3-4 The sad Globalization Why nobody is trumpeting support for Globalization anymore?

(Except the
Chinese premier)

What Are the Disadvantages of Globalization?

While it can benefit nations, there are also several negative effects of globalization. Cons of globalization
include:

1. Unequal economic growth. While globalization tends to increase economic growth for many
countries, the growth isn’t equal—richer countries often benefit more than developing countries.
2. Lack of local businesses. The policies permitting globalization tend to advantage companies that
have the resources and infrastructure to operate their supply chains or distribution in many
different countries, which can hedge out small local businesses—for instance, a local New York
hamburger joint may struggle to compete with the prices of a multinational burger-making
corporation.
3. Increases potential global recessions. When many nations’ economic systems become
interdependent, the likelihood of a global recession increases dramatically—because if one
country’s economy starts to struggle, this can set off a chain reaction that can affect many other
countries simultaneously, causing a worldwide financial crisis.
4. Exploits cheaper labor markets. Globalization allows businesses to increase jobs and economic
opportunities in developing countries, where the cost of labor is often cheaper. However, overall
economic growth in these countries may be slow or stagnant.
5. Causes job displacement. Globalization doesn’t result in an increased number of jobs; rather, it
redistributes jobs by moving production from high-cost countries to lower-cost ones. This means
that high-cost countries often lose jobs due to globalization, as production goes overseas.

DISADVANTAGES OF GLOBALIZATION

1. Increased Competition

When viewed as a whole, global free trade is beneficial to the entire system. Individual companies,
organizations, and workers can be disadvantaged, however, by global competition. This is similar to how
these parties might be disadvantaged by domestic competition: The pool has simply widened.

With this in mind, some firms, industries, and citizens may elect governments to pursue protectionist
policies designed to buffer domestic firms or workers from foreign competition. Protectionism often takes
the form of tariffs, quotas, or non-tariff barriers, such as quality or sanitation requirements that make it
more difficult for a competing nation or business to justify doing business in the country. These efforts can
often be detrimental to the overall economic performance of both parties.

“Although we live in an age of globalization, we also seem to be living in an age of anti-globalization,”

Reinhardt says in Global Business. “Dissatisfaction with the results of freer trade, concern about foreign
investment, and polarized views about immigration all seem to be playing important roles in rich-country
politics in the United States and Europe. The threats in Western democracy to the post-war globalist
consensus have never been stronger.”

2. Disproportionate Growth

Globalization can introduce disproportionate growth both between and within nations. These effects must
be carefully managed economically and morally.

Within countries, globalization often has the effect of increasing immigration. Macroeconomically,
immigration increases gross domestic product (GDP), which can be an economic boon to the recipient
nation. Immigration may, however, reduce GDP per capita in the short run if immigrants’ income is lower
than the average income of those already living in the country.
Additionally, as with competition, immigration can benefit the country as a whole while imposing costs on
people who may want their government to restrict immigration to protect them from those costs. These
sentiments are often tied to and motivated—at least in part—by racism and xenophobia.

“Meanwhile, outside the rich world, hundreds of millions of people remain mired in poverty,” Reinhardt
says in Global Business. “We don't seem to be able to agree about whether this is because of too much
globalization or not enough.”

Disadvantages of Globalization

The globalization that just keeps doing well to us is not true. It impacts us in multidimensional way. So it has
some disadvantages also. These ares-

 Growing Inequality
 Increasing of the Unemployment rate
 Trade Imbalance
 Environmental Loots

1. Growing Inequality

Globalization can increase inequality throughout the world by increasing specialization and trade. Although
specialization and trade boost the per-capita income it may cause relative poverty.

To illustrate this we will take an example. All dominated MNCs in the world are located in the United States.
All these companies are buying cheaper labor from developing or underdeveloped countries for their
product manufacturing or assembling. China, India and Africa are prime examples of this. It increases the
employment of such countries but they are lagging behind relatively developed countries.

Again those companies coming to these countries for cheap labor, they also deprive of that country’s i.e
American people from work. So it appears that relative poverty is being created in developed countries as
well.

2. Increasing of the Unemployment rate

Globalization can increase unemployment rate. Where people are getting jobs, how is it possible? Here is
the explanation.

Globalization demands for higher-skilled work with cheaper price. But countries where Institutions are
relatively weak are not capable of producing highly skilled workers. As a result, the unemployment rate is
increasing in those countries.

When many foreign companies invest heavily in developing countries, they hire employee from that
country. In some cases their salaries are very lower than the other developed countries. Moreover, the
demand for these employees in developed countries is very low. Moreover, with the emergence of Global
Economic Crisis, their jobs are at risk of losing.

3. Trade Imbalance

The balance of trade refers to the balance of values between a country’s export and import’s goods and
services. As the result of globalization, any country can trade to any part of the globe.

That is why, in some cases developing countries are so much dependent on the developed countries in
terms of import goods but their export capabilities are lower than import. The trade imbalance has been
occurring.

So, trade imbalance refers to the imbalance of values between a country’s import and export’s goods and
services. It is also called trade deficits. Trade imbalance may be increase in developed countries by their
competitors.
Inequality

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https://www.economist.com/the-economist-explains/2014/09/02/why-globalisation-may-not-reduce-
inequality-in-poor-countries

https://www.economist.com/finance-and-economics/2014/08/23/revisiting-ricardo

GLOBALISATION has made the planet more equal. As communication gets cheaper and transport gets
faster, developing countries have closed the gap with their rich-world counterparts. But within many
developing economies, the story is less rosy: inequality has worsened.

Basic theory predicts that inequality falls when developing countries enter global markets. The theory of
comparative advantage is found in every introductory textbook. It says that poor countries produce goods
requiring large amounts of unskilled labour. Rich countries focus on things requiring skilled workers.
Thailand is a big rice exporter, for example, while America is the world's largest exporter of financial
services. As global trade increases, the theory says, unskilled workers in poor countries are high in demand;
skilled workers in those same countries are less coveted. With more employers clamouring for their
services, unskilled workers in developing countries get wage boosts, whereas their skilled counterparts
don’t. The result is that inequality falls.

The Gini index is one measure of inequality, based on a score between zero and one. A Gini index of one
means a country’s entire income goes to one person; a score of zero means the spoils are equally divided.
Sub-Saharan Africa saw its Gini index rise by 9% between 1993 and 2008. China’s score soared by 34% over
twenty years. Only in a few places has it fallen.

But the high inequality seen today in poor countries is prompting new theories. One emphasizes
outsourcing—when rich countries shift parts of the production process to poor countries. Contrary to
popular belief, multinationals in poor countries often employ skilled workers and pay high wages. One
study showed that workers in foreign-owned and subcontracting clothing and footwear factories in
Vietnam rank in the top 20% of the country's population by household expenditure. A report from the
OECD found that average wages paid by foreign multinationals are 40% higher than wages paid by local
firms. What is more, those skilled workers often get to work with managers from rich countries or might
have to meet the deadlines of an efficient rich-world company. That may boost their productivity. Higher
productivity means they can demand even higher wages. By contrast, unskilled workers, or poor ones in
rural areas, tend not to have such opportunities. Their productivity does not rise. For these reasons
globalisation can boost the wages of skilled workers, while crimping those of the unskilled. The result is that
inequality rises.

Other economic theories try to explain why inequality in developing countries has reached such heights. A
Nobel laureate, Simon Kuznets, argued that growing inequality was inevitable in the early stages of
development. He reckoned that those who had a little bit of money to begin with could see big gains from
investment, and could thus benefit from growth, whereas those with nothing would stay rooted in poverty.
Only with economic development and demands for redistribution would inequality fall. Indeed, recent
evidence suggests that the growth in developing-country inequality may now have slowed, which will
prompt new questions for economists. But as things stand, globalisation may struggle to promote equality
within the world’s poorest countries.

DEFENDERS of globalisation often say that, whatever distress it may cause for rich-world workers, it has
been good for poor countries. Between 1988 and 2008, global inequality, as measured by the distribution
of income between rich and poor countries, has narrowed, according to the World Bank. But within each
country, the story is less rosy: globalisation has resulted in widening inequality in many poor places.

This can be seen in the behaviour of the Gini index, a measure of inequality. (If the index is one, a country’s
entire income goes to one person; if zero, the spoils are equally divided.) Sub-Saharan Africa saw its Gini
index rise by 9% between 1993 and 2008. China’s soared by 34% over 20 years. In few places has it fallen.

Economists are puzzled: the data contradict the predictions of David Ricardo, one of the founding fathers of
their discipline. Countries, said Ricardo, export what they are relatively efficient at producing. Take America
and Bangladesh now. In America the ratio of highly skilled to low-skilled workers is high. In Bangladesh it is
low. So America focuses on products requiring highly skilled labour, such as financial services and software.
Bangladesh focuses on downmarket products such as garments.

Comparative advantage predicts that when a poor country starts to trade globally, demand for low-skilled
workers will rise disproportionately. That, in turn, should boost their wages relative to those of higher-
skilled locals, and so push down income inequality within that country. The theory neatly explains the
impact of the first wave of globalisation. In the 18th century, Europe had a high ratio of low-skilled workers
relative to America. When Euro-American trade took off, European inequality duly tumbled. In France in
1700 the average real incomes of the top 10% were 31 times higher than the bottom 40%. By 1900
(admittedly after several revolutions and wars) they were 11 times larger.

But growing inequality in developing countries leaves Ricardo’s disciples befuddled and suggests the theory
needs updating. Eric Maskin of Harvard University has attempted just this at the Lindau Meeting on
Economic Sciences, a get-together of economists in a Bavarian lakeside town featuring many Nobel
laureates. (Mr Maskin won his in 2007 for his work on the design of market mechanisms, which economists
use to improve regulation schemes and voting systems.)

Mr Maskin’s theory relies on what he calls worker “matching”. Unskilled workers can be more productive
when matched with skilled ones—that is, when they work together. Assigning a manager to a group of
workers can do more for total output than just adding another worker. He places workers into four classes:
skilled workers in rich countries (A); low-skilled workers in rich countries (B); high-skilled workers in poor
countries (C); and low-skilled workers in poor countries (D). Crucially, he thinks low-skilled workers in rich
countries (the Bs) are likely to be more productive than high-skilled workers in poor ones (the Cs).

Before the current wave of globalisation started in the 1980s, skilled and unskilled workers in developing
countries—the Cs and Ds—worked together. Mr Maskin gives the example of a rural Indian man, fluent in
English, who helped local farmers understand modern agricultural methods. Wage growth of high-skilled
workers (Cs) was weak, because poor transport and communication links made it hard for them to work
with skilled workers in rich countries. But low-skilled workers (Ds) did well: their interactions with the Cs
boosted total output, which let them demand higher wages, so pushing down inequality.

The latest bout of globalisation has jumbled the pairings: high-skilled workers in poor countries can now
work more easily with low-skilled workers in rich ones, leaving their poor neighbours in the lurch. Take
“intermediate goods”, the semi-finished products that account for about two-thirds of world trade. The
production processes outsourced by big companies in factories or call-centres are by rich-world standards
unskilled. But when jobs are sent offshore, they are snapped up by C workers, the relatively skilled ones.
According to research from Cornell University, the typical call-centre employee in India has a bachelor’s
degree.

Globalisation in its latest guise means such workers come into more regular contact with less-skilled people
in the rich world. The Anglophone Indian cited by Mr Maskin may go to work in an export factory where he
meets tight deadlines laid down by its American owners. The Cs work with Bs and end up being more
productive. The Ds are left by the wayside.

D-graded workforce

The result of booming trade in intermediate goods is higher demand and productivity for skilled poor-
country workers. Higher wages ensue: multinationals in developing countries pay manufacturing wages
above the norm for the country. One study showed that in Mexico export-oriented firms pay wages 60%
higher than non-exporting ones. Another found that foreign-owned plants in Indonesia paid white-collar
workers 70% more than locally owned firms.

Globalisation, though, does not boost wages for all. The least skilled cannot “match” with skilled workers in
rich countries; worse, they have lost access to skilled workers in their own economies. The result is growing
income inequality.

Mr Maskin’s approach is not entirely satisfying. He does not offer data to back up his theory (such is the
privilege of the Nobel laureate). “We need micro-data on matches between firms in developing countries to
examine whether skilled workers benefit through the mechanism Mr Maskin suggests,” says Pinelopi
Goldberg of Yale University. But if he is right, he poses a challenge to globalisation’s advocates: figuring out
how to reap its rewards without leaving the least-skilled in poor countries behind.
End to globalization

https://www.economist.com/leaders/2022/06/16/the-tricky-restructuring-of-global-supply-chains

Three years ago The Economist used the term “slowbalisation” to describe the fragile state of international
trade and commerce. After the go-go 1990s and 2000s the pace of economic integration stalled in the
2010s, as firms grappled with the aftershocks of a financial crisis, a populist revolt against open borders and
President Donald Trump’s trade war. The flow of goods and capital stagnated. Many bosses postponed big
decisions on investing abroad: just-in-time gave way to wait-and-see. No one knew if globalisation faced a
blip or extinction.

Now the waiting is over, as the pandemic and war in Ukraine have triggered a once-in-a-generation
reimagining of global capitalism in boardrooms and governments. Everywhere you look, supply chains are
being transformed, from the $9trn in inventories, stockpiled as insurance against shortages and inflation, to
the fight for workers as global firms shift from China into Vietnam. This new kind of globalisation is about
security, not efficiency: it prioritises doing business with people you can rely on, in countries your
government is friendly with. It could descend into protectionism, big government and worsening inflation.
Alternatively, if firms and politicians show restraint, it could change the world economy for the better,
keeping the benefits of openness while improving resilience.

After the Berlin Wall fell in 1989, the lodestar of globalisation was efficiency. Governments aspired to treat
firms equally, regardless of their nationality, and to strike trade deals with democracies and autocracies
alike. Over two decades this gave rise to dazzlingly sophisticated value chains that account for half of all
trade: your car and phone contain components that are better travelled than Phileas Fogg. All this kept
prices low for consumers and helped lift 1bn people out of extreme poverty as the emerging world,
including China, industrialised.

But hyper-efficient globalisation also had problems. Volatile capital flows destabilised financial markets.
Many blue-collar workers in rich countries lost out. Recently, two other worries have loomed large. First,
some lean supply chains are not as good value as they appear: mostly they keep costs low, but when they
break, the bill can be crippling. Today’s bottlenecks have reduced global gdp by at least 1%. Shareholders
have been hit as well as consumers: as chip shortages have stalled car production, carmakers’ cashflows
have dropped by 80% year on year. Tim Cook, the supply-chain guru who runs Apple, reckons such snafus
could reduce sales by up to $8bn, or 10%, this quarter. Covid-19 was a shock, but wars, extreme weather or
another virus could easily disrupt supply chains in the next decade.

The second problem is that the single-minded pursuit of cost advantage has led to a dependency on
autocracies that abuse human rights and use trade as a means of coercion. Hopes that economic
integration would lead to reform—what the Germans call “change through trade”—have been dashed:
autocracies account for a third of world gdp. Vladimir Putin’s invasion of Ukraine has painfully exposed
Europe’s reliance on Russian energy. This week McDonald’s in Moscow, which opened in 1990, restarted
under local control. Big Macs are no longer on the menu. Meanwhile, President Xi Jinping’s ideological and
unpredictable China has a trade footprint seven times as big as Russia’s—and the world relies on it for a
variety of goods from active pharmaceutical ingredients to the processed lithium used in batteries.

One indication that companies are shifting from efficiency to resilience is the vast build-up in precautionary
inventories: for the biggest 3,000 firms globally these have risen from 6% to 9% of world gdp since 2016.
Many firms are adopting dual sourcing and longer-term contracts. The pattern of multinational investment
has been inverted: 69% is from local subsidiaries reinvesting locally, rather than parent firms sending
capital across borders. This echoes the 1930s, when global firms responded to nationalism by making
subsidiaries abroad more self-sufficient.

The industries under most pressure are already reinventing their business models, encouraged by
governments that from Europe to India are keen on “strategic autonomy”. The car industry is copying Elon
Musk’s Tesla by moving towards vertical integration, in which you control everything from nickel mining to
chip design. Taiwan’s electronics assemblers have cut their share of assets in China from 50% to 35% since
2017 as clients such as Apple demand diversification. In energy, the West is seeking long-term supply deals
from allies rather than relying on spot markets dominated by rivals—one reason it has been cosying up to
gas-rich Qatar. Renewables will also make energy markets more regional.

The danger is that a reasonable pursuit of security will morph into rampant protectionism, jobs schemes
and hundreds of billions of dollars of industrial subsidies. The short-term effect of this would be more
volatility and fragmentation that would push prices yet higher: witness President Joe Biden’s consideration
of new tariffs on solar panels, which he paused this month in the face of shortages. The long-run
inefficiency from indiscriminately replicating supply chains would be enormous. Were you to duplicate a
quarter of all multinational activity, the extra annual operating and financial costs involved could exceed 2%
of world gdp.

The trouble with safe spaces

That is why restraint is crucial. Governments and firms must remember that resilience comes from
diversification, not concentration at home. The choke-points autocracies control amount to only about a
tenth of global trade, based on their exports of goods in which they have a leading market share of over
10% and for which it is hard to find substitutes. The answer is to require firms to diversify their suppliers in
these areas, and let the market adapt. Will today’s governments be up to the task? Myopia and insularity
abound. But if you are a consumer of global goods and ideas—that is to say, a citizen of the world—you
should hope globalisation’s next phase involves the maximum possible degree of openness. A new balance
between efficiency and security is a reasonable goal. Living in a subsidised bunker is not.■

On this week’s Money Talks podcast, we discuss the changes to the structure of the world’s supply chains.
And for subscribers only: to see how we design each week’s cover, sign up to our weekly Cover Story
newsletter.
Globalisation means that prices for commodities tend to be driven by international, rather than local,
forces. The opening up of the American markets for wheat and meat led, in Britain, to the "great
agricultural depression" of 1873-96. The use of the gold standard protected creditors from inflation but led
to short, sharp recessions in which unemployment rose sharply, at a time when welfare states were non-
existent. Nationalism had emerged as a powerful motivational force (the equivalent of religion today) with
Italy and Germany uniting in the 1860s and 1870s and new eastern European states emerging from the
Ottoman empire. Industrialisation, by concentrating workers in factories and towns, had given the working
classes the chance to exercise their muscles, at a time when many were denied the vote.

In short, globalisation can mean rapid change in industries and across economies; change that many people
find it difficult to adjust to. While economists talk of retraining and mobility, many people would rather
stick to what they know and where they live. So they resist that change or look for someone (foreigners,
minorities) to blame (Karl Lueger, an antisemite, was elected mayor of Vienna three times before the First
World War).

The war hastened the arrival of democracy; if the workers had to fight for their country, why couldn't they
vote? Attempts to resuscitate the pre-war trading system proved short-lived; the gold standard broke down
quickly. International co-operation was harder with America (the dominant post-1918 economy) unwilling
to play the role assumed by Britain before 1914. Reparations poisoned Franco-German relations. When the
economy faltered in the early 1930s, governments opted for protectionism and competitive devaluation;
the example of Soviet Russia made them very keen to keep their workers happy. Migration also slowed
with America imposing a literacy test in 1917 and restrictions on Asian immigration in the 1920s.