December 9, 2013
Globalization is a process of communication and integration between different parts of the world. Motivated by international trade and investment and supported by information technology this process has effects on political activities, economic development, the environment, culture, and human physical well-being (What is Globalization, 2013). Technology developments are conceived as a main driving force of most of the globalization process. As people, thoughts, information, and goods shift effortlessly around the world, the familiarity of people around the world become more alike.
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Globalization transfer jobs from developed countries to countries less developed. These countries have a lower cost structure and therefore are able to out-compete countries that believe strongly in the free market system because they have lower wages and benefits for workers, more lenient rules on pollution and more inexpensive in its energy mix. If you notice when calling customer service for banks, credit cards, etc you are more than likely going to speak to someone in India and abroad. This is not saying that they are not skilled to handle the job, it is saying that it cost American companies less money when paying wages, medical, etc. As shown in Fig. 1, the percentage of US citizen with jobs dropped when China joined the World Trade Organization in 2001.
Figure 1. US Number Employed/Population, where US Number Employed is Total Non-Farm Workers from Current Employment Statistics of the Bureau of Labor Statistics and Population is US Resident Population from the US Census. 2012 is partial year estimate. (Twelve Reasons Why Globalization is a Huge Problem, 2013)
How Policymakers Currently Manage Globalization
The acceleration of global mixing has brought many benefits but it has also produced weakness through increased exposure and vulnerability to global shock, for example, today’s financial crisis. The biggest challenge for policy makers is the need to balance the benefits that global connectivity and openness brings with national priorities and politics.
This past July China and America settled to restart long-dormant discussions on a bilateral investment treaty. Notably China agreed to do so with no conditions (A Question of Trust, 2013)
Key Economic Principle that Applies to Globalization
The core economic principle “All choices involve costs” applies to globalization. When we choose one thing, we refuse something else at the same time, this is called opportunity cost. An example is off shoring. Instead of turning to domestic suppliers, many companies purchase goods from overseas because the...