Assess the economic, environmental, and contemporary impacts of globalization.
To what extent do contemporary factors contribute to expanding globalization?
Chapter Questions (SLOs)
What factors contribute to expanding globalization?
How do international agreements and organizations contribute to expanding globalization?
How do transnational corporations contribute to expanding globalization?
How do communication technologies contribute to expanding globalization?
Analyze factors contributing to the expansion of globalization since the Second World War (international agreements, international organizations, transnational corporations, media, and transportation technologies).
Analyze political and economic challenges and opportunities of globalization (trade liberalization, foreign investment, economic growth, privatization, outsourcing, knowledge economy).
Vocabulary Terms
Outsourcing: A business strategy that involves reducing costs by using suppliers of products and services in countries where labor is cheaper and government regulations may be less strict.
Containerization: The transporting of goods in standard-sized shipping containers.
Trade Liberalization: A process that involves countries in reducing or removing trade barriers, such as tariffs and quotes, so goods and services can move around the world more freely.
Free Trade: The trade that occurs when two or more countries eliminate tariffs and taxes on the goods and services they trade with one another.
Consensus: General agreement.
Sanctions: A penalty. Often an economic penalty, such as a trade boycott, is taken to pressure a government to agree to carry out certain actions or follow certain rules.
Factors Contributing to Expanding Globalization
Globalization creates changes in all aspects of people’s lives:
Type of work.
Food they eat.
Clothes they wear.
What they read, watch, and listen to.
How they relate to the physical environment.
Outsourcing is one of the changes that affect the work people do. It involves reducing costs by using suppliers of products and services in less developed parts of the world.
Communication Technologies
Innovations in communication technologies have changed the world.
The printing press enabled people to share ideas and information more easily, although it spread relatively slowly across Europe.
Today, communication technologies are changing very quickly.
Cellphones, television, radio, computers, and the Internet have come to affect nearly every aspect of people’s lives.
Technological convergence is also increasing the rate of globalization.
Cellphones, for example, take photographs, make short videos, store hundreds of recordings, function as personal organizers, capture updates on the latest sports scores via the Internet, send e-mails, and still allow you to make phone calls to others.
Convergence also brings together media companies. Today, a newspaper, a textbook publisher, a phone company, a TV network, and a movie production company may all be owned by a single transnational corporation.
Trade
Technology plays an important role in the expansion of global trade.
Today, a typical consumer product is designed, developed, manufactured, and assembled by a host of companies, which may be located practically anywhere in the world.
Cars and computers are often assembled only after they have been ordered by customers.
This expansion of trade has occurred because countries have opened their economies to outside influences.
Governments have allowed foreign products and investment to enter their country.
In exchange, businesses and industries in the country have opportunities to sell their goods in international markets.
Reshaping Trade Patterns
The globalization of trade has been reshaping international trade patterns since 1970.
Until then, most goods and services moved between developed countries in North America, Europe, and the Asia–Pacific region, especially Japan.
Developing countries supplied raw materials and bought some manufactured goods.
Today, goods and services are flowing more frequently between developing countries, particularly those that are developing quickly, such as South Korea, China, Malaysia, India, and Mexico.
More manufactured goods are also flowing out of developing countries to more developed — and wealthier — countries.
Still, exports from developed countries now make up about 75 percent of the world’s total exports.
About 83 percent of these exports are manufactured goods.
Developing countries produce 25 percent of the world’s exports, with manufactured goods making up more than 56 percent of this total.
The balance of trade between China and the United States has been in China’s favor for several years.
Transportation
For globalization to operate smoothly, parts and products must be shipped cheaply and in a timely manner.
The key to shipping goods more cheaply and efficiently has been containerization — the transporting of goods in standard-sized shipping containers.
Containers of goods are shipped along clearly defined routes to large transshipment terminals at strategic locations around the world.
Just-in-Time Delivery Systems
The just-in-time delivery and inventory system used today by many manufacturers means that parts are ordered and scheduled to arrive at the factory at the moment they are needed.
They are shipped, unloaded from containers, and moved directly onto the factory floor.
This saves handling and storage costs because parts no longer need to be kept in warehouses until they are required.
The Media
The media and communication technologies are closely connected, the media play a distinct role in expanding globalization.
One way the media contribute to expanding globalization is by running commercials that encourage consumers to buy products. This expands the market for goods and services.
The effect of the media becomes even stronger when celebrities lend their names to product lines.
A desire for these products and services also encourages consumers to support government efforts to make it easier for foreign products and services to enter a country.
Technological convergence has enabled people to connect in a number of ways.
Cellphones, for example, allow people to learn about events and other people’s ideas and thoughts, often before the mainstream media deliver the story.
With devices that take pictures and record videos that can be sent to news programs or posted on social networking sites, you can contribute to local and global newsmaking.
The Maquiladoras of Mexico
Stretching the length of the border between the United States and Mexico is a 210-kilometer strip of land known as the maquila or maquiladora zone.
Maquilas, or maquiladoras, are foreign-owned factories.
In Mexico, where 40 percent of people live below the poverty line, maquiladoras provide jobs for more than a million people.
But these jobs come at a cost that some people say is too high.
The laborers, many of them women, work very long hours for low wages in conditions that are often difficult.
Pros and Cons of Maquiladoras
More than 3000 maquiladoras employ about 17 percent of the Mexican workforce.
This makes maquiladoras Mexico’s second-largest source of jobs.
This sector accounts for 25 percent of the country’s gross domestic product and 45 percent of its exports.
Because of the low wages and harsh working conditions, maquiladoras are controversial.
Some people defend them, saying they provide a way for Mexicans to get ahead.
But others say that when companies move their operations to Mexico to take advantage of lower labor costs and looser environmental rules, they are exploiting Mexican workers and taking high-paying jobs away from workers in developed countries.
How Maquiladoras Began
The term “maquiladora” is a Latin-American Spanish word that has come to mean foreign-owned plants where goods are assembled for export to the United States.
The maquiladoras were set up under a special government program that started in 1965 and offered tax breaks to companies located in the Maquiladora zone.
In 1972, the program was expanded to include all of Mexico.
Now, every Mexican state has at least one maquila.
But most plants remain in the maquiladora zone to take advantage of lower transportation costs to the U.S.
About 87 percent of maquiladoras are either directly owned branch plants of American corporations or subsidiaries of U.S. companies.
Transnationals that operate maquiladoras include BMW, Volkswagen, Fisher Price, Ford, General Motors, Honda, Nissan, IBM, and Mattel.
In the past, most maquila jobs were low-wage assembly-line positions that required few skills.
Low taxes and low wages meant higher profits for manufacturers.
Today, new plants are being built and more jobs involve automated manufacturing, research, design, and development.
Working conditions in many maquiladoras are improving.
Concerns about Workers
Most maquiladora workers are young girls and women.
Employers prefer to hire women because women in developing countries generally receive lower wages.
In addition, companies find that women will often tolerate worse working conditions than men.
This has led critics of maquiladoras to charge that the sector exploits women.
Low wages are the key to attracting foreign companies to Mexico, so there is pressure to keep pay rates down.
This means that for many workers, salaries are not high enough to meet basic needs.
Estimates have suggested that some laborers must work more than four hours to earn enough money to buy four liters of milk.
Most workers live in hastily built and inadequate shantytowns, often far from their homes and families.
In addition, forced overtime is common, conditions are often unsafe, and some workers are younger than the minimum working age, which is 14 in Mexico.
Employment stability is also a problem.
Employee turnover in some maquiladoras reaches 80 percent because of poor working conditions.
The maquiladoras act as shock absorbers for the foreign corporations that own them.
When these companies face hard times, they lay off Mexican workers or close plants.
Currency exchange rates can also make Mexican wages more expensive than wages in Malaysia or China, for example, and this can trigger a shifting of work out of Mexico.
Concerns about the Environment
Many maquiladoras use toxic chemicals in their operations, and these may be harmful to workers.
In addition, international agreements require companies to transport their hazardous waste into the United States for disposal.
But to save money, many companies simply dump it — illegally — in Mexico.
Because these companies pay little in taxes and can threaten to move if their costs become too high, local governments can do little to protect the environment.
How International Agreements and Organizations Contribute to Expanding Globalization
A key element in expanding globalization is reducing trade barriers so that goods and services can move around the world easily.
This process is called trade liberalization.
To achieve this goal, countries must get rid of measures — such as tariffs, quotas, regulations, and standards — that protect and regulate businesses and industries within their borders.
When two countries agree to eliminate all tariffs and taxes on goods and services traded between them, the result is free trade.
In theory, free trade is reciprocal.
Businesses and industries in both countries benefit because they can sell their goods or services in the other country.
Local companies can expand into new markets.
This creates jobs, uses resources, and reduces the cost of consumer goods.
The World Trade Organization
The World Trade Organization was established in 1995 to increase international trade by lowering trade barriers and making trade more predictable.
The WTO ensures that the terms of trade agreements are followed, settles trade disputes between governments, and conducts trade negotiations.
Decisions made by the WTO are binding — member countries must abide by its rulings.
The WTO officially has a one-country, one-vote system, but in practice, decisions are made by coming to a consensus — a general agreement.
All members must support a consensus decision.
Building consensus often means that it takes a long time to reach a decision, and in an effort to satisfy the concerns of everyone involved, final agreements sometimes end up using language that is open to interpretation.
Resolving Disputes at the WTO
When one member country says another member country is treating it unfairly in a trade matter, the WTO must settle the dispute.
A panel of three WTO officials hears the arguments of both sides and makes a decision.
The panel’s decision may force one of the countries to change its laws or make a payment.
The WTO has the power to use sanctions — economic actions, such as a trade boycott — to enforce its decisions.
In 2002, Canada asked the WTO to rule on a longstanding dispute with the United States over softwood lumber.
In 2006, the WTO finally ruled in Canada’s favor.
The decision removed American tariffs on Canadian lumber and required the U.S. to repay about 80 percent of the more than 5billion it had collected in tariffs on lumber imports from Canada.
Perspectives on the WTO
Those who oppose the trade liberalization that fosters globalization have targeted the WTO for criticism.
They have said:
The WTO has too much power. It can force countries to change their laws and regulations to make them fit WTO rules.
The WTO is not democratically accountable. Hearings on trade disputes are closed to the public and the media.
The WTO does not care enough about the problems of developing countries. It has not forced rich countries to fully open their markets to products from developing countries.
The WTO has not done enough about the environment, child labor, workers’ rights, or health care.
Those who support the WTO point out that its rules were written by member states, many of which are democracies.
They also say that trade improvements brought about by the WTO have raised — and will continue to raise — living standards around the world.
The North American Free Trade Agreement
The Free Trade Agreement between Canada and the United States went into effect in 1989.
On January 1, 1994, this agreement was expanded to include Mexico — and the North American Free Trade Agreement, the largest free-trade area in the world, was the result.
NAFTA immediately eliminated half the trade barriers between the three countries.
The remaining barriers were to be phased out over the next 15 years.
The negotiations that led to NAFTA sparked bitter debate.
People for and against the agreement expressed strong views about the effects of the agreement.
These differences of opinion arose because this was the first free-trade agreement between countries with such different levels of development.
Economic Changes Since Canada Joined NAFTA
Canadian exports to Mexico increased fourfold between 1993 and 2005.
Canadian exports to the U.S. rose to 359billion in 2000 from 183billion in 1994.
Canadian investment in Mexico rose 200 percent between 1990 and 2006.
Canadian investment in the U.S. tripled between 1990 and 2003.
At the same time, U.S. investment in Canada rose by 150 percent.
Since NAFTA came into effect, the Canadian economy has grown an average of 3.4 percent a year and 2.5 million new jobs have been created.
During the same period, more than 7000 manufacturing jobs shifted out of Canada to Mexico.
Wages in manufacturing have remained the same or declined since NAFTA came into effect.
In 2005, Ipsos Reid, a Canadian polling company, studied public opinion in Canada, Mexico, and the U.S. to find out whether people believed that they had won or lost as a result of NAFTA.
NAFTA to USMCA
In June of 2020, The North American Free Trade Agreement was terminated and by July 2020 it was replaced by the Canada-United States-Mexico Agreement.
The European Union
The European Union, or EU, has created a liberalized trading area in Europe.
As a result, goods, services, money, and people can move easily from one country to another — an effect some people describe as a regional variation on globalization.
The EU has tied member countries more closely together, integrating their economies and even replacing separate national currencies with the euro.
The EU came into effect in 1991 after more than 40 years of negotiations.
Today, most obstacles to cross-border trade among EU member countries have been eliminated.
By acting as one large market, the EU enables members to take advantage of the opportunities created by economic globalization.
At the same time, it protects members against some of the challenges created by globalization.
These challenges may include pressure to reduce spending on social programs to keep a country’s economy competitive.
More Than a Trade Agreement
The EU goes farther than other free-trade agreements.
Though member countries have their own national governments, a European parliament makes decisions on issues that affect the region as a whole.
An important focus for this parliament is to ensure that social progress is linked to economic progress.
Recent initiatives have included taking action to end discrimination and to protect workers’ rights.
These programs have been guided by a belief that investment in social resources is necessary if Europe is to remain competitive in a globalizing world.
How do Transnational Corporations Contribute to Expanding Globalization?
Transnational corporations reduce costs and increase profits by:
Building factories in various countries
Service centers
Retail outlets
They do this to ensure that they have:
The resources and parts needed to manufacture their products
A steady, reliable source of labor
Markets where they can sell their goods and services
The increased trade liberalization of globalized economies has led to a sharp increase in the number of transnational corporations.
In 1990, about 35,000 transnationals operated around the world.
By 2002, this number had grown by about 86 percent to more than 65,000.
Transnationals have also been growing larger as they increase sales and buy other companies.
About 70 percent of global trade transactions involve transnationals, but more than half of these corporations are based in just five countries: the United States, Japan, France, Germany, and Britain.
The Influence of Transnational Corporations
Transnational corporations dominate some key parts of the world economy.
They control most of the world’s energy and extract most of its mineral resources.
They manufacture a huge share of the world’s chemicals, medicines, cars, aircraft, communication satellites, and home and office electronics.
An estimated 85 percent of the world’s grain supply, for example, is controlled by six companies: Cargill, Continental Grain, Louis Dreyfus, Bunge, Andre/Garnac, and Mitsui/Cook.
The ability of transnationals to move their operations around the world means that governments must compete to attract their business.
The threat that a transnational might leave a community forces governments to make concessions.
To attract and keep transnationals in their community, some governments have used strategies like reducing taxes, selling natural resources at bargain prices, and adopting policies that transnationals will find helpful.
This makes transnationals very powerful and, in some senses, reduces the decision-making power of governments.
Transnational Corporations and Poverty Reduction
Many economists believe that one way to reduce poverty in developing countries is to invest in businesses and infrastructure, such as power grids and transportation facilities.
In the past, most money for investments like these came through foreign aid from the governments of wealthy countries.
In 1990, foreign aid accounted for 75 percent of the investment in developing countries.
The shift toward liberalized trade has moved the focus from governments to private companies.
Today, 75 percent of investment in developing companies comes from the private sector, especially transnational corporations.
By 2000, private investment in developing countries had exceeded 250billion (U.S.).
Some countries have benefited from private sector investment.
Poverty rates in countries such as South Korea, Malaysia, and India have been reduced because these countries have large markets and liberalized trade policies.
For most countries, however, private foreign investment has made little or no difference.
Smaller countries have a hard time attracting investors.
Competition among developing countries for investment dollars has the negative effect of pushing wages down while reducing social spending.
In the end, even if countries can attract investment, poverty remains a persistent problem.
Talisman Energy — A Canadian Transnational
Once a Canadian subsidiary of British Petroleum, Talisman Energy became an independent company in 1992.
With headquarters in Calgary, Talisman is one of Canada’s largest oil and gas producers.
This transnational corporation has interests in crude oil, natural gas, and liquid natural gas around the world.
The company’s activities include exploration, development of energy resources, production, and marketing.
Talisman has focused its efforts in Western Canada and the North Sea, which account for about 77 percent of production.
But activities in other parts of the world help Talisman reduce its risks and take advantage of other opportunities.
Talisman and Corporate Responsibility
Talisman was linked to a controversial operation in Sudan, where the company had developed an oil field while the country was involved in a brutal civil war.
Critics accused Talisman of supporting a government that was committing genocide against civilians in rebel-held territories.
Pressure from church groups and non- governmental organizations was so strong that Talisman sold its Sudan operations in 2003.
In 2006, Talisman and Scottish and Southern Energy won approval to lead a consortium — an association of large companies — to test a deepwater wind-farm project in the North Sea.
If the pilot project is successful, a wind farm will be built about 19 kilometers offshore.
When complete, the project is expected to produce enough energy to supply about one-fifth of Scotland’s energy needs.
How Do Communication Technologies Contribute to Expanding Globalization?
Information and communication technologies have made globalization possible.
But access to these technologies is not equal everywhere in the world, or even across Canada.
Differences in financial status, education and skills, age, and geographic location can widen the digital divide.
People and societies that cannot make effective use of contemporary information and communication technologies may have a hard time competing in the global economy and may find themselves at a disadvantage.
E-Commerce
Electronic commerce — or e-commerce — is an area that has been stimulated by communication technologies.
Businesses like Amazon and Canadian Tire operate online stores where people can buy what they want, 24 hours a day, and have their purchases shipped to their homes.
An online site like eBay connects buyers and sellers and enables them to buy or sell nearly anything.
Enhanced Internet security measures have also promoted online credit card sales.
Many major retailers and small businesses now earn substantial revenues from e-commerce.
In 2005, online consumer spending by Canadians amounted to 7.9billion. Nearly 7 million Canadians placed more than 50 million orders.
The average order totaled 160.
Travel services such as hotel reservations and car rentals were the most common purchase, followed closely by books, magazines, and digital products.
E-Commerce and Prosperity
The prosperity generated by e-commerce is largely restricted to people who live in developed countries.
People in many developing countries do not yet have access to the information and communication technologies that would enable them to share in the benefits of this technology.
In most developing countries, the technology infrastructure is either inadequate or non-existent, though new generations of wireless communication technologies may help improve this situation.
Distribution and delivery chains may also be inadequate.
Creating a climate of trust in cultures that have traditionally placed great importance on personal contact may create a challenge for the development of e-commerce.
Some governments and communication systems are not Internet-friendly.
In much of Europe, people must pay for every telephone call and connection, whether it is local or long-distance.
Chapter Reflection Questions
What factors contribute to expanding globalization?
How do international agreements and organizations contribute to expanding globalization?
How do transnational corporations contribute to expanding globalization?
How do communication technologies contribute to expanding globalization?