deregulation. Globalization of product and financial markets
refers to an increased economic integration in specialization and economies of scale, which will
result in greater trade in financial services through both capital flows and cross-border entry
activity. The technology factor, specifically telecommunication and information availability, has
facilitated remote delivery and provided new access and distribution channels, while revamping
industrial structures for financial services by allowing entry of non-bank entities, such as
telecoms and utilities.

Deregulation pertains to the liberalization of capital account and financial services in products,
markets, and geographic locations. It integrates banks by offering a broad array of services,
allows entry of new providers, and increases multinational presence in many markets and more
cross-border activities.

In a global economy, power is the ability of a company to command both tangible and intangible
assets that create customer loyalty, regardless of location. Independent of size or geographic
location, a company can meet global standards and tap into global networks, thrive and act as a
world-class thinker, maker, and trader, by using its greatest assets: its concepts, competence, and
connections.

Beneficial Effects

Some economists have a positive outlook regarding the net effects of globalization on economic
growth. These effects have been analyzed over the years by several studies attempting to
measure the impact of globalization on various nations' economies using variables such as trade,
capital flows, and their openness, GDP per capita, foreign direct investment (FDI), and more.
These studies examined the effects of several components of globalization on growth using time-
series cross-sectional data on trade, FDI, and portfolio investment. Although they provide an
analysis of individual components of globalization on economic growth, some of the results are
inconclusive or even contradictory. However, overall, the findings of those studies seem to be
supportive of the economists' positive position, instead of the one held by the public and non-
economist view.3 4 5

Trade among nations via the use of comparative advantage promotes growth, which is attributed
to a strong correlation between the openness to trade flows and the effect on economic growth
and economic performance.6 Additionally, there is a strong positive relation between capital
flows and their impact on economic growth.7

Foreign Direct Investment's impact on economic growth has had a positive growth effect in
wealthy countries and an increase in trade and FDI, resulting in higher growth rates.8 Empirical
research examining the effects of several components of globalization on growth, using time
series and cross-sectional data on trade, FDI and portfolio investment, found that a country tends
to have a lower degree of globalization if it generates higher revenues from trade taxes. Further
evidence indicates that there is a positive growth-effect in countries that are sufficiently rich, as
are most of the developed nations.

The World Bank reports that integration with global capital markets can lead to disastrous
effects, without sound domestic financial systems in place.9

One of the potential benefits of globalization is to provide opportunities for reducing

macroeconomic volatility on output and consumption via diversification of risk.

Harmful Effects

Non-economists and the wide public expect the costs associated with globalization to outweigh
the benefits, especially in the short-run. Less wealthy countries from those among the
industrialized nations may not have the same highly-accentuated beneficial effect from
globalization as more wealthy countries, measured by GDP per capita, etc. Although free trade
increases opportunities for international trade, it also increases the risk of failure for smaller
companies that cannot compete globally. Additionally, free trade may drive up production and
labor costs, including higher wages for a more skilled workforce, which again can lead to
outsourcing jobs from countries with higher wages.

Domestic industries in some countries may be endangered due to comparative or absolute

advantage of other countries in specific industries. Another possible danger, and harmful effect,
is the overuse and abuse of natural resources to meet new higher demands in the production of
goods.

The Bottom Line

One of the major potential benefits of globalization is to provide opportunities for reducing
macroeconomic volatility on output and consumption via diversification of risk. The overall
evidence of the globalization effect on macroeconomic volatility of output indicates that
although direct effects are ambiguous in theoretical models, financial integration helps in a
nation's production base diversification, and leads to an increase in specialization of production.
However, the specialization of production, based on the concept of comparative advantage, can
also lead to higher volatility in specific industries within an economy and society of a nation. As
time passes, successful companies, independent of size, will be the ones that are part of the
global economy.

It took 1,000 years for the invention of paper to spread from China to Europe. Nowadays, in a
world that has become more integrated, innovations spread faster and through many channels.

Our research in Chapter 4 of the April 2018 World Economic Outlook takes a closer look at how
technology travels between countries. We find that the spread of knowledge and technology
across borders has intensified because of globalization. In emerging markets, the transfer of
technology has helped to boost innovation and productivity even in the recent period of weak
global productivity growth.

Why spreading technology matters

Technological progress is a key driver of improvements in incomes and standards of living. But
new knowledge and technologies do not necessarily develop everywhere and at the same time.
Therefore, the way technology spreads across countries is central to how global growth is
generated and shared across countries.

Indeed, during 1995–2014, the United States, Japan, Germany, France, and the United Kingdom
(the G5) produced three-fourths of all patented innovations globally. Other large countries—
notably China and Korea—have started to make significant contributions to the global stock of
knowledge in recent years, joining the top five leaders in a number of sectors. While this
suggests that in the future they too will be important sources of new technology, during the
period under study, the G5 constituted the bulk of the technology frontier.

To trace knowledge flows, our study uses the extent to which countries cite patented innovations
from the technology leaders as prior knowledge in their own patent applications. The chart below
gives a representation of these cross-country knowledge links. Two features stand out. First,
while in 1995 the United States, Europe, and Japan were dominating global patent citations,
China and Korea (depicted together as “other Asia”) have made increasingly large use of the
global knowledge stock as measured by their patent citations. Second, knowledge links have in
general intensified over time, both within (red arrows) and across (blue arrows) regions. An
alternative measure for the extent to which foreign knowledge is available for domestic use is the
intensity of international trade with technology leaders—and our study looks at this as well.

Globalization boosts technological development

The increasing intensity of global knowledge flows points to important benefits of globalization.
While globalization has been much criticized for its possible negative side effects, our study
shows that globalization has amplified the spread of technology across borders in two ways.
First, globalization allows countries to gain easier access to foreign knowledge. Second, it
enhances international competition—including as a result of the rise of emerging market firms—
and this strengthens firms’ incentives to innovate and adopt foreign technologies.

The positive impact has been especially large for emerging market economies, which have
made increasing use of the available foreign knowledge and technology to boost their innovation
capacity and labor productivity growth. For instance, over 2004–14, knowledge flows from the
technology leaders may have generated, for an average country-sector, about 0.7 percentage
point of labor productivity growth per year. This amounts to about 40 percent of the observed
average productivity growth over 2004–14. We find that one important factor behind the build-
up of innovation capacity in emerging market economies has been their growing participation in
global supply chains with multinational companies, though not all firms have benefitted as
multinationals sometimes reallocate some innovation activity to other parts of the global value
chain.

The increased transfer of knowledge and technology to emerging market economies has partly
offset the effects of the recent slowdown in innovation at the technology frontier and helped
drive income convergence for many emerging economies. In contrast, advanced economies have
been more affected by the technology slowdown at the frontier.

Finally, our study finds evidence that technology leaders themselves benefit from each other’s
innovation. This suggests that, going forward, with the growing contribution of China and Korea
to the expansion of the technology frontier, there may be scope for positive spillovers from these
new innovators to the traditional innovators. Knowledge and technology do not flow in one
direction only.

Spreading the know-how

Globalization brings a key benefit—it stimulates the spread of knowledge and technology,
helping spread growth potential across countries. But interconnectedness per se is not enough.
The assimilation of foreign knowledge and the capacity to build on it most often requires
scientific and engineering know-how. Investments in education, human capital, and domestic
research and development are thus essential to build the capacity to absorb and efficiently use
foreign knowledge. It also requires an appropriate degree of protection and respect of intellectual
property rights—both domestically and internationally—to preserve the ability of innovators to
recover costs while ensuring that the new knowledge supports growth globally.

Policymakers must also make certain that the positive growth benefits from globalization and
technological innovation are shared widely across the population, including by ensuring that
innovating firms do not exploit the newly acquired technology to gain excessive control of a
market to the detriment of consumers.
Has the tide of globalisation turned? This is a vitally important question. The answer is closely
connected to the state of the world economy and the West’s politics.

Migration raises quite specific issues. The era of globalisation was not accompanied by a general
commitment to liberalising flows of people. So I will focus here on trade and capital flows.

The evidence in these areas seems quite clear. Globalisation has reached a plateau and, in some
areas, is in reverse.

An analysis from the Peterson Institute for International Economics argues that ratios of world
trade to output have been flat since 2008, making this the longest period of such stagnation since
the second World War.

According to Global Trade Alert, even the volume of world trade stagnated between January
2015 and March 2016, though the world economy continued to grow.

The stock of cross-border financial assets peaked at 57 per cent of global output in 2007, falling
to 36 per cent by 2015.

Finally, inflows of foreign direct investment have remained well below the 3.3 per cent of world
output attained in 2007, though the stock continues to rise, albeit slowly, relative to output.

Impetus

Thus, the impetus towards further economic integration has stalled and in some respects gone
into reverse. Globalisation is no longer driving world growth.

If this process is indeed coming to an end, or even going into reverse, it would not be the first
time since the industrial revolution, in the early 19th century. Another period of globalisation, in
an era of empires, occurred in the late 19th century.

The first World War ended this and the Great Depression destroyed it. A principal focus of US
economic and foreign policy after 1945 was to recreate the global economy, but this time among
sovereign states and guided by international economic institutions.

 Fed policy must adjust for inflation

 How we can share our divided world
 Hopes and fears for the global Covid-19 recovery

If Donald Trump, who has embraced protectionism and denigrated global institutions, were to be
elected president in November, it would be a repudiation of a central thrust of post-war US
policy.

Given the historical record and the current politics of trade, notably in the US, it is natural to ask
whether the same could happen to the more recent era of globalisation. That requires us to
understand the drivers.
Decline

Part of the reason for the slowdown is that many opportunities are, if not exhausted, radically
diminished. When, for example, the production of essentially all labour-intensive manufactures
has moved out of the rich countries, the growth of trade in such products must fall.

Similarly, when the biggest investment boom in the history of the world, that in China, slows, so
too must the demand for many commodities.

That will affect both their prices and their quantities. Again, the end of once-in-a-lifetime global
credit boom is sure to lead to a decline in the cross-border holdings of financial assets.

Finally, after decades of FDI, a host of companies with something to gain from it will have taken
their opportunity and succeeded or, in important cases, failed.

Yet this is not all there is to this story. Trade liberalisation has stalled and one can see a steady
rise in protectionist measures. The financial crisis brought with it regulatory measures, many of
which are bound to slow cross-border financial flows.

The rise of xenophobic sentiment and the slowdown in trade are both likely to reduce the growth
of FDI. In brief, policy is less supportive.

Politics

The politics are becoming even less so. Again, the US is the central part of the story. Mr Trump
is much the most protectionist candidate for US president since the 1930s. But, revealingly,
Hillary Clinton, an architect of the US “pivot to Asia” has turned against the Trans-Pacific
Partnership of which she was once a keen supporter.

The Transatlantic Trade and Investment Partnership, being negotiated between the US and the
EU, is now in deep trouble.

The Doha round of multilateral trade negotiations is moribund. Above all, important segments of
the western public no longer believes increased trade benefits them. Evidence on relative real
incomes and adjustment to rising imports provides some support for such scepticism.

Hegemony

Globalisation has at best stalled. Could it even go into reverse? Yes. It requires peace among the
great powers. Some would also argue it requires a hegemonic power: the UK before 1914 and
the US after 1945.

At a time of poor economic performance in leading high-income countries, rising inequality and
big shifts in the balance of global power, another collapse must be a possibility.
Consider the impact of any fighting between the US and China over the South China Sea, though
such a calamity would be terrifying for far more than its narrow economic effects.

Does globalisation’s stalling matter? Yes.

The era of globalisation has seen the first fall in global inequality of household incomes since the
early 19th century. Between 1980 and 2015, average global real income rose by 120 per cent.
The opportunities afforded by globalisation are vital. Our future cannot lie in closing ourselves
off from one another.

Failure

The failure – a profound one – lies in not ensuring that gains were more equally shared, notably
within high-income economies. Equally dismal was the failure to cushion those adversely
affected. But we cannot stop economic change. Moreover, the impact on jobs and wages of rising
productivity and new technologies has far exceeded that of rising imports. Globalisation must not
be made a scapegoat for all our ills.

Yet it has now stalled, as have the policies driving it. It might reverse. Yet even a stalling would
slow economic progress and reduce opportunities for the world’s poor. Pushing globalisation
forward requires different domestic and external policies from those of the past. Globalisation’s
future depends on better management. Will that happen? Alas, I am not optimistic.

22 Globalization Pros and Cons

April 23, 2017 by Louise Gaille

Our world is becoming a much smaller place. We can quickly communicate with people who are
on the other side of the planet. A person with a computer and a good idea can create an e-
commerce platform which reaches the entire world. In many ways, we are closer to each other
than ever before.

Yet despite this closeness, we are still divided in the broad brush of humanity. There are 200+
countries on our planet with borders that are enforced in some way. People cannot travel freely
across borders without some form of identification or consequence if caught not following laws
and standards. Globalization asks this question: what would happen if all those borders went
away? Here are the globalization pros and cons to think about when looking at a borderless
planet.

What Are the Pros of Globalization?

1. It encourages free trade.

Without borders in place, consumers can purchase items from anywhere in the world at a
reduced cost. There would be fewer barriers in place, like tariffs, sales taxes, or subsidies
because there wouldn’t be nations in place that could add restrictions. From 2008-2015, the
Washington Post reported that the G20 nations placed more than 1,200 different restrictions on
imports and exports. That goes away with true globalization, which means free trade will be
encouraged.

2. More trade means the potential for more jobs.

When there are fewer barriers in place to purchase items, then consumers will generally purchase
more things. This creates the foundation that businesses need to create more jobs. Globalization
with free trade increases competition as well, which means innovation must be part of the
equation. Consumers benefit from that innovation with lower pricing, which means more
products can be purchased, and that can stimulate further growth.

3. It eliminates currency manipulation.

Many countries today manipulate their currencies to benefit their local economy. Even the three
“primary” currencies of the world do this: the pound, the euro, and the dollar. Donald Trump
announced in 2017 that the dollar was becoming “too strong,” which is a statement that was
meant to potentially weaken the dollar. With globalization, countries no longer have a need to
manipulate their currencies to obtain price advantages, so it is the consumer who can benefit
from the outcome.

4. Open borders mean more opportunities to develop poor areas of the world.
There are many nations in the world today that are in a state of entry-level industrialization.
Poverty is a feature in many of these developing countries. Through the process of globalization,
the removal of borders allows the people in these areas to experience greater prosperity because
each area gains the ability to access what they need. There are fewer opportunities to suppress
people at the expense of others so only a few can benefit from success.

5. Business tax havens go away in globalization.

Numerous organizations over the years have been accused of placing their money in countries
that have generous tax laws. These countries, which are often referred to as “tax havens,” allow
the business to not pay as much in taxes. It is a process which awards the executive team with
high salaries and bonuses, but leaves the common worker behind and limits the funds a
government receive for operational purposes. Through the process of globalization, the tax
havens go away because the borders go away.

6. It allows for open lines of communication.

When borders are removed, people have the ability to communicate with one another more
freely. There is a greater intermingling of cultures, which allows people to have a greater
perspective about the world. When we have access to more information, we have an ability to
make better decisions. Instead of people from a different country being considered an alien, we
would all be considered human. It becomes a place that is more open and tolerant.

7. It could stop the issue of labor exploitation.

One of the ways that goods are produced cheaply in the world today is because of labor
exploitation. This can be seen with child labor, prisoner labor, and human trafficking. Workers
are further exploited through the implementation of unsafe working conditions because they may
have entered a country illegally and face jail time or worse if they report on their conditions. By
opening borders, it becomes possible to open business activities, thereby removing the need of a
black market for cheap goods or services.

8. It limits the potential for abuse because there are fewer structures in place.
In our current bordered structure, there are 200+ different administrations that can potentially
abuse their people. The levels of accountability that can be in place to stop these abuses are
usually implemented at the leisure of those who are in charge. That is how dictators can come
into power and then stay in power. Globalization limits those structures and introduces a global
system of accountability, creating a safety net which could potentially stop violent conflicts
before they start.

9. We could begin pooling resources to do great things.

Multiple countries are running space programs right now. Some private businesses are doing the
same thing. If they could pool their resources and combine talents to work toward one single
goal instead of having multiple agencies all trying to do the same thing, we could be more
efficient with our innovation in the area of space exploration. The same principle could be
applied to virtually any industry or idea.

What Are the Cons of Globalization?

1. It generally makes the rich become rich and the poor to become mired in poverty.
Globalization is supposed to be about free trade, but the reality of the situation is that only true
globalization which removes national borders can do this. Under our current planetary structure,
there are value-added taxes that can exceed 20% for some countries, which limits the access that
people have to imported products. This means the rich can access what they want or need to
become richer, but the poor get trapped in poverty because they don’t have the means to access
success.

2. Jobs get transferred to lower-cost areas.

Jobs can be created through globalism, but they tend to be created in the areas where labor costs
are the cheapest. Even in a world that is completely without borders, the cost of doing business is
going to be cheaper in some areas than in others. Businesses will transfer or create jobs in these
low-cost areas so they can remain competitive. Instead of it becoming a race to the top, many
people in a borderless world could experience a race to the bottom instead.

3. Globalism creates a culture of fear.

Even in jobs aren’t exported to cheaper areas of the planet, business owners can hold the threat
of doing so over the heads of their current workers to gain salary concessions. It creates an
environment where workers, especially those who would be in the current Middle Class around
the world, would be unable to have any leverage when it came to their take-home pay or working
conditions. People would be forced to either freelance their skills, create their own business, or
accept the race to the bottom of the pay scale to keep their employment.
4. It creates a political system where the biggest and the richest have influence.
In many developed countries today, there are large companies, lobbyists, and wealthy individuals
who are highly involved in politics so that they can have a favorable set of regulations and laws.
If national borders were to disappear, this issue would become a global problem. The largest
businesses and wealthiest people could hoard global resources for themselves through whatever
government was put into place, enhancing the social inequalities that are already being seen on
smaller scales.

5. Richer regions will always consume more resources.

It’s not just the largest corporations and wealthiest people who benefit from globalization.
Regions that are wealthy will also consume more resources under the guise that they produce
more for the rest of the world. This is already happening today. According to information from
the United Nations Development Program, the G20 nations consume 86% of the world’s
resources. In comparison, the poorest 80% of the world consume the other 14%.

6. Diseases travel faster in a world that is globalized.

When people stay within their own regions, there are fewer problems with communicable
diseases. The open access that we have today already increases the threat of a new disease being
spread to all corners of the planet in less than 14 days. If there were no borders and people could
travel freely to wherever they wished to go, this issue would cause even the most remote parts of
the planet to be exposed to potentially deadly health concerns.

7. Social programs that act as safety nets could be removed.

Many countries today offer their poorest of the poor a safety net for survival. This includes food
stamps, housing provisions, and other benefits that may go away in a world that has fully
globalized. A single country can typically care for its own with a system of taxation, social
benefits, and healthcare. Extend that to the world and the sheer poverty that so many people face
would make it nearly impossible to have a meaningful safety net in place.

8. Cheating could become a lot easier to do.

We’re already experiencing a leadership gap in the world today when it comes to the distribution
of resources. According to Oxfam, the world already produces 17% more food than the current
human population requires for a meaningful standard of life, yet even in the United States, 20%
of children live in households that experience food insecurity. Globally, tens of thousands of
children die of hunger annually. If we already have the resources to fix it, then cheating and
corruption is preventing us from doing it. Eliminating borders will only make it easier to do this
because it would create less, not more, oversight.

9. It could lead to greater worker exploitation.

If there is a race to the bottom for worker wages globally, then there would be nothing to stop
organizations from exploiting workers so that goods could be created cheaply. Households in
such a scenario would be earning less, so they’d be demanding lower prices. That could mean a
change in global laws that could create more prison-based labor, changes to child labor laws, or
changes in worker safety standards to meet the potential demands.
10. It won’t be a level playing field for everyone when it happens.
A world of open borders might seem like a great idea because of all the globalization benefits
that are possible, but we must look at how the creation of a borderless planet would come about.
The countries of the world which currently have the most input on global affairs would be the
loudest voices at the negotiation table. The smallest countries that exist today would likely
struggle to even get a seat at that table. This means going borderless would create an uneven
playing field that might eliminate nations, but would still create pockets of people who are more
privileged than others. People are not generally going to give up what they must raise the boats
of others to an equal playing field without receiving some benefit.

11. It could have a negative impact on the environment.

This globalization negative can be seen in two different scenarios. Let’s say that production
levels increase because everyone sees a boost in their economic circumstances. This would
potentially increase pollution levels that could acidify the air, the ocean, and cause more issues
with global warming. Or we could say that fewer people are buying things because their
economic circumstances have worsened due to lower job salaries. This would create more waste
and rot in the world which could also acidify the air and ocean, leading to more issue with global
warming.

12. Losing borders could mean losing an identity.

We often identify ourselves from our nationality, ethnicity, and family background. In a world
that goes borderless, that nationality would merge into a person’s ethnicity. Larger countries are
already experiencing this issue to a certain extent. You might have been born in Iowa, but most
people would call themselves an American before calling themselves an Iowan. On a planetary
scale, this would mean large swaths of culture would lose their identity and a loss of that culture
would be a great loss for humanity.

13. There’s a reason why we say that “absolute power corrupts absolutely.”
This familiar phrase is attributed to Lord Acton, who was a 19th century politician who
admittedly took the phrase from writers who had expressed a similar thought. When only one
person holds all the power over a governing body, then it corrupts them. There are numerous
examples of this. Roman emperors even declared themselves to be gods. Imagine what having
one person in control of the entire planet and its unlimited power would be like using our
examples from history, especially if that person had some talent or skill that made them seem
almost supernatural.

The globalization pros and cons show that there would be many benefits to a borderless world,
but there would also be great challenges which would need to be solved for it to be a workable
solution. Whether one supports a world without borders or supports the current state of affairs,
one truth can be found: we have a responsibility to help each other. When a minority of the
world consumes a vast majority of its resources, that is evidence which shows we must heed the
call to help people in need.
When Chinese e-commerce giant Alibaba in 2018 announced it had chosen the ancient city of
Xi’an as the site for its new regional headquarters, the symbolic value wasn’t lost on the
company: it had brought globalization to its ancient birthplace, the start of the old Silk Road. It
named its new offices aptly: “Silk Road Headquarters”. The city where globalization had started
more than 2,000 years ago would also have a stake in globalization’s future.

Alibaba shouldn’t be alone in looking back. As we are entering a new, digital-driven era of
globalization – we call it “Globalization 4.0” – it is worthwhile that we do the same. When did
globalization start? What were its major phases? And where is it headed tomorrow?

This piece also caps our series on globalization. The series was written ahead of the 2019 Annual
Meeting of the World Economic Forum in Davos, which focuses on “Globalization 4.0”. In
previous pieces, we looked at some winners and losers of economic globalization, the
environmental aspect of globalization, cultural globalization and digital globalization. Now we
look back at its history. So, when did international trade start and how did it lead to
globalization?

Silk roads (1st century BC-5th century AD, and 13th-14th centuries AD)

People have been trading goods for almost as long as they’ve been around. But as of the 1st
century BC, a remarkable phenomenon occurred. For the first time in history, luxury products
from China started to appear on the other edge of the Eurasian continent – in Rome. They got
there after being hauled for thousands of miles along the Silk Road. Trade had stopped being a
local or regional affair and started to become global.

That is not to say globalization had started in earnest. Silk was mostly a luxury good, and so
were the spices that were added to the intercontinental trade between Asia and Europe. As a
percentage of the total economy, the value of these exports was tiny, and many middlemen were
involved to get the goods to their destination. But global trade links were established, and for
those involved, it was a goldmine. From purchase price to final sales price, the multiple went in
the dozens.The Silk Road could prosper in part because two great empires dominated much of
the route. If trade was interrupted, it was most often because of blockades by local enemies of
Rome or China. If the Silk Road eventually closed, as it did after several centuries, the fall of the
empires had everything to do with it. And when it reopened in Marco Polo’s late medieval time,
it was because the rise of a new hegemonic empire: the Mongols. It is a pattern we’ll see
throughout the history of trade: it thrives when nations protect it, it falls when they don’t.

Spice routes (7th-15th centuries)

The next chapter in trade happened thanks to Islamic merchants. As the new religion spread in
all directions from its Arabian heartland in the 7th century, so did trade. The founder of Islam,
the prophet Mohammed, was famously a merchant, as was his wife Khadija. Trade was thus in
the DNA of the new religion and its followers, and that showed. By the early 9th century,
Muslim traders already dominated Mediterranean and Indian Ocean trade; afterwards, they could
be found as far east as Indonesia, which over time became a Muslim-majority country, and as far
west as Moorish Spain.

The main focus of Islamic trade in those Middle Ages were spices. Unlike silk, spices were
traded mainly by sea since ancient times. But by the medieval era they had become the true focus
of international trade. Chief among them were the cloves, nutmeg and mace from the fabled
Spice islands – the Maluku islands in Indonesia. They were extremely expensive and in high
demand, also in Europe. But as with silk, they remained a luxury product, and trade remained
relatively low volume. Globalization still didn’t take off, but the original Belt (sea route) and
Road (Silk Road) of trade between East and West did now exist.

Age of Discovery (15th-18th centuries)

Truly global trade kicked off in the Age of Discovery. It was in this era, from the end of the 15th
century onwards, that European explorers connected East and West – and accidentally
discovered the Americas. Aided by the discoveries of the so-called “Scientific Revolution” in the
fields of astronomy, mechanics, physics and shipping, the Portuguese, Spanish and later the
Dutch and the English first “discovered”, then subjugated, and finally integrated new lands in
their economies.

The Age of Discovery rocked the world. The most (in)famous “discovery” is that of America by
Columbus, which all but ended pre-Colombian civilizations. But the most consequential
exploration was the circumnavigation by Magellan: it opened the door to the Spice islands,
cutting out Arab and Italian middlemen. While trade once again remained small compared to
total GDP, it certainly altered people’s lives. Potatoes, tomatoes, coffee and chocolate were
introduced in Europe, and the price of spices fell steeply.

Yet economists today still don’t truly regard this era as one of true globalization. Trade certainly
started to become global, and it had even been the main reason for starting the Age of Discovery.
But the resulting global economy was still very much siloed and lopsided. The European empires
set up global supply chains, but mostly with those colonies they owned. Moreover, their colonial
model was chiefly one of exploitation, including the shameful legacy of the slave trade. The
empires thus created both a mercantilist and a colonial economy, but not a truly globalized one.

The Industrial Revolution in Britain propelled the first wave of globalization

Image: Wikipedia
First wave of globalization (19th century-1914)

This started to change with the first wave of globalization, which roughly occurred over the
century ending in 1914. By the end of the 18th century, Great Britain had started to dominate the
world both geographically, through the establishment of the British Empire, and technologically,
with innovations like the steam engine, the industrial weaving machine and more. It was the era
of the First Industrial Revolution.

The “British” Industrial Revolution made for a fantastic twin engine of global trade. On the one
hand, steamships and trains could transport goods over thousands of miles, both within countries
and across countries. On the other hand, its industrialization allowed Britain to make products
that were in demand all over the world, like iron, textiles and manufactured goods. “With its
advanced industrial technologies,” the BBC recently wrote, looking back to the era, “Britain was
able to attack a huge and rapidly expanding international market.”

The resulting globalization was obvious in the numbers. For about a century, trade grew on
average 3% per year. That growth rate propelled exports from a share of 6% of global GDP in
the early 19th century, to 14% on the eve of World War I. As John Maynard Keynes, the
economist, observed: “The inhabitant of London could order by telephone, sipping his morning
tea in bed, the various products of the whole Earth, in such quantity as he might see fit, and
reasonably expect their early delivery upon his doorstep.”

And, Keynes also noted, a similar situation was also true in the world of investing. Those with
the means in New York, Paris, London or Berlin could also invest in internationally active joint
stock companies. One of those, the French Compagnie de Suez, constructed the Suez Canal,
connecting the Mediterranean with the Indian Ocean and opened yet another artery of world
trade. Others built railways in India, or managed mines in African colonies. Foreign direct
investment, too, was globalizing.

While Britain was the country that benefited most from this globalization, as it had the most
capital and technology, others did too, by exporting other goods. The invention of the
refrigerated cargo ship or “reefer ship” in the 1870s, for example, allowed for countries like
Argentina and Uruguay, to enter their golden age. They started to mass export meat, from cattle
grown on their vast lands. Other countries, too, started to specialize their production in those
fields in which they were most competitive.

But the first wave of globalization and industrialization also coincided with darker events, too.
By the end of the 19th century, the Khan Academy notes, “most [globalizing and industrialized]
European nations grabbed for a piece of Africa, and by 1900 the only independent country left
on the continent was Ethiopia”. In a similarly negative vein, large countries like India, China,
Mexico or Japan, which were previously powers to reckon with, were not either not able or not
allowed to adapt to the industrial and global trends. Either the Western powers put restraints on
their independent development, or they were otherwise outcompeted because of their lack of
access to capital or technology. Finally, many workers in the industrialized nations also did not
benefit from globalization, their work commoditized by industrial machinery, or their output
undercut by foreign imports.
The world wars

It was a situation that was bound to end in a major crisis, and it did. In 1914, the outbreak of
World War I brought an end to just about everything the burgeoning high society of the West
had gotten so used to, including globalization. The ravage was complete. Millions of soldiers
died in battle, millions of civilians died as collateral damage, war replaced trade, destruction
replaced construction, and countries closed their borders yet again.

In the years between the world wars, the financial markets, which were still connected in a global
web, caused a further breakdown of the global economy and its links. The Great Depression in
the US led to the end of the boom in South America, and a run on the banks in many other parts
of the world. Another world war followed in 1939-1945. By the end of World War II, trade as a
percentage of world GDP had fallen to 5% – a level not seen in more than a hundred years.

Second and third wave of globalization

The story of globalization, however, was not over. The end of the World War II marked a new
beginning for the global economy. Under the leadership of a new hegemon, the United States of
America, and aided by the technologies of the Second Industrial Revolution, like the car and the
plane, global trade started to rise once again. At first, this happened in two separate tracks, as the
Iron Curtain divided the world into two spheres of influence. But as of 1989, when the Iron
Curtain fell, globalization became a truly global phenomenon.

In the early decades after World War II, institutions like the European Union, and other free
trade vehicles championed by the US were responsible for much of the increase in international
trade. In the Soviet Union, there was a similar increase in trade, albeit through centralized
planning rather than the free market. The effect was profound. Worldwide, trade once again rose
to 1914 levels: in 1989, export once again counted for 14% of global GDP. It was paired with a
steep rise in middle-class incomes in the West.

Then, when the wall dividing East and West fell in Germany, and the Soviet Union collapsed,
globalization became an all-conquering force. The newly created World Trade Organization
(WTO) encouraged nations all over the world to enter into free-trade agreements, and most of
them did, including many newly independent ones. In 2001, even China, which for the better part
of the 20th century had been a secluded, agrarian economy, became a member of the WTO, and
started to manufacture for the world. In this “new” world, the US set the tone and led the way,
but many others benefited in their slipstream.

At the same time, a new technology from the Third Industrial Revolution, the internet, connected
people all over the world in an even more direct way. The orders Keynes could place by phone in
1914 could now be placed over the internet. Instead of having them delivered in a few weeks,
they would arrive at one’s doorstep in a few days. What was more, the internet also allowed for a
further global integration of value chains. You could do R&D in one country, sourcing in others,
production in yet another, and distribution all over the world.

The result has been a globalization on steroids. In the 2000s, global exports reached a milestone,
as they rose to about a quarter of global GDP. Trade, the sum of imports and exports,
consequentially grew to about half of world GDP. In some countries, like Singapore, Belgium, or
others, trade is worth much more than 100% of GDP. A majority of global population has
benefited from this: more people than ever before belong to the global middle class, and hundred
of millions achieved that status by participating in the global economy.

Globalization 4.0

That brings us to today, when a new wave of globalization is once again upon us. In a world
increasingly dominated by two global powers, the US and China, the new frontier of
globalization is the cyber world. The digital economy, in its infancy during the third wave of
globalization, is now becoming a force to reckon with through e-commerce, digital services, 3D
printing. It is further enabled by artificial intelligence, but threatened by cross-border hacking
and cyberattacks.

At the same time, a negative globalization is expanding too, through the global effect of climate
change. Pollution in one part of the world leads to extreme weather events in another. And the
cutting of forests in the few “green lungs” the world has left, like the Amazon rainforest, has a
further devastating effect on not just the world’s biodiversity, but its capacity to cope with
hazardous greenhouse gas emissions.

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But as this new wave of globalization is reaching our shores, many of the world’s people are
turning their backs on it. In the West particularly, many middle-class workers are fed up with a
political and economic system that resulted in economic inequality, social instability, and – in
some countries – mass immigration, even if it also led to economic growth and cheaper products.
Protectionism, trade wars and immigration stops are once again the order of the day in many
countries.

As a percentage of GDP, global exports have stalled and even started to go in reverse slightly. As
a political ideology, “globalism”, or the idea that one should take a global perspective, is on the
wane. And internationally, the power that propelled the world to its highest level of globalization
ever, the United States, is backing away from its role as policeman and trade champion of the
world.

It was in this world that Chinese president Xi Jinping addressed the topic globalization in a
speech in Davos in January 2017. “Some blame economic globalization for the chaos in the
world,” he said. “It has now become the Pandora’s box in the eyes of many.” But, he continued,
“we came to the conclusion that integration into the global economy is a historical trend. [It] is
the big ocean that you cannot escape from.” He went on the propose a more inclusive
globalization, and to rally nations to join in China’s new project for international trade, “Belt and
Road”.

It was in this world, too, that Alibaba a few months later opened its Silk Road headquarters in
Xi’an. It was meant as the logistical backbone for the e-commerce giant along the new “Belt and
Road”, the Paper reported. But if the old Silk Road thrived on the exports of luxurious silk by
camel and donkey, the new Alibaba Xi’an facility would be enabling a globalization of an
entirely different kind. It would double up as a big data college for its Alibaba Cloud services.

Technological progress, like globalization, is something you can’t run away from, it seems. But
it is ever changing. So how will Globalization 4.0 evolve? We will have to answer that question
in the coming years.