Globalization

Although, it has been a buzzword for the last three decades, Globalization is a process that has a historical record that can arguably be traced back centuries if not millennia. It goes without saying that the primary cause and effect of globalization is international trade. And while there are varying definitions of the term in circulation the most encompassing one states that it “is a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology.” (The Levin Institute)

The World trade organization is the only intergovernmental organization that regulates international trade. This “monopoly” has led to debate on whether or not there is limit on national sovereignty and of course from a strictly value judgment point of view this is never a good thing. Some countries have taken upon themselves to protect certain industries that fall under what they deem as being central to “national culture”.


Where the line is drawn about which goods are protected depends entirely the values of each member state. In their article “Defending Culture” Kathleen Macmillan and Patrick Grady explain “How cultural measures are treated in the WTO Agreements depends very much on whether they fall under the General Agreement on Trade in Goods (GATT) or the General Agreement on Trade in Services (GATS). This creates much uncertainty since deciding whether a cultural creation like a sound recording or a film is a good or a service is a difficult proposition at the best of times.”

Multinational corporations (MNC) play a key role in the process of economic globalization. In his book international trade and investment, Franklin root defines a Multinational corporation as a parent company that (1) engages in foreign production through its affiliates located in several countries, (2) exercises direct control over the policies of its affiliates, (3) implements business strategies in production, marketing, finance and staffing that transcend national boundaries (geocentric). The crucial role they play has been highlighted in both the positive and negative impact they have on the world economy.

In terms of economic development there is extensive data that show growth in per capita GDP, decreasing poverty and the narrowing gap between rich and poor countries. However, the exploitation of the local labor force has been cited time and again as funneling of important resources away from the country itself into foreign exports, and overall dependency of developing countries upon wealthy countries. In their paper “The Global agglomeration of Multinational firms” Laura Alfaro and Maggie Xiao yang Chen argue that MNCs ,whether they should or not, have exerted their influence on political processes through lobbying, contributions to campaigns and threats of market withdrawal.

The diversification of risk is credited with providing the opportunity for reducing macroeconomic volatility on output and consumption. MNC protect them from country specific risk by what is commonly referred to as hedging currencies. Companies use this method to minimize if not completely eliminate foreign exchange risk by using forward contracts or options.  Investopedia distinguishes the two terms in the following manner:

“ A forward contract is a customized contract between two parties to buy or sell an asset at a specified price on a future date”

while,

“An option is a financial derivative that represents a contract sold by one party (the option writer) to another party (the option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date)”

Brexit followed by the Trump win have led some to speculate that globalization is losing, if it hasn’t already lost. The strongest critique against globalization is that it has contributed to the deindustrialization of America. Reversing the effects of globalization for Americans would mean bringing back the “American dream factory” jobs. This might be difficult when technology has made that next to impossible.

Here is the interesting part about these findings, technically democracy and globalization are supposed to go hand in hand.  We have heard time and again that globalization has spread democracy across the globe. Unlike nationalism and protectionism; globalization means that there is international solidarity between countries.  The inability of governments to halt "progress," means that globalization is widely perceived as beyond human control, which further weakens resistance to it.

By,

Kaha Haji-Mohamed

Works Cited

Picture titled, "trailer of globalization", taken by piotr mamnaimie on October 3, 2009, obtained through Creative Commons (https://flic.kr/p/8Sndzu)