The world has experienced rapid globalization in the last few decades. Both developed and developing countries are increasingly participating in globalization and becoming part of the global village. The world economy has increased significantly and countries all over the world, whether developed or developing, have seen the size of their national economies grow. Even though globalization has been beneficial for the world economy, it has led to the emergence of certain problems in different parts of the world and in both developed and developing countries.
Globalization has had a tremendous positive impact on poverty reduction. The increasing integration of developing countries to the world economy has led to a reduction in extreme poverty. According to the World Bank, 52 per cent of people living in developing countries lived in extreme poverty in 1981. By 2011, this has decreased to only 17 percent. Large developing countries like India and China experienced rapid decreases in extreme poverty. While China experienced rapid economic growth due to globalization, it lifted 680 million people out of extreme poverty between 1981 and 2001. The significant reduction in poverty in the developing world shows the beneficial effect of globalization on poverty reduction. Globalization opened up developing countries to the world economy. Developing countries experienced substantial inflow of foreign direct investment, technological inflow and the opportunity to serve a substantial customer base in the developed countries. This led to the setting up of factories and companies that employed increasing number of workers and helped them to move out of poverty.
The last few decades have been characterized by the emergence of a growing middle class in the developing countries. This has especially happened in the fast growing developing countries like Brazil and China. Over the last few decades, hundreds of millions of people have joined the middle class and have been a significant driver of consumption of goods and services. Even though the definition of the middle class varies between countries, especially between developed and developing countries, the sizable middle class in the large developing countries like Brazil, Indonesia, India and China have become substantial drivers of national, regional and the global economy. Globalization that fosters international trade and helped increase GDP of the developing countries, have helped sizable portion of the population in developing countries to join the ranks of the middle class.
The citizens of developed countries have benefited from globalization through the purchase of goods and services produced in developing countries. From apparels manufactured in countries like Vietnam and Bangladesh to smartphones and televisions manufactured in China have become increasingly available to the population of the developed countries. The manufacture of these goods and services in low-wage developing countries reduce the manufacturing costs and, ultimately, the prices of these goods and services to their consumers in developed countries. As the consumers pay relatively low prices for these goods and services, their real income may have increased. The developed country consumers enjoy a wide variety of goods and services at relatively low prices that may have improved their standard of living. Therefore, globalization has benefited the consumers of the developed countries.
The companies of the developed countries have gained from increased trade and globalization. These companies, often multinationals with headquarters in developed countries, have made significant inroads to the developing countries’ markets and cater to the needs and demands of their growing middle class. Food products, electrical equipments, automobiles, etc. are being increasingly consumed by the population of the developing countries, leading to substantial demand for the goods and services produced by developed countries’ companies. This has led to increases in the sizes of these companies; the companies have more production, higher revenues and profits, benefiting their shareholders. In certain cases, this may have actually increased employment in certain sectors in the developed countries. At the same time, some companies from developed countries produce in developing countries that offer relatively low-wage workers. This has helped the companies to reduce their manufacturing costs and boost their revenues as well as profits. Therefore, globalization has been beneficial for the companies of the developed countries in two ways; it has allowed them to access new markets and manufacture products in low-wage developing countries. Also, increasing demand from the middle class in developing countries may have led to increases in production and, consequently, employment in certain sectors in the developed countries.
Globalization has benefited both developed and developing countries in many ways. The economies of developed and developing countries have significantly grown in the last few decades. Large, developing countries like the BRICS have enormously benefited from globalization while the economies of developed countries have grown substantially. However, globalization has led to the emergence of some problems in both developed and developing countries. The rapid industrialization in developing countries has led to increased environmental pollution and unplanned urbanization in some of the developing countries. Many of these developing countries are faced with polluted rivers and air. This has led to increased sickness among their citizens which raise their healthcare spending. Again, globalization may sometimes lead to increased exploitation of workers in developing countries. As businesses seek lower production and labor costs, the workers in developing countries become increasingly vulnerable to exploitation in terms of long work hours, low wages and, sometimes, risky work environments.
Developed countries are also encountering certain problems due to globalization. International trade and globalization has allowed manufacturing companies to move their production from developed countries to developing countries to take advantage of lower labor costs. The shift of manufacturing out of developed countries has led to loss of manufacturing base in the developed countries. This deindustrialization has adversely affected certain regions that were more reliant on manufacturing like Detroit. Again, Ontario has also experienced a decline in its manufacturing base. Most developed countries have experienced steady decline in their manufacturing bases. This has led to decrease in manufacturing output and employment in the developed countries. The loss of manufacturing base, especially that support vital industries, may have deleterious impact on a country.
It is not only manufacturing that has been moved overseas but also certain services have been relocated to developing countries. Back office work and call centers have been outsourced to developing countries that offer lower labor costs. The outsourcing of certain types of services and manufacturing have led to decrease in employment in these sectors. The people who were previously employed in manufacturing become unemployed. Even though many make a successful transition to other occupations, some may get stuck in unemployment. Also, the loss of relatively low-wage call center positions and back office jobs may have increased unemployment. Therefore, globalization has played a negative role on the employment scenario in developed countries. It led to loss of employment among the lower income group and the middle class in developed countries. As many people in the lower income group have less education and fewer opportunities for retraining, it may lead to their long-term unemployment.
Again, globalization may have played a role in the emergence of poverty in developed countries. When people in the lower income group experience long-term unemployment, they may slip into poverty. While the poverty rate has remained between 12 to 15 percent in the last few decades in the U.S., the number of people living in poverty actually increased. The same trend is observed in the U.K.. Therefore, globalization may have played a role in increased unemployment and higher number of people living in poverty in the developed countries.
Another adverse impact of globalization may be wage stagnation in the developed countries. The wages of people belonging to the lower-income group and the middle class did not significantly increase in the last few decades as some of their occupations have been increasingly under threat of being outsourced to developing countries. The availability of low-wage workers in developing countries may have acted as a hindrance for the rise in wages of lower-income and middle class workers in developed countries. Any potential rise in their wages may encourage a business to relocate its production or service unit to a developing country and take advantage of competitive wages. Therefore, globalization may have contributed to wage stagnation in the developed countries, especially for the lower-income and the middle class. The wage stagnation may have adversely affected poverty in the developed countries. A study by Joseph Rowntree Foundation revealed that there are more working families living in poverty than non-working ones in the UK. This indicates that globalization may play a role in the emergence of low-wage employment and stagnant wages in the developed countries that again lead to increase in poverty.
Globalization has had a mixed impact on both developed and developing countries. Even though it has been beneficial in certain ways, there are significant shortcomings of unharnessed and unfettered globalization. The issue of environmental degradation caused by rampant industrialization in developing countries need to be addressed. Globalization has to become more inclusive so that it protects the workers of developing countries from exploitation while encouraging employment opportunities and wage increases among the workers in the middle class and lower-income groups in the developed countries. The loss of jobs due to offshoring and outsourcing that has characterized developed countries in the last few decades need to be stemmed or reversed for globalization and international trade to be politically popular among the people in the developed countries. Only when the fruits of globalization are enjoyed by the wide spectrum of citizens in both developed and developing countries will globalization remain popular and be sustainable in the long run.