Benefits And Downfalls Of Globalisation

Globalisation is “the process of transformation of local phenomena into global ones. It can be described as a process by which the people of the world are unified into a single society, functioning with togetherness. This process is a combination of economic, technological, socio-cultural and political forces”. Globalisation can also show international scale of growth, an on-going process where cultures, economies and societies are united and at the same time can be seen resulting in both positives and negative effects on the world. Larger companies generally trade their products and services all over the world, with many benefitting from instant Internet connections, ultimately facilitating easier and faster communication across the world.

Globalisation advantages

• Division of labour – trade improves division of labour as businesses and countries specialise in areas of comparative advantage.
• Economies of scale – established relationships between international markets allow both producers and consumers to make the most of the benefits of economies of scale.
• Reduce monopoly profits – it may prove difficult to find a dominant business in competitive markets. Derived benefit from this reduces business monopoly and motivates businesses to look for cost-effective innovations and improvements in the type of products they market. This will ultimately lead to an improvement in dynamic efficiency.
• OECD growth project – better efficiency will show “improvement in economic growth and higher per capita incomes. The OECD Growth Project found that a 10 percentage-point increase in trade exposure for a country was associated with a 4% rise in income per capita over time”.
• Benefit to poor countries – globalisation has aided many of the world's poorest countries in achieving better rates of economic growth, improving standard of living and therefore minimising the number living in extreme poverty. Both China and India have observed significant progress. Most notable are “a number of sub-Saharan African countries whose annual growth of ‘real GDP has often exceeded 10%”.

Globalisation disadvantages

- Inequality – globalisation has been linked to rising inequalities in income and wealth. “Evidence for this is a rise in the Gini-coefficient and a growing rural–urban divide in countries such as China, India and Brazil”. Subsequently, this will lead to both political and social tensions and uncertainty.

- Inflation – as a result from the ever-growing demand for food and energy has resulted in a steep growth in commodity prices. Subsequently, it has placed many of the world’s poorest at great risk.

Macroeconomic instability – with over 10 years of strong growth, low interest rates, easily available credit in developed countries has created an increase in share and property estimates. “The bursting of speculative bubbles prompted the credit crunch and the contagion from that across the world in from 2008 onwards”. Ultimately this shows negative effects on the less wealthy and vulnerable nations.

Threats to the global resources – the impact of vast growth and development will result in dramatic effects on the environment. With threats of permanent damage to ecosystems, land degradation, deforestation, loss of bio-diversity and the uncertainty of a permanent supply of water will affect many of the most vulnerable people.

Trade imbalances – international trade is on a constant up but the same can be said for trade imbalances. Some countries are running vast trade surpluses and these differences are creating strains and pressure to present protectionist policies such as new forms of import control.

Unemployment – many businesses are switching their production to countries where they can source lower labour costs. With concerns being expressed by many that capital investment and jobs in faster paced economies will lean towards these developing countries, resulting in higher levels of unemployment.

Leading Global Brands – globalisation may even restrain competition as larger businesses, with leading brands and superior technologies control key international markets.