Advantages and Disadvantages of Globalisation

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Advantages and Disadvantages of Globalisation

The following essay will be discussing the advantages and disadvantages that are linked around globalisation. ‘Globalisation describes a process by which national and regional economies, societies, and cultures have become integrated through the global network of trade, communication, immigration and transportation.’ (Lexicon, 2018) It is driven by many factors such as trade and technology.

A key advantage of globalisation is the free movement of labour. Free movement of labour ‘means that workers are entitled to look for work in another country, without requiring any visa.’ (Pettinger, 2017) An example of this is the European Union, where all EU citizens are allowed to freely move within the EU to find work. Free movement of labour acts as an advantage to both the workers as well as the recipient country. This is a huge advantage for citizens in seek of work as it provides them with many opportunities without many restrictions holding them back. For example, if a country is having issues with high unemployment, people have the option to move elsewhere where the unemployment rate is lower. This makes it easier for people to find work reducing hassle. It is also beneficial for the recipient country as more workers coming in means there is a larger amount of the population with disposable income which will flow into the economy. As a result of a more stable economy, it will attract Foreign Direct Investment. FDI ‘is an investment made by a firm or individual in one country into business interests located in another country.’ (Investopedia, 2018) This can especially benefit developing countries as it can help them advance faster in ways such as technologically. This will have a positive impact overall, as it will benefit trade around the world as well as build relationships, which could last long term helping future projects. However, a disadvantage of FDI is that it can lead to financial problems. For example, in the 1970s and 80s countries like Mexico, Thailand, Indonesia and Brazil got a lot of money from investors who hoped they could build new businesses there, however, the new companies often were not successful which resulted in investors pulling out their money.

Another advantage of globalisation is free trade which is developed by trading blocs. ‘A trading bloc is a group of countries that sign up to free trade between them, protected by a tariff wall against imports from outside.’ (Hammond, 2017) Free trade allows countries to exchange their goods and services without any barriers, for example, quotas or tariffs. An example of this is the North American Free Trade Agreement (NAFTA), countries within NAFTA have access to free trade, meaning there are no tariffs or quotas. Free trade also allows countries to specialise in the things they do best, gaining a comparative advantage. ‘Comparative advantage is an economic term that refers to an economy’s ability to produce goods and services at a lower opportunity cost than that of trade partners’ (staff, 2018) If countries are specialising in specific goods it allows them to take advantage of economies of scale therefore, lowering costs. This will benefit consumers as it will lead to lower prices as well as benefitting the exporting firm as they will have enhanced efficiency. No tax on imported goods will also directly benefit consumers as it allows them to purchase better quality products at cheaper costs. Furthermore, this will benefit the country as the standard of living will be better off, if more people can afford the products.

On the other hand, a disadvantage of globalisation is poor working conditions which occurs more in developing countries rather than developed countries. ‘Many multinationals have been accused of social injustice by exploiting labour in underdeveloped countries in order to cut costs.’ (Bahl, 2016) Globalisation creates competition between firms which can be healthy however it can also be negative as firms may try to decrease costs by making working conditions worse off. This benefits the company as their overall costs are lower meaning their profits will be higher, however, they will have demotivated staff which could have a negative impact in the long term. This can also be seen as an unethical thing for a business to do which could impact their reputation enormously if it ends up on media. This could also affect trade for them as other companies may no longer want to do business with them if they are known for being ethical companies.

Another disadvantage of globalisation is that it creates unemployment. Jobs are lost in developed countries due to businesses relocating to lower cost countries. China alone has ‘drained away 3.2 million jobs, including 2.4 million manufacturing jobs.’ (Collins, 2015) This puts the jobs of many people in danger which creates uncertainty of the future for them. Workers in developed countries such as America have also been threatened with exporting jobs if they do not agree to pay cuts. This puts many workers at risk as they could be earning just enough to pay their bills, meaning if there is a cut to their wage it could cause them financial issues, which could result in a loss of their assets. Another problem which arises from globalisation is tax avoidance. ‘Tax avoidance is the legitimate minimizing of taxes, using methods included in the tax code.’ (Murray, 2018) Amazon is a key example of a business who has tax avoided, they had sales of ‘£3.35bn in the UK’ (Barford, 2013) in 2011 however they only showed tax expense of £1.8m. This meant the UK government missed out on a lot of money which should have been paid as tax but it is legal so nothing can be done about it. This can be seen as an unethical thing to do as the UK uses tax money to fund schools and the NHS. It is also unfair competition towards other firms who do not avoid tax.

To conclude, I think that the advantages of globalisation outweigh the disadvantages. I believe this as there are various key advantages such as free trade and free movement of labour which have many knock-on benefits to them. Free trade benefits businesses located in countries which are a part of a trading bloc by improved efficiency, as well as directly benefiting consumers with quality products at cheaper prices. Free movement of labour also has a lot of benefits too, the main ones being having many job opportunities as workers can move freely to find work. This means there is less risk for them as there are not as many restrictions. Free movement of labour also benefits the recipient country as there will be more money flowing through their economy which strengthens it. I also believe some of the negative aspects of globalisation can be controlled, for example, poor working conditions can be fixed over time however, it will come with a cost which businesses may not be prepared to take.

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