Globalization

Global Economy

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•Culture•Technology•Health/Environment•Economy•What is Globalization?

What is Globalization?Globalization – the increasing

interconnectedness of all parts of the world in all areas, especially communication, commerce, culture, and politics

Examples: Many of the clothes you wear were made in Asia. You can eat a Big Mac in Moscow, Russia. You can watch American films in Rome. A German company can manufacture goods in Argentina and sell

them in the U.S.

History of Globalization For thousands of years people have been

traveling long distances to trade goods.

People had long interacted with each other based on established trade routes such as the Silk Roads and the trans-Sahara caravan routes

In the 1400s the process was accelerated when European mariners began exploring sea routes to the markets in Asia

By 1500 peoples of the world had established intricate transportation networks that supported travel, communication, and exchange between societies

History of Globalization Before 1500, contact between people of the

eastern hemisphere, western hemisphere, and Oceania had only sporadic contact with each other

From 1500 to 1800, networks linked all the world’s religions and peoples

From 1800 to the present, national states, heavy industry, powerful weapons, and efficient technologies of transportation and communication enabled “the West” to achieve political and economic dominance in the world

Modern Globalization The collapse of the Soviet Union and the end

of the Cold War abruptly opened up possibilities for trans-global connections that had previously been limited

What else has made our world more connected?

Global Economies

Developed Nations Industrialized nations with

strong economies and high standards of living

Ex – U.S., Japan

Includes 20% of nations

Good access to education, healthcare

Developing Nations Less productive economies,

lower standard of living

Ex – Guatemala Phillipines

Lack adequate education, healthcare

Mostly located in Africa and southern Asia

Growth and Outsourcing

Multinational Corporations

Increasing interdependence and dramatic growth of multinational corporations—large companies operating in multiple countries

Benefits to companies

Outsourcing—having work done elsewhere to cut costs, increase production

Manufacturing facilities in developing countries, where materials, labor relatively inexpensive

Outsourcing

Advocates say: creates jobs and wealth in developing countries

Critics say: fails to improve standard of living, outsourcing causes job loss in company’s home country

Global Economic Ties Certain events, actions can affect economies of many nations

Global interdependence particularly evident in times of uncertainty

Early 2000s, price of crude oil rose dramatically

Factors: rising world demand, concern over available supply

Oil Prices

All countries depend on oil for energy; rise in prices felt around world

Developed countries like United States faced with higher costs

Poor nations in Africa could not afford to import, faced shortages

Rise in oil prices led to increased demand for alternative energy sources, attempts to reduce consumption

Globalization often leads to or promotes free trade, the exchange of goods among nations without trade barriers such as tariffs. This can lead to consumers purchasing higher-quality goods at lower prices.

Global Trade

Effects of Global Trade

NAFTA was written to create a Free Trade Area in North America.

“Free Trade” means that countries may freely trade goods with each other without having to pay a tariff (tax) on those goods.

In other words, “free trade” means no trade barriers.

NAFTA: A Closer Look

The purpose of the agreement is to:Allow free movement of goods and services

among the countries.Promote competition in the free trade areas.Protect the property rights of people and

businesses in each country.Be able to resolve problems that arise among the

countries.Encourage cooperation among countries.

NAFTA: Why?

Free trade increases sales and profits for Mexico, Canada and the U.S.A., thus strengthening their economies.

Lack of tariffs has allowed Mexico to sell its goods in the USA and Canada at lower prices. This makes Mexican products more competitive in these markets and increases Mexico’s profits as it tries to develop its economy.

Free trade is an opportunity for the U.S. to provide financial help to Mexico by making jobs available in factories located there.

NAFTA: Pros

Free trade has caused more U.S. jobs losses than gains, especially for higher-wage jobs.

› Factories, called Maquiladoras, are built on the Mexican border and workers are hired there to make goods at a much lower wage than workers would be paid in the U.S.A.

NAFTA: Cons

Minimum WageMexico - $3.40 per day vs. US - $5.15 per hour

Example: Hourly compensation costs for production workers in manufacturingMexico - $1.21 vs US - $17.70

(Global Trade Watch, The NAFTA Index, October 1, 1998)

MAQUILADORAS:Wages

•Honda •Honeywell, Inc. •Hughes Aircraft •Hyundai Precision America •IBM •Matsushita •Mattel •Maxell Corporation •Mercedes Benz •Mitsubishi Electronics Corp. •Motorola •Nissan •Philips •Pioneer Speakers •Samsonite Corporation •Samsung •Sanyo North America •Sony Electronics •Tiffany •Toshiba •VW •Xerox •Zenith

Companies with

Think About it . . . What are the PROS and CONS of NAFTA and Maquiladoras?

One half of the room will list the PROS.

The other half will list the CONS.

United States

They can move their factories to Mexico and ship the goods to the US with no tariffs.

They would not have to pay the workers in Mexico as much as in the United States.

They would be able to sell their product for cheaper, but still make a good profit

Many American factory workers lose their jobs because the owners move the factories to Mexico. American factory workers cannot move to Mexico to keep their jobs.

Goods made in Mexico would cost a lot less because labor is cheaper there.

Mexico

They would not like foreign owned factories because they would create competition and hurt Mexican owned businesses.

Maquiladoras would provide jobs for Mexicans, but the profit made by maquiladoras would go back into the US economy, not into Mexico’s

It would provide a job in a country where there are not enough jobs

However, the wages are very low and the working conditions are not good

Building factories creates pollution. An environmentalist would want to make sure that Mexico had laws to protect the environment.

Maquiladors: Good or Bad?