Socioeconomic Impacts of Globalization: A Comprehensive Examination of Its Benefits and Drawbacks

Introduction

Globalization is a phenomenon that has been on the lips of virtually everyone in both developed and developing economies and has now become more of a buzzword. Increased cultural exchange and trade among various nations and advances in information technology and transport infrastructure have facilitated the free movement of goods, services, and capital (Schuch, 2011). Consequently, the world has become increasingly interconnected. This has in turn had far-reaching implications on the socio-economic aspects of societies. Some socioeconomic effects have been positive to the economies, while others have been detrimental. This essay aims to examine how globalization has transformed the world and the various socioeconomic aspects of globalization on the economies. This will then pave the way for deciding whether this trend has been beneficial to the world, or not.

Definition

There is no single definition of globalization that is universally accepted and for this reason, various scholars have come up with various explanations of this concept. Wells, Shuey, and Kiely (2001) have described globalization as intercontinental social, political, and economic integration. Elsewhere, Schuch (2011) has defined globalization as the social, economic, and political integration of national economies. What these and other definitions appear to suggest is that globalization integrates the social, economic, and political dimensions of various national economies.

Impact of Globalization

Globalization entails various economic factors, the key among them being growth in international trade and development. International trade involves importing and exporting services and goods between countries. Over the past few decades, a rise in global trading thanks to globalization has ensured easier movement of capital and goods between countries. Advances in information technology and communication as well as transport have also played a key role in the growth of international trade (Schuch, 2011). The volume of international trade has increased considerably over the past five decades and this is largely attributed to globalisation. For example, between 1960 and 2011, the total global trade as a function of GDP rose from 24.9% to 61.6%, respectively (Braun, Lechthaler, and Mileva, 2013).

Various governments have embraced the concept of ‘free trade’ zones to enhance trade between nations by eliminating quotas and trade tariffs. Globalization has also led to an increase in the number of multinationals (MNCs) doing business, which has impacted the global labor force and economic growth (Braun et al., 2013). Increased international trade has led to considerable economic growth and in the process, created jobs, raised workers’ income, and improved their earning power. At the same time, globalization has permitted consumers across the globe access to a wide range of products to choose from, something that would not have been possible in the domestic market. Economic globalization compels countries to depend on each other for trade in goods and capital across borders. Economic globalization encompasses various components of economics including finances, labor force, and production processes, and is measured using such variables as trade, income, and FDI (Foreign Direct Investment).

Outward FDI can be a double-edged sword. First, domestic workers are exposed to increased competition from the foreign market thus increasing their vulnerability and ensuring they find it increasingly harder to get ahead. Conversely, increased competition allows companies to produce goods more efficiently, and hence sustain their economic development (Zimmerman, n.d.).

Davidson and Matusz (2008) are of the view that enhanced exposure to international trade through globalization translates into a considerable impact on the rates at which jobs are either destroyed or created within an economy. Thanks to globalization, some workers are now less secure about their jobs with increased competition from workers from low-wage nations being seen as a catalyst to reduced wages and possibly even loss of jobs. In this way, globalization can be seen as a double-edged sword that helps to increase the wages and job opportunities of certain workers in an economy while threatening the job opportunities of other workers in another economy (Mileva et al., 2013).  International trade permits countries to specialize in what they are good at and in this way, trade helps to improve real income.

Globalization is also linked to rising levels of inequality. For example, since the mid-1980s, most OECD countries have witnessed a rise in household disposable income. This rise in household income inequality has been attributed to variations in wage distribution (OECD, 2011). According to Braun et al. (2013), the increase in inequality is largely due to rises in wage differentials between demographic, occupational, and skill groups. 

The interconnectedness of different economies owing to globalization helps to stimulate economic growth and increase business opportunities in otherwise marginalized countries (Surugiu and Surugiu, 2015). Globalization has stimulated economic interdependence between countries for both goods and services. This happens owing to the specialisation of countries meaning that other countries depend on a given country for certain products or services that they do not produce. Access to such factors of production as labor and capital causes specialization and hence economic interdependence.

Globalization impacts employment rates and earning power and has been of special importance to social scientists and economists. With globalization, workers become increasingly fearful that their earning potential will decrease, not to mention the fear of loss of jobs due to outsourcing, increased imports, and immigration. On the other hand, economists emphasize the benefits of globalization to the economy, including greater choice for goods and services, enhanced growth and productivity, and the availability of cheaper goods (University of Nottingham, n.d.).

Immigration increases the potential workforce in a country and this is tied to economic growth and prosperity.  The prospects of workers earning more in a foreign country than in their home country have been a key driving force of immigration which is in turn made possible by globalization. Consequently, there is a resultant rise in the living standards of such workers and their families. Besides differences in wage structures between countries, immigration is also driven by such other factors as variations in national policies (Vilmantė and Kumpikaitė, 2008).

Globalization is increasingly associated with increased foreign direct investment by foreign companies abroad. Foreign companies and citizens have also been shown to increasingly invest in domestic bonds, stock, and money markets. Such investments lead to more integrated global economies (Lerman and Schmidt, n.p.). Globalization allows companies to extend the competition to the international market, thus broadening their allocative efficiency and hence stimulating innovations. Besides, reduced trade barriers and elimination of tariffs help to expand export markets so that foreign innovative firms stand to benefit from their innovations. This, in turn, increases their competitive pressure and ability to attract foreign knowledge, capital, and equipment, thereby increasing the variety of services and goods available to consumers, and hence reducing prices (Lerman and Schmidt, n.d.).

Trade and globalization are associated with a reallocation of labor. While it could cause unemployment in the short term, trade causes unemployment to revert to its natural levels. In other words, trade due to globalization causes short-term levels of unemployment or employment (Görg, n.d.).

Globalization affects income and wage distribution in developing economies. Globalization is said to put low-skilled workers in developed countries at risk. This happens because workers from developing countries are paid a fraction of the wages payable to the low-skilled workers in developed countries and in this way, competition ensues (Görg, n.d.). This triggers the convergence of wages payable to the two groups of workers. Consequently, the wages of low-skilled workers from developed countries are reduced to levels comparable to those from developing countries.

So far, we have seen that globalization has largely resulted in a net benefit for individual economies by way of increasing innovations and market efficiencies, creating jobs and increasing wages, reducing prices of goods owing to economies of scale and technological innovation, and increasing FDI.  However, globalization is also associated with several negative effects on the economy. For example, thanks to globalization, nations tend to become interdependent on raw materials, human resources, and innovations, and this could cause global or regional instabilities. In case local economies experience declines in economic growth, this is likely to be felt by the other countries with which they are in business (Schuch, 2011). While globalization tends to reduce inequalities in certain areas such as wage structures between developed economies and developing nations, it can also lead to greater inequalities owing to unequal distributions of the factors of production, and this could be the cause of national and international conflict. Additionally, the rise of multinationals which has been largely facilitated by globalisation, is seen by some as a threat to state sovereignty. Consequently, globalization could lead to some leaders assuming xenophobic or nationalistic tendencies.

Conclusion

Globalization is a complex term and as such, there is no single universally accepted definition of the term. However, globalization can be broadly described as the increased integration of the social, economic, and political aspects of states. This phenomenon is associated with various socio-economic aspects, including its effect on income and wage distribution, increased international trade and FDI, increased innovation and productivity, reduced prices of goods and reallocation of labor, and immigration. Conversely, globalization could trigger interdependency among states and this could in turn trigger economic instability. The rise of multinationals due to globalization could also compel certain leaders to adopt nationalistic or xenophobic tendencies. Despite these drawbacks, globalization has been beneficial to the global economy.  

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